Income Exempt from Income Tax
*Exemptions are subject to various conditions as prescribed in Section 10. |
Income Tax
Investment Linked Allowances
Investment linked incentives under Income-tax Act, 1961 (the Act) for persons engaged in business or profession
| Section | Eligible Assessee and Investment required | Quantum and Period | Conditions to be complied | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (1) | (2) | (3) | (4) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Section 32(1)(iia)
Additional depreciation in respect of investment in new plant and machinery
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Assessee engaged in the business of manufacture or production of article or thing or in the business of generation, transmission (from AY 2017.18) or distribution of power
Assessee engaged in printing or printing and publishing vide MOF circular 15/2016 dt 19.05.2016
There is no limit to Investment eligible.
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Additional depreciation @ 20% of the actual cost of the new plant and machinery acquired and installed
If the asset is put to use for less than 180 days then additional deprecation will be allowed at half rate i.e 10% From financial year 2015-16, if additional depreciation is allowed in year of put to use at half of the rate then remaining half depreciation is allowed in the succeeding year. |
New asset means any new plant and machinery except the following:
The actual cost u/s 43(1) shall not include w.e.f AY 2018-19, expenditure for which payment or aggregate payment, exceeding Rs. 10,000 has been made to a person in a day otherwise than by way of account payee cheque drawn on bank/account payee bank draft/use of electronic clearing system through bank.
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| Assessee setting up undertaking or enterprise for manufacture or production of article or thing notified backward areas
Assessee engaged in printing or printing and publishing vide MOF circular 15/2016 dt 19.05.2016
There is no limit to Investment eligible.
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Additional depreciation @ 35% (instead of 20% as mentioned above) of the actual cost of the new plant and machinery acquired and installed in notified backward year during previous year starting from 1 April 2015 to 31 March 2020.
If the asset is put to use for less than 180 days then additional deprecation will be allowed at half rate i.e 17.50% From financial year 2015-16, if additional depreciation is allowed in year of put to use at half of the rate then remaining half depreciation is allowed in the succeeding year.
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Additional depreciation @ 35% (as mentioned in Column 3, point 1)
1. New asset – as mentioned above
2. An undertaking or enterprise to be set up –
3. New asset to be acquired and installed for the purposes of new undertaking or enterprise during the previous years starting from 1 April 2015 to 31 March 2020 in the above mentioned areas. 4. The actual cost u/s 43(1) shall not include w.e.f AY 2018-19, expenditure for which payment or aggregate payment, exceeding Rs. 10,000 has been made to a person in a day otherwise than by way of account payee cheque drawn on bank/account payee bank draft/use of electronic clearing system through bank.
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| Section 32AC
Investment Allowance in respect of investment in new plant and machinery |
Company engaged in the business of manufacture or production of article or thing
Actual cost of new asset acquired during any year exceeds Rs. 25 crores.
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15% of the actual cost of new asset acquired and installed during previous year starting from 1 April 2014 to 31 March 2017[2].New asset to be acquired and installed in the previous years starting from 1 April 2014 to 31 March 2017. Investment allowance to be allowed even if new plant or machinery is acquired and installed in different previous years provided that the installation happens before 31 March 2017. The investment allowance in such case to be allowed in the year of installation[3].
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1. New asset means any new plant and machinery except the following:
The new asset shall not be sold or otherwise transferred for the stipulated period of 5 years from the date of installation (except in case of amalgamation or demerger wherein the provisions would continue to apply to amalgamated or resulting company as they would have applied to the amalgamated or demerged company). The actual cost u/s 43(1) shall not include w.e.f AY 2018-19, expenditure for which payment or aggregate payment, exceeding Rs. 10,000 has been made to a person in a day otherwise than by way of account payee cheque drawn on bank/account payee bank draft/use of electronic clearing system through bank. |
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| Section 32AD
Investment Allowance in respect of investment in new plant and machinery in notified backward areas |
Assessee setting up undertaking or enterprise for manufacture or production of article or thing in notified backward areas.
There is no limit to Investment eligible.
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15% of the actual cost of new asset acquired and installed during previous year starting from 1 April 2015 to 31 March 2020
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1. An undertaking or enterprise to be set up –
2. New asset[4] to be acquired and installed for the purposes of new undertaking or enterprise during the previous years starting from 1 April 2015 to 31 March 2020 in the above mentioned areas. 3. The new asset shall not be sold or otherwise transferred for the stipulated period of 5 years from the date of installation except in the following specified cases of amalgamation/demerger/re-organisation of business being:
wherein the provisions would continue to apply to amalgamated or resulting company or successor as they would have applied to the amalgamated or demerged company or predecessor 4. The actual cost u/s 43(1) shall not include w.e.f AY 2018-19, expenditure for which payment or aggregate payment, exceeding Rs. 10,000 has been made to a person in a day otherwise than by way of account payee cheque drawn on bank/account payee bank draft/use of electronic clearing system through bank. |
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| Section 35ABA[5]
Deduction in respect of expenditure incurred for obtaining right to use spectrum for telecom services |
Assessees incurring expenditure on right to use spectrum for telecom services.
There is no limit to Investment eligible.
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Expenditure incurred, being in nature of capital expenditure, for acquiring any right to use spectrum for telecommunication services will be allowed as a deduction in equal instalments over the period the rights remain in force. | 1. The deduction shall be allowed from the previous year in which the spectrum fee is actually paid except in case where the spectrum fee is paid prior to the commencement of business to operate telecommunication services in which the case the deduction shall be allowed from the year in which the business commenced.
2. In case of transfer of the spectrum, where the sale proceeds are less than the expenditure remaining unallowed, such difference will be allowed as a deduction in the year of transfer. If the sale proceeds exceed the expenditure remaining unallowed, such excess will be taxed as income from business/profession in the year of transfer. 3. Provisions of section 35ABB(2) to 35ABB(8) are applicable as of the same were to apply to spectrum instead of license. |
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| Section 35ABB
Deduction in respect of expenditure for obtaining license to operate telecom services
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Assessee incurring expenditure on right to operate telecom services.
There is no limit to Investment eligible.
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Expenditure incurred, being in nature of capital expenditure, for acquiring any right to operate for telecommunication services will be allowed as a deduction in equal instalments over the period the rights remain in force. | 1. The deduction shall be allowed from the previous year in which the license fee is actually paid except in case where the license fee is paid prior to the commencement of business to operate telecommunication services in which the case the deduction shall be allowed from the year in which the business commenced.
2. In case of transfer of the license, where the sale proceeds are less than the expenditure remaining unallowed, such difference will be allowed as a deduction in the year of transfer. If the sale proceeds exceed the expenditure remaining unallowed, such excess will be taxed as income from business/profession in the year of transfer. |
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| Section 35AD
Deduction in respect of expenditure incurred on specified business |
Assessee engaged in one or more specified business.
There is no limit to Investment eligible.
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Notes
Capital expenditure, for purpose of deduction under Section 35AD shall not include expenditure incurred on acquisition of land/ goodwill/ financial instrument.
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| Section 35CCC | Any assessee.
There is no limit to Investment eligible.
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150% of the expenditure incurred till AY 2021-22 (100% thereafter)[8] | Expenditure to be incurred on agricultural extension project notified by the CBDT in accordance with the prescribed guidelines[9].
The project must be undertaken by an assessee for training, education and guidance of farmers and the same shall have prior approval of the Ministry of Agriculture. Further, the expected expenditure (excluding cost of any land or building) of the project must be exceeding twenty five lakh rupees.
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| Section 35CCD | Company engaged in the business of manufacturing or production of specified article or thing or company engaged in providing specified services[10] .
There is no limit to Investment eligible.
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150% of the expenditure incurred till AY 2020-21 (100% thereafter)[11] | Expenditure to be incurred on skill development project notified by the CBDT in accordance with the prescribed guidelines[12].
The project must be undertaken in separate facilities in a training institute. Expenditure shall not cost of any land o building |
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[2] Section 32AC(1) of the Act provided for investment allowance in respect of new asset acquired and installed during 1 April 2013 to 31 March 2015. Since the current reference pertains to previous year 2016-17, the provisions of section 32AC(1) of the Act have not been discussed.
[3] As per provisions of Section 32AC(1A) of the Act prior to the amendment by Finance Act 2016, the new asset was to be acquired and installed in the same year for availing the investment allowance. However, the Finance Act 2016 amended the provisions of Section 32AC(1A) w.e.f AY 2017-18, according to which the dual condition of acquisition and installment in the same year has been done away with.
[4] Qualifying conditions for new asset same as those prescribed under section 32AC discussed at column 4 (Sr. No. 1) above.
[5] Section 35ABA has been introduced vide Finance Act 2016 w.e.f AY 2017-18
[6] Finance Act 2016 amended the weighted deduction for certain specified business under Section 35AD from 150% to 100% with effect from AY 2018-19
[7] Business referred to in Sr. no. 14 is covered under the definition of ‘specified business’ as per amendment under Section 35AD by the Finance Act 2016
[8] As per Finance Act 2016, the weighted deduction under Section 35CCC shall be restricted to 100% from AY 2021-22
[9] Refer Rule 6AAD of the Income-tax Rules, 1962 (‘the Rules’) for guidelines for approval of agricultural extension project under Section 35CCC of the Act and Rule 6AAE for conditions subject to which an agricultural extension project is to be notified
[10] As per Section 35CCD read with Rule 6AAH
[11] As per Finance Act 2016, the weighted deduction under Section 35CCD shall be restricted to 100% from AY 2021-22
[12] Refer Rules 6AAF of the Rules for guidelines for approval of skill development project under Section 35CCD of the Act and Rule 6AAG for conditions subject to which a skill development project is to be notified. The meaning of expressions used in Rule 6AAF and 6AAG has been provided in Rule 6AAH of the Rules.
Special Deductions Under Sections 35 To 35E
Section 35(2AB)(3) No company shall be entitled for deduction under clause (1) unless it enters into an agreement with the prescribed authority for co-operation in such research and development facility and( for audit of the accounts maintained for that facility) – Words “fulfils such conditions with regard to maintenance of accounts and audit thereof and furnishing of reports in such mannar as may be prescribed “shall be substituted for “for audit of accounts maintained for that facility” by the Finance Act,2015 w.r.f.1-4-2016. Section 35CCB – [(1) Where an assessee incurs any expenditure[on or before 31st day of March, 2002] by way of payment of any sum –
(2) The deduction under[clause(a) of] sub-section (1) shall not be allowed with respect to expenditure by way of payment of any sum to any association or institution, unless such association or institution is for the time being approved in this behalf by the prescribed authority: Provided that the prescribed authority shall not grant such approval for more than three years at a time. (3) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure referred to in sub-section(1), deduction shall not be allowed in respect of such expenditure under any other provision of this Act for the same or any other assessment year.] |
Amounts not deductible under Sections 40, 40A and 43B
Section 40(a) starts with “notwithstanding anything to the contrary in sections 30 to 38 of the Act”. Various specified expenses are disallowed while computing the income chargeable under the head “Profits and gains of business or profession”. Therefore, these disallowances are applicable to the expenses, otherwise allowable, if the conditions specified are not fulfilled and further, the same is applicable for computing “Profits and gains from Business or Profession” and not for Income under any other Head.
S.40(a) provides for disallowance of any specified expenses in case there is a default in complying with the provisions related to the Tax Deduction at Source.
in the case of any assessee—
40(a)(i) any interest, royalty, fees for technical services or other sum chargeable under this Act, which is payable, outside India or in India to a non-resident, (not being a company or to a foreign company, on which tax is deductible at source under Chapter XVII-B) and such tax has not been deducted or, after deduction, has not been paid [on or before the due date specified in sub-section (1) of section 139] :
In the Proviso it is clarified that, where in respect of the above expenses, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.
The explanation to this sub-clause has defined the meaning and scope of the terms Royalty and Fees for Technical Services;
- “royalty” shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9;
- “fees for technical services” shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9;
40(a)(ia) thirty per cent of any sum payable to a resident (30 % w.e.f. 01-04-2015. Prior to this amendment, the entire sum was disallowed), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139 :
First Proviso is on same lines as S.40(a)(i), except that the allowance is @ 30 %.
Second Proviso, as amended w.e.f. 01-04-2013, gives relaxation from the disallowance in case, the assessee is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201.
Under the explanation to this sub-clause, the meaning and scope of the items of expenses are defined by referring to the relevant sections. Commission or Brokerage (clause (i) of the Explanation to section 194H), Fees for Technical Services (Explanation 2 to clause (vii) of sub-section (1) of section 9), Professions Services (clause (a) of the Explanation to section 194J), Work (Explanation III to section 194C), Rent (clause (i) to the Explanation to section 194-I) and Royalty (Explanation 2 to clause (vi) of sub-section (1) of section 9).
S.40(a)(ib) : [ Inserted by Act No. 28 of 2016, (w.e.f. 1-6-2016) ]: any consideration paid or payable to a non-resident for a specified service on which equalisation levy is deductible under the provisions of Chapter VIII of the Finance Act, 2016, and such levy has not been deducted or after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139 :
Provided that where in respect of any such consideration, the equalisation levy has been deducted in any subsequent year or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such levy has been paid;]
S.40(a)(ic) : any sum paid on account of fringe benefit tax under Chapter XIIH; (after the withdrawal of the Provisions related to Fringe Benefit Tax, this sub-clause has become redundant)
40(ii) : any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains.
Explanation 1.—For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, any sum paid on account of any rate or tax levied includes and shall be deemed always to have included any sum eligible for relief of tax under section 90 or, as the case may be, deduction from the Indian income-tax payable under section 91.
Explanation 2.—For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, any sum paid on account of any rate or tax levied includes any sum eligible for relief of tax under section 90A;
40(iia) : any sum paid on account of wealth-tax. (after the removal of the Wealth Tax levy w.e.f. AY-2016-17, this sub-clause has become redundant)
40(iib) : any amount—
- paid by way of royalty, licence fee, service fee, privilege fee, service charge or any other fee or charge, by whatever name called, which is levied exclusively on; or
- which is appropriated, directly or indirectly, from, a State Government undertaking by the State Government.
Explanation.—For the purposes of this sub-clause, a State Government undertaking includes—
- a corporation established by or under any Act of the State Government;
- a company in which more than fifty per cent of the paid-up equity share capital is held by the State Government;
- a company in which more than fifty per cent of the paid-up equity share capital is held by the entity referred to in clause (i) or clause (ii) (whether singly or taken together);
- a company or corporation in which the State Government has the right to appoint the majority of the directors or to control the management or policy decisions, directly or indirectly, including by virtue of its shareholding or management rights or shareholders agreements or voting agreements or in any other manner;
- an authority, a board or an institution or a body established or constituted by or under any Act of the State Government or owned or controlled by the State Government;
40(iii) : any payment which is chargeable under the head “Salaries”, if it is payable—
- outside India; or
- to a non-resident,
and if the tax has not been paid thereon nor deducted therefrom under Chapter XVII-B;
40(iv) : any payment to a provident or other fund established for the benefit of employees of the assessee, unless the assessee has made effective arrangements to secure that tax shall be deducted at source from any payments made from the fund which are chargeable to tax under the head “Salaries”;
40(v) : any tax actually paid by an employer referred to in clause (10CC) of section 10; (S.10CC provides for an exemption, subject to certain conditions, to employees in respect of the income in the nature of perquisites, not provided for by way of monetary payment within the meaning of clause (2) of section 17 of the Act. The tax thereon is paid by employer, at the option of the employer, on behalf of such employee.)
40(b) : in the case of any firm assessable as such,—
- any payment of salary, bonus, commission or remuneration, by whatever name called (hereinafter referred to as “remuneration”) to any partner who is not a working partner; or
- any payment of remuneration to any partner who is a working partner, or of interest to any partner, which, in either case, is not authorised by, or is not in accordance with, the terms of the partnership deed; or
- any payment of remuneration to any partner who is a working partner, or of interest to any partner, which, in either case, is authorised by, and is in accordance with, the terms of the partnership deed, but which relates to any period (falling prior to the date of such partnership deed) for which such payment was not authorised by, or is not in accordance with, any earlier partnership deed, so, however, that the period of authorisation for such payment by any earlier partnership deed does not cover any period prior to the date of such earlier partnership deed; or
- any payment of interest to any partner which is authorised by, and is in accordance with, the terms of the partnership deed and relates to any period falling after the date of such partnership deed in so far as such amount exceeds the amount calculated at the rate of twelve per cent simple interest per annum; or
- any payment of remuneration to any partner who is a working partner, which is authorised by, and is in accordance with, the terms of the partnership deed and relates to any period falling after the date of such partnership deed in so far as the amount of such payment to all the partners during the previous year exceeds the aggregate amount computed as hereunder :—
- on the first Rs. 3,00,000 of the book-profit or in case of a loss :- Rs. 1,50,000 or at the rate of 90 per cent of the book-profit, which-ever is more;
- on the balance of the book-profit :- at the rate of 60 per cent :
Provided that in relation to any payment under this clause to the partner during the previous year relevant to the assessment year commencing on the 1st day of April, 1993, the terms of the partnership deed may, at any time during the said previous year, provide for such payment.
Explanation 1.—Where an individual is a partner in a firm on behalf, or for the benefit, of any other person (such partner and the other person being hereinafter referred to as “partner in a representative capacity” and “person so represented”, respectively),—
- interest paid by the firm to such individual otherwise than as partner in a representative capacity, shall not be taken into account for the purposes of this clause;
- interest paid by the firm to such individual as partner in a representative capacity and interest paid by the firm to the person so represented shall be taken into account for the purposes of this clause.
Explanation 2.—Where an individual is a partner in a firm otherwise than as partner in a representative capacity, interest paid by the firm to such individual shall not be taken into account for the purposes of this clause, if such interest is received by him on behalf, or for the benefit, of any other person.
Explanation 3.—For the purposes of this clause, “book-profit” means the net profit, as shown in the profit and loss account for the relevant previous year, computed in the manner laid down in Chapter IV-D as increased by the aggregate amount of the remuneration paid or payable to all the partners of the firm if such amount has been deducted while computing the net profit.
Explanation 4.—For the purposes of this clause, “working partner” means an individual who is actively engaged in conducting the affairs of the business or profession of the firm of which he is a partner;
40(ba) : in the case of an association of persons or body of individuals [other than a company or a co-operative society or a society registered under the Societies Registration Act, 1860 (21 of 1860), or under any law corresponding to that Act in force in any part of India], any payment of interest, salary, bonus, commission or remuneration, by whatever name called, made by such association or body to a member of such association or body.
Explanation 1.—Where interest is paid by an association or body to any member thereof who has also paid interest to the association or body, the amount of interest to be disallowed under this clause shall be limited to the amount by which the payment of interest by the association or body to the member exceeds the payment of interest by the member to the association or body.
Explanation 2.—Where an individual is a member of an association or body on behalf, or for the benefit, of any other person (such member and the other person being hereinafter referred to as “member in a representative capacity” and “person so represented”, respectively),—
- interest paid by the association or body to such individual or by such individual to the association or body otherwise than as member in a representative capacity, shall not be taken into account for the purposes of this clause;
- interest paid by the association or body to such individual or by such individual to the association or body as member in a representative capacity and interest paid by the association or body to the person so represented or by the person so represented to the association or body, shall be taken into account for the purposes of this clause.
Explanation 3.—Where an individual is a member of an association or body otherwise than as member in a representative capacity, interest paid by the association or body to such individual shall not be taken into account for the purposes of this clause, if such interest is received by him on behalf, or for the benefit, of any other person.
40(c) : [Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989)
Relevant Important Case Law
- 40(a)(ia) / Interpretation of Taxing Statutes – Beneficial Provision – Retrospective Application. [2018] 402 ITR 238 (All) – PRINCIPAL COMMISSIONER OF INCOME-TAX v. MANOJ KUMAR SINGH
When a provision is made in fiscal statute for the benefit of the assessee, in the absence of any express provision or a provision which by necessary implication gives a different impression, such provision which is beneficial to the assessee must be read and given effect to retroactively.
The second proviso to section 40(a)(ia) of the Income-tax Act, 1961 introduced by the Finance Act, 2012 (which provides that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B but is not deemed to be an assessee-in-default under the first proviso to section 201(1) , i. e., the payee has filed a return taking into account such sum for computing his income, has paid the tax due on such income declared and furnishes a certificate to this effect from an accountant, the assessee shall not be subject to disallowance in respect of such sum) has retrospective application.
CIT v. VATIKA TOWNSHIP P. LTD. [2014] 367 ITR 466 (SC) relied on.
- Sections – 40(a)(ia), 194H, 194J : Compensation paid to Joint Venture Partner under MOU. Findings of CIT-A was that it was not Sham MOU because AO himself had accepted that the services rendered by A were of specialised, professional and technical nature. Hence, the payment being made to a Partner, could not be treated as expenditure requiring Deduction of Tax at Source under sections 194H or 194J. [2018] 400 ITR 521 (Cal) – PRINCIPAL COMMISSIONER OF INCOME-TAX ENTREPRENEURS (CALCUTTA) PVT. LTD.
- Sections 40(a)(ia), 194C, 200 – IT Act, 1961 / Rule 30(2) – IT Rules, 1962 / Constitution of India, s. 136 – Section 40(a)(ia) of the Act relates not only to assessees who follow the mercantile system but also assessees who follow the cash system. Section 40(a) is applicable irrespective of the method of accounting followed by an assessee. Therefore, by using the term “payable” the Legislature included the entire accrued liability. If the assessee follows the mercantile system of accounting, then the moment the amount is credited to the account of the payee on accrual of liability, tax deduction at source is required to be made but if the assessee follows the cash system of accounting, then on making payment tax deduction at source has to be made as the liability is discharged by making payment. The provisions for deduction of tax at source are applicable both in the situation of actual payment as well as of the credit of the amount. It follows that section 40(a)(ia) covers not only those cases where the amount is payable but also when it is paid.
When the entire scheme of obligation to deduct the tax at source and paying it over to the Central Government is read holistically, it cannot be held that the word “payable” occurring in section 40(a)(ia) refers only to those cases where the amount is yet to be paid and does not cover the cases where the amount is actually paid. Once the section mandates a person to deduct tax at source not only on the amounts payable but also when the sums are actually paid to the contractor, any person who does not adhere to this statutory obligation has to suffer the consequences which are stipulated in the Act itself.
Also held that, The fact that the special leave petition against the decision of the High Court was dismissed by the Supreme Court would not amount to a confirmation of the view of the High Court. –[2017] 394 ITR 300 (SC) – PALAM GAS SERVICE v. COMMISSIONER OF INCOME-TAX
- Sections 28, 40(b), 133A – During the course of survey under section 133A of the Income-tax Act, 1961 conducted at the assessee’s premises, excess stock of Rs 1,10,582 was found. Further, it was noticed that the assessee had received an amount of Rs.1,55,289 as cash advances, the sources of which the assessee could not explain. Moreover, this amount was not entered in the books of account. The assessee filed its return of income declaring total net income of Rs.1,08,750. Along with the return of income, it filed a profit and loss account indicating that the amount of Rs.1,55,289 was taken into account by crediting it to the profit and loss account under the head “Other income”. However, to work out the salary paid to the partner in terms of section 40(b) of the Act, the assessee had taken it into account in computing book profits. The Assessing Officer held that the other income shown by the assessee could not be considered to be business income of the firm and this other income of Rs.1,55,289 was added in the profit and loss account to the gross profit and included for the purposes of section 40(b) of the Act while determining the book profit. However, otherwise the amount of Rs.1,55,289 was included as a part of business income to compute the tax payable in the assessment order. The Commissioner (Appeals) and the Tribunal confirmed this. On appeal :
Held, allowing the appeal, that the Assessing Officer had brought to tax the amount of Rs.1,55,289 shown as other income in the profit and loss account as income from business under section 28 of the Act. Once the position was accepted, then for the purpose of computing book profit as defined in section 40(b) of the Act, the other income of Rs.1,55,289 was also to be considered to be part of income from business arrived at in accordance with Chapter IV-D of the Act. It was not open to the Department to contend that the amount of Rs.1,55,289 was part of business income while computing the tax payable but not so for the purposes of section 40(b) of the Act. The character of the income would not change depending upon the section to be applied. [2018] 400 ITR 463 (Bom-Nagpur Bench)-NATIONAL SALES CORPORATION v. INCOME-TAX OFFICER
- Commission, Interest paid to Partner’s Proprietory Concern not covered. 222 ITR-482-MP-CIT vs D M Bhatia Industry
- In law, HUF can never be a partner of a partnership firm. Even if a person nominated by HUF joins a partnership the partnership is between the nominated person and other partners of firm. Karta or the nominee cannot say that the payment was received by him not as a partner but in some other capacity. Explanation II, added w.e.f. 01-04-1985 is prospective and applies to Interest Payment only.-229 ITR-458-SC-Rashik Lal & Co. vs CIT.
- Only net interest paid to partners has to be considered for disallowance. 215 ITR-424-Madras-CIT vs Indian Metal & Metallurgical Corpn.
- Payment to non-resident – Usance interest payable outside India by an undertaking engaged in the business of ship-breaking in respect of purchase of a ship from outside India is exempt from payment of income-tax. Hence assessee was not liable to deduct tax at source under s. 195(1) r.w.s.40(a)(i). 314 ITR-309-SC-Vijay Ship Breaking Corpn. & Ors. Vs CIT (Decision of Guj. HC in 261 ITR -113 set aside).
- 40(a)(i)—Provision made by the assessee towards foreign exchange fluctuation in respect of technical know-how fee is allowable because, Increase or decrease in the actual payment of the technical know-how fee would ultimately depend upon the foreign exchange fluctuation and that when a provision has been made on the basis of the exchange rate then existing and TDS has been deducted on the said sum, in the event of there being any higher payment of fee made on account of fluctuation, it would not be necessary to once again deduct TDS on the said amount as the same would have to be done when the amount would be actually paid at a future date. It is also to be noted that on account of the fluctuation in the foreign exchange if there would be a reduction of the technical know-how fee, then there is no provision for return of the refund of the TDS which would have already been paid by the assessee on account of the said fluctuation.195 Taxman-296-Kar.HC-CIT vs Mac Charles India Ltd.
- Payment of commission to foreign agents cannot be disallowed under sections 195 r.w.s 9(1)(vii). AO has to bring anything on record some evidence, which could demonstrate that non-resident agents were appointed as selling agents, designers or technical advisers. The Foreign Agents were not liable to Payment of commission to foreign agents did not entitle such foreign agents to pay tax in India and thus TDS was not liable to be deducted u/s. 195. Disallowance made by AO u/s. 40(a) (i) for non-deduction of tax at source u/s. 195 were not justified—Thus, impugned question decided in favour of assessee and against department. 363 ITR-66-All.HC-CIT vs Model Exims.
- In case of Payment to non-resident, most important expression in s. 195(1) consists of the words “chargeable under the provisions of the Act”. Accordingly, payer is bound to deduct tax at source only if the sum paid is assessable to tax in India. Sec. 195(2) pre-supposes that the person responsible for making the payment to the non-resident is in no doubt that tax is payable in respect of some part of the amount to be remitted but is not sure as to what should be the portion so taxable or the amount of tax to be deducted. Hence, in such a situation he is required to make an application to ITO(TDS) for determining the amount. It is only when these conditions are satisfied that the question of making an order under s. 195(2) arises. If the contention of the Department that the moment there is remittance the obligation to deduct tax arises is to be accepted, then the words “chargeable under the provisions of the Act” in s. 195(1) would stand obliterated. 327 ITR-456-SC- GE India Technology Centre vs. CIT.
- 40(a)(i) – Section 9, read with sections 40(a)(i) and 195, of the Income-tax Act, 1961, read with article 12 of Model OECD Convention regarding Income Deemed to accrue or arise in India (Royalty). Hon. Supreme Court admitted SLP against Hon. High Court order, wherein it was held that payments made by assessee for import of software could not be disallowed under section 40(a)(i) as same did not constitute royalty and section 195 TDS would not be applicable. – [2016] 70 taxmann.com 294 (SC) – Commissioner of Income-tax, Central Circle, Bangalore vs. Wipro Ltd.
Note : The issue whether the expenditure for Import of Software would constitute expenditure on Royalty would be subjected to the scrutiny of Hon. Supreme Court.
- 40(a)(i) – Payment of export commission by assessee being made under export agreement where assessee had not been transferred or permitted to use any patent, invention, model, design or secret formula and the Commission Recipient had not rendered any managerial, technical or consultancy services; neither royalty nor fee for technical services attracting disallowance under section 40(a)(i). – [2017] 81 taxmann.com 162 (Delhi) – Commissioner of Income-tax vs. Hero Motocorp Ltd
Note : The question, whether the Export Commission falls under any other provisions of S.9(1) and therefore liable for TDS, appears to be settled.
- 40(a)(i) r.w.s.10B Disallowance under section 40(a)(i) being a statutory disallowance, enhanced profit due to such disallowance would be considered for deduction under section 10B – [2017] 78 taxmann.com 203 (Mumbai – Trib.) – ITO- 2(1)(4), Mumbai vs. Anthelio Business Technologies (P.) Ltd.
- 40(a)(ii) : The scope of Explanations to section 40(a)(ii). If the main provision, does not cover the taxes paid abroad, there cannot be any occasion to include, under Explanations to section 40(a)(ii), taxes in respect of which relief under sections 90 and 91 is not admissible. These Explanations do not extend the scope of the section 40(a)(ii) but rather explain the scope of the said section. If something is covered by the Explanation, it cannot be said that it is not covered by the main provision. If taxes in respect of which tax credit under section 90 or 91 are covered by the proviso, these are covered by the scope of section 40(a)(ii) as well and if these taxes are covered by section 40(a)(ii), the theory that meaning of ‘tax’ under section 40(a)(ii) must remain confined to the taxes levied under the Act, comes to a naught since the taxes in respect of which credits are available under section 90 or 91 cannot be, under any circumstances, imposed under the Act. The argument of the assessee is devoid of legally sustainable merits. In view of the aforesaid, it is held that no deduction under section 37(1) can be allowed in respect of any income tax withheld abroad as the same will be hit by the disabling provisions under section 40(a)(ii) of the Act. The relief granted by the Commissioner (Appeals) in respect of tax withheld abroad in respect of which no foreign tax credit is admissible under section 37(1) must, therefore, stand vacated. [2017] 80 taxmann.com 6 (Ahmedabad – Trib.) – Deputy Commissioner of Income-tax, Circle 2 (1) (1), Ahmedabad vs. Elitecore Technologies (P.) Ltd.
- 40(a)(ii) – Assessee executed projects in Saudi Arabia and paid taxes there. Foreign tax paid on a part of global income which had accrued or arisen in India, to extent of said tax, benefit of double taxation relief under section 91 would not be available. However, assessee would be entitled to a deduction in respect of tax so paid as expenditure incurred to earn global income. [2016] 76 taxmann.com 257 (Bombay) – Reliance Infrastructure Ltd. v. Commissioner of Income-tax, City-VI Mumbai.
Section – 40A : Expenses or payments not deductible in certain circumstances.
40A. (1) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act relating to the computation of income under the head “Profits and gains of business or profession”.
40A(2)(a) Where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in clause (b) of this sub-section, and the Assessing Officer is of opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction :
Provided that [for an assessment year commencing on or before the 1st day of April, 2016 (inserted w.e.f. 01-04-2017) ] no disallowance, on account of any expenditure being excessive or unreasonable having regard to the fair market value, shall be made in respect of a specified domestic transaction referred to in section 92BA, if such transaction is at arm’s length price as defined in clause (ii) of section 92F
no disallowance, on account of any expenditure being excessive or unreasonable having regard to the fair market value, shall be made in respect of a specified domestic transaction referred to in section 92BA, if such transaction is at arm’s length price as defined in clause (ii) of section 92F.
40A(2)(b) : The persons referred to in clause (a) are the following, namely :—
- where the assessee is an individual :- any relative of the assessee;
- where the assessee is a company, firm, association of persons or Hindu un-divided family :- any director of the company, partner of the firm, or member of the association or family, or any relative of such director, partner or member;
- any individual who has a substantial interest in the business or profession of the assessee, or any relative of such individual;
- a company, firm, association of persons or Hindu undivided family having a substantial interest in the business or profession of the assessee or any director, partner or member of such company, firm, association or family, or any relative of such director, partner or member or any other company carrying on business or profession in which the first mentioned company has substantial interest;
- a company, firm, association of persons or Hindu undivided family of which a director, partner or member, as the case may be, has a substantial interest in the business or profession of the assessee; or any director, partner or member of such company, firm, association or family or any relative of such director, partner or member;
- any person who carries on a business or profession,—
- where the assessee being an individual, or any relative of such assessee, has a substantial interest in the business or profession of that person; or
- where the assessee being a company, firm, association of persons or Hindu undivided family, or any director of such company, partner of such firm or member of the association or family, or any relative of such director, partner or member, has a substantial interest in the business or profession of that person.
Explanation.—For the purposes of this sub-section, a person shall be deemed to have a substantial interest in a business or profession, if,—
- in a case where the business or profession is carried on by a company, such person is, at any time during the previous year, the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) carrying not less than twenty per cent of the voting power; and
- in any other case, such person is, at any time during the previous year, beneficially entitled to not less than twenty per cent of the profits of such business or profession.
40A(3) : Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees or use of electronic clearing system through a bank account, exceeds ten thousand rupees, (amended for “exceeds twenty thousand rupees,” by Act No. 7 of 2017, w.e.f. 1-4-2018).], no deduction shall be allowed in respect of such expenditure.
40A(3A) : Where an allowance has been made in the assessment for any year in respect of any liability incurred by the assessee for any expenditure and subsequently during any previous year (hereinafter referred to as subsequent year) the assessee makes payment in respect thereof, otherwise than by an account payee cheque drawn on a bank or account payee bank draft (Inserted by Act No. 7 of 2017, w.e.f. 1-4-2018) “or use of electronic clearing system through a bank account,” the payment so made shall be deemed to be the profits and gains of business or profession and accordingly chargeable to income-tax as income of the subsequent year if the payment or aggregate of payments made to a person in a day, exceeds ”ten”( reduced from “twenty” by Act No. 7 of 2017, w.e.f. 1-4-2018 ] thousand rupees:
Provided that no disallowance shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3) and this sub-section where a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft or use of electronic clearing system through a bank account, exceeds ten thousand rupees,, (substituted for “exceeds twenty thousand rupees,” by Act No. 7 of 2017, (w.e.f. 1-4-2018 ] in such cases and under such circumstances as may be prescribed, [See rule 6DD of IT Rules, 1962 for cases and circumstances in which payment in a sum exceeding Rs. 20,000 may be made otherwise than by an account payee cheque drawn on a bank or account payee draft.] having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors :
Provided further that in the case of payment made for plying, hiring or leasing goods carriages, the provisions of sub-sections (3) and (3A) shall have effect as if for the words “ten thousand rupees”, the words “thirty-five thousand rupees” had been substituted
(4) Notwithstanding anything contained in any other law for the time being in force or in any contract, where any payment in respect of any expenditure has to be made by an account payee cheque drawn on a bank or account payee bank draft or use of electronic clearing system through a bank account in order that such expenditure may not be disallowed as a deduction under sub-section (3), then the payment may be made by such cheque or draft or electronic clearing system; and where the payment is so made or tendered, no person shall be allowed to raise, in any suit or other proceeding, a plea based on the ground that the payment was not made or tendered in cash or in any other manner.
40A(5) : [Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.]
40A(6) : [Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.]
40A(7)
- Subject to the provisions of clause (b), no deduction shall be allowed in respect of any provision (whether called as such or by any other name) made by the assessee for the payment of gratuity to his employees on their retirement or on termination of their employment for any reason.
- Nothing in clause (a) shall apply in relation to any provision made by the assessee for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund, or for the purpose of payment of any gratuity, that has become payable during the previous year.
Explanation.—For the removal of doubts, it is hereby declared that where any provision made by the assessee for the payment of gratuity to his employees on their retirement or termination of their employment for any reason has been allowed as a deduction in computing the income of the assessee for any assessment year, any sum paid out of such provision by way of contribution towards an approved gratuity fund or by way of gratuity to any employee shall not be allowed as a deduction in computing the income of the assessee of the previous year in which the sum is so paid.
40A(8) : [Omitted by the Finance Act, 1985 w.e.f. 01-04-1986.]
40A(9) : No deduction shall be allowed in respect of any sum paid by the assessee as an employer towards the setting up or formation of, or as contribution to, any fund, trust, company, association of persons, body of individuals, society registered under the Societies Registration Act, 1860 (21 of 1860), or other institution for any purpose, except where such sum is so paid, for the purposes and to the extent provided by or under clause (iv) or clause (iva) or clause (v) of sub-section (1) of section 36, or as required by or under any other law for the time being in force.
40A(10) ; Notwithstanding anything contained in sub-section (9), where the Assessing Officer is satisfied that the fund, trust, company, association of persons, body of individuals, society or other institution referred to in that sub-section has, before the 1st day of March, 1984, bona fide laid out or expended any expenditure (not being in the nature of capital expenditure) wholly and exclusively for the welfare of the employees of the assessee referred to in sub-section (9) out of the sum referred to in that sub-section, the amount of such expenditure shall, in case no deduction has been allowed to the assessee in respect of such sum and subject to the other provisions of this Act, be deducted in computing the income referred to in section 28 of the assessee of the previous year in which such expenditure is so laid out or expended, as if such expenditure had been laid out or expended by the assessee.
40A(11) : Where the assessee has, before the 1st day of March, 1984, paid any sum to any fund, trust, company, association of persons, body of individuals, society or other institution referred to in sub-section (9), then, notwithstanding anything contained in any other law or in any instrument, he shall be entitled—
- to claim that so much of the amount paid by him as has not been laid out or expended by such fund, trust, company, association of persons, body of individuals, society or other institution (such amount being hereinafter referred to as the unutilised amount) be repaid to him, and where any claim is so made, the unutilised amount shall be repaid, as soon as may be, to him;
- to claim that any asset, being land, building, machinery, plant or furniture acquired or constructed by the fund, trust, company, association of persons, body of individuals, society or other institution out of the sum paid by the assessee, be transferred to him, and where any claim is so made, such asset shall be transferred, as soon as may be, to him.
40A(12) : [Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]
40A(13): (Inserted by the Finance Act, 2018, w.r.e.f. 1-4-2017) No deduction or allowance shall be allowed in respect of any marked to market loss or other expected loss, except as allowable under clause (xviii) of sub-section (1) of section 36.]
Simultaneously, S.36(1)(xviii) has also been inserted w.r.e.f. 1-4-2017
“marked to market loss or other expected loss as computed in accordance with the income computation and disclosure standards notified under sub-section (2) of section 145.”
Relevant Important Case Law :
- 40A(3) – Business Expenditure – Disallowance of Payments in Cash in Excess of Prescribed Limit. Amount being small and genuineness of the payment was not in doubt the findings of the tribunal were concurrent. Disallowance not warranted. [2018] 401 ITR 486 (Del) – PRINCIPAL COMMISSIONER OF INCOME-TAX v. SAMWON PRECISION MOULD MFG. INDIA PVT. LTD.
- 40A(7) – Provisions of this section has an overriding effect over the regular provisions in view of the ‘non obstatnte’ clause in the section. Any expenditure otherwise allowable under any other provisions shall be subjected to disallowance in case of any default as mentioned in this section. Accordingly, provision for Gratuity was disallowed u/s 40A(7). 156 ITR-585-SC-Shree Sajjan Mills Ltd. vs CIT
- Only Municipal Tax payable as per the local laws are covered under this provision. Similar Taxes payable under the Japanese Laws is not to be disallowed.99 ITR-7-SC-Mitsui Steamship Co. Ltd. vs CIT.
- 40A(2)(b) – This section would not apply unless it is determined that the expenditure was excessive or unreasonable. 117 ITR-569-SC-Upper India Publishing House P. Ltd. vs CIT
- There has to be Commercial Expediency for incurring the specified payments to prove that the same were not excessive. 161 ITR-876-MP-Ganesh Soap Works vs CIT
- The provisions of S.40A(3) are for curbing the flow of Black Money and not for creating any hurdles for any trade and business. Therefore, in case the payee is identifiable and there was no possibility to make payment by a Bank Draft or an account Payee Cheque.. 209 ITR-753-P & H – Brij Mohan Singh & Co.
Note : As per S.40A(3A), even the Cash Payment of the outstanding balance in Sundry Creditors shall attract the disallowance.
- 40A(7) Contribution to unapproved Gratuity Fund is liable for disallowance. 211 ITR-836-Bom-CIT vs Mumbai Khoka Utpadak Sahakari Sangh Ltd.
- 40A(7) : Assessing Officer disallowed provision made towards gratuity to be paid under Group Gratuity Scheme of LIC and added same to total income of assessee. It was held that, since, there was no concluded contract between assessee and LIC for subscribing to Group Gratuity Scheme nor anything brought on record to show that contribution was made for previous year, assessee would not be entitled to deduction for gratuity. – [2016] 71 taxmann.com 247 (Patna) – Bihar State Warehousing Corporation Ltd. vs. CIT-1, Patna
- 40A(3) (effect of Disallowance on Deduction u/s 80IB) – Any disallowance made under sub-section (3) of section 40A has to be adjusted to profits of assessee for computing deduction under section 80-IB. – [2016] 72 taxmann.com 16 (Allahabad) – Pr. CIT, Kanpur vs. Surya Merchants Ltd.
- Section 40A(2) – Section 40A(2) is not applicable to co-operative society and, therefore, disallowance of expenditure for making payment to subsidiaries for availing certain service was not sustainable. [2017] 79 taxmann.com 305 (Mumbai – Trib.) – DCIT OSD, Mumbai vs. Saraswat Co-operative Bank Ltd.
Section – 43B : Certain deductions to be only on actual payment.
43B. : Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of—
- any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, or
- any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees, or
- any sum referred to in clause (ii) of sub-section (1) of section 36, or
- any sum payable by the assessee as interest on any loan or borrowing from any public financial institution or a State financial corporation or a State industrial investment corporation, in accordance with the terms and conditions of the agreement governing such loan or borrowing , or
- any sum payable by the assessee as interest on any loan or advances from a scheduled bank or a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank (w.e.f. 1-4-2018) in accordance with the terms and conditions of the agreement governing such loan or advance in accordance with the terms and conditions of the agreement governing such loan or advances, or
- any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee, [or]
- any sum payable by the assessee to the Indian Railways for the use of railway assets, shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him :
Provided that nothing contained in this section shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return. [The underlined words are contrary to Rule 12, which provides that the return of income shall not be accompanied by any document or copy of any account or form or report of audit required to be attached with return of income under any of the provisions of the Act. ]
Explanation 1.—For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in clause (a) or clause (b) of this section is allowed in computing the income referred to in section 28 of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1983, or any earlier assessment year) in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him. [
Explanation 2.—For the purposes of clause (a), as in force at all material times, “any sum payable” means a sum for which the assessee incurred liability in the previous year even though such sum might not have been payable within that year under the relevant law.
Explanation 3.—For the removal of doubts it is hereby declared that where a deduction in respect of any sum referred to in clause (c) or clause (d) of this section is allowed in computing the income referred to in section 28 of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year) in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him.
Explanation 3A.—For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in clause (e) of this section is allowed in computing the income referred to in section 28 of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1996, or any earlier assessment year) in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him.
Explanation 3B.—For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in clause (f) of this section is allowed in computing the income, referred to in section 28, of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 2001, or any earlier assessment year) in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him.
Explanation 3C.—For the removal of doubts, it is hereby declared that a deduction of any sum, being interest payable under clause (d) of this section, shall be allowed if such interest has been actually paid and any interest referred to in that clause which has been converted into a loan or borrowing shall not be deemed to have been actually paid.
Explanation 3D.—For the removal of doubts, it is hereby declared that a deduction of any sum, being interest payable under clause (e) of this section, shall be allowed if such interest has been actually paid and any interest referred to in that clause which has been converted into a loan or advance shall not be deemed to have been actually paid.
Explanation 4.—For the purposes of this section,—
- “public financial institutions” shall have the meaning assigned to it in section 4A of the Companies Act, 1956 (1 of 1956);
- “scheduled bank” shall have the meaning assigned to it in the Explanation to clause (iii) of sub-section (5) of section 11;
- “State financial corporation” means a financial corporation established under section 3 or section 3A or an institution notified under section 46 of the State Financial Corporations Act, 1951 (63 of 1951);
- “State industrial investment corporation” means a Government company within the meaning of section 617 of the Companies Act, 1956 (1 of 1956), engaged in the business of providing long-term finance for industrial projects and eligible for deduction under clause (viii) of sub-section (1) of section 36.
- “co-operative bank”, “primary agricultural credit society” and “primary co-operative agricultural and rural development bank” shall have the meanings respectively assigned to them in the Explanation to sub-section (4) of section 80P.(Inserted w.e.f. 1-4-2018)
Important Relevant Case law :
- 43-B – Advance deposit of central excise duty in the Personal Ledger Account (PLA) :
Facts : From Assessment Year 1984-1985, assessee was claiming deduction u/s 43B in respect of balance amount in PLA at end of each accounting year. Assessee was adding back same amount as part of taxable income in immediately succeeding accounting year. Assessee was held entitled to claim deduction u/s 43B in respect of excise duty paid in advance in PLA.
Held : Deposit of Central Excise Duty in the PLA is a statutory requirement. Upon deposit in PLA, amount of such deposit stands credited to Revenue with assessee having no domain over amount(s) deposited. Deposits made, though a part of sale proceeds of assessee, did not constitute taxable income at hands of assessee. Purpose of introduction of section 43B of Central Excise Act was to plug loophole in statute which permitted deductions on accrual basis without requisite obligation to deposit tax with State. Legislative intent would be achieved by giving benefit of deduction to assessee upon advance deposit of central excise duty notwithstanding fact that adjustments from such deposit were made on subsequent clearances / removal effected from time to time. Advance deposit of central excise duty constituted actual payment of duty within meaning of section 43B of Central Excise Act. Therefore, assessee was entitled to benefit of deduction of said amount. COMMISSIONER OF INCOME TAX vs. MODIPON LTD. – 400 ITR 0001 (SC),
- Omission of the Second Proviso to S.43B by the Finance Act, 2003, w.e.f. 01-04-2004 is clarificatory and hence retrospective w.e.f. 01-04-1988. 319 ITR-306-SC-CIT vs Alom Extrusions Ltd.
(Second Proviso before Omissions read “Provided further that no deduction shall, in respect of any sum referred to in clause (b), be allowed unless such sum has actually been paid in cash or by issue of a cheque or draft or by any other mode on or before the due date as defined in the Explanation below clause (va ) of sub-section (1) of section 36, and where such payment has been made otherwise than in cash, the sum has been realised within fifteen days from the due date”.)
- The First Proviso, which allows the deduction against actual payment is retrospective w.e.f. 01-04-1984. 224 ITR-677-SC-Allied Motors P Ltd. vs CIT.
- 43B the condition precedent is ‘actual payment’ and not a ‘deemed payment’. Hence, Furnishing of a bank Guarantee does not fulfil the said condition. CIT vs McDowell & Co. Ltd. 314 ITR 167-SC and CIT vs Udaipur Distillery Co. Ltd.-314 ITR-188-SC
- Custom Duty and Excise Duty on the value of closing stock has to be allowed as deduction if paid during the year. Even though assessment of the closing stock would be in the subsequent year. 162 ITR-240-Guj-Lakhanpal National Ltd. vs ITO.
- 43B – r.w.s. 2(24)(x) and 36(1)(va)- Both Employer’s and Employee’s contributions were paid after date specified but before filing of return – Assessing Officer disallowed payment of both employee and employer’s contribution to EPF. It was held that, no disallowance could be made to income of assessee. – [2016] 71 taxmann.com 247 (Patna) – Bihar State Warehousing Corporation Ltd. vs. CIT-1, Patna
- 43B – Interest paid by assessee to IFCI in earlier years but not charged to profit and loss accounts of those years as assessee was entitled to certain rebate on such interest on fulfilling its export obligations, could not be said to have been crystallized in relevant assessment year when IFCI refused to grant any rebate for non-fulfilment of export obligations by assessee [Assessment year 1995-96] – (2017] 79 taxmann.com 46 (Punjab & Haryana) – Cebon India Ltd. vs. CIT
- 43B – 1). Any interest which had been converted into loan or borrowing could not be deemed to have been actually paid. 2). Debentures are securities and give rise to actionable claim being instruments of debt issued by company acknowledging its indebtedness to pay. 3). Issuance of non-convertible debentures to specified institutions against Interest, could not be allowed under section 43B on impugned amount of interest. [2016] 72 taxmann.com 171 (Delhi) – CIT, Delhi vs. M.M. Aqua Technologies Ltd.
- 43B – Where deposit of each month in overdraft account was much more than corresponding interest debited in respective month, it could not be said that any part of such interest remained unpaid or converted into loan on close of previous year so as to attract disallowance u/s 43B. – [2017] 79 taxmann.com 40 (Calcutta) CIT, Calcutta vs. Shreekant Phumbhra.
- 43B – Assessee had not claimed any deduction on account of the service tax payable in order to determine its taxable income. In the circumstances, there can be no occasion to invoke Section 43B of the Act. Therefore, relying on the decisions of Hon. Bombay HC – CIT v. Ovira Logistics (P.) Ltd. [2015] 377 ITR 129 (Bom.)and CIT v. Calibre Personnel Services (P.) Ltd. [IT Appeal No. 158 of 2013], it was held that, the question raised does not give rise to any substantial question of law. [2016] 72 taxmann.com 300 (Bombay) – CIT-2, Mumbai vs. Knight Frank (India) (P.) Ltd.
- Section 36(1)(ii), read with sections 43B and 40A(9) – Due to labour unrest assessee-company made payment of bonus into a trust to comply with requirement of section 43B. Such payment of bonus to workers before expiry of due date of payment was to be allowed as deduction under section 36(1)(ii) and prohibition under section 43B or 40A(9) would not come in way of assessee. [2016] 73 taxmann.com 293 (SC) – Shasun Chemicals & Drugs Ltd. vs. CIT-II, Chennai.
- 43B r.w.s. 2(24)(x) and 36(1)(va) – Hon. Supreme Court in the case of Alom Extrusions Ltd. 319 ITR 306, considered the intent, purpose and object in the historical back drop of insertion of section 43B and its progress by way of various amendments and held that when the contribution had been paid by the assessee towards provident fund, etc. prior to filing of return under section 139(1), the assessee would be entitled for deduction under section 43B. Hon. Supreme Court did not restrict observations, findings and declaration of law to that context but looking to the objective and purpose of insertion of section 43B applied it to both the contributions, whether by employer or employee. It also observed clearly that section 43B is with a non obstante clause and, therefore, over ride even if, anything otherwise is contained in section 36 or any provision of the Income-tax Act. In view of the aforesaid, the assessee was entitled to deductions under sections 43B and 36(1)(va). [2017] 78 taxmann.com 47 (Allahabad) – Sagun Foundry (P.) Ltd. vs. CIT, Kanpur.
Sections 43CA, 56(2)(vii) & 194-IA – Related to Transactions of certain Immovable property
Section 43CA
Section 43CA was inserted by Finance Act, 2013 w.e.f. 01-04-2014 and is similar to provisions of Section 50C, except to the extent that provisions of section 50C are not applicable in relation to immovable property held as stock-in-trade.
Section 43CA provides that where the consideration for the transfer of an asset (other than capital asset), being land or building or both, is less than the value adopted or assessed or assessable for purpose of stamp duty by the state government [i.e. stamp value], the value so adopted or assessed or assessable shall be deemed to be the full value of the consideration for the purposes of computing income under the head “Profits and gains of business of profession”. By virtue of Finance Act 2018, a 5% margin of error is allowed for applicability of deeming fiction of this section, as explained below.
Further, where there is a difference in date of agreement fixing the value of consideration and date of final registration of the same, the stamp value as on date of agreement fixing the value of consideration would be considered for the purpose of applying the deeming fiction, subject to the condition that amount of consideration or part thereof must have been received in any mode other than cash, before the date of agreement.
Analysis
Any land and / or building transferred, which were held as stock-in-trade, shall be deemed to have transferred at stamp duty valuation and shall be charged to tax under the head ‘profits and gains from business profession’, if the actual consideration received as a result of transfer is less than stamp duty valuation. In other words, the difference between stamp value and the actual consideration, if it is less than the stamp value, will be considered as “Profits and gains of business of profession”, pursuant to deeming fiction created by Section 43CA(1).
For transactions entered into after 01.04.2018 (i.e. for AY 2019-20), if the stamp duty valuation does not exceed the actual consideration amount by more than 5% of actual consideration amount, the transaction as entered into by an assessee at actual consideration amount shall hold good for taxation purpose, and the deeming fiction would thus not be applicable.
The cost of acquisition depends upon the treatment of asset in the hands of transferee/purchaser. For a transferee for whom the immovable property is a capital asset, the stamp duty valuation of property would be considered as cost of acquisition at the time of computing capital gains during further sale of property, pursuant to section 49(4). However, as per literal reading of the provision, for a transferee who treats the property as stock-in-trade, the actual payment made by him for the purchase of property and not the stamp value, will be considered as Cost of acquisition during further sale of the property, since section 49(4) is not applicable for further sale of stock by him.
There is a controversy on applicability of provisions of this section for territories which do not come under the jurisdiction of any state government, viz. Union territories, since there will be no assessable value by the state government for the purpose of stamp duty, as stated in the section 43CA(1).
Section 56(2)
Section 56(2)(vii) and section 56(2)(viia) have been now removed in case of relevant transactions taking place after 01.04.2017. Both these sections were applicable only in hands of an individual or HUF and a firm or company in certain cases, respectively. A new clause (x) to section 56(2) has been inserted to widen the scope of such ‘income from other sources’ so as to be applicable in case of all assessees.
Section 56(2)(ix)
This clause (ix) to section 56(2) was added by Finance Act 2014, and is applicable w.e.f. 01-04-2015.
According to this section, where any sum of money is received as an advance or otherwise in the course of negotiations for transfer of a capital asset, and such sum is forfeited and the negotiations do not result in transfer of such capital asset, the sum of money such received is chargeable to tax as “Income from other sources”.
Section 56(2)(x)
This newly inserted clause is similar to provisions in existing clause (vii) and (viia), however that it applies to all assessees and not just to an individual of HUF and a firm or company in certain cases. This clause is applicable for transactions entered into after 01.04.2017 and thus a concerned receipt of sum of money or property on or after 01.04.2017 shall be chargeable to tax in accordance with the provisions of this clause (x) of sub-section (2) of section 56.
As per this section, receipt of sum of money or an immovable property or any other property for zero or inadequate consideration, is taxable in hands of the receiver. The amount of difference between stamp duty value/fair market value and the actual consideration paid for that property if it exceeds Rs 50,000/- or the 5% allowable margin(as explained below), is considered as income for the purposes of this section.
Analysis
The transfer of immovable property for an inadequate consideration was not covered within the ambit of Section 56(2) before 01-04-2014. After introduction of the amendment under Section 56(2)(vii) and now further insertion of 56(2)(x), a situation may arise wherein the transferor is taxed under deeming provisions of Section 43CA or Section 50C and at the same time the transferee is taxed u/s 56(2)(x) in respect of the same transaction of transfer of immovable property, leading to double taxation. However, since the provisions of Section 50C, Section 56(2)(x) and Section 43CA are viewed as anti-abuse provisions, the combined effect of same may not be viewed as unconstitutional. Further, it may be noted that wherever the transferee is taxed under Section 56(2)(x), then cost of acquisition of such property in the hands of the transferee shall be deemed to be the value which was taken for the purpose of Section 56(2)(x) of the Act. However, for a transferee who treats the property as stock-in-trade, provisions of sec. 56(2)(x) would not apply, and the actual payment made by him for the purchase of property and not the stamp value, might be considered as Cost of acquisition during further sale of the property.
During future sale of the property by the instant transferee, the cost of acquisition in the hands of transferee / purchaser of such property shall be deemed to be the value which was considered for the purpose of Section 56(2)(vii) of the Act, as per provisions of Sec. 49(4).
W.e.f. AY 2019-20 (i.e. for transactions entered into after 01.04.2018), where a person receives immovable property for a consideration which is less than the stamp duty valuation of that property, but that stamp duty valuation is not more than 105% of the consideration, or the differential amount is not more than Rs. 50,000, then such differential amount would not be treated as income in the hands of recipient of property.
Further, w.e.f. AY 2019-20 [i.e. FY 2018-19], any compensation received by a person due to termination of his employment or due to modifications of terms of employment is also not taxable.
Separately, Sub-clause (c) of Sec. 56(2)(x) includes taxability of capital asset received without consideration or for inadequate consideration. Proviso to Sec. 56(2)(x)(c) provides for exceptions where such a receipts of capital asset is from a relative, or on occasion of marriage, or through will/inheritance, etc. W.e.f. 01/04/2017, receipts of capital assets pursuant to transaction of transfer in a scheme of amalgamation or in scheme of demerger or business reorganization of a cooperative bank, are also added in exceptions to applicability of new Sec. 56(2)(x). Further, receipts from an individual by a trust created solely for the benefit of relative of that individual, are also added in exceptions to applicability. Thus, even if shares or other capital assets in pursuance of business re-organization of cooperative bank, amalgamation, or demerger, are received for inadequate consideration, there will not be any taxability u/s 56 in hands of the recipient. For transactions entered into after 01/04/2017 [i.e. for AY 2018-19], receipt of capital assets by a subsidiary company from its holding company or vice versa, is also exempt from taxation if the whole share capital of that subsidiary company is held by that holding company and the recipient holding/subsidiary company is an Indian company.
Section 51
According to this section, if any capital asset (proposed to be sold) was subject matter of any negotiations in past and any advance or other money was received and retained by the assessee in respect of such negotiations, then such money received is to be deducted from the cost for which the asset was acquired, or the WDV [written down value] or FMV [fair market value], while computing the cost of acquisition.
A proviso has been inserted in this section w.e.f. 01.04.2015 according to which if advance or other money received by the assessee was offered to taxation for any financial year as per section 56(2)(ix), then it is not required to be deducted from the cost for which the asset was acquired or the WDV or the FMV, in computing the cost of acquisition.
Analysis
Consequent to insertion of the new clause (ix) in subsection (2) of Section 56, a corresponding amendment has been made in Sec. 51 by way of a proviso. As per amended Sec. 51, where advance money has been forfeited & the negotiations did not result in transfer of such capital asset, and such sum/advance has been offered for taxation under “Income from other sources” as per Sec. 56(2)(ix), then the sum / advance is not required to be deducted from the cost for which the asset was acquired or the written down value or the fair market value, as the case may be, in computing the cost of acquisition. Such deduction from cost was required to be done pursuant to erstwhile provision of section 51. Such an amendment has been made to avoid double taxation.
Further, another corresponding amendment has been made in Sec. 2(24), which defines “income”, by way of addition of clause (xvii) to Sec 2(24). As per section 2(24)(xvii), the sum of money referred to in Section 56(2)(ix) will now be a part of the definition of “Income” and will thus be included in “Income”.
The effect of this insertion of clause (ix) to section 56(2) though does not lead to double taxation with the corresponding amendment in section 51, but has resulted into preponement of taxation, since the charge of tax is now not deferred to the point when the concerned capital asset is sold but is levied when the advance is forfeited.
Section 194-IA
This section was inserted w.e.f. 01-06-2013 by Finance Act 2013. According to the provisions of this section, any person being a transferee shall, at the time of making payment or crediting of any sum as consideration for transfer of immovable property (other than agricultural land) to a resident transferor, deduct tax, at the rate of 1% of such sum.
Further, in order to reduce the compliance burden on the small taxpayers, it is provided that no deduction of tax under this provision shall be made where the total amount of consideration for the transfer of an immovable property is less than fifty lakh rupees.
Analysis
Section 194-IA requires deduction of tax at source at the time of credit or payment, whichever is earlier. Thus, in case of a person who does not maintain books of accounts, tax becomes deductible at the time of payment itself.
The assessee is not required to obtain the TAN for paying the tax deducted on transaction. The challan for payment of TDS is required to be filled in Form 26QB.
The consideration limit of rupees fifty lakhs is for the transaction as a whole, for transfer of immovable property and the no. of transferees or transferors being more than one, is not relevant for its applicability.
Further, a practical difficulty might be faced before the registration authority, where the transferor is a NRI and therefore no deduction of tax at source is done by the transferee since the provision is applicable on payment to resident transferor.
Section 194-IB
This new section has inserted w.e.f. 01.06.2017 by Finance Act 2017 and is applicable for rents paid after 01.06.2017. According to provisions of this section individuals and HUF who are responsible for paying rent to a resident of amount exceeding Rs. 50,000/- for a month or part of month, shall deduct tax at source at 5% of such amount. The deductor is not required to obtain a Tax deduction account number or a tax collection account number and the deductor shall be liable to deduct tax only once in a financial year.
Analysis
Under the erstwhile provisions related to the chapter of TDS, an Individual and HUF, being a payer, other than those liable for tax audit, were out of the scope of section 194-I of the Act. By insertion of new section 194-IB in the Act, individuals or HUF (other than those covered under 44AB of the Act), who are responsible for paying to a resident any income by way rent exceeding rupees fifty thousand, shall be liable to deduct TDS. Tax is liable to be deducted on such income at the time of credit of rent for the last month of the previous year or the last month of tenancy if the property is vacated during the year, or at the time of such payment, whichever is earlier.
Such deduction of tax shall not exceed the amount of rent payable for the last month of the previous year or the last month of the tenancy.
Section 194-IC
This section was inserted w.e.f. 01.04.2017 by Finance Act 2017, and is applicable for relevant transactions being entered after 01.04.2017. According to provisions of this section, TDS @ 10% shall be made in case of payment of consideration [not being consideration in kind] pursuant to a joint development agreement [JDA] by the developer to the land owner. TDS on consideration relating to JDA shall be governed by 194-IC only and not by 194-IA.
Section 50CA
This section was inserted w.e.f. 2018-19 by Finance Act 2017, and is applicable for relevant transactions being entered after 01.04.2017. According to provisions of this section, where consideration received as a result of transfer of unlisted / unquoted shares is less than the Fair market value of those shares, the fair market value of shares shall be deemed to be full value of consideration for tax purposes. The procedure of valuation of such unquoted share is provided in rule 11UAA of the Income tax rules.
DEDUCTIONS UNDER CHAPTER VIA
SECTIONS 80GGB TO 80LA
| SECTION 80GGB | DEDUCTION IN RESPECT OF CONTRIBUTION GIVEN BY COMPANIES TO POLITICAL PARTIES OR AN ELECTORAL TRUST” | ||||||||||
| Persons Covered | Indian Company. | ||||||||||
| Eligible Amount | Contribution given to any political parties or an electoral trust. | ||||||||||
| Relevant Conditions/Points |
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| Extent of Deduction | 100% of the amount paid as contribution. | ||||||||||
| SECTION 80GGC | DEDUCTION IN RESPECT OF CONTRIBUTION GIVEN BY ANY PERSON TO POLITICAL PARTIES OR AN ELECTORAL TRUST | ||||||||||
| Persons Covered | Any assessee (except local authority and every artificial juridical person wholly or partly funded by the Government). | ||||||||||
| Eligible Amount | Contribution given to political parties or an electoral trust. | ||||||||||
| Relevant Conditions/Points |
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| Extent of Deduction | 100% of the amount paid as contribution. | ||||||||||
| SECTION 80-IA | DEDUCTIONS IN RESPECT OF PROFITS & GAINS FROM CERTAIN INDUSTRIAL UNDERTAKINGS OR ENTERPRISES ENGAGED IN INFRASTRUCTURE DEVELOPMENT, ETC. | ||||||||||
| Persons Covered | Assessee carrying any of the following eligible businesses through an industrial undertaking or enterprise except any person who executes a work contract (including the contract awarded by central or state government):—
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| Eligible Amount | Profits and gains derived by an undertaking or enterprise from any of the above businesses. | ||||||||||
| General Conditions/Points |
In case the aforesaid arrangement involves a specified domestic transaction referred to in section 92BA, the amount of profits from such transaction shall be determined having regard to arm’s length price as defined in clause (ii) of section 92F. [inserted w.e.f. AY 2013-14] |
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| Type of Undertaking or Enterprise | A. Any enterprise carrying on business of (a) developing, or (b) operating and maintaining or (c) developing, operating and maintaining any infrastructure facility. | ||||||||||
| Relevant Conditions/Points |
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| Period of Commencement | The enterprise has started or starts operating and maintaining the infrastructure facility on or after 1st April, 1995.
Provisons of sec 80IA(4)(i)shall not apply to any enterprise which starts development or operation and maintenance of infrastructure facility on or after 01-04-2017 |
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| Status of Transferee | Where an infrastructure facility is transferred on or after the 1st day of April, 1999, by an enterprise which developed such infrastructure facility (transferor) to another enterprise (transferee) for the purpose of operating and maintaining the infrastructure facility on its behalf in accordance with the agreement with the Central or State Government, local authority or statutory body, the provisions of this section shall apply to the transferee enterprise as if the transfer had not taken place and the deduction under this section shall be available to such transferee enterprise for the unexpired period. | ||||||||||
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| Type of Undertaking or Enterprise | B. An undertaking providing telecommunication services like basic or cellular, radio paging, domestic satellite service, network of trunking, broadband network and internet services. | ||||||||||
| Relevant Conditions/Points | The undertaking must comply with conditions laid out in Section 80-IA(3) namely;
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| Period of Commencement | The undertaking has started providing the telecommunication services referred to above on or after 1st April, 1995, but on or before 31st March, 2005. | ||||||||||
| Extent of Deduction | 100% for first 5 assessment years and 30% for next 5 assessment years. Deduction as above can be claimed in 10 consecutive assessment years out of 15 years (at the option of the assessee) [beginning from the year in which the undertaking starts providing telecommunication service]. | ||||||||||
| Type of Undertaking or Enterprise | C. An undertaking which develops, develops and operates or maintains and operates an Industrial Park or Special Economic Zone. | ||||||||||
| Relevant Conditions/Points |
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| Period of Commencement |
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| Status of Transferee | Where an undertaking develops industrial park on or after 1st April, 1999 or a special economic zone on or after 1st April, 2001, and transfers the operation and maintenance of such industrial park or special economic zone, as the case may be, to another undertaking (transferee), then the deduction under this section shall be allowed to such transferee for the remaining period in the ten consecutive assessment years as if the operation and maintenance were not so transferred to such transferee. | ||||||||||
| Extent of Deduction | 100% for 10 consecutive assessment years out of 15 years (at the option of the assessee) [beginning from the year in which the undertaking develops an industrial park or special economic zone]. | ||||||||||
| Type of Undertaking or Enterprise | D. An undertaking which (a) is set up in any part of India for the generation or generation and distribution of power or (b) starts transmission or distribution by laying a network of new transmission or distribution lines or (c) undertakes substantial renovation and modernisation of the existing network of transmission or distribution lines. | ||||||||||
| Relevant Conditions/Points |
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| Period of Commencement |
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| Extent of Deduction | 100% for 10 consecutive assessment years out of 15 years (at the option of the assessee) [beginning from the year in which the undertaking generates power or commences transmission or distribution of power or undertakes substantial renovation and modernization of existing transmission or distribution lines, as the case may be]. | ||||||||||
| Type of Undertaking or Enterprise | E. An undertaking owned by an Indian Company and set up for reconstruction or revival of a Power Generating Plant. | ||||||||||
| Relevant Conditions/Points |
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| Period of Commencement | The Undertaking begins to generate or transmit or distribute power before 31st March, 2011. (shall be deemed to have been substituted w.e.f. 1st April, 2008) | ||||||||||
| Extent of Deduction | 100% for 10 consecutive assessment years out of 15 years (at the option of the assessee) [beginning from the year in which the undertaking generates power or commences transmission or distribution of power]. | ||||||||||
| SECTION 80-IAB | DEDUCTIONS IN RESPECT OF PROFITS & GAINS BY AN UNDERTAKING OR ENTERPRISE ENGAGED IN DEVELOPMENT OF SPECIAL ECONOMIC ZONE | ||||||||||
| Persons Covered | Assessee, being a developer, carrying on the business of developing a Special Economic Zone (notified on or after 1st April, 2005, under Special Economic Zones Act, 2005) through an industrial undertaking or enterprise. | ||||||||||
| Eligible Amount | Profits and gains derived by an undertaking or enterprise from the business of developing a Special Economic Zone. | ||||||||||
| Relevant Conditions/Points | 1. The terms “Developer” and “Special Economic Zone” shall have the same meanings respectively as assigned to them in clauses (g) and (za) of Section 2 of the Special Economic Zones Act, 2005.
2. The profits and gains of an eligible business shall be computed as if such eligible business were the only source of income of the assessee. 3. The accounts of the undertaking for the previous year relevant to the assessment year for which the deduction is claimed must be audited by a chartered accountant and Audit Report in Form No. 10CCB should be furnished along with the return of income. 4. No deduction shall be allowed under this section if the assessee fails to file the return of income for such assessment year on or before the due date specified u/s. 139(1) (w.e.f. A.Y. 2006-07 as per Section 80AC). 5. Where deduction of any amount of profits and gains of business is claimed and allowed under this section, then the deduction to the extent of such profit and gains shall not be allowed under any other provisions of this chapter and the deduction shall in no case exceed the profits and gains of such eligible business of undertaking or enterprise, as the case may be. 6. If any undertaking of an Indian company which is entitled to deduction under this section is transferred, before the expiry of the period specified in this section, to another Indian company, in a scheme of amalgamation or demerger, then no deduction shall be admissible under this section to the amalgamating or demerged company for the previous year in which the amalgamation takes place and the provisions of this section shall, as far as may be, apply to the amalgamated or resulting company as they would have applied to the amalgamating or demerged company if the amalgamation or demerger had not taken place. 7. If any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods held for the purposes of any other business of the assessee are transferred to the eligible business, then in either case it should be ensured that the transaction occurs at the market value of such goods or services as on the date of transfer, otherwise Assessing Officer (AO) has the power to recompute the profits based on the market value of such goods or services. 8. If it appears to the AO, that business between the assessee (engaged in eligible business) and any other person is so arranged that the business transacted between them produces to the assessee more than ordinary profits, then the AO shall take the amount of profit as may be reasonably deemed to have been derived therefrom. In case the aforesaid arrangement involves a specified domestic transaction referred to in section 92BA, the amount of profits from such transaction shall be determined having regard to arm’s length price as defined in clause (ii) of section 92F. [inserted w.e.f. AY 2013-14] The Provisions of sec 80-IAB shall not apply to an assessee, being a developer where the development of SEZ begins on or after 1-4-2017 |
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| Status of Transferee | Where an undertaking, being a developer who develops a Special Economic Zone on or after 1st April, 2005, and transfers the operation and maintenance of such Special Economic Zone to another Developer (transferee), then the deduction under this section shall be allowed to such transferee for the remaining period in the ten consecutive assessment years as if the operation and maintenance were not so transferred to such transferee. | ||||||||||
| Extent of Deduction | 100% for 10 consecutive assessment years out of 15 years (at the option of the assessee) [beginning from the year in which the Special Economic Zone has been notified by the Central Government]. | ||||||||||
| SECTION 80-IAC | SPECIAL PROVISIONS IN RESPECT OF SPECIFIED BUSINESS (START –UP) | ||||||||||
| Persons Covered | Company & LLP | ||||||||||
| Eligible Amount | Entire Profits and gains derived by an undertaking or enterprise from such business. | ||||||||||
| Relevant Conditions/Points |
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Conditions to be fulfilled |
Exceptions: c. Plant & Machinery used outside India by any person other than the assessee and it should not have been used in India prior to the date of installation and is imported into India and no depreciation has been allowed or allowable to any person prior to the date of installation. d. The value of the used Plant & Machinery does not exceed 20% of the total value of the Plant & machinery. |
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| Extent of Deduction | c. Deduction @ 100% of Profits and gains derived from such business for 3 consecutive assessment years, which may be claimed out of the initial 5 years from the date of incorporation of the start-up undertaking. (w.e.f. 01st April 2018,the word 5 years shall be substituted with 7 years) | ||||||||||
| SECTION 80-IB | DEDUCTION IN RESPECT OF PROFITS & GAINS FROM CERTAIN INDUSTRIAL UNDERTAKINGS OTHER THAN INFRASTRUCTURE DEVELOPMENT UNDERTAKINGS | ||||||||||
| Persons Covered | Assessee carrying any of the eligible businesses through following industrial undertaking or enterprise:—
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| Eligible Amount | Profits and gains derived by an undertaking or enterprise from any of the above businesses. | ||||||||||
| General Conditions/Points |
In case the aforesaid arrangement involves a specified domestic transaction referred to in section 92BA, the amount of profits from such transaction shall be determined having regard to arm’s length price as defined in clause (ii) of section 92F. [inserted w.e.f. AY 2013-14] |
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| Type of Undertaking | A. Industrial undertaking located at industrially backward district of Category “A” | ||||||||||
| Relevant Conditions/Points | The undertaking should not manufacture or produce any article or thing specified in the list in the Eleventh Schedule. | ||||||||||
| Period of Commencement | Between 1st October, 1994 and 31st March, 2004. | ||||||||||
| Extent of Deduction | 100% for first 5 A.Ys. and 25% (30% for company) for next 5 A.Ys. (7 A.Ys. for Co-operative society) beginning with the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things or to operate cold storage plant or plants. | ||||||||||
| Type of Undertaking | B. Industrial undertaking located at industrially backward district of Category “B” | ||||||||||
| Relevant Conditions/Points | The undertaking should not manufacture or produce any article or thing specified in the list in the Eleventh Schedule. | ||||||||||
| Period of Commencement | Between 1st October, 1994 and 31st March, 2004. | ||||||||||
| Extent of Deduction | 100% for first 3 A.Ys. and 25% (30% for company) for next 5 A.Ys. (9 A.Ys. for Co-operative society) beginning with the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things or to operate cold storage plant or plants. | ||||||||||
| Type of Undertaking | C. Industrial undertaking located at industrially backward state specified in Eighth Schedule | ||||||||||
| Relevant Conditions/Points | No deduction shall be allowed from assessment year beginning from 1st April, 2004 or any subsequent year to any undertaking or enterprise referred to in Section 80-IC(2). | ||||||||||
| Period of Commencement | Between 1st April, 1993 and 31st March, 2004. | ||||||||||
| Extent of Deduction | 100% for first 5 A.Ys. and 25% (30% for company) for next 5 A.Ys. (7 A.Ys. for Co-operative society) beginning with the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things or to operate cold storage plant or plants. | ||||||||||
| Type of Undertaking | D. Industrial undertaking located in North-Eastern Region notified by Central Government in industrially backward state | ||||||||||
| Relevant Conditions/Points | No deduction shall be allowed from assessment year beginning from 1st April, 2004 or any subsequent year to any undertaking or enterprise referred to in Section 80-IC(2). | ||||||||||
| Period of Commencement | Between 1st April, 1993 and 31st March, 2004. | ||||||||||
| Extent of Deduction | 1. 100% for first 10 A.Ys. beginning with the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things or to operate cold storage plant or plants.
2. If undertaking has begun or begins commercial production of mineral oil on or after the 1st day of April, 1997 & is located in any part of India, then the benefit of the section 80IB(a)(ii) shall not apply to blocks licensed under a contract awarded after 31st March, 2011 under the New Exploration Licensing Policy announced by the State or Central Government. |
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| Type of Undertaking | E. Industrial undertaking located in the State of Jammu and Kashmir | ||||||||||
| Relevant Conditions/Points | The undertaking should not manufacture or produce any article or thing specified in the Part C of the Thirteenth Schedule (w.e.f. A.Y. 2005-06). | ||||||||||
| Period of Commencement | Between 1st April, 1993 and 31st March, 2012.
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| Extent of Deduction | 100% for first 5 A.Ys. and 25% (30% for company) for next 5 A.Ys. (7 A.Ys. for Co-operative society) beginning with the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things or to operate cold storage plant or plants. | ||||||||||
| Type of Undertaking | F. Small-scale industrial undertaking. | ||||||||||
| Relevant Conditions/Points | 1. Undertaking should be other than those mentioned above (i.e., A to E).
2. Small-scale industrial undertaking means an industrial undertaking which is, as on the last day of the previous year, regarded as small-scale industrial undertaking u/s. 11B of the Industries (Development and Regulation) Act, 1951. [i.e., investment in fixed assets in plant and machinery whether held on ownership terms or on lease, or by hire purchase does not exceed Rs. 1 crore (or Rs. 5 crore in some cases)]. |
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| Period of Commencement | Between 1st April, 1995 and 31st March, 2002. | ||||||||||
| Extent of Deduction | 25% (30% for company) for first 10 A.Ys. (12 A.Ys. for Co-operative society) beginning with the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things or to operate cold storage plant or plants. | ||||||||||
| Type of Undertaking | G. Hotels (approved by the prescribed authority) located in a hilly area or a rural area or a place of pilgrimage or other place notified by Central Government. | ||||||||||
| Relevant Conditions/Points |
|
||||||||||
| Period of Commencement | Between 1st April, 1990 and 31st March, 2004, or between 1st April, 1997 and 31st March, 2001. | ||||||||||
| Extent of Deduction | 50% for first 10 A.Ys. beginning with the assessment year relevant to the previous year in which the business of hotel starts functioning. | ||||||||||
| Type of Undertaking | H. Hotels (approved by the prescribed authority) located other than above. | ||||||||||
| Relevant Conditions/Points |
|
||||||||||
| Period of Commencement | Between 1st April, 1991 and 31st March, 1995, or between 1st April, 1997 and 31st March, 2001. | ||||||||||
| Extent of Deduction | 30% for first 10 A.Ys. beginning with the assessment year relevant to the previous year in which the business of hotel starts functioning. | ||||||||||
| Type of Undertaking | I. Business of building, owning and operating a Multiplex theatre. | ||||||||||
| Relevant Conditions/Points |
|
||||||||||
| Period of Commencement | Between 1st April, 2002 and 31st March, 2005. | ||||||||||
| Extent of Deduction | 50% for first 5 A.Ys. beginning with the assessment year relevant to the previous year in which a cinema hall, being a part of the said multiplex theatre, starts functioning. | ||||||||||
| Type of Undertaking | J. Business of building, owning and operating a convention centre. | ||||||||||
| Relevant Conditions/Points |
|
||||||||||
| Period of Commencement | Between 1st April, 2002 and 31st March, 2005. | ||||||||||
| Extent of Deduction | 50% for first 5 A.Ys. beginning with the assessment year relevant to the previous year in which the convention centre starts operating on a commercial basis. | ||||||||||
| Type of Undertaking | K. Any company registered in India (approved by prescribed authority after 31st March, 2000) carrying on scientific research and development. | ||||||||||
| Relevant Conditions/Points |
|
||||||||||
| Extent of Deduction | 100% for first 10 A.Ys. beginning with the assessment year relevant to the previous year in which the company is approved by the prescribed authority. | ||||||||||
| Type of Undertaking | L. Undertaking engaged in commercial production or refining of mineral oil, Production of Natural gas under licensed under NELP VIII OR Round IV of coal Bed Methane Block. | ||||||||||
| Period of Commencement |
|
||||||||||
| Extent of Deduction | 100% for first 7 A.Ys. beginning with the assessment year relevant to the previous year in which the undertaking commences the commercial production or refining of mineral oil. | ||||||||||
| Type of Undertaking | M. Undertaking engaged in developing and building housing projects except as a works contract awarded by any person (including contract awarded by Central or State Government) Inserted w.e.f the 1st day of April, 2001. | ||||||||||
| Relevant Conditions/Points |
|
||||||||||
| Extent of Deduction | 100% of the profits derived in the previous year relevant to any assessment year from such housing projects. | ||||||||||
| Type of Undertaking | N. Undertaking engaged in setting up and operating a cold chain facility for agricultural produce. | ||||||||||
| Relevant Conditions/Points | “Cold chain facility” means a chain of facilities for storage or transportation of agricultural produce under scientifically controlled conditions including refrigeration and other facilities necessary for the preservation of such produce. | ||||||||||
| Period of Commencement | Between 1st April, 1999 and 31st March, 2004. | ||||||||||
| Extent of Deduction | 100% for first 5 A.Ys. and 25% (30% for company) for next 5 A.Ys. (7 A.Ys. for Co-operative society) beginning ith the assessment year relevant to the previous year in which the undertaking begins to operate the cold chain facility. | ||||||||||
| Type of Undertaking | O. Undertaking engaged in (a) business of processing, preservation and packaging of fruits and vegetables or (b) integrated business of handling, storage and transportation of foodgrains. | ||||||||||
| Period of Commencement | On or after 1st April, 2001. | ||||||||||
| Extent of Deduction | 100% for first 5 A.Ys and 25% (30% for company) for next 5 A.Ys. beginning with the assessment year relevant to the previous year in which the undertaking begins such business. | ||||||||||
| Type of Undertaking | P. Undertaking engaged in operating and maintaining a hospital in a rural area. | ||||||||||
| Relevant Conditions |
|
||||||||||
| Extent of Deduction | 100% for first 5 A.Ys beginning with the initial A.Y. relevant to the previous year in which such undertaking begins to provide medical services. | ||||||||||
| Type of Undertaking | Q. Undertaking engaged in operating and maintaining hospitals located anywhere in India, other than the excluded area, | ||||||||||
| Relevant Conditions/Points |
|
||||||||||
| Extent of Deduction | 100% for first 5 A.Ys beginning with the initial Assessment Year. | ||||||||||
| SECTION 80IBA | DEDUCTION IN RESPECT OF PROFITS AND GAINS FROM HOUSING PROJECTS | ||||||||||
| Persons Covered | Assessee carrying on the business of developing and building house projects.( w.e.f. A.Y.2017-18 & onwards) | ||||||||||
| Eligible Amount | Entire Profits and gains derived by an
undertaking or enterprise from such business. |
||||||||||
| Definitions of terminologies used |
|
||||||||||
| Relevant Conditions/Points |
Where deduction is allowed under this section for any Assessment year, deduct to the extent of such profit & gain shall not be allowed under any other provisions of the Act. |
||||||||||
| Extent of Deduction | 100% of the profits and gains derived from the above business is deductible for three consecutive assessment years beginning from the initial assessment year. | ||||||||||
| SECTION 80-IC | DEDUCTION IN RESPECT OF PROFITS & GAINS OF CERTAIN UNDERTAKINGS OR ENTERPRISES SITUATED IN CERTAIN SPECIAL CATEGORY STATES. | ||||||||||
| Persons Covered | All Assessees. | ||||||||||
| Eligible Amount | Profits and gains derived by certain undertakings or enterprises in certain special category States. | ||||||||||
| General Conditions/Points |
|
||||||||||
| Type of Undertaking | A. Any undertaking or enterprise which has begun or begins to manufacture or produce or which manufactures or produces any article or thing, other than specified in Thirteenth Schedule and undertakes substantial expansion in any Export Processing Zone or Integrated Infrastructure Development Centre or Industrial Growth Centre or Industrial Estate or Industrial Park or Software Technology Park or Industrial area or Theme Park, as notified by the Board in accordance with the scheme framed and notified by the Central Government in this regard in the State of Sikkim or Himachal Pradesh or Uttaranchal or North-Eastern States.
B. Any undertaking or enterprise which has begun or begins to manufacture or produce or which manufactures or produces any article or thing, specified in Fourteenth Schedule or commences any operation specified in that schedule and undertakes substantial expansion in the State of Sikkim or Himachal Pradesh or Uttaranchal or North-Eastern States. |
||||||||||
| Period of Commencement | For State of Sikkim between 23rd December, 2002 and 31st March, 2007.
For States of Himachal Pradesh and Uttaranchal between 7th January, 2003 and 31st March, 2012. For North-Eastern States between 24th December,1997 and 31st March, 2007. |
||||||||||
| Extent of Deduction | For States of Sikkim and North Eastern States — 100% for first 10 A.Ys. beginning with the assessment year relevant to the previous year in which the undertaking or enterprise begins to manufacture or produce articles or things or commences operation or completes substantial expansion.
For States of Himachal Pradesh and Uttaranchal — 100% for first 5 A.Ys. beginning with the assessment year relevant to the previous year in which the undertaking or enterprise begins to manufacture or produce articles or things or commences operation or completes substantial expansion, and 25% (30% for company) for next 5 A.Ys. |
||||||||||
| SECTION 80-ID | DEDUCTION IN RESPECT OF PROFITS AND GAINS FROM BUSINESS OF HOTELS AND CONVENTION CENTRES IN SPECIFIED AREA | ||||||||||
| Persons Covered | All Assessees | ||||||||||
| Type of undertaking and period of commencement | Assessee engaged in the business of
|
||||||||||
| Eligible Amount | Profits and gains derived from the aforesaid undertaking. | ||||||||||
| Relevant Condition |
|
||||||||||
| Extent of deduction | 100% of the profits and gains derived from the business is deductible for five consecutive assessment years beginning from the initial assessment year. | ||||||||||
| SECTION 80-IE | DEDUCTION IN RESPECT OF CERTAIN UNDERTAKINGS IN NORTH-EASTERN STATES | ||||||||||
| Persons Covered | Assessee begins manufacture or production of goods or undertakes substantial expansion or carries on eligible business during April 1, 2007 and March 31, 2017 in any North-Eastern States. | ||||||||||
| Eligible Amount | Profits and gains derived by an Undertaking or Enterprise. | ||||||||||
| Relevant Condition |
|
||||||||||
| Extent of Deduction | 100% of profit derived from the business/services shall be deductible for 10 years beginning with assessment year relevant to the previous year. | ||||||||||
| SECTION 80JJA | DEDUCTION IN RESPECT OF PROFITS & GAINS FROM BUSINESS OF COLLECTING AND PROCESSING OF BIO-DEGRADABLE WASTE | ||||||||||
| Persons Covered | All Assessees. | ||||||||||
| Eligible Amount | Profits and gains from business of collecting and processing or treating of bio-degradable waste. | ||||||||||
| Relevant Conditions/Points | The business should be of collecting and processing or treating of bio-degradable waste for generating power or producing bio-fertilizers, bio-pesticides or other biological agents or for producing bio-gas or making pellets or briquettes for fuel or organic manure. | ||||||||||
| Extent of Deduction | 100% of the profit and gains from such business for a period of five consecutive assessment years beginning with the assessment year relevant to previous year in which such business commences. | ||||||||||
| SECTION 80JJAA | DEDUCTION IN RESPECT OF EMPLOYMENT OF NEW WORKMEN | ||||||||||
| Persons Covered | All assessee to whom sec 44AB applies (w.e.f. A.Y.2017-18 to 2019-20) | ||||||||||
| Eligible Amount | Additional wages paid to the new regular workmen employed. | ||||||||||
| Relevant Conditions/Points |
|
||||||||||
| Extent of Deduction | 30% of the additional employee cost incurred in the course of such business in the previous year, for 3 assessment years including the assessment year relevant to the previous year in which such employment is provided. | ||||||||||
| SECTION 80LA | DEDUCTION IN RESPECT OF CERTAIN INCOMES OF OFF-SHORE BANKING UNITS and International Financial Services Centre. (A.Y. 2015-16 to 2019-20) | ||||||||||
| Persons Covered |
|
||||||||||
| Eligible Amount |
|
||||||||||
| Relevant Conditions/Points |
|
||||||||||
| Extent of Deduction | 100% of such income for first 5 consecutive assessment years beginning with the assessment year relevant to the previous year in which permission u/s 23(1)(a) of the Banking Regulation Act, 1949, or permission or registration under the Securities and Exchange Board of India Act, 1992, or any other relevant law was obtained and thereafter 50% of such income for next 5 consecutive assessment years. |
Double Tax Avoidance Agreement (DTAA)
Renaissance in International taxation – Multilateral Instrument (MLI)
As we may be aware, India being a member to Group of Twenty (‘G20’) is committed to implement the Action Points recommended in Base Erosion and Profit Shifting (‘BEPS’) project. One of the measure recommended by Organization for Economic Co-operation and Development (‘OECD’) on BEPS project is development of a Multilateral Instrument (MLI).
Action Plan 15, contemplated preparation of a MLI to modify existing bilateral tax treaties in a synchronized and efficient manner to implement the tax treaty measures developed during the BEPS Project. The modification may be done without the need to spend resources individually renegotiating each Double Tax Avoidance Agreement (‘DTAA’) bilaterally. The action plans that require amendment through a treaty may now be implemented through MLI. Now, one needs to read MLI in consonance with the DTAA to determine the taxability.
The first joint signing ceremony of MLI was held in Paris on 7 June 2017. India is one of the signatories to MLI. The status update of 22 March 2018 by OECD[1] reports that 78 jurisdictions have signed MLI and six other jurisdictions have shown the intent to sign MLI. The latest jurisdictions to sign the MLI are Barbados, Côte d’Ivoire. Jamaica, Malaysia, Panama and Tunisia on 24 January 2018.
The MLI positions provided at the time of signature by India along with other jurisdictions may be subject to changes. The definitive position for each jurisdiction may be arrived once each jurisdiction deposits its instrument of ratification, acceptance or approval with the OECD.
Subsequently, the effective date may be notified. As on date, only five jurisdictions have deposited their instrument of ratification, acceptance or approval with the OECD, wherein MLI provisions will be effective from 1 July 2018. These jurisdictions are Austria, Isle of Man, Jersey, Poland and Slovenia.
India has not yet deposited its instrument of ratification, acceptance or approval with the OECD. Once the said instrument is deposited with OECD and the effective date is notified, one will have to read DTAA provisions in consonance with the MLI to determine the taxability.
Rates of Dividend, Interest, Royalty and Fees for technical services under DTAA between India and other jurisdictions
| No. | DTAA between India & | Dividend | Interest | Others | Remarks | |||||
| General Rate | Special Rate [Note 5] | Level of voting control (%) | General Rate | Special Rate for Bank | Special Rate for Govt. | Royalties | Fees For Technical Services | |||
| 1. | Albania | 10 | 10 | E | 10 | 10 | Effective from
AY 2015-16. |
|||
| 2. | Armenia | 10 | 10# | E | 10 | 10 | Effective from
AY 2006-07. # Interest derived and beneficially owned by certain entities exempt. |
|||
| 3. | Australia | 15 | 15 | Note 2 | Note 1 | Effective from
AY 1993-94 |
||||
| 4. | Austria | 10 | 10 | E | 10 | 10 | Effective from
AY 2003-04 |
|||
| 5. | Bangladesh | 15 | 10 | 10% | 10 | E | 10 | Note 1 | Effective from
AY 1994-95 |
|
| 6. | Belarus | 15 | 10 | 25% | 10 | E | 15 | 15 | Effective from
AY 2000-01 |
|
| 7. | Belgium | 15 | 15 | 10 | 10# (Note 12) | 10#
(Note 12) |
Effective from
AY 1999-00 #Rate & scope modified on account of Indo-Sweden Treaty |
|||
| 8. | Bhutan | 10 | 10 | E | 10 | 10 | Effective from AY 2016-17 | |||
| 9. | Botswana | 10 | 7.5 | 25% | 10 | E | 10 | 10 | Effective from
AY 2010-11 |
|
| 10. | Brazil | 15 | 15 | E | 25# | 15 | Effective from
AY 1994-95 #Royalties other than “Royalty arising from use or right to use trademarks” taxable at 15%. FTS covered under Royalty article as per protocol |
|||
| 11. | Bulgaria | 15 | 15 | E | 20# | 20 | Effective from
AY 1997-98 #Royalties relating to Copyrights etc. taxable at 15% |
|||
| 12. | Canada | 25 | 15 | 10% | 15 | E | Note 2 | Note 2 Note 11 | Effective from
AY 1999-00 |
|
| 13. | China (Note 9) | 10 | 10 | E | 10 | 10 | Effective from
AY 1996-97 |
|||
| 14. | Colombia | 5 | 10 | E | 10 | 10 | Effective from
AY 2016-17 |
|||
| 15. | Croatia | 15 | 5 | 10% | 10 | E | 10 | 10 | Effective from
AY 2017-18 |
|
| 16. | Cyprus | 10 | 10 | E | 10 | 10 | Effective from
AY 2018-19 |
|||
| 17. | Czech Republic | 10 | 10 | E | 10 | 10 | Effective from
AY 2001-02 |
|||
| 18. | Denmark | 25 | 15 | 25% | 15+ | 10+ | E | 20 | 20 | Effective from
AY 1991-92 |
| 19. | Ethiopia | 7.5 | 10 | E | 10 | 10 | Effective from
AY 2014-15 |
|||
| 20. | Estonia | 10 | 10 | E | 10 | 10 | Effective from
AY 2014-15 |
|||
| 21. | Fiji | 5 | 10 | E | 10 | 10 | Effective from
AY 2016-17 |
|||
| 22. | Finland (Note 12) | 10 | 10 | E | 10 | 10 | Effective from
AY 2012-13 |
|||
| 23. | France (Note 12) | 10# | 10# | E | 10# | 10# | Effective from
AY 1996-97 #Rate & Scope modified on account of Indo-Sweden Treaty |
|||
| 24. | Germany | 10 | 10 | E | 10 | 10 | Effective from
AY 1998-99 |
|||
| 25. | Georgia | 10 | 10 | E | 10 | 10 | Effective from
AY 2013-14 |
|||
| 26. | Greece | Note 3# | Note 3# | Note 3# | Note 1 | Effective from
AY 1965-66 #Dividend, interest & Royalties chargeable as per domestic law in source country only. |
||||
| 27. | Hong Kong (Not notified) | 5 | 10 | E | 10 | 10 | Please refer Note 16. | |||
| 28. | Hungary (Note 12) | 10 | 10# | E | 10 | 10 | Effective from
AY 2007-08 #Interest received and beneficially owned by certain entities is exempt. |
|||
| 29. | Iceland | 10 | 10 | E | 10 | 10 | Effective from
AY 2009-10 |
|||
| 30. | Indonesia | 10 | 10 | E | 10 | 10 | Effective from AY 2018-19 | |||
| 31. | Ireland | 10 | 10 | E | 10 | 10 | Effective from
AY 2003-04 |
|||
| 32. | Israel # | 10 | 10 | E | 10 | 10 | Effective from
AY 1995-96 #MFN clause deleted w.e.f AY 2018-19 |
|||
| 33. | Italy | 25 | 15 | 10% | 15+ | E | 20 | 20 | Effective from
AY 1997-98 |
|
| 34. | Japan | 10 | 10# | E | 10 | 10 | Effective from
AY 1991-92 #Interest derived and beneficially owned by certain entities is exempt. |
|||
| 35. | Jordan | 10 | 10 | E | 20 | 20 | Effective from
AY 2001-02 |
|||
| 36. | Kazakhstan | 10 | 10 | E | 10 | 10 | Effective from
AY 1999-00 Please refer note 17. |
|||
| 37. | Kenya | 10 | 10 | E | 10 | 10 | Effective from AY 2019-20 | |||
| 38. | Korea (South) | 15 | 10 | E | 10 | 10 | Effective from
AY 2018-19 |
|||
| 39. | Kuwait | 10# | 10 | E | 10 | 10 | Effective from
AY 2009-10 #Dividend received by Government is exempt. |
|||
| 40. | Kyrgyz Republic | 10 | 10# | E | 15 | 15 | Effective from
AY 2003-04. #Interest derived and beneficially owned by certain entities is exempt |
|||
| 41. | Latvia | 10 | 10 | E | 10 | 10 | Effective from
AY 2015-16. |
|||
| 42. | Libya | Note 3# | Note 3# | – | Note 3# | Note 1 | Effective from
AY 1983-84 # Dividend, interest & Royalties chargeable as per domestic law in source country only. |
|||
| 43. | Lithuania | 15 | 5 | 10% | 10 | E | 10 | 10 | Effective from
AY 2014-15 |
|
| 44. | Luxembourg | 10 | 10# | E | 10 | 10 | Effective from
AY 2011-12 #Interest derived and beneficially owned by certain entities exempt |
|||
| 45. | Macedonia | 10 | 10 | E | 10 | 10 | Effective from
AY 2016-17 |
|||
| 46. | Malaysia | 5 | 10# | E | 10 | 10 | Effective from
AY 2014-15 #Interest derived and beneficially owned by certain entities exempt |
|||
| 47. | Malta | 10 | 10 | E | 10 | 10 | Effective from AY 2016-17. | |||
| 48. | Mauritius | 15 | 5 | 10% | 7.5 | E | E | 15+ | 10 | Effective from
AY 1984-85 Protocol effective from AY 2018-19 |
| 49. | Mexico | 10 | 10# | E | 10 | 10 | Effective from
AY 2012-13. #Interest derived and beneficially owned by certain entities exempt |
|||
| 50. | Mongolia | 15 | 15 | E | 15 | 15 | Effective from
AY 1995-96 |
|||
| 51. | Montenegro | 15 | 5 | 25% | 10 | E | 10 | 10 | Effective from
AY 2010-11 |
|
| 52. | Morocco | 10 | 10 | E | 10 | 10 | Effective from
AY 2001-02 |
|||
| 53. | Mozambique | 7.5 | 10# | E | 10 | Note 1 | Effective from
AY 2013-14. # Interest derived and beneficially owned by certain entities exempt |
|||
| 54. | Myanmar | 5 | 10# | E | 10 | Note 8
Note 1 |
Effective from
AY 2011-12 # Interest derived and beneficially owned by certain entities exempt. |
|||
| 55. | Namibia | 10 | 10 | E | 10 | 10 | Effective from
AY 2001-02 |
|||
| 56. | Nepal | 10 | 5 | 10% | 10 | E | 15 | Note 1 | Effective from
AY 2014-15 |
|
| 57. | Netherlands (Note 12) | 10 | 10# | E | 10 | 10 (Note 11@) | Effective from
AY 1998-99 # Interest derived and beneficially owned by certain entities exempt. @Scope modified on account of Indo-UK Treaty |
|||
| 58. | New Zealand | 15 | 10 | E | 10 | 10 | Effective from
AY 1988-89 |
|||
| 59. | Norway | 10 | 10 | E | 10 | 10 | Effective from
AY 2013-14 |
|||
| 60. | Oman | 12.5 | 10 | 10% | 10 | E | 15 | 15 | Effective from
AY 1999-00 |
|
| 61. | Oriental Republic of Uruguay | 5 | 10 | E | 10 | 10 | Effective from
AY 2015-16 |
|||
| 62. | Philippines | 20 | 15 | 10% | 15# | E | 15 @ | Note 1 | Effective from
AY 1996-97 #10% in case of FIs, Ins. Co. and on public issues of bond, debentures, etc. @ subject to approval of agreement |
|
| 63. | Poland | 10 | 10 | E | 15 | 15 | New rates are effective from AY 2015-16 | |||
| 64. | Portuguese Republic | 15 | 10# | 25% | 10 | E | 10* | Note1 | Effective from
AY 2002-03. #Only if the capital is owned by a company for an uninterrupted period of 2 years prior to payment of the dividend. *Royalties include ‘Fees for included services’ |
|
| 65. | Qatar | 10 | 5 | 10% | 10 | E | E | 10 | 10 | Effective from
AY 2002-03 |
| 66. | Romania | 10 | 10 | E | 10 | 10 | Effective from
AY 2015-16 |
|||
| 67. | Russian Federation | 10 | 10 | E | 10 | 10 | Effective from
AY 2000-01 |
|||
| 68. | Saudi Arabia | 5 | 10 | E | 10 | Note 1# | #Tax on fees for technical service to be decided after five years after review of tax treaty. Effective from
AY 2008-09 |
|||
| 69. | Serbia | 15 | 5 | 25% | 10 | E | 10 | 10 | Effective from
AY 2010-11 |
|
| 70. | Singapore | 15 | 10 | 25% | 15# | 10 | 10 | 10
Note 11 |
#10% in case of Ins. Co., bank carrying on a bona fide banking business or similar FIs. Effective from
AY 1995-96. Please also refer Note 4. |
|
| 71. | Slovak Republic | 25 | 15 | 25% | 15 | E | 30 | 30 | The DTAA signed with Czechoslovak Socialist Republic continues to be applicable to the residents of the Slovak Republic, being one of the states to have succeeded Czechoslovak Socialist Republic. | |
| 72. | Slovenia | 15 | 5 | 10% | 10 | E | 10 | 10 | Effective from
AY 2007-08. |
|
| 73. | South Africa | 10 | 10 | E | 10 | 10 | Effective from
AY 1999-00 |
|||
| 74. | Spain | 15 | 15 | E | 10# (Note 12) | 10# (Note 12) | #Rate & Scope modified on account of Indo-Sweden Treaty | |||
| 75. | Sri Lanka | 7.5# | 10 | E | 10 | 10 | Effective from
AY 2015-16 #Subject to review after 3 years from the date the agreement enters into force. |
|||
| 76. | Sudan | 10 | 10# | E | 10 | 10 | Effective from AY 2006-07. #Interest derived and beneficially owned by certain entities is exempt | |||
| 77. | Sweden (Note 12) | 10 | 10# | E | 10 | 10 | Effective from
AY 1999-00 #Interest derived and beneficially owned by certain entities is exempt |
|||
| 78. | Switzerland (Note 12) | 10 | 10# | E | 10 | 10 | Effective from
AY 1996-97. Protocol in force on 10 Oct 2011, applicable from AY 2013-14 providing exemption for interest paid to resident of other contracting state engaged in operations of ships of aircraft in international traffic. #Interest derived and beneficially owned by certain entities is exempt |
|||
| 79. | Syria | 10 | 5 | 10% | 10 | E | 10 | Note 1 | Effective from
AY 2010-11 |
|
| 80. | Taipei (capital of Taiwan) | 12.5 | 10 | E | 10 | 10 | Effective from
AY 2013-14 |
|||
| 81. | Tajikistan | 10 | 5 | 25% | 10 | E | 10 | Note 1 | Effective from
AY 2011-12 |
|
| 82. | Tanzania | 10 | 5 | 25% | 10 | E | 10 | Note 1 | Effective from
AY 2013-14 |
|
| 83. | Thailand | 10 | 10 | E | 10 | Note 1 | Effective from
AY 2017-18 |
|||
| 84. | Trinidad & Tobago | 10 | 10# | E | 10 | 10 | Effective from
AY 2001-02 #Interest derived and beneficially owned by certain entities is exempt |
|||
| 85. | Turkey | 15 | 15 | 10# | E | 15 | 15 | #also applicable to financial institution | ||
| 86. | Turkmenistan | 10 | 10 | E | 10 | 10 | Effective from AY 1999-00 | |||
| 87. | Uganda | 10 | 10# | E | 10 | 10 | Effective from
AY 2006-07. # Interest derived and beneficially owned by certain entities exempt. |
|||
| 88. | Ukraine | 15 | 10 | 25% | 10 | E | 10 | 10 | Effective from
AY 2003-04 |
|
| 89. | United Arab Emirates | 10 | 12.5 | 5 | E | 10 | Note 1 | Effective from
AY 1995-96 |
||
| 90. | United Arab Republic (Egypt) | Note 3 | Note 3 | – | Note 3# | Note 1 | #Royalties taxable only in the source country. | |||
| 91. | United Kingdom | 10/15 | 15 | 10 | E | Note 2# | Note 2# Note 11 | # Please refer to Note 4. | ||
| 92. | United States of America | 25 | 15 | 10% | 15 | 10* | E | Note 2 | Note 2
Note 11 |
*Also applicable to bona fide FIs |
| 93. | Uzbekistan | 10 | 10 | E | 10 | 10 | Rates amended by Protocol entered into force on 20 July 2012, applicable from
AY 2014-15 |
|||
| 94. | Vietnam | 10 | 10 | E | 10 | 10 | Effective from
AY 1997-98 |
|||
| 95. | Zambia | 15+ | 5+# | 25% | 10+ | E | 10+ | 10 | #Only if the shares held for at least 6 months preceding payment of dividend.
Please refer Note 18. |
|
Note: The rates mentioned above are the rates of tax applicable in the source country. Taxability in the country of residence would be as per the domestic law of country of residence, unless otherwise specified.
+ Beneficial ownership may not be required
E Exempt from tax
Note 1: There is no separate provision for Fees for Technical Services under the Treaty. Therefore, the same may be taxed under “Business Profits” or “Independent Personal Services” as per relevant DTAA, whichever is applicable.
Note 2: In the country of source, Royalties and fees for technical services are taxed at following rates:
- 10% for equipment rental and for services ancillary or subsidiary thereto.
- For other cases:
- during 1st five years of agreement
- 15% if Government or Specified Organization is payer
- 20% for other payers
- subsequent years, 15% in all cases
- during 1st five years of agreement
Note 3: Taxable as per Domestic Law.
Note 4: Refer Treaty for detailed provisions.
Note 5: Special Rate of Tax on Dividend (other than Section 115-O Dividend) as mentioned in col. 4 is applicable if the recipient is a company beneficially holding at least specified percentage of voting control (mentioned in col, 5) in the company declaring Dividend.
Note 6: The above rates should be applied after carefully analysing and applying each Article of the Treaty and the Protocols, if any.
Note 7: Dividend u/s. 115-O is exempt u/s. 10(34) of the IT Act, 1961.
Note 8: Contracting States will review the provisions of this Agreement after a period of 4 years from the date on which this Agreement enters into force in order to consider the inclusion of an Article on “Fees for Technical Services” within the scope of this Agreement.
Note 9: DTAA with China does not extend to Hong Kong (Instruction No. 1947 dated 23-4-1998)
Note 10: The rate of tax on Royalties and Fees for Technical Services under section 115A is reduced from 25% to 10% w.e.f. 1 April 2016 under the IT Act, 1961.
Note 11: Definition of fees for technical/ included services include the concept of “make available technology”
Note 12: Most Favoured Nation Clause
Note 13: Central Government has notified Bermuda, British Virgin Islands, Cayman Islands, Gibraltar, Guernsey, Isle of Man, Jersey, Netherlands Antilles, Macau, Hong Kong and Sint Maarten as “Specified territory” under Explanation 2 to Section 90 of the Income tax Act.
Note 14: Central Government has entered into an agreement with UK, USA and Denmark for suspension of collection of taxes during Mutual Agreement Procedure.
Note 15: To be entitled, to claim relief under DTAA, a non-resident is required to submit a tax residency certificate and declaration in Form 10F.
Note 16: The India and Hong Kong DTAA is signed on 19 March 2018. However, it is not notified as on 15 April 2018 and thus, not effective.
Note 17: The amended protocol to India and Kazakhstan DTAA is notified on 12 April 2018. The said protocol is effective from the fiscal year beginning on or after the first day of April next following the date on which this Protocol enters into force (12 March 2018) viz. 1 April 2018.
Note 18: On 11 April 2018, India and Zambia signed a DTAA in Lusaka. The DTAA is not notified as on 15 April 2018. Once in force and effective, the new treaty will replace the India – Zambia DTAA (1981).
Note 19: On 17 February 2018, India and Iran signed a DTAA in New Delhi. The DTAA is not notified as on 15 April 2018 and thus, not effective
Domestic Transfer Pricing
INTRODUCTION
Finance Act, 2001 introduced detailed provisions relating to Transfer Pricing, requiring all ‘international transactions’ between ‘associated enterprises’ to be at arm’s length. Hitherto, the provisions of transfer pricing were applicable in relation to an international transaction only. However, after the grand success of International Transfer Pricing Hon’ble Finance Minister has cast his net wider and deeper for the next one by including “Specified Domestic Transactions (SDT)” in the purview of Transfer Pricing (TP).
OBJECTIVE
Section 40A of the Act empowers the AO to disallow unreasonable expenditure incurred between related parties. Further under Chapter VI-A and Section 10AA, the AO is empowered to recompute the income of the undertaking for the purposes of the deduction based on fair market value (FMV). However, no specific method is provided to determine the reasonableness of expenditure or FMV to re-compute the income in such related party transactions.
Thus while dealing with the issue that, whether the assessee company and its service provider are related companies in terms of section 40A(2), Hon’ble Supreme Court in CIT vs. GlaxoSmithKline Asia (P) Ltd. [(2010) 195 Taxmann 35] had observed “The larger issue is whether Transfer Pricing Regulations should be limited to cross-border transactions or whether the Transfer Pricing Regulations to be extended to domestic transactions?” The application and extension of the scope of TP regulations to domestic transactions would provide objectivity in determination of income from domestic related party transactions and determination of reasonable expenditure between related domestic parties. Also it will create a legal obligation on assessees to maintain proper documentation.
Keeping in view the observations of the Apex Court, the Finance Act, 2012 made amendments to Chapter X to extend the applicability of transfer pricing provisions to SDTs with effect from Assessment Year 2013-14.
SCOPE OF APPLICATION OF THE PROVISIONS
Specified Domestic Transaction (SDT) means any of the following transaction namely:
- any transaction referred to in Section 80A;
- any transfer of goods or services referred to in
Section 80-IA(8); - any business transacted between the assessee and other person as referred to in Section 80-IA(10);
- any transaction, referred to in any other section under Chapter VI-A or Section 10AA, to which Section 80-IA(8) or Section 80-IA(10) are applicable; or
- any other transaction as may be prescribed,
and where the aggregate of such transactions exceeds a sum of INR 20 crore (Up to assessment year 2015-16, this threshold limit was INR 5 crore).
The provisions of Domestic Transfer Pricing will apply only when the transaction qualifies as a SDT.
Generally, if a transaction is an international transaction, then the same will not be a SDT.
- Any transaction referred to in Section 80A
Section 80A(6) refers to transactions in respect of goods or services. Hence it would not cover a transaction which does not involve goods or services. This clause applies to both income as well as expenditure. - Any transfer of goods or services referred to in Section 80-IA(8)
Section 80-IA covers infrastructure developers, telecommunication service providers, developers of industrial parks and producers or distributors of power. Where any goods or services held for the purpose of eligible business are transferred to any other business carried on by the assessee or vice versa, the consideration has to be determined at ALP. - Any business transacted between the assessee and other person as referred to in Section 80-IA(10)
Due to close connection between the assessee carrying on the eligible business and any other person, if the business is arranged in such a manner that produces more than ordinary profits to the assessee, then the transaction has to be determined having regard to ALP. The term “close connection” has not been defined in the Act. The same has to be understood keeping in mind the relationship between the assessee and any other person may be by having reference to Section 40A(2)(b), related party as per AS 18/Ind AS 24 and so on. Substance over form should be considered. - Any transaction, referred to in any other section under Chapter VI-A or Section 10AA, to which Section 80-IA(8) or Section 80-IA(10) are applicable
The provisions of Section 80-IA(8) or Section 80-IA(10) apply to an undertaking referred in the below-mentioned sections:
| Sr. No. | Section | Description |
| 1 | 10AA | Persons with income from SEZ units |
| 2 | 80-IAB | Developers of SEZ |
| 3 | 80-IC/IE | Persons with units in specified states/ north eastern States claiming deduction |
| 4 | 80-ID | Hotels located in districts with World Heritage sites |
COMPUTATION OF ALP
In relation to a SDT, the following shall be computed having regard to the ALP:
- Allowance for an expenditure
- Allowance for interest
- An allocation of any cost or expense
- Any income
However, the above shall not be computed having regard to the ALP if it has the effect of reducing the taxable income or increasing the loss of the assessee.
The arm’s length price is to be determined using the most appropriate method out of the specified methods as prescribed, having regard to the nature or class of transaction or functions performed or such other relevant factors as may be prescribed. The six specified methods are as mentioned below:
- Comparable Uncontrolled Price Method (‘CUP’);
- Resale Price Method (‘RPM’);
- Cost Plus Method (‘CPM’);
- Profit Split Method (‘PSM’); and
- Transactional Net Margin Method (‘TNMM’)
- Any other method
With effect from Financial Year 2014-15, the concept of multiple year data has been introduced. Further, the ‘range concept’ has also been made applicable when: (a) the most appropriate method is either CUP Method, RPM, CPM, or TNMM; and (b) there are at least 6 comparables. Where these conditions are not fulfilled, ‘arithmetic mean’ shall continue to apply, as before, along with the tolerance range benefit.
ACCOUNTANT’S REPORT
Every person who has entered into specified domestic transaction has to obtain a report i.e., Form 3CEB from an independent practicing Chartered Accountant. This report should be furnished to the Income Tax Department before the due date of filing the return as mentioned under section 139(1) (Presently, 30th November of the relevant assessment year).The Report gives particulars of entities with whom SDT has been entered, SDT, arm’s length price and the method used for determining arm’s length price.
IMPLICATIONS DUE TO APPLICABILITY OF DTP
- The due date for filing the return of income is extended to 30th November of the relevant assessment year for the assessees who are covered by the provisions of DTP.
- Where the assessee has entered into a SDT the Assessing Officer may refer the computation of ALP to the Transfer Pricing Officer (TPO). In such a case if any reference is made to the TPO then the time limit for completion of assessment is extended to 33 months from the end of the assessment year in which the income was first assessable. The Finance Act, 2017 has made an amendment to reduce this time limit for F.Y. 2017-18 and F.Y. 2018-19 onwards to 30 months and 24 months respectively from the end of the assessment year in which the income was first assessable.
- Increased administrative and compliance burden for the assessee.
- Non-conforming with ALP leads to economic double taxation and also penalty for non-compliance.
OTHER PROVISIONS
All other provisions applicable to international transfer pricing transactions like documentation, reference to Transfer Pricing Officer, penalties, etc. are also applicable to specified domestic transactions.
However, the benefit of entering into Advance Pricing Agreement to determine ALP or the manner in which ALP is to be determined and safe harbour rules are not applicable to SDT.
TDS Rates for the A.Y. 2019-20 (In %)
| Section | Nature of Payment | Threshold Limit | Paid/Credited to | ||||||||
| An Individual, HUF, BOI, AOP Payments | Non-Resident Individual/ HUF/AOP/BOI | Non-Resident
Co-op. Society / Firm |
Foreign Company Payments | ||||||||
| (in ₹) | < 50 Lakhs | > 50 Lakhs but < 1 Crore | More than 1
₹ 1 Crore |
< 1 Crore | > 1 Crore | < 1 Crore | >1 Crore but
<10 Crore |
>10 Crore | |||
| 192 | Salary* | Normal Rate + Surcharge + 4% cess | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. |
| * After considering basic deduction u/ch VIA – Individual: ₹ 2,50,000, Senior Citizen: ₹ 3,00,000, Super Sr. Citizen ₹ 5,00,000/-.
Surcharge @ 10% if income is > 50 lakh but < 1 crore and @ 15% if income is > ₹ 1 crore |
|||||||||||
| 192A | Payment of Taxable accumulated balance of PF (applicable from June 1, 2015) | 50,000 | 10.00% | 10.40% | 11.44% | 11.96% | N.A. | N.A. | N.A. | N.A. | N.A. |
| 193 | Interest on Securities to any resident | ||||||||||
| (i) Interest on Debentures or securities (Listed) | 5,000 | 10% | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | |
| (ii) Interest on 8% Savings (Taxable) Bonds, 2003 | 10,000 | 10% | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | |
| (iii) Interest on new 7.75% Government of India (Taxable) Bonds, 2018 | 10,000 | 10% | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | |
| (iv) Any other interest on securities (Unlisted) | Any Amount | 10% | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | |
| 194 | Dividend other than dividend covered by Section 115-O to Resident | 2,500 | 10% | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. |
| 194A | Interest other than interest on securities | ||||||||||
| Where the payer is— | |||||||||||
| (i) Banking company | 10,000 or 50,000 (in case of senior citizen) | 10% | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | |
| (ii) Co-operative society engaged in banking | 10,000 or 50,000 (in case of senior citizen) | 10% | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | |
| (iii) Post office under a deposit scheme framed by Central Government | 10,000 or 50,000 (in case of senior citizen) | 10% | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | |
| (iv) Others | 5,000 | 10% | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | |
| 194B | Winnings from Lotteries | 10,000 | 30% | 31.20% | 34.32% | 35.88% | 31.2% | 34.944% | 31.20% | 31.824% | 32.76% |
| 194BB | Winnings from Horse Races | 10,000 | 30% | 31.20% | 34.32% | 35.88% | 31.20% | 34.944% | 31.20% | 31.824% | 32.76% |
| 194C | Payment to Resident Contractors# | ||||||||||
| – Individual / HUF | 30,000** Single Tran-saction/ credit | 1% | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | |
| – Any other person | 2% | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | ||
| **The payments in a year in aggregate exceeds of ₹ 1,00,000 also attract TDS at above rates.
# Payment made to transporters shall not be liable for TDS if the Transporter owns 10 or less than 10 goods carriages & declaration is furnished to this effect with PAN No. |
|||||||||||
| 194D | Insurance Commission to Resident | ||||||||||
| – Other than Company | 15,000 | 5% | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | |
| – Domestic Company | 10% | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | ||
| 194DA | Payment in respect of life Insurance Policy | 1,00,000 | 1% | N.A. | N.A. | N.A. | N.A | N.A. | N.A. | N.A. | N.A. |
| 194E | Non-Resident sportsman/ sports association | Any Amount | N.A. | 20.80% | 22.88% | 23.92% | 20.80% | 23.296% | 20.80% | 21.216% | 21.84% |
| 194EE | Deposits under NSS and if the payment is to Resident | 2,500 | 10% | 10.40% | 11.44% | 11.96% | N.A. | N.A. | N.A. | N.A. | N.A. |
| 194F | Repurchase of units of MF/UTI Resident | Any Amount | 20% | 20.80% | 22.88% | 23.92% | N.A. | N.A. | N.A. | N.A. | N.A. |
| 194G | Commission on sale of lottery tickets to | 15,000 | 5% | 5.20% | 5.72% | 5.98% | 5.20% | 5.824% | 5.20% | 5.304% | 5.46% |
| 194H | Commission or brokerage to resident | 15,000 | 5% | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. |
| 194-I | Rent to Resident for | ||||||||||
| (a) Machinery/plant/equipments | 1,80,000 | 2% | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | |
| (b) For Land/Building | 10% | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | ||
| 194-IA | Transfer of immovable property other than an Agricultural land. | 50,00,000 | 1% | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. |
| 194-IB | Rent to resident not subject to Audit u/s. 44AB
(w.e.f 1-6-2017) |
50,000 p.m | 5% | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. |
| 194-IC | Payment under joint development agreement
(w.e.f 1-4-2017) |
___ | 10% | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. |
| 194J | Fees for Professional/Technical services to Resident | ||||||||||
| (a) In case of Individual/HUF/BOI/Company/Firm | 30,000 | 10% | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | |
| (b) In case of payee engaged in the business of operation of call centre | 30,000 | 2% | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | |
| 194LA | Compensation to Resident for compulsory acquisition of immovable property | 2,50,000 | 10% | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. |
| 194LB | Payment for interest by Infrastructure Debt Fund to Non-Resident | — | N.A. | 5.20% | 5.72% | 5.98% | 5.20% | 5.824% | 5.20% | 5.304% | 5.46% |
| 194LBA(1) | Payment of nature referred to in sections 10(23FC)/10(23FCA)] by business trust to resident unitholders | — | 10% | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. |
| 194LBA(2) | Payment of the nature referred to in section 10(23FC) by business
trust to unitholders |
— | N.A. | 5.20% | 5.72% | 5.98% | 5.20% | 5.824% | 5.20% | 5.304% | 5.46% |
| 194LBA(3) | Payment of the nature referred to in section 10(23FCA) by business
trust to unitholders to Non-Resident |
— | N.A. | 31.20% | 34.32% | 35.88% | 31.20% | 34.944% | 41.60% | 42.432% | 43.68% |
| 194LBB | Payment in respect of units of investment fund specified in section 115UB | — | 10% | 31.20% | 34.32% | 35.88% | 31.20% | 34.944% | 41.60% | 42.432% | 43.68% |
| 194LBC(1) | Payment in respect of Securitisation Trust specified in Section 115TCA | ||||||||||
| – Individual / HUF | — | 25% | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | |
| – Any other person | 30% | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | ||
| 194LBC(2) | Payment in respect of Securitisation Trust specified in Section 115TCA | — | N.A. | 31.20% | 34.32% | 35.88% | 31.20% | 34.944% | 41.60% | 42.432% | 43.68% |
| 194LC | Payment of interest to non-Resident (approved by Central Government) Interest borrowed during 1-7-2012- 1-7-2020 | — | — | 5.20% | 5.72% | 5.98% | 5.20% | 5.824% | 5.20% | 5.304% | 5.46% |
| 194LD | Payment of interest to FIIs, Qualified Foreign Investor on Interest paid during 1-6-2013- 1-7-2020 to non-resident | — | N.A. | 5.20% | 5.72% | 5.98% | 5.20% | 5.824% | 5.20% | 5.304% | 5.46% |
| 196B | Income from units (including long-term capital gain on transfer of such units) to an offshore fund Non-Resident | — | N.A. | 10.40% | 11.44% | 11.96% | 10.40% | 11.648% | 10.40% | 10.608% | 10.92% |
| 196C | Income from foreign currency bonds or GDR of Indian company | — | N.A. | 10.40% | 11.44% | 11.96% | 10.40% | 11.648% | 10.40% | 10.608% | 10.92% |
| 196D | Income of FII from Securities not being dividend, long-term and short-term capital gain | — | N.A. | 20.80% | 22.88% | 23.92% | 20.80% | 23.296% | 20.80% | 21.012% | 21.63% |
TCS RATES FOR THE A.Y. 2019-20 (IN %)
| Section | Nature of Payment | Threshold Limit | Paid/Credited to | ||||||||
| An Individual, HUF, BOI, AOP Payments | Non-Resident Individual/ HUF/AOP/BOI | Non Resident
Co-Op. Society / Firm |
Foreign Company Payments | ||||||||
| (in ₹) | < 50 Lakhs | > 50 Lacs but < 1 Crore | More than 1 Crore | < 1 Crore | > 1 Crore | < 1 Crore | >1 Crore but
<10 Crore |
>10 Crore | |||
| 206C | Alcoholic liquor for human consumption (Other than Indian Made Foreign Liquor) | Any Amount | 1% | 1.04% | 1.144% | 1.196% | 1.04% | 1.1648% | 1.04% | 1.0608% | 1.092% |
| 206C | Indian Made Foreign Liquor | Any Amount | 1% | 1.04% | 1.144% | 1.196% | 1.04% | 1.1648% | 1.04% | 1.0608% | 1.092% |
| 206C | Tendu Leaves | Any Amount | 5% | 5.20% | 5.72% | 5.98% | 5.20% | 5.824% | 5.20% | 5.304% | 5.46% |
| 206C | Timber obtained under forest lease | Any Amount | 2.50% | 2.60% | 2.86% | 2.99% | 2.60% | 2.912% | 2.60% | 2.652% | 2.73% |
| 206C | Timber obtained by any mode other than forest lease | Any Amount | 2.50% | 2.60% | 2.86% | 2.99% | 2.60% | 2.912% | 2.60% | 2.652% | 2.73% |
| 206C | Any other forest produce (not being timber or tendu Leaves) | Any Amount | 2.50% | 2.60% | 2.86% | 2.99% | 2.60% | 2.912% | 2.60% | 2.652% | 2.73% |
| 206C | Scrap | Any Amount | 1% | 1.04% | 1.144% | 1.196% | 1.04% | 1.1648% | 1.04% | 1.0608% | 1.092% |
| 206C | Minerals | Any Amount | 1% | 1.04% | 1.144% | 1.196% | 1.04% | 1.1648% | 1.04% | 1.0608% | 1.092% |
| 206C | Parking lot, toll plaza, mining and mining and quarrying | Any Amount | 2% | 2.08% | 2.288% | 2.392% | 2.08% | 2.3296% | 2.08% | 2.1216% | 2.184% |
| 206C | Sale of motor vehicle where payment is received by cheque or any other mode for Sale of Motor vehicle valuing more than 10 Lakh | — | 1% | 1.04% | 1.144% | 1.196% | 1.04% | 1.1648% | 1.04% | 1.0608% | 1.092% |
Notes:
- In case of any non-resident non-corporate the same shall be increased by surcharge 15% if amount paid exceeds ₹ 1 crore along with Health & Education Cess 4%.
- The aforesaid person (except a seller of jewellery/bullion) shall not be deemed to be an assessee in default, if the buyer has included such income in the return submitted under section 139 and the buyer has paid tax on such income. The collector will have to submit a certificate to this effect from a Chartered Accountant.
- If PAN of the deductee is not intimated to the deductor, tax will be deducted at source either at the rate given in the table or at the rate of 20% whichever is higher.
- TCS on sale of Jewellery, Bullion and any other goods and services valuing more than 2 lakh is removed from the TCS provision.
- Twice the rate specified in above table or 5% whichever is higher needs to be deducted by collector if PAN is not intimated by collectee.
ELECTRONIC TDS RETURN (E-TDS) -2018
MANDATORY REQUIREMENT OF FILING E-TDS RETURNS
W.e.f. 1st April, 2010, the following persons are mandatorily required to file TDS/TCS returns electronically on quarterly basis :
[Section 200(3) and Rule 31A]
- The deductor is an office of Government, or
- The deductor is a principal officer of a company; or
- The deductor is a person required to get his accounts audited under section 44AB in the immediately preceding financial year; or
- The number of deductees’ records in a statement for any quarter of the financial year is equal to more than Twenty.
It is however optional for the non-corporate deductors, other than 3 & 4 above, to file TDS Returns in physical form or in electronic form.
Due dates
As per Section 200 (3), read with and Rule 31A, any person deducting tax on or after April 1, 2005 shall within the prescribed time, prepare and deliver quarterly statements for the period ending 30th June, 30th September, 31st December and 31st March in each financial year. Every person, being a person responsible for deducting tax shall deliver to NSDL or their TIN-facilitation Centres quarterly statements in Form No. 24Q in respect of tax deducted on salary [i.e., u/s.192(1) and u/s. 192(1A)], in Form No. 26Q in respect of other cases of T.D.S., in Form No. 27Q in respect of T.D.S. on payments to non-residents and in Form 27EQ in respect of T.C.S. on sale of certain goods. The due dates of submitting the said quarterly statements are as under:— Due dates of filing various forms for the Financial Year 1.4.2017 to 31.3.2018 & 1.4.2018 to 31.3.2019
- (Quarterly Statements – PAN and TAN both necessary)
| Nature of Payment ? | Salary – 24Q /
Others – 26Q |
Payments to
Non-residents |
TCS | Interest <Rs.10,000/- by Banks/Co-op. Sty. etc.Or < Rs. 5,000 by specified public companies u/s.194A(3)(i) |
| Form Nos. | 24Q & 26Q
(Quarterly Basis) |
27Q
(Quarterly Basis) |
27EQ
(Quarterly Basis) |
26QAA
(Quarterly Basis) |
| Section Nos. | 200(3) | 200(3) | 206C(3) | 206A(1) |
| Rule Nos. | 31A | 31A | 31AA | 31ACA |
| W.E.F. | 1.4.2010 | 1.4.2010 | 1.4.2010 | 17.3.2006 |
| Quarter | Due date | Due date | Due date | Due date |
| April to June | 31 July | 31 July | 15 July | 31 July |
| July to Sept. | 31 October | 31 October | 15 October | 31 October |
| Oct. to Dec. | 31 January | 31 January | 15 January | 31 January |
| Jan to March | 31 May | 31 May | 15 May | 30 June |
Notes :
- All the above forms & the due dates are same for the E-TDS as well as for Paper-form TDS.
- In the TDS Quarterly Returns, the deductor shall furnish particulars of amounts paid/credited on which tax was not deducted due to—
- issuance of certificate of no deduction of tax u/s. 197 by the Assessing officer of the payee (w.e.f.
01-04-2011) - provisions of section 194C(6) (w.e.f. 1-4-2011)
- furnishing of declaration under sub-section (1)/ (1A)/(1C) of section 197A by the payee. (w.e.f. 1-11-2011).
- issuance of notification under sub-section (1F) of section 197A by the Central Government (w.e.f.
19-2-2013).
- issuance of certificate of no deduction of tax u/s. 197 by the Assessing officer of the payee (w.e.f.
- (Monthly Statements – PAN Based – TAN not necessary) – Mandatory e-Filing
| Nature of Payment | TDS on Purchase Of Certain
Immoveable Property |
TDS on Rent for use of land / building payable by Individuals/HUF, Not having Audit u/s. 44AB (Tax Audit) |
| Form Nos. | 26QB
(Challan-cum-Statement – Monthly basis) |
26QC
(Challan-cum-Statement – Monthly basis) |
| Section Nos. | 194IA, 200(3) | 194IB, 200(3) |
| Rule Nos. | 30(2A) | 30(2B) |
| W.E.F. | 1.6.2013 | 1.6.2017 |
| Due date | Due date | |
| Within 30 days from the end of the Month in which deduction is
made.i.e. It is a Monthly and NOT a Quarterly Statement. |
Within 30 days from the end of the Month in which deduction is
made.i.e. It is a Monthly and NOT a Quarterly Statement. |
Quoting TAN/PAN
Person responsible for deducting tax at source shall quote his TAN and PAN and also quote the PAN of all persons in respect of whose income tax has been deducted, except in cases where deductee furnishes a declaration referred to in Section 197A (i.e., Form No.15H/15G). As far as NSDL Programme is concerned, deductor can write “PANNOTAVBL”, if PAN is not available or write “PANINVALID” for incorrect PAN or write “PANAPPLIED” where application for PAN is made. Deductees’ PAN should not be less than 95% for 24Q form and 85% for 26Q/27EQ form of the PAN data for q.e. 31-3-2008 and onwards. Deductors can file a return containing deductee details, who have provided valid PAN. It can subsequently file a correction return with details of remaining deductees
.
Form 27A
The only thing to be furnished in physical form along with CD/ Pen-drive is Form No. 27A. Form No. 27A is a summary of TDS statement, which contains control totals of “Amount paid” and “Income tax deducted at source”. The control totals mentioned on Form No. 27A should match with the corresponding control totals in e-TDS statement file. W.e.f. 1st February 1, 2014, it is mandatory to submit Form 27A generated by the NSDL Utility.
CERTAIN IMPORTANT INFORMATION
- Related Websites:
- For New TAN: New TAN can be searched on website “incometaxindia.gov.in” by feeding old TAN or Company’s name.
- For downloading Form No. 24Q/26Q/27Q/27EQ and instruction, log on to “tin-nsdl.com”.
- If TAN is not available, taxes cannot be paid and e-TDS statement will not be accepted.
- Fees to be paid as under :
| Deductee Records | Fees
(excluding GST) |
| Up to 100 records | Rs. 42.37 |
| 101 to 1000 records | Rs.178/- |
| More than 1000 records | Rs. 578.50 |
- For filing e-TDS returns, List of Facilitation Centres can be downloaded from Website: www.tin-nsdl.com
- Furnishing of e-TDS Returns in Pen Drive/CD w.e.f. 18-3-2011:
- e-TDS/TCS statement should be submitted in Pen Drive or CD.
- Deductors / Collectors should check the feasibility of acceptance of statement in pen drive with TIN Facilitation centres before submission
- The Pen Drive/CD may contain multiple e-TDS/TCS statements.
- The Pen Drive/CD will be returned after acceptance of statements i.e. TIN centre will copy the data in its record and return the Pen drive/CD.
PROCEDURE FOR PREPARING E-TDS RETURN (Form No. 24Q/26Q/27Q/27EQ)
- At present the following versions of utilities are applicable (w.e.f. 1st April, 2018) :
Following Return Preparartion Utility (RPU) Versions are available for Original as well for
Correction Statements :
| Type of Form | F.Y. 2007-08 & onwards |
| 24Q/26Q/27Q/27EQ | 2.2 |
Following File Validation Utility (FVU) Versions are available for Original as well for Correction
Statements :
| Type of Form | Upto F.Y. 2009-10 | F.Y. 2010-11 & Onwards |
| 24Q/26Q/27Q/27EQ | 2.153 | 5.7 |
All deductors are required to ensure that quarterly e-TDS/TCS returns filed are as per the latest data structure. Any statement filed as per the old data structure will be rejected at TIN.
PROCEDURE :
- The RPU can be best viewed under 1024 by 768 pixels (minimum) resolution.
Download the necessary files (RPU/FVU):- JRE version SUN JRE: 1.6 onwards should be installed in the computer.
- Download latest version of RPU (Java Based) files for Forms from the NSDL website –www.tin.nsdl.com
- The RPU/FVU will be downloaded in zip format, which can be downloaded in any folder by giving it the desired path.
- Double click the file so as to make it unzipped.
- As a result, a folder named e-TDS RPU 2.2 will be created. In this folder there are 3 system folders & 21 files/documents. For E-TDS Return preparation, RPU.exe [displayed as “TDS_RPU” (Executable Jar File) ] file is to be utilised.
- Double click on RPU. Java file will be displayed.
- Select the necessary Form (No. 24Q/26Q/27Q/27EQ) using the drop–box.
- Select the type of statement (Regular/Correction) to be prepared.
- Complete all sheets viz. Form, Challan details and Annexures (i.e., deductee details).
- Flags to be selected in the column “Reason for lower or non deduction of tax” as under:
| FLAG | FOR |
| A | Lower/No deduction for certificate u/s. 197 |
| B | No deduction for declaration u/s. 197A |
| C | Higher deduction where PAN is not available |
| T | No deduction for Transporters having PAN [sec.194C (6)] |
| Y | No deduction due to payment below threshold limit. |
| S | For software acquired u/s. 194J as per conditions given in Notification No.21/13-06-2012 |
| Z | No deduction due to payment u/s. 197(1F). |
- Challan Input File
This file has to be downloaded from the NSDL Website from Challan Status Inquiry for the verification of challan in TDS/TCS statement. Once the challans are matched, the file can be downloaded and saved in the appropriate (same) folder of the relevant form.
Specify the name (with the .csi extension) of the input file (including the path) i.e. the name of the challan file downloaded from Challan Status Inquiry for the verification of challan in TDS/TCS statement.
- Warning file is generated by FVU if:
- The value in the Bank Branch Code (BSR code) field of challan in the e-TDS/TCS statements is not present in the authorised list of collecting Bank Branch Codes in the FVU and/or
- If the PAN of the deductor is same as that of any deductee in the e-TDS/TCS statement.
- If the challans details of the statement do not match with the details uploaded by the bank.
- After filling up all the data in all the sheets and final saving of the input file, click on “CREATE FILE” option. Once this is done, the screen will display “File Validation Successful”. The file will be validated automatically and the validation results will be saved by default in the same folder, where the input file is saved along with Form 27A which needs to be printed and submitted physically. The valid e-file will be created, which may be copied on a CD or Pen-drive.
- In case of errors, an Error-Response file will be generated giving the error report.
PROCEDURE FOR REVISING E-TDS/TCS RETURN (CORRECTION IN E-TDS/TCS STATEMENTS)
For Correction of Returns, the Deductors/ Collectors have to register their TAN with the TDS Website “TRACES” viz. www.tdscpc.gov.in (and not with www.tin-nsdl.com). After the TAN is registered, the online request has to be made to download the latest consolidated file (i.e. the last TDS return as filed by the deductor and accepted by the NSDL). Once this file is generated, the e-TDS /TCS Return can be revised
(Corrected). For certain defaults, online Corrections also can be also done on “TRACES”.
NEW PROCEDURE w.e.f. 01.05.2016 TO UPLOAD e-TDS STATEMENT ON THE INCOMETAX WEBSITE www.incometaxindiaefiling.gov.in relating to A.Y. 2011-12 and onwards:
Now TDS statements (Returns) can be uploaded like Income Income Tax Returns on the Income Tax website.
Pre-requisites :
- TAN should be registered on e-filing website.
- TDS statements should be prepared using the prescribed RPU & FVU.
- DSC should be registered on e-filing website.
Upload Procedure :
- On e-filing Home page, Login using User ID (TAN) / Password.
- Go to “TDS” and click on “Upload TDS” .
- Fill up the Statement details using drop boxes. (FVU Version /A.Y./ Form Name / Quarter/ Upload Type)
- Click validate.
- “Upload TDS Return” page will open.
- Attach validated TDS zipped file.
- Attach DSC, using DSC Management Utility.
- Click on “Upload”.
- “Upload TDS Successful” message will be displayed on the screen. A confirmation mail will be sent to the Registered email ID.
- Status of TDS statement will be available after 24 hours. (Transaction no. / Token no. to be furnished)
- To view status, Login and go to “TDS” and click on “View Filed TDS”.
- Fill up the Statement details using drop boxes. (A.Y./ Form Name / Quarter )
- Click on “View Details”.
- The Statement status will be displayed as “Accepted” or “Rejected”. In case of “Rejected” , Reasons for rejection will also be displayed. Click on the Token No. to view error details.
Fees & Other Charges Under Direct Taxes
PAN/TAN APPLICATION CHARGES (INCLUSIVE OF SERVICE TAX)
| Sr. No. | Particulars | Amount |
| 1 | PAN Application (Original/Correction) with UTISL & TIN facilitation centre | ₹ 110/- |
| 2 | PAN Applications (where foreign address is provided as address for communication) | ₹ 1020/- |
| 3 | TAN Application with TIN facilitation centre | ₹ 65/- |
Note:–
- For getting TCS Number, no separate application is required to be made.
- Central/State Governments and Statutory/Autonomous Bodies cannot make payment through Credit Card. Others can make payment online through Credit Card for which additional surcharge of ₹ 5/- will be charged.
- With effect from 13-2-2007, Tatkal facility for PAN and TAN application with Credit Card payment has been withdrawn.
TDS RETURN
- TDS return with TIN facilitation centre Charges (inclusive of service tax) are dependent upon number of records, as under:
| Sr. No. | Particulars | Amount |
| 1 | Returns having records of up to 100 deductees | ₹ 45/ |
| 2 | Returns having records of 101 to 1000 deductees | ₹ 210/- |
| 3 | Returns having records of more than 1000 deductees | ₹ 683/- |
- The organisation desirous of availing the facility for online upload of electronic statements (e-TDS/TCS), signed digitally, shall make a minimum payment of ₹ 1,000/-
(advance amount deposited for electronic statement upload charges) at the time of making registration.
FURNISHING OF PAPER RETURN TO BE DIGITISED BY AGENCY/E-INTERMEDIARY IN ELECTRONIC FORM
| Sr. No | Particulars | Amount |
| 1 | Furnishing paper TDS return to agency under Scheme for Furnishing of paper Returns of Tax Deducted at Source, 2005 (NOTIFICATION NO. 179/2005 [F.No.142/4/2005-TPL] dtd. 30-6-2005 | NIL |
| 2 | Furnishing paper TCS return to agency under Scheme for Furnishing of paper Returns of Tax Collected at Source, 2005 (NOTIFICATION NO. 180/2005 [F.No.142/4/2005- TPL] dtd. 30-6-2005 | NIL |
| 3 | Preparation & filing of tax return through tax return preparers | ₹ 250/- |
| 4 | Furnishing paper return of income tax with e-intermediately under the Electronic Furnishing of Return of Income Scheme, 2007 within specified cities (having income under all heads) (NOTIFICATION NO. SO 1281(E), dtd. 27-7-2007) | Under these schemes no fees prescribed. |
| 5 | Furnishing paper return of income tax with e-intermediately under the Electronic Furnishing of Return of Income Scheme, 2007 within Specified cities (having income from business) (NOTIFICATION NO. SO 1281(E), dtd. 27-7-2007) | – do – |
APPEAL FILING FEES
- Commissioner of Income Tax (Appeals)
| Sr. No. | Particulars | Amount |
| 1 | Under Section 249 of Income-tax Act | |
| • Assessed income up to ₹ 1,00,000 | ₹ 250/- | |
| • Assessed income between ₹ 1,00,001 & ₹ 2,00,000 | ₹ 500/- | |
| • Assessed income exceeding ₹ 2,00,001 | ₹ 1,000/- | |
| • Any other matter (refer note below) | ₹ 250/- | |
| 2 | Under Section 23 of Wealth Tax Act | ₹ 250/- |
- ITAT
| Sr. No. | Particulars | Amount |
| 1 | Under Section 253 of Income-tax Act | |
| • Assessed income up to ₹ 1,00,000 | ₹ 500/- | |
| • Assessed income between ₹ 1,00,001 & ₹ 2,00,000 | ₹ 1,500/- | |
| • Assessed income exceeding ₹ 2,00,001 | 1% of assessed income, maximum ₹ 10,000/- | |
| • Any other matter (refer note below) Stay of demand | ₹ 500/- | |
| 2 | Under Section 254 of Income-tax Act | |
| • Miscellaneous Application | ₹ 50/- |
Note : Appeals in relation to assessed loss, Penalty, TDS, TCS, interest & revision u/s 263 filing fees shall be as per residuary clause; i.e., ₹ 250 with Commissioner (Appeals) & ₹ 500 with ITAT (for appeal against penalty order refer Dr. Ajith Kumar Pandey vs. ITAT (2009) 310 ITR 195 (Patna) and for revision order refer Jet Electronics vs. ACIT (2008) 2 DTR 337 (Ahd.))
REVISION APPLICATION FEES
| Sr. No. | Particulars | Amount |
| 1 | Under Section 264 of Income-tax Act | ₹ 500/- |
SETTLEMENT COMMISSION APPLICATION FEES
| Sr. No. | Particulars | Amount |
| 1 | Under Section 245C of Income-tax Act, Rule 44C | ₹ 500/- |
COURT FEES
- Application before Authorities
| Sr. No. | Particulars (Type of Documents) | Amount |
| 1 | Vakalatnama | |
| • Income-tax Officer Inspecting Assistant Commissioner of IT, Appellate Assistant Commissioner of IT | ₹ 0.50/- | |
| • CIT | ₹ 1.00/- | |
| • Central Board of Revenue | ₹ 2.00/- | |
| 2 | Application obtaining copy of any order passed by IT authorities or any other document on the record | ₹ 6.00/- |
| of the IT authorities | ||
| 3 | Application other than referred in 2 above when presented to the CIT or Board | ₹ 1.00/- |
| 4 | Certified copy of any order of the IT authorities (not for private use nor intended for filing before the ITAT) | ₹ 0.50/- |
| 5 | Certified copy of other documents on record of IT Department (not for private use) (for every 360 words or fraction) | ₹ 50/- |
| 6 | Memorandum of Appeal | |
| • Before Assistant Commissioner of Income Tax | ₹ 0.50/- | |
| • Before Central Board of Revenue | ₹ 2.00/- | |
| 7 | Application for transfer of cases from one Income Tax Officer to another, other than on Change of address or such other valid reason, the existing ITO has ceased to hold jurisdiction | ₹ 1.00/- |
| 8 | Application for recognition of provident funds | ₹ 1.00/- |
| 9 | Application for compromise or issue of directions to Income Tax Officers when assessments are ₹ 1.00/- pending | ₹ 1.00/- |
| 10 | Application for hearing or for adjournment in connection with Sections 263 and 264 proceedings | ₹ 1.00/- |
| 11 | Form of Appeal before CIT(A) | ₹ 0.50/- |
| 12 | Copy of Assessment Order filed along with Appeal memo | ₹ 0.65/- |
| 13 | Application for stay of recovery or for grant of instalments for tax payments | ₹ 1.00/- |
| 14 | Application for rectification of mistakes u/s. 154 of the Income Tax Act, in the orders of CIT | ₹ 1.00/- |
Notes :–
- Power of Attorney/Letter of Authority in favour Chartered Accountant for attending before Income Tax Authority/ITAT should be stamped as per local stamp laws except Punjab Charges (Cir. No. 9 (XL-48), dated 18-5-1958 & No. 125 [F.No. 274/1/73-ITJ], dated 26-11-1973). Stamp duty in the State of Maharashtra/Gujarat/Goa is ₹ 200/-.
- All applications or petitions or representations which invoke any jurisdiction, authority, power, discretion, etc. whether real or supposed, vested in the Commissioner of Income Tax or the Central Board of Revenue / Central Board of Direct Taxes under the Income-tax Act or any other Act, shall be liable to Court fee under Schedule II of the Court Fees Act, 1870.
- Applications or representations which are in the form of complaints such as excessive in disposal of any matter (eg. petition requesting for direction to the Income Tax Officer about undue delay in issue of refund), ill-treatments (complains and representations against harassment caused by the Officers of the Income-tax Department), etc. which are not strictly referable to any provisions in the Income-tax Act or any other Act, is not liable to court fee.
- Petitions u/s. 264 is exempt from Court fees.
- The amendments made by various State Governments to the Court Fees Act, 1870 are not to be taken into consideration. (Circular : No. 50 (XL-43) of 1956, dated 28-12-1956)
- Illustrative list of application liable for Court Fees refer Circular No. 36 (XL-52), dated 19-11-1958
- Appeal Before High Court
| Sr. No. | Particulars | Amount |
| 1 | Under Section 260A of Income-tax Act | As per code of Civil Procedure & High Court Rules. The Bombay Court Fee Act Schedule-I, Entry 14, provides certain ad valorem per cent on the amount in dispute subject to maximum ₹ 10,000 |
| 2 | Under Section 27A of Wealth Tax Act |
Inspection Fees
| Sr. No. | Particulars | Amount |
| 1 | For first one hour or part thereof | ₹ 0.75/- |
| 2 | For every additional hour or part thereof | ₹ 0.50/- |
Copying Charges
| Sr. No. | Particulars | Amount |
| 1 | For the first 200 words or less | ₹ 0.75/- |
| 2 | For every additional 100 words or fraction thereof | ₹ 0.375/- |
Notes:-
- No copying charges are payable for the first copy where the assessee entitled to copy thereof under rules or instructions.
- Normally, applications for inspection or copies must be complied with within three days of their receipt.
- Where, however, an inspection or a copy is urgently required, i.e., on the very day on which an application for the same is received by the Income Tax Officer, the above rates of fees shall be increased by 100 per cent thereof. [Cir. No. 17 (XL-36), dated 28-6-1965]
Advance Rulings
GENERAL FRAMEWORK
The Authority for Advance Rulings (‘AAR’) is a body set up under the Act specifically to give advance rulings to non-residents and certain residents on the tax implications of their transactions. The prime objective for setting up the AAR was to avoid needless litigation and for promoting better relations with the taxpayers. The Finance Act, 2017 had amended the provisions relating to advance ruling to include applications under indirect tax laws as well.
MEANING OF THE TERM ‘ADVANCE RULING’
Clause (a) of section 245N of the Income-tax Act, 1961 (‘the Act’) defines the term ‘advance ruling’ to mean (a) the determination of a question of law or fact in relation to a transaction which has been undertaken or is proposed to be undertaken by a non-resident applicant and also includes the determination of the tax liability of a non-resident arising out of such transaction by a resident applicant with such non-resident (b) the determination of the tax liability of a resident applicant arising out of a transaction which has been undertaken or is proposed to be undertaken by such applicant (c) the determination or a decision on a question of law or fact relating to the computation of total income which is pending before any Income-tax authority or the Appellate Tribunal; (d) the determination or decision by the Authority whether an arrangement, which is proposed to be undertaken by any person being a resident or non-resident is an impermissible avoidance arrangement as specified in Chapter X-A dealing with General Anti Avoidance Rule (‘GAAR’) or not (inserted by Finance Act, 2013 w.e.f. 1-4-2015).
Thus, the AAR can rule on a question of law or fact in relation to a transaction which is proposed to be undertaken or which has already been undertaken. By obtaining such a ruling, an entity could know the tax implications of a transaction that it proposes to enter. Also w.e.f. 1-4-2015, the AAR can be approached to determine whether GAAR provisions apply to a proposed arrangement.
WHO CAN APPLY FOR AN ADVANCE RULING
Clause (b) of section 245N of the Act defines the term ‘applicant’ as
- A non-resident who proposes to enter into a transaction or has already entered into a transaction in India.
- A resident who proposes to enter into such transaction with the non-resident party.
- A resident falling within such class or category of persons as the Central Government may, by notification in the Official Gazette, specify. (Public Sector Undertakings have been notified videNotification No. 725(E) dated 3rd August, 2000 (refer to 245 ITR (St.) 5).
- A resident who has undertaken or proposed to undertake a transaction if the tax liability exceeds the defined threshold. (Notification No. 73/2014 dated 28th November, 2014 has notified the threshold limit for one or more transactions valuing ₹ 100 crores or more in total)
- A resident or non-resident who proposes to undertake an arrangement for which an application is made to AAR to determine whether the said arrangement is an impermissible avoidance arrangement as per GAAR provisions or not.
- An applicant as defined in clause (c) of section 28E of the Customs Act, 1962 (52 of 1962).
- An applicant as defined in clause (c) of section 23A of the Central Excise Act, 1944 (1 of 1944).
- An applicant as defined in clause (b) of section 96A of the Finance Act, 1994 (32 of 1994).
The scope of AAR has been widened to enable resident taxpayers to obtain an advance ruling in respect of transaction undertaken or proposed to be undertaken if their income-tax liability exceeds the defined threshold limit. It has also been provided that the Central Government shall notify the class or category of persons who are eligible to obtain such a ruling.
CONSTITUTION OF THE AAR
The AAR consists of the following members who are appointed by the Indian Government:
- A Chairman who is a retired judge of the Supreme Court or the Chief Justice of a High Court or for at least seven years a Judge of a High Court;
- A Vice-Chairman who has been a judge of the High Court;
- A Revenue Member from the Indian Revenue Service (IRS), who is, or is, qualified to be a member of the Central Board of Direct Taxes (‘CBDT’) on the date of occurrence of vacancy;
- A Revenue Member from the Indian Customs and Central Excise Service, who is, or is qualified to be, a Member of the Central Board of Excise and Customs on the date of occurrence of vacancy;
- A Law Member from the Indian Legal Service, who is, or is qualified to be, an Additional Secretary to the Government of India on the date of occurrence of vacancy.
In the event of the occurrence of any vacancy in the office of the Chairman by reason of his death, resignation or otherwise, the senior-most Vice-chairman shall act as the Chairman until a new Chairman is appointed.
In case the Chairman is unable to discharge his functions owing to absence, illness or any other cause, the senior-most Vice-Chairman shall discharge the functions of the Chairman until the date on which the Chairman resumes his duties.
The Finance Act, 2017 has introduced the qualifications, terms and conditions of service of Chairman, Vice-Chairman and other Members with effect from a date yet to be notified.
Upon formation of Customs Authority for Advance Ruling, such authority shall cease to act as AAR and shall act as an appellate authority for the purpose of the Customs Act. The appellate authority will be existing AAR formed under Income Tax Act. The appellate authority shall not admit any appeal against any ruling passed by it in the capacity of AAR.
BENCHES OF AAR
A Bench of the AAR shall include either the Chairman or the Vice-Chairman along with one Revenue Member and one law Member. In case of an application relating to the Act, the Revenue Member shall be from the IRS, who is, or is, qualified to be a member of the CBDT. The Central Government vide Notification No. (No.1/2015)/SO 812(E) dated 20th March, 2015 notified the creation of two additional benches of the AAR including one at National Capital Region (NCR) and one new bench at Mumbai, with effect from the date of publication of this notification in the Gazette of India (Extraordinary).
The Chairman of the AAR, vide its order under section 245O(6) dated 13 September 2017, has granted the powers and functions to the additional benches. The order provides for the territorial jurisdiction of the additional benches and also revises the existing jurisdiction of the Principal Bench in New Delhi.
However, the Chairman vide its order dated 19 September 2017 has decided that until further notice, the Principal Bench will continue to hear cases falling within the jurisdiction of the additional bench at NCR.
PROCEDURE FOR OBTAINING AN ADVANCE RULING
- Application for Advance Ruling:
- In case of a non-resident desiring to obtain ruling, an application has to be filed with the AAR in Form 34C.
- In case of a resident desiring to obtain ruling in relation to a transaction undertaken or proposed to be undertaken by him with a non-resident, an application has to be filed with the AAR in Form 34D.
- In case of a resident desiring to obtain ruling who is falling within any such class or category of person as notified by the Central Government in exercise of the powers, an application has to be filed with the AAR in Form 34DA.
- Applications by the notified resident applicants i.e. Public Sector Undertakings notified by the Central Government, have to be made to the AAR in Form 34E.
- In case of resident or non-resident desiring to obtain ruling in relation to the arrangement, which is undertaken or proposed to be undertaken, which an impermissible avoidance arrangement is as referred to in Chapter X-A (GAAR), an application has to be filed with the AAR in Form 34EA.
- Application in appropriate form shall be presented in person or through registered post or through authorised representative to Secretary AAR or such other designated person. Application can be withdrawn within thirty days from the date of the application.
- Application shall be filed in quadruplicate.
- Application made by a non-resident or a resident or any resident falling within any class or category of persons as specified by the Central Government shall be accompanied by a fee as mentioned under:
- If the amount of one or more transaction, entered into or proposed to be undertaken, does not exceed ₹ 100 crore, the application shall be accompanied by a fee of ₹ 2 lakhs
- If the amount of one or more transaction, entered into or proposed to be undertaken, exceeds ₹ 100 crore but does not exceed ₹ 300 crore, the application shall be accompanied by a fee of ₹ 5 lakhs
- If the amount of one or more transaction, entered into or proposed to be undertaken, exceeds ₹ 300 crore, the application shall be accompanied by a fee of
₹ 10 lakhs
- In all other cases, not mentioned above, the application shall be accompanied by a fee of ₹ 10,000
- On receipt of application, the AAR shall forward a copy of such application to the Principal Commissioner or Commissioner and may call for such records as it deems fit from Commissioner.
- The AAR, after examination of records call for, either allows or rejects application.
- The rejection of application cannot be made unless an opportunity of being heard is given to the applicant.
- Further, the CBDT on 12 April 2018 has proposed changes in the application process for obtaining advance ruling. The aim is to bring the process in line with Base Erosion and Profit Shifting (BEPS) Action 5 objectives, which mandate spontaneous exchange of information on ruling with countries of immediate as well as ultimate parents of taxpayers. The proposed modified forms seek details including names, address, the country of the residence and taxpayer identification number issued by the country of residence.
QUESTIONS ON WHICH ADVANCE RULING CAN BE SOUGHT
The AAR will not entertain an application where the question raised in the application —
- is already pending for adjudication by any Income Tax Authority or Appellate Tribunal (except in case of resident applicant falling within any class or category of persons as the Central Government may by notification specify) or any Court;
- involves the determination of fair market value of any property;
- relates to a transaction or issue which is designed prima facie for the avoidance of income-tax except:
- in the case of a resident applicant falling within any class or category of persons as the Central Government may by notification specify and
- in case of an applicant (resident or non-resident) proposing to enter into an arrangement for which application is made to the Authority for Advance Ruling to determine whether the same is hit by GAAR provisions or not.
POWERS OF THE AAR
The AAR has all the powers of a Civil Court under the Code of Civil Procedure, 1908, as are referred to in section 131 of the Act.
THE BENEFITS OF OBTAINING AN ADVANCE RULING
Obtaining an Advance Ruling:
- Helps residents and non-residents in planning their income tax affairs well in advance;
- Brings certainty in determination of the tax liability;
- Helps in avoiding long drawn litigation; and
- It is relatively inexpensive, expeditious and binding.
TIME LIMIT FOR THE AAR TO GIVE ITS RULING
It is mandatory for the AAR to pronounce its ‘advance ruling’ within a period of six months of the receipt of the application.
BINDING NATURE OF THE DECISION OF THE AAR
The ‘advance ruling’ pronounced by the AAR is binding —
- on the applicant;
- in respect of the transaction for which the ruling is sought; and
- on the Principal Commissioner or Commissioner, and the income-tax authorities subordinate to him, in respect of the applicant and the said transaction
Thus, the advance ruling is binding as aforesaid unless there is a change in law or facts on the basis of which the advance ruling has been pronounced.
FAVOURABLE RULINGS
- The Delhi High Court in the case of Hyosung Corporation 382 ITR 371 dealt with the issue of relevant date in the context of the words ‘already pending’ as mentioned in proviso to Section 245R(2) of the Act. The Delhi High Court held as under:
- The words ‘already pending’ in section 245R should be interpreted to mean ‘already pending as on date of application and not with reference to any future date’.
- The mere fact that a standard pre-printed notice to assess the return of income was issued by the Tax Authority before the event of filing of the AAR application would not result in pendency of the question raised in the application before the Tax Authority.
- A notice under section 142(1) of the Act issued prior to the filing of application, wherein the very same question was raised that was the subject matter of the AAR’s applications would constitute a bar, in terms of clause (i) to proviso to section 245R(2).
- The SLP filed by the Department in this case, has also been dismissed by the Supreme Court, 244 Taxman 286.
- The Delhi High Court in the case of LS Cable & System Ltd., 385 ITR 99 held that mere issuance of a notice under Section 143(2) of the Act which merely stated that the Assessing Officer would like some further information on certain points in connection with the return of income, which does not form part of subject matter of application filed before the AAR, this cannot be regarded as an issue being already pending before the AAR.
- The Delhi High Court in the case of Sage Publications Ltd. U.K. 387 ITR 437 held that the AAR cannot reject the applicant’s application by invoking proviso to Section 245R(2) of the Act in case where the scrutiny notice under Section 143(2) of the Act is issued by the Assessing Officer even prior to filing of application before AAR. This is since the said notice does not address any specific question and it does not even disclose application of mind to the income-tax return filed by the applicant. The SLP filed by the Department in this case, has also been dismissed by the Supreme Court, 246 Taxman 57.
CHALLENGE TO THE RULING OF THE AAR
The judicial hierarchy of admissibility of appeal against AAR ruling was discussed by the Supreme Court in the case of Columbia Sportswear Co. vs. DIT, 346 ITR 161. The Supreme Court held that the AAR ruling should be first challenged before the High Court unless it appears to the Supreme Court that the SLP raises substantial questions of general importance or a similar question is already pending before the Supreme Court for decision.
Rates of Securities Transactions Tax (STT) For Financial Year 2017-18
| Sr.No. | Nature of Transaction | Rate of STT w.e.f. 1st June, 2016 | “Value” on which STT payable | STT payable by |
| 1 | Delivery based transaction in equity shares entered into in a recognised stock exchange | 0.10% | Price at which shares/units are purchased/sold | In case of — Purchase by purchaser — Sale by Seller |
| 2 | Purchase of units of equity oriented fund | NIL | N.A | Purchaser |
| 3 | Sale of unit of an equity oriented fund to the mutual fund | 0.001% | Price at which units are sold | Seller |
|
4
|
Non-delivery based transaction in equity shares or units of ‘equity oriented fund’, units of business trust entered into in a recognised stock exchange | 0.025% | Price at which shares/units are sold | Seller |
| 5 | Sale of derivatives (futures and options), entered into in a recognised stock exchange (w.e.f. 1-6-2013) | |||
| 1. In case of sale of an option in securities | 0.05% (W.e.f. 01.06.2016) | Option premium | Seller | |
| 2. In case of sale of an option in securities where option is exercised | 0.125% | Settlement price of the option | Purchaser | |
| 3. Sale of a futures in securities | 0.010% | Price at which future is traded | Seller | |
| 4. Sale of unlisted equity share under an offer for sale to public, sale of unlisted units of business trust by a unitholder which were acquired | 0.2 | Price at which units are sold | seller |
Permanent Account Number (Pan) &
Tax Deduction and Collection Account
Number (Tan)
Mandatorily Obtain PAN [section 139A]
| Type of cases | Time limit for making an application |
| Any person whose total income during any previous year exceeded basic exemption limit | 31st May of the Assessment Year |
| Any person carrying on any business or profession whose total sales, turnover or gross receipts are or is likely to exceed ₹ 5 lakhs in any previous year | Before the end of previous year |
| Any person who is required to file return u/s. 139(4A) i.e. charitable trusts | Before the end of previous year |
| Any resident person other than Individual enters in to aggregate Financial transaction of 2,50,000 or more in a Financial year and also the Managing Director, Director, Partner, Trustee, Author, Founder, Karta, CEO of such entity | Before the end of previous year |
| Any person entitled to receive any sum or income or amount, on which tax is deductible under Chapter XVII-B in any previous year | Before the end of previous year |
| Exporters and importers who are required to obtain an importer-exporter code u/s. 7 of Foreign Trade (Development and Regulation) Act, 1992 | Before making any export or import |
| Assessees as defined in Rule 2(3) of the Central Excise Rules | Before making any application for registration under the Central Excise Rules |
| Persons who issue invoice under Rule 57AE requiring registration under the Central Excise Rules | Before making any application for registration under the Central Excise Rules |
| Assessees as defined in Section 65(6) of the Finance Act, 1994 relating to service tax | Before making an application for registration under the Service Tax Rules, 1994 |
| Persons taking registration under the Central Sales Tax Act or general sales tax law of the appropriate State or Union Territory | Before making application for registration |
The following persons are exempt from obtaining PAN:
- Persons having only agricultural income and not in receipt of any other income chargeable to income-tax
- Non-residents
- Central Government, State Governments and Consular Offices in transactions where they are the payers.
MANDATORILY QUOTE PAN [RULE 114B]
Every person shall quote his permanent account number (PAN) in all documents pertaining to the transactions specified below, namely:
| Sr. No. | Particulars | Condition of Value of Transaction |
| 1. | Sale or purchase of a motor vehicle or vehicle (excluding two wheeled vehicles) | — |
| 2. | Opening of an account (other than a time deposit and a Basic Savings Bank Deposit Account) with a banking company or a cooperative bank | — |
| 3. | Making an application for a credit/debit card to any banking company, co-operative bank, any other company or institution | — |
| 4. | Opening of a demat account with a depository, participant, custodian of securities or any other person registered under SEBI Act, 1992. | — |
| 5. | Payment to hotels or restaurants in cash against their bills | More than ₹ 50,000 at any one time |
| 6. | Payment in cash in connection with travel to any foreign country (including purchase of foreign currency) | More than ₹ 50,000 at any one time |
| 7. | Payment to a Mutual Fund for purchase of its units | More than ₹ 50,000 |
| 8. | Payment to a company or an institution for acquiring debentures/bonds issued by it | More than ₹ 50,000 |
| 9. | Payment to RBI for bonds issued by it | More than ₹ 50,000 |
| 10. | Deposit in cash with
|
(i) More than ₹ 50,000 during a day
(ii) Aggregating to more than ₹ 2,50,000 during the period 9thNovember,2016 to 30thDecember, 2016 |
| 11. | Payment in cash for purchase of bank drafts or pay orders or bankers cheques from a banking company or a co-operative bank | More than `₹ 50,000 during a day |
| 12. | A time deposit with a banking company, co-operative bank, post office, nidhi (referred to in Section 406 of the Companies Act, 2013) or a non-banking financial company | More than ₹ 50,000 or aggregating to more than ₹ 500,000 during a financial year |
| 13. | Payment in cash/bank draft/pay order/banker’s cheque for one or more prepaid payment instruments to a banking company or a co-operative bank or to any other company or institution | More than ₹ 50,000 in a financial year |
| 14. | Payment of premium on life insurance policy to insurer | More than ₹ 50,000 in a financial year |
| 15. | Contract for sale or purchase of securities (other than shares) as defined in section 2(h) of Securities Contracts (Regulation) Act, 1956 | More than ₹ 1,00,000 per transaction |
| 16. | Sale or purchase of shares of a company not listed in a recognized stock exchange | More than ₹ 100,000 per transaction |
| 17. | Sale or purchase of any immovable property |
|
| 18. | Sale or Purchase of goods or services of any nature other than those specified above at Sr. No. 1 to 17 of this table | More than ₹ 200,000/- per transaction |
Section 139A(5): Every person shall quote his PAN
- in all his returns/forms/correspondence with, any income-tax authority;
- in all challans for the payment of any sum due under this Act;
- intimate the Assessing Officer any change in his address or in the name and nature of his business on the basis of which the PAN was allotted to him.
Section 139A(5A)
Every deductee, i.e. every person receiving any sum or income or amount from which tax has been deducted, shall intimate his permanent account number to the deductor.
Section 139A(5B)
Every deductor, i.e. every person deducting tax shall quote the permanent account number of the person to whom such sum or income or amount has been paid by him in:
- Forms 16 and 12BA
- Form 16A
- All TDS/TCS returns prepared and delivered
Every buyer or licensee or lessee from whom Tax is being Collected at Source (TCS) shall intimate his PAN to the person responsible for collecting tax referred to in that section.
Every person collecting tax at source shall quote the PAN of every buyer or licensee or lessee, in all certificates, returns of TCS and quarterly statements.
APPLICATION FOR PAN
Forms for making application for PAN are as follows
| Type of persons | Form No. |
| Indian Citizens/Indian Companies/Entities incorporated in India/Unincorporated entities formed in India | 49A |
| Individuals not being a citizen of India/Entities incorporated outside India/Unincorporated entities formed outside India | 49AA |
Application can be submitted at any IT PAN Service Centres (managed by UTITSL) or TIN-Facilitation Centres (TIN-FCs)/PAN Centres (managed by NSDL).
Application for fresh allotment of PAN can be made through Internet. Further, requests for changes or correction in PAN data or request for reprint of PAN card (for an existing PAN) may also be made through Internet. Online application can be made either through the portal of NSDL (http://tin.tin.nsdl.com/pan/index.html) or portal of UTITSL (http://www.utitsl.co.in/utitsl/uti/newapp/newpanapplication.jsp). The charges for applying for PAN online are the same i.e. ₹107 (including service tax) for Indian communication address and ₹ 989 (including service tax) for foreign communication address. Payment of application fee can be made through credit/debit card or net-banking. Once the application and payment is accepted, the applicant is required to send the supporting documents through courier/post to NSDL/UTITSL. Only after the receipt of the documents, PAN application would be processed by NSDL/UTITSL.
Different sets of supporting documents are required as a proof of identity and proof of address for citizens of India located in India/outside India, foreign citizens located in India/outside India, other entities located in India/outside India. The details are available on the website of the Income-tax Department (www.incometaxindia.gov.in).
TAX DEDUCTION AND COLLECTION ACCOUNT NUMBER (TAN)
Every person who has deducted TDS or collected TCS is supposed to apply for TAN in Form No. 49B within one month from the end of the month in which TDS is deducted or TCS is collected. However, as per the amendment made by the Finance Act, 2015, the Central Government may issue a notification exempting any person from obtaining TAN.
An application for fresh TAN or change/correction in TAN data can be made online through the website www.tin-nsdl.com or physically by submitting at any TIN-Facilitation Centre (TIN-FC) of NSDL. The processing fee for the both the applications (new TAN and change request) is Rs 107 (including service tax).
TAN is required to be quoted in all challans, certificates, quarterly statements.
Minimum Alternate Tax (MAT) & Alternate Minimum Tax (AMT)
MAT stands for Minimum Alternate Tax and AMT stands for Alternate Minimum Tax. Initially the concept of MAT was introduced for companies and progressively it has been made applicable to all other taxpayers in the form of AMT. In this part you can gain knowledge about various provisions relating to MAT and AMT. First of all we will understand the provisions of MAT and thereafter the provisions of AMT.
Objective of levying MAT
At times it may happen that a taxpayer, being a company, may have generated income during the year, but by taking the advantage of various provisions of Income-tax Law (like exemptions, deductions, depreciation, etc.), it may have reduced its tax liability or may not have paid any tax at all. Due to increase in the number of zero tax paying companies, MAT was introduced by the Finance Act, 1987 with effect from assessment year 1988-89. Later on, it was withdrawn by the Finance Act, 1990 and then reintroduced by Finance (No. 2) Act, 1996, wef1-4-1997.
The objective of introduction of MAT is to bring into the tax net “zero tax companies” which in spite of having earned substantial book profits and having paid handsome dividends, do not pay any tax due to various tax concessions and incentives provided under the Income-tax Law.
Since the introduction of MAT, several changes have been introduced in the provisions of MAT
and today it is levied on companies as per the provisions of section 115JB.
Basic provisions of MAT
As per the concept of MAT, the tax liability of a company will be higher of the following:
- Tax liability of the company computed as per the normal provisions of the Income-tax Law, i.e., tax computed on the taxable income of the company by applying the tax rate applicable to the company. Tax computed in above manner can be termed as normal tax liability.
- Tax computed @ 18.5% (plus surcharge and cess as applicable) on book profit (manner of computation of book profit is discussed in later part). The tax computed by applying 18.5% (plus surcharge and cess as applicable) on book profit is called MAT.
Note:
MAT is levied at the rate of 9% (plus surcharge and cess as applicable) in case of a company, being a unit of an International Financial Services Centre and deriving its income solely in convertible foreign exchange.
Applicability and non-applicability of MAT
As per section 115JB, every taxpayer being a company is liable to pay MAT, if the Income- tax(including surcharge and cess) payable on the total income, computed as per the provisions of the Income-tax Act in respect of any year is less than 18.50% of its book-profit + surcharge (SC)
+ Education Cess (EC) + Secondary and Higher Education Cess.
From the above it can be observed that the provisions of MAT are applicable to every company whether public or private and whether Indian or foreign. However, as per section 115JB(5A) MAT shall not apply to any income accruing or arising to a company from life insurance business referred to in section 115B. Further, as per provisions of Section 115V-O the provisions of MAT will not apply to a shipping income liable to tonnage taxation, i.e., tonnage taxation scheme as provided in section 115V to 115VZC.
As per Explanation 4 to section 115JB as amended by Finance Act, 2016 with retrospective effect from 1/4/2001, it is clarified that the MAT provisions shall not be applicable and shall be deemed never to have been applicable to an assessee, being a foreign company, if—
- the assessee is a resident of a country or a specified territory with which India has an agreement referred to in sub-section (1) of section 90 or the Central Government has adopted any agreement under sub-section (1) of section 90A and the assessee does not have a permanent establishment in India in accordance with the provisions of such agreement
- the assessee is a resident of a country with which India does not have an agreement of the nature referred to in clause (i) and the assessee is not required to seek registration under any law for the time being in force relating to companies.
Meaning of book profit*
As per Explanation 1 to section 115JB(2) “book profit” for the purposes of section 115JB means net profit as shown in the statement of profit and loss prepared in accordance with Schedule III to the Companies Act, 2013 as increased and decreased by certain items prescribed in this regard. The items to be increased and decreased are as follows :
Computation of book profit (Table A)
| Particulars | Amount |
| Net profit as per statement of profit and loss prepared in accordance with Schedule III to the Companies Act, 2013 | XXXXX |
| Add : Following items (if they are debited to the statement of profit and loss) | |
| Income-tax paid/payable and the provision thereof (*) | XXXXX |
| Amounts carried to any reserves by whatever name called (Other than reserve specified under Section 33AC) | XXXXX |
| Provisions for unascertained liabilities | XXXXX |
| Provisions for losses of subsidiary companies | XXXXX |
| Dividends paid/proposed | XXXXX |
| Expenditure related to incomes which are exempt under section 10 [other than section 10(38)] section 11 and section 12 | XXXXX |
| The amount or amounts of expenditure relatable to, income, being share of the taxpayer in the income of an association of persons or body of individuals, on which no income-tax is payable in accordance with the provisions of section 86 | XXXXX |
| The amount or amounts of expenditure relatable to income accruing or arising to a taxpayer being a foreign company, from :
(a) the capital gains arising on transactions in securities; or (b) the interest, royalty or fees for technical services chargeable to tax at the rate or rates specified in Chapter XII if the income-tax payable on above income is less than the rate of MAT |
XXXXX |
| The amount representing notional loss on transfer of a capital asset, being share or a special purpose vehicle to a business trust in exchange of units allotted by that trust referred to in clause (xvii) of section 47 or the amount representing notional loss resulting from any change in carrying amount of said units or the amount of loss on transfer of units referred to in clause (xvii) of section 47 | XXXXX |
| Expenditure relatable to income by way of royalty in respect of patent chargeable to tax under section 115BBF | XXXXX |
| Amount of depreciation debited to P & L A/c | XXXXX |
| Deferred tax and the provision thereof | XXXXX |
| Provision for diminution in the value of any asset | XXXXX |
| The amount standing in revaluation reserve relating to revalued asset on the retirement or disposal of such an asset if not credited to statement of profit and loss | XXXXX |
| The amount of gain on transfer of units referred to in clause (xvii) of section 47 computed by taking into account the cost of the shares exchanged with units referred to in the said clause or the carrying amount of the shares at the time of exchange where such shares are carried at a value other than the cost through statement of profit and loss as the case may be; | XXXXX |
| Less : Following items (if they are credited to the statement of profit and loss) | |
| Amount withdrawn from any reserve or provision if credited to P&L account (**) | (XXXXX) |
| Incomes which are exempt under section 10 [other than section 10(38)] section 11 and section 12 | |
| Amount of depreciation debited to statement of profit and loss (excluding the depreciation on revaluation of assets) | (XXXXX) |
| Amount withdrawn from revaluation reserve and credited to statement of profit and loss to the extent it does not exceed the amount of depreciation on revaluation of assets | (XXXXX) |
| The amount of income, being the share of the taxpayer in the income of an association of persons or body of individuals, on which no income-tax is payable in accordance with the provisions of section 86, if any such amount is credited to the statement of profit and loss | (XXXXX) |
| The amount of income accruing or arising to a taxpayer being a foreign company, from:
(a) the capital gains arising on transactions in securities; or (b) the interest, royalty or fees for technical services chargeable to tax at the rate or rates specified in Chapter XII if such income is credited to the statement of profit and loss and the income-tax payable on above income is less than the rate of MAT. |
(XXXXX) |
| The amount (if any, credited to the statement of profit and loss) representing
(a) notional gain on transfer of a capital asset, being share of a special purpose vehicle to a business trust in exchange of units allotted by that trust referred to in clause (xvii) of section 47; or (b) notional gain resulting from any change in carrying amount of said units; or (c) gain on transfer of units referred to in clause (xvii) of section 47, The amount representation notional gain on transfer of units referred to in clause (xvii) of section 47 computed by taking into account the cost of the shares exchanged with units referred to in the said clause or the carrying amount of the shares at the time of exchange where such shares are carried at a value other than the cost through statement of profit and loss, as the case may be; |
(XXXXX) |
| Income by way of royalty in respect of patent chargeable to tax under section 115BBF | (XXXXX) |
| Amount of brought forward loss or unabsorbed depreciation, whichever is less as per books of account | (XXXXX) |
| Profits of a sick industrial company till its net worth becomes zero/positive | (XXXXX) |
| Deferred tax, if credited to statement of profit and loss | (XXXXX) |
| Book profit to be used to compute MAT | XXXXX |
(*) The amount of Income-tax shall include:
- Any tax on distributed profits under section 115-O (dividend distribution tax – i.e., DDT)
or tax on distributed income under section 115R; - Any interest charged under this Act;
- Surcharge, if any, as levied by the Central Acts from time-to-time;
- Education Cess on Income-tax, if any, as levied by the Central Acts from time-to-time;
and - Secondary and Higher Education Cess on Income-tax, if any, as levied by the Central
Acts from time-to-time.
(**) Withdrawals made from reserves created or provisions made on or after the 1-4-1997, shall be deducted only if the book profit of the year of creation of such reserve has been increased by the amount transferred to such reserve or provisions (out of which the said amount was withdrawn).
Meaning of book profit for Indian Accounting Standards (Ind AS) compliant companies
- As per newly inserted section 115JB(2A) by the Finance Act, 2017, “book profit” for Ind AS compliant company for the purpose of section 115JB means the book profit as computed in accordance with Explanation 1 to section 115JB(2) as:-
- increased by all amounts credited to other comprehensive income (OCI) in the statement of profit and loss that will not be re-classified to profit or loss;
- decreased by all amounts debited to other comprehensive income (OCI) in the statement of profit and loss that will not be re-classified to profit or loss;
- increased by all amounts or aggregate of amounts debited to the statement of profit and loss on distribution of non-cash assets to shareholders in a demerger of companies in accordance with Appendix A of Ind AS 10; and
- decreased by all amounts or aggregate of amounts credited to the statement of profit and loss on distribution of non-cash assets to shareholders in a demerger of companies in accordance with Appendix A of Ind AS 10.
- Any item credited/debited to OCI that will not re-classified to profit or loss should be ignored for the purpose of computing book profit if that item is:
- Revaluation surplus for fixed assets and intangible assets under Ind AS 16 and Ind AS
38; or - Gains or losses from investments in equity instruments measured at fair value through other comprehensive income (FVTOCI) as per Ind AS 109.
- Revaluation surplus for fixed assets and intangible assets under Ind AS 16 and Ind AS
- But, the book profit of the previous year in which the asset or investment as referred to in above
points (i) and (ii) is retired, disposed, realised or otherwise transferred shall be increased or decreased by the amounts of above points (i) and (ii) to the extent relatable to the disposed asset or investment. - In the case of a resulting company, where the assets and liabilities of the undertaking or undertakings being received by it are recorded at values different from values appearing in the books of account of the demerged company immediately before demerger, any change in such value shall be ignored for the purpose of computation of book profit of the resulting company.
- So, for the computation of book profit of an Ind AS compliant company, you may proceed as follows:
| Particulars | Amount |
| Book profit as computed in Table A | XXXXX |
| Adjustments as mentioned in point (3) above | XXXXX |
| Adjustments for revaluation gain/loss for fixed assets & intangible assets in
the year of their disposal or transfer |
XXXXX |
| Adjustments for gains or losses from investments in equity instruments
measured at FVTOCI in the year if their disposal or transfer |
XXXXX |
| Adjustments for any other OCI items that will not be re-classified to profit or
Loss |
XXXXX |
| Book profit to be used to compute MAT | XXXXX |
- The adjustments arising on account of transition to Ind AS from existing Indian GAAP are required to be recorded under Other Equity in the balance sheet. The amount of these adjustments are defined as transition amount. The amount of such adjustments that will not be re- classified should be included in computation of book profit equally over a period of 5 years starting from the year of first-time adoption of Ind AS, subject to certain exclusions.
MAT credit
As discussed in earlier part, a company has to pay higher of normal tax liability or liability as per MAT provisions. If in any year the company pays liability as per MAT, then it is entitled to claim credit of MAT paid over and above the normal tax liability in the subsequent year(s).The provisions relating to carry forward and adjustment of MAT credit are given in section 115JAA.
Provided that where the amount of Foreign Tax Credit (‘FTC’) allowed against the MAT exceeds the amount of such FTC admissible against the tax payable by the assessee under normal provisions of the Income-Tax Act, then, while computing the amount of FTC under this sub- section, such excess amount shall be ignored.
Adjustment of carried forward MAT credit
As discussed earlier, a company is entitled to claim MAT credit i.e. excess of MAT paid over the normal tax liability. The credit of MAT can be utilised by the company in the subsequent year(s). The credit can be adjusted in the year in which the liability of the company as per the normal provisions is more than the MAT liability. The set off in respect of brought forward MAT credit shall be allowed in the subsequent year(s) to the extent of the difference between the tax on its total income as per the normal provisions and as per the MAT provisions.
Period for which MAT credit can be carried forward
As discussed earlier, the company can carry forward the MAT credit for adjustment in subsequent year(s), however, the MAT credit can be carried forward only for a period of 15 years after which it will lapse. No interest is paid to the taxpayer in respect of such credit.
Report from chartered accountant
Every company to whom the provisions of section 115JB applies is required to obtain a report from a chartered accountant in Form No. 29B certifying that the book profit has been computed in accordance with the provisions of section 115JB. The report should be obtained on or before due date of filing the return of income. Audit report in Form No. 29B shall be filed electronically.
Provisions relating to AMT
The provisions relating to AMT are applicable to non-corporate taxpayers in a modified pattern in the form of Alternate Minimum Tax, i.e., AMT. The provisions relating to AMT are given in sections 115JC to 115JF.
Basic provisions relating to applicability of the AMT to different taxpayers
The provisions of AMT will apply to every non-corporate taxpayer who has claimed (i) deduction under section 80H to 80RRB (except 80P), (ii) deduction under section 35AD and (iii) deduction under section 10AA. Thus, the provisions of AMT are not applicable to a non- corporate taxpayer who has not claimed any deduction under above discussed sections. However, following points should be kept in mind in this regard.
- The provisions of AMT shall apply to an individual or a Hindu undivided family or an association of persons or a body of individuals (whether incorporated or not) or an artificial juridical person only if the adjusted total income (discussed later) of such person exceeds Rs. 20,00,000.(Section 115JEE)
- The provisions of AMT shall apply to every other person (i.e., other than an individual or a HUF or an AOP/BOI or an artificial juridical person) irrespective of its income. For definition of a person refer to section 2(31).
Rate of AMT
In case of non-corporate taxpayer, AMT is levied @ 18.5% of adjusted total income (discussed later). Surcharge and cess as applicable will also be levied.
Meaning of adjusted total income
| Particulars | Amount |
| Taxable income of the taxpayer | XXXX |
| Add: Amount of deduction claimed under section 80H to 80RRB (except 80P) | XXXX |
| Add: Amount of deduction claimed under section 35AD (as reduced by the amount of depreciation allowable in accordance with the provisions of section 32) | XXXX |
| Add:Amount of deduction claimed under section 10AA | XXXX |
| Adjusted total income | XXXX |
Tax liability in case of a non-corporate taxpayers to whom the provisions of AMT apply
As per the concept of AMT, the tax liability of a non-corporate taxpayer to whom the provisions of AMT applies will be higher of the following:
- Tax liability computed as per the normal provisions of the Income-tax Law, i.e., tax computed on the taxable income of the taxpayer at the tax rate applicable to him. Tax computed in above manner can be termed as normal tax liability.
- Tax computed @ 18.5% (plus surcharge and cess as applicable) on adjusted total income.
The tax computed by applying 18.5% (plus surcharge and cess as applicable) on adjusted total income is called AMT.
AMT credit
As discussed in earlier part, a non-corporate taxpayer to whom the provisions of AMT applies has to pay higher of normal tax liability or liability as per the provisions of AMT. If in any year the taxpayer pays liability as per AMT, then he is entitled to claim credit in the subsequent year(s) of AMT paid above the normal tax liability.
Provided that where the amount of Foreign Tax Credit (‘FTC’) allowed against the AMT exceeds the amount of such FTC admissible against the tax payable by the assessee under normal provisions of the Income-Tax Act, then, while computing the amount of FTC under this sub- section, such excess amount shall be ignored.
Adjustment of carried forward AMT credit
As discussed earlier, a non-corporate taxpayer to whom the provisions of AMT applies is entitled to claim AMT credit of excess AMT paid over the normal tax liability. The credit of AMT can be utilised by the taxpayer in the subsequent year(s). The credit can be adjusted in the year in which the liability of the taxpayer as per the normal provisions is more than the AMT liability. The set off in respect brought forward AMT credit shall be allowed in the subsequent year(s) to the extent of the difference between the tax on his total income as per the normal provisions and the liability as per the AMT provisions.
Period for which AMT credit can be carried forward
As discussed earlier, a non-corporate taxpayer (to whom the provisions of AMT applies) can carry forward the AMT credit for adjustment in subsequent year(s), however, the AMT credit can be carried forward only for a period of 15 years after which it will lapse. No interest is paid to the taxpayer in respect of such credit.
Report from Chartered Accountant
Every non-corporate taxpayer to whom the provisions of AMT apply is required to obtain a report from a chartered accountant in Form No. 29C on or before the due date of filing the return.
Taxation of EOU, SEZ and FTZ
SPECIAL PROVISIONS IN RESPECT OF SPECIFIED UNDERTAKINGS OR NEW UNITS IN SPECIFIED ZONES
| Section | Qualifying Assessee | Nature of income | Quantum of deduction | Other provisions |
| 10A(1A) | Any undertaking begins to manufacture or produce article or things or computer software in any Special Economic Zone on or after 1-4-2003.
The provisions of this sec. shall not apply to any undertaking referred to in clause (zc) of Section 2 of Special Economic Zones Act, 2005 which begins to manufacture articles or things or computer software during the previous year relevant to assessment year commencing on or after 1-4-2006.
|
Profits & Gains derived from export of articles or things or computer software. | 100% of profits or gains for the first 5 consecutive assessment years beginning
with assessment year relevant to previous year in which undertaking begins to manufacture or produce articles or things or computer software. Thereafter, 50% of such profits or gains for further 2 consecutive assessment years. Thereafter, 50% of such profits or gains for further consecutive 3 assessment years if the prescribed conditions are fulfilled viz:
|
|
| 10AA | Any entrepreneur from SEZ who begins to manufacture or produce article or things or provide any service during the previous year relevant to assessment year commencing on or after 1-4-2006 | Profits & Gains derived from export of articles or things or from services | 100% of profits or gains for the first 5 consecutive assessment years beginning with assessment year relevant to previous year in which undertaking begins to manufacture or produce such articles or things or provide services.
Thereafter, 50% of such profits or gains for further 5 consecutive assessment years. Thereafter, 50% of such profits or gains for further consecutive 5 assessment years if the prescribed conditions are fulfilled viz.
|
|
Role of Directorate of Income Tax
(Criminal Investigation)
In 1975, the Income Tax Department formed the Central Information Branch (CIB) for strengthening tax data-base. Initially, CIB operated under the supervision of DGsIT (Investigation). This was later brought under the Directorate of Income Tax (Intelligence) in June 2007.
As the world was changing very fast and India became increasingly integrated with foreign economies restrictions become more liberal for the movement of people. The capital was flowing in and out of the country, new issues of tax evasion cropped up. However, there is an increasing pressure on financial institutions, tax havens and the recalcitrant countries from all over the world to conform to new norms regarding exchange of information and greater transparency by the financial institutions. In response to this changing scenario, in August 2011, a new directorate named as Directorate of Income Tax (Intelligence & Criminal Investigation) was set up under a DGIT which included the erstwhile intelligence set up and CIB set up.
The hierarchy structure under the Directorate is as follows-:
Core Areas of Work
The DCI is a nodal agency of Income Tax Department for strengthening tax data-base. It has been created in the Central Board of Direct Taxes, Department of Revenue, Ministry of Finance. Its key function areas are
- Widening of tax base through identification of stop filers and non-filers
- Deepening of tax base by providing information for proper selection of cases for scrutiny assessments
- Through collection, collation of information from internal as well as external sources and its dissemination to Assessing Officers (AOs) and other users in I.T. Deptt. It also collects information relating to financial transactions like investment, expenses, payment of taxes, etc. and details of persons who are involved in some specified activities. The mandate also provides for identification and investigation of cases of tax evasion arising out of criminal matters, having any financial implication punishable as an offence under any Direct Tax Law.
The DCI will perform functions in respect of criminal matters having any financial implication punishable as an offence under any direct tax law including, inter alia – Chapter XXII of the Income-tax Act. 1961 (Act 43 of 1961); and Chapter VIII of the Wealth Tax Act 1957 (Act 27 of 1957).
The DCI, in discharge of its responsibilities under the Direct Tax laws, will be required to perform the following functions:
- To seek and collect information about persons and transactions suspected to be involved in criminal activities having cross-border, interstate or international ramifications, that pose a threat to national security and are punishable under the direct tax laws;
- To investigate the source and use of funds involved in such criminal activities;
- To cause issuance of a show cause notice for offences committed under any direct tax law;
- To file prosecution complaint in the competent court under any direct tax law relating to a criminal activity;
- To hire the services of special prosecutors and other experts for pursuing a prosecution complaint filed in any court of competent jurisdiction;
- To execute appropriate witness protection programmes for effective prosecution of criminal offences under the direct tax laws, i.e. to protect and rehabilitate witnesses who support the state in prosecution of such offences so as to insulate them from any harm to their person;
- To co-ordinate with and extend necessary expert, technical and logistical support to any other intelligence or law enforcement agency in India investigating crimes having cross-border, interstate or international ramifications that pose a threat to national security;
- To enter into agreements for sharing of information and other co-operation with any Central or State agency in India;
- To enter into agreements for sharing of information and other co-operation with such agencies of foreign states as may be permissible under any international agreement or treaty; and
- Any other matter relating to the above.
The DCI will be headed by a Director General of Income Tax (Criminal Investigation), who will be an officer of the rank of Chief Commissioner of Income Tax, and will be located in New Delhi. The DCI will function under administrative control of the Member (Investigation) in the Central Board of Direct Taxes (CBDT) and will be a subordinate office of CBDT.
The DCI shall have eight Directors of Income Tax (Criminal Investigation) located at Delhi, Chandigarh, Jaipur, Ahmedabad, Mumbai, Chennai, Kolkata and Lucknow. These Directorates will be headed by officers of rank of Commissioner of Income Tax who will perform such functions as are notified or assigned to them by the CBDT. The CBDT shall have all powers to amend functions assigned to the DCI.
The headquarters of the DCI shall consist of a Director General of Income Tax supported by a Director of Income Tax, an Additional Director of Income Tax, a Deputy Director of Income Tax and officials known as Special Agents of the rank of Income Tax Officer and Agents of the rank of Inspector of Income Tax.
Each zonal Directorate of the DCI shall be headed by a Director of Income Tax, and shall be supported by an Additional Director of Income Tax, a Deputy Director of Income Tax and an appropriate staff complement consisting of Special Agents and Agents.
It may be recalled that the Government has adopted five-fold strategy to tackle the menace of illicit funds. This consists of:
- Joining global crusade against “black money’;
- Creating an appropriate legislative framework;
- Setting up institutions for dealing with Illicit Funds;
- Developing systems for implementation; and
- Imparting skills to the manpower for effective action.
Taking further the strategy of setting up institutions for dealing with illicit funds, Government has approved the setting up of the aforesaid Directorate.
Gold And Silver Rates
| Assessment
Year |
Relevant Valuation Date | Std. Gold Rate
(24 Carrat for 10 gms i.e. 0.87 tola.) |
Silver Rate
(996 touch for 1 kg. i.e. 85.734 tola) |
| 2001.2002 | 31/03/2001 | 4190 | 7215 |
| 2002.2003 | 31/03/2002 | 5010 | 7875 |
| 2003.2004 | 31/03/2003 | 5310 | 7695 |
| 2004.2005 | 31/03/2004 | 6065 | 11770 |
| 2005.2006 | 31/03/2005 | 6180 | 10675 |
| 2006.2007 | 31/03/2006 | 8490 | 17405 |
| 2007.2008 | 31/03/2007 | 9395 | 19520 |
| 2008.2009 | 31/03/2008 | 12125 | 23625 |
| 2009-2010 | 31/03/2009 | 15105 | 22165 |
| 2010-2011 | 31/03/2010 | 16320 | 27255 |
| 2011-2012 | 31/03/2011 | 20775 | 56900 |
| 2012-2013 | 31/03/2012 | 28040 | 56290 |
| 2013-2014 | 31/03/2013 | 29610 | 54030 |
| 2014-2015 | 31/03/2014 | 28470 | 43070 |
| 2015-2016 | 31/03/2015 | 26245 | 37825 |
| 2016-2017 | 31/03/2016 | 28340 | 36990 |
| 2017-2018 | 31/03/2017 | 28950 | 42000 |
| 2018-2019 | 31/03/2018 | 30680 | 38355 |
Income Computation Disclosure Standards (ICDS)
Overview
Income Computation and Disclosure Standards (ICDS) were issued by the Government of India in exercise of powers conferred to it under section 145(2) of The Income Tax Act, 1961.
The Ministry of Finance published 12 draft ICDS, out of which 10 ICDS were notified by the government on 31 March 2015. The notified ICDS were applicable from the financial year 2016-17.
ICDS were issued with the aim of bringing uniformity in accounting policies governing computation of income in accordance with tax related provisions, and also reducing the irregularities amongst them.
The Form 3CD (Tax Audit Report) is revised for making mandatory disclosures in compliance with ICDS.
Applicability
ICDS are to be followed by all assesses, except individual or Hindu Undivided Family who are not covered under tax audit provisions, following Mercantile System of accounting.
Income Computation Disclosure Standards (‘ICDS’) is applicable for computation of income chargeable under the following heads:
- Profit and gains of business and profession
- Income from other sources
ICDS not applicable for the purpose of maintenance of books of accounts.
In case of conflict between the provisions of Income-tax Act, 1961, (‘the Act’) and ICDS, the provisions of the Act to prevail.
ICDS I – Accounting Policies
Fundamental accounting assumptions considered for the purpose of ICDS:
- Going Concern
- Consistency
- Accrual
True and Fair view to be reflected by accounting policy adopted for the purpose of business or profession. For the said purpose the following should be considered:
- Substance over legal form for the purpose of treatment and presentation of transaction;
- Marked to market loss or an expected loss shall not be recognized unless other ICDS allows it
An accounting policy shall not be changed without reasonable cause.
ICDS II – Valuation of inventories
ICDS II to be applied for valuation of inventories except the following:
- Work in progress arising under construction contracts;
- Shares and other financial instruments held as stock in trade;
- Producers inventories of livestock, agriculture and forest products, minerals, oils, ores and gases to the extent they are measured at net realizable value (‘NRV’)
- Machinery spares dealt with by ICDS on tangible fixed asets.
Inventories shall be valued at cost of NRV, whichever is lower.
The cost of inventories shall comprise of cost of purchase, cost of services, cost of conversion and other costs incurred, in bringing the inventories to their present location and condition.
Interest and other borrowing costs shall not be included in the cost of inventories, unless they meet the criteria for recognition of interest as a component of the cost as specified in the ICDS on borrowing cost. Also, selling costs, administrative overheads, storage costs (unless necessary in the production process) and abnormal amounts of wasted material, labour etc to be excluded from cost of inventories.
Cost of inventories, shall be assigned by using First In First Out or weighted average cost formula.
Techniques for the measurement of the cost of inventories, such as standard cost method or the retail method, may be used for convenience if the results approximate the actual cost.
Inventories shall be written down to net realizable value on an item-by-item basis.
The method of valuation of inventories once adopted by a person in any previous year shall not be changed without reasonable cause.
ICDS III – Construction contracts
ICDS III is applicable for determination of income for a construction contract of a contractor.
Construction contract is defined as a contract specifically negotiated for the construction of an asset or a combination of asssets that are closely interrelated or interdependent in terms of their design, technology and function or their ultimate purpose or use and includes the following:
- Contract for rendering of services which are directly related to the construction of the asset eg services or project managers and architects;
- Contract for destruction or restoration of assets and the restoration of environment following the demolition of assets
Where a contract covers a number of assets, the construction of each asset should be treated as a separate construction contract when separate proposal has been submitted for each asset, each asset has been subject to separate negotiation and the cost and the revenue of each asset is identified.
A group of contracts, whether with a single customer or with several customers, should be treated as a single construction contract when the group of contracts is negotiated as a single package, the contracts are closely interrelated as part of a single project and the contracts are performed concurrently or in a continuous sequence.
The construction of an asset shall be treated as a separate construction contract when:
- The asset differs significantly in design, technology or function from the asset/assets covered by the original contract or
- The price of the asset is negotiated without having regard to the original contract price
Contract revenue shall comprise of the following:
- Initial amount of revenue plus retentions and
- variations in contract work, claims and incentive payments to the extent they will result in revenue and are capable of reliably measured
Contact revenue shall be recognized when there is reasonable certainty of its ultimate collection.
Contract cost shall comprise of direct cost, allocable cost attributable to contract activity and borrowing cost.
Contract costs include costs attributable to the contract from the date of securing the order to the final completion of the contract. Cost of securing order to be included in contract cost if the same is separately identifiable and it is probable that the contact shall be obtained.
The stage of completion of a contract shall be determined with reference to the following:
- proportion of contract cost to estimated cost;
- survey of work performed;
- completion of physical proportion of contract work.
During the early stages of a contract, revenue is recognized only to the extent of cost incurred. The early stage of a contract shall not extend beyond 25% of the stage of completion.
ICDS IV – Revenue Recognition
In a case where there is transfer of property but no transfer of significant risk and reward of ownership, the property in goods is considered as transferred when significant risk and reward is transferred.
Revenue including price escalation to be recognized when there is reasonable certainty of its ultimate collection.
Revenue from service transactions to be recognized by the percentage of completion method. However, where are services are provided by an indeterminate number of acts over a specific period of time, revenue may be recognized on a straight line basis over specific period.
Revenue from service contract with duration not more than 90 days may be recognized when completed or substantially completed.
Interest shall accrue on time basis based on amount outstanding and rate applicable. Interest on refund of tax, duty or cess to be recognized when received.
Discount/ premium on debt securities shall accrue over period of maturity
Royalty shall accrue in accordance with the terms of agreement
Dividend to be recognized as per the provisions of the Act.
ICDS V – Tangible Fixed Assets
Tangible Fixed Assets means asset in the nature of land, building, furniture, plant & machinery used for the purpose of production or providing any goods/services and is not held for sale in the ordinary course of business.
Spares to be charged to revenue as and when consumed unless they can be used only in connection with an item of Fixed Asset and their use is expected to be irregular.
Expenses on start up and commissioning of the project, including expenditure on test runs and experimental production shall be capitalized. Expenses incurred after the plant has started commercial production shall be revenue in nature.
When tangible fixed asset is acquired in exchange of another asset or share, the fair value of asset acquired shall be the actual cost.
An expense that increases the future benefits from the existing asset beyond its previously assessed standard of performance shall be added to actual cost.
Addition/ extension to an asset, which has a separate identity and is capable of being used after the asset is disposed off shall be treated as a separate asset.
If consolidated price is paid for various assets then consideration is to be apportioned based on fair value of each asset.
ICDS VI – Effect of changes in foreign exchange rates
Foreign currency monetary items are those items where there is right/obligation to deliver fixed/ determinable amount of currency units eg cash, receivable, payable.
Foreign currency non-monetary items are items other than foreign currency monetary items eg fixed assets, inventories, investment in equity etc
Initial recognition of a foreign currency transaction to be done based on exchange rate prevailing on the date of transaction. An average rate for a week/month that approximates the actual rate, may also be used.
On the last date of previous year the following treatment to be given:
- Foreign currency monetary items – to be converted into reporting currency based on closing rate and the difference shall be recognized as income/expense.
- Foreign currency non-monetary items – to be converted into reporting currency by using exchange rate at the date of transaction and the difference shall not be recognised as income/expense. Inventory if carried at Net Realisable Value, shall be reported using the exchange rate that existed when such value was determined.
Any premium or discount at the inception of a forward contract shall be amortised as expense or income over the life of the contract. Exchange difference on such a contract shall be recognised as income or expense in the previous year in which the exchange rates change. Any profit or loss arising on cancellation or renewal shall be recognized as income or expense for the previous year.
Premium, discount or exchange difference on contracts intended for trading or speculation or to hedge foreign currency risk of a firm commitment or highly probable forecast transaction, shall be recognized at the time of settlement.
ICDS VII – Government Grants
Government Grant shall not be recognized unless there is reasonable assurance that the person shall comply with the conditions attached to the grant and the grant shall be received.
Recognition of government grant shall not be postponed beyond the date of receipt.
Where the government grant relates to depreciable fixed asset, the same shall be reduced from the cost of fixed asset/ written down value of block of fixed assets.
Where the government grant relates to non depreciable asset, the same shall be recognized as income over the same period over which the cost of meeting such obligations is charged to income.
Grant for compensation of expense or loss is recognized as income when receivable.
Grant in the form of non-monetary asset given at a concessional rate, shall be accounted on the basis of acquisition cost.
ICDS VIII – Securities
ICDS deals with securities held as “stock in trade” but does not include derivatives
When a security is acquired in exchange of another security or an asset, the fair value of the security acquired shall be its actual cost.
At the end of the year, security shall be valued at cost or net realizable value, whichever is lower category wise. For the said purpose, securities shall be classified into the following categories viz shares, debt, convertible securities and others. Exception to the same shall be securities not listed/ listed but not quoted and such securities shall be valued at actual cost.
Where the actual cost of a security cannot be ascertained by reference to specific identification, the cost of such security shall be determined on the basis of first-in-first-out method or weighted average cost formula.
Securities held by scheduled bank or public financial institutions formed under Central or State Act or so declared under Companies Act, shall be classified, recognized and measured in accordance with the extant guidelines issued by Reserve Bank of India and any claim for deduction in excess of the said guidelines shall not be taken into account.
ICDS IX –Borrowing Costs
Borrowing costs are interest and other costs incurred by a person in connection with borrowing of funds.
Qualifying Asset = Tangible Asset + Intangible Asset + Inventory that requires atleast 12 months to bring it to a saleable condition
Borrowing costs directly attributable to acquisition, construction or production of a Qualifying Asset shall be capitalized.
Extent of capitalization of borrowing cost:
- Directly attributable and borrowed specifically to purchase a qualifying asset – to be fully capitalized from the date on which the funds were borrowed
- Not directly attributable for a qualifying asset – To be capitalized as per the following formula:
Borrowing cost x Average of cost of Qualifying Asset on the first and last day of previous year /Average of total amount of assets on the first and last day of the previous year
The borrowing cost to be capitalized from the date on which funds were utilized.
Cessation of capitalization:
- In case of tangible and intangible assets – from the date the asset is first put to use
- In case of inventory – when substantially all activities necessary to prepare inventory for its intended sale are complete.
ICDS X –Provisions, Contingent Liabilities and Contingent Assets
A provision shall be recognized when a person has a present obligation as a result of past events, it is reasonably certain that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of obligation.
No provision shall be recognized for costs that need to be incurred to operate in the future.
A person shall not recognize a contingent liability or a contingent asset.
Contingent assets are assessed continually and when it becomes reasonably certain that inflow of economic benefit will arise, the asset and related income are recognized in the previous year in which the change occurs.
The amount recognized as a provision shall be the best estimate of the expenditure required to settle the present obligation at the end of the previous year. The amount of provision shall not be discounted to its present value.
An obligation for which a person is jointly and severally liable is a contingent liability to the extent that it is expected that the obligation will be settled by the other parties.
Provision shall be reviewed at the end of each previous year and adjusted to reflect the best estimate. If it is no longer reasonably certain that an outflow of resources embodying economic benefits is required to settle the obligation, the provision shall be reversed.
An asset and related income shall be reviewed at the end of each previous year and adjusted to reflect the best estimate. If it is no longer reasonably certain that an inflow of economic benefits will arise, the asset and related income shall be reversed.
Writ petition by Chamber of Tax Consultants
Pursuant to the writ petition filed by Chamber of Tax Consultant against the provision of ICDS which has the effect of over ruling the decisions of various Courts and Legal Provisions, Delhi High Court has held as follows :-
- Section 145 (2), as amended, has to be read down to restrict power of the Central Government to notify ICDS that do not seek to override binding judicial precedents or provisions of the Act. The power to enact a validation law is an essential legislative power that can be exercised, in the context of the Act, only by the Parliament and not by the executive. If Section 145 (2) of the Act as amended is not so read down it would be ultra vires the Act and Article 141 read with Article 144 and 265 of the Constitution.
- The ICDS is not meant to overrule the provisions of the Act, the Rules thereunder and the judicial precedents applicable thereto as they stand.
- Article 265 of the Constitution of India states that no tax shall be levied or collected except under the authority of law. The power under section 145(2) of the Act cannot permit the changing the basic principles of accounting that have been recognized in the various provisions of the Act, unless corresponding amendments are carried out to the Act itself.
- Where ICDS seeks to alter the taxing treatment to a particular transaction, the it will require the legislature to step in to amend the Act to incorporate such change.
- The system of checks and balances in the Constitution of India recognizes the power of the legislature to enact validating laws to overcome the defects or plug the loopholes as it were pointed out by judicial precedents.
- As regards each ICDS, the the key observations of the Hon’ble Court were as under:
- ICDS I – Non-acceptance of the concept of “Prudence” in ICDS I is per se contraty to the provisions of the Act.
- ICDS II – Section 145A of the Act begins with a non-obstance clause and is independent of section 145(2) under which ICDS has been notified. Section 145A provides that inventory of goods shall be valued in accordance with the method of accounting regularly employed by the assessee. Therefore, where the Assessee regularly follows a certain method for valuation of goods then that will govern irrespective of the ICDS notified under section 145(2) of the Act.
- ICDS III – Taxing retention money at the earliest possible stage when the receipt of the same is uncertain/conditional, is contrary to the settled position of law. To the extent that ICDS III is interpreted and applied in a manner contrary to the law settled by various decisions of the Courts, it cannot be sustained.
- ICDS IV – Recognising income from export incentives in the year of making the claim if there is reasonable certainty of its ultimate collection, is not consistent with the law laid down by the Supreme Court in Excel Industries and hence not tenable. Also, recognition of proportionate completion method only as against contract completion method as valid method of accounting under mercantile system is contrary to decisions laid down by Courts and is therefore ultra vires.
- ICDS VI – Marked to market gain/loss in case of foreign currency derivatives held for trading or speculation purposes are not allowed as per ICDS. The same is not in consonance with the ratio laid down by the Supreme Court in case of Sutlej Cotton Mills, insofar as it relates to marked to market loss arising out of forward exchange contracts held for trading or speculation purpose and is thus ultra vires.
- ICDS VII – Taxing government grant even when the conditions attached to the same are not fulfilled is not as per the judicial principles laid down by various courts.
- ICDS VIII – Bucket approach for valuation of securities cannot be effectuated without corresponding amendment to the Act.
Amendments to Finance Bill 2018
Finance Bill 2018 inserted certain sections/ amended certain provisions of the Act to nullify the effect of the above ruling viz:
- 36(1)(xviii) – Marked to market losses or expected losses shall be allowed as deduction as per ICDS
- 40A(13)- No deduction for marked to market losses or expected losses except as allowable as per section 36(1)(xviii).
- 43AA – Gain or loss arising on account of foreign exchange rates to be allowed as income/expense as per ICDS
- 43CB – Gain or loss arising on construction contracts to be computed as per ICDS
- 145A – Valuation of inventory to be made as per ICDS
Amendment to Tax Audit Report for AY 2017-18 pursuant to ICDS
In clause 13D of 3CD Report for AY 2017-18, for sub-clause (d), the following has been substituted, namely:
- Sub-clause (d):
Whether any adjustment is required to be made to the profits or loss for complying with the provisions of income computation and disclosure standards notified under section 145(2).
- Sub-clause (e):
If answer to (d) above is in the affirmative, details of such adjustments leading to increase/ decrease in profit and their net effect has to be given.
- Sub-clause (f):
Disclosures to be given as per various ICDS
Section 292BB – Notice deemed to be valid in certain circumstances
Finance Act 2008 with effect from 01/04/2008 has inserted Sec. 292BB of Income Tax Act, 1961 whereby a notice required to be served upon the assessee under any provisions of the Act shall be deemed to have been served upon him in time and according to the Act, where the assessee has appeared in any proceeding or co-operated in any inquiry relating to an assessment or reassessment.
In such case assesse is precluded from taking the objection in any proceedings or enquiry under this act that notice was a) not served upon him, or b) not served upon him on time, or c) served upon him in an improper manner.
Proviso to this section works as a balancing factors and if assessee raises an objection before the completion of such assessment or re-assessment in such case provisions of this section does not apply.
The scope of Sec. 292BB is confined to service of notice and does not apply to issuance of notice. CIT Vs. Panorama Builders Pvt. Ltd.(2014), 224 Taxman 203(MAG)(Guj).
The Black Money (Undisclosed Foreign Income
& Assets) & Imposition of Tax Act, 2015
Black money or shadow economy, as a phenomenon, is found all over the world. Estimates of this black money economy in India, is difficult and different tools and studies have come out with different estimates of the same. Certain estimates of the yearly growth rate of black money peg it as high as 40 to 50% of the GDP.
With stronger DTA’s and Tax Information exchange mechanisms (TIEM) in place and an International onslaught on shady tax havens, the KYC and AML ( Anti Money laundering ) mechanisms have strengthened up in many countries esp FATF ones. Countries are co-operating with one another to check and detect tax evasions and flight of illicit money. The process has been further fuelled by leaks be it Wiki leaks or the Panama leaks. In a way these leaks may be treated as a blessing in disguise.
The Black Money Act ( as popularly known ) was promulgated and made applicable w.e.f 1st July 2015. The Rules (12 rules) & Forms (7 forms) have also been notified on 2-7-2015.
This law was made to make provisions to deal with the problems of Black money i.e undisclosed foreign income & assets, to provide for procedure for dealing with such income/assets, impose tax on them and for matters connected/incidental therewith
BASIC STRUCTURE
This Act as applicable from 1st July, 2015 has 88 sections divided into 7 chapters. It is applicable only for RESIDENTS
(u/s 6 of the IT Act, 1961). This Act plays a crucial role in assessment proceedings under the IT Act, 1961 specially when foreign income or foreign assets are detected. The AO may invoke this law even in regular IT proceedings. The return of income u/s 139 under the Income-tax Act, 1961 is the crucial and often originating cause of action for this Act. There is No concept of filing returns under this Act. This Act covers only 2 issues :
- Undisclosed foreign income or
- Undisclosed foreign assets.
A base tax of 30% is levied on any undisclosed foreign income or foreign asset found by the AO, besides penalty of 90% and other penalties and prosecution.
IMPORTANT DEFINITIONS
Section 2(11)
“undisclosed asset located outside India” means an asset (including financial interest in any entity) located outside India, held by an assessee in his name or he is beneficial owner AND he has NO explanation about sourceof Investment in such asset
OR explanation given by him is in the opinion of AO unsatisfactory.
Section 2(12)
“Undisclosed foreign income and asset” means the total amount of undisclosed income of an assessee from a source outside India & the value of an undisclosed asset located outside India, referred to in Section 4 & computed in the manner in Section 5.
ACTUAL WORKING OF THIS ACT
As per Section 3(1), a tax of 30% will be charged on the assessee on after the Act has come in force i.e effectively for Asst year : 16-17 & onwards , in respect of undisclosed foreign income & asset. Undisclosed asset located outside India shall be charged to tax on its value as on the 1st April of the previous year in which such asset comes to the notice of AO + Interest. The value will be determined as per rules which have been notified.
What is total undisclosed foreign income or asset : Section 4
- Any foreign Income, which has not been disclosedin the return of Income filed within the time specified u/s 139(1)/(4)/(5) of I.T Act.
- Any foreign Income of the assessee but No return filedwithin time limit u/s 139(1)/(4)/(5), though liable to file return.
- the value of any undisclosed asset outside India.
Any Income included under this Act shall not form part of the total income under I.T Act.
As per Section 5(1), In computing the total undisclosed foreign income and asset No deduction of Expenditure/Allowance/Set off of any loss shall be allowed, whether or not it is allowable under I.T Act.
However any income :
- which has been assessed under Income-tax Act prior to this Act or
- which is assessed/assessable under this Black Money Act.
Shall be reduced from the value of undisclosed asset located outside India, if evidence is produced to the satisfaction of the AO that the asset has been acquired from that Income which has been assessed/assessable to Tax.
Eg : Mr. A purchased a immovable property outside India (say in London) in the previous Year: 2009-10 for Rs. 50 lakhs. However out of Rs. 50 lakhs , a sum of Rs. 20 lakhs (40% of 50 lacs ) was assessed to Tax in P.Y. 2009-10 and earlier years and the balance amount of Rs. 30 lacs (60% of 50 lacs) was undisclosed. This foreign asset was not disclosed in the tax returns of the assessee. Now suppose in Previous Year 2018-19, this foreign asset comes to notice of AO. The value of Asset is Rs. 1 crore {Value of asset as on first day of P.Y i.e 1-4-18}.
The the amount Chargeable to Tax shall be A-B = C.
A = Rs 1 crore, B = Rs (100 * 40% ) = Rs 40 lakhs ( This 40% was the amount as assessed to tax earlier as stated above
C = Rs (100 – 40) = Rs 60 lakhs – Taxed at 30% + penalty 90%
The most important provision is Section 10
The AO will make an Assessment or Reassessment, on receipt of information from the I.T authority OR Any other authority under any law OR on Information coming to his notice. For making an Assessment or Reassessment, the AO will SERVE on any person, a notice requiring him to produce or cause to produce accounts or documents or evidence as required for this act and may serve further notices – No time limit for issuing such notices. However the Assessment or Reassessment order shall be completed within 2 years from the end of Financial year in which notice u/s. 10(1) was issued by AO. No time barring limit for
Reassessment – Any time. This means that even during routine 143(3) assessments under the Income-tax Act , if the JCIT/Addl CIT finds that some foreign asset or income is undisclosed, he can trigger the Black Money Act and issue notice u/s 10
Section 14
Notwithstanding anything, the Direct Assessment of the actual person behind the scene can also be done & recoveries made
APPEALS / REVISIONS
First Appeal – Just like the Income-tax Act, there is a concept of filing First appeal (in 30 days) before the Commissioner (Appeals) – Sections 15-17 if the assessee objects to the tax levied or denies his liability to be assessed under this act, or against any penalty or rejection/refusal of rectification. Delay may be condoned not beyond 1 year.
The CIT(A) can confirm, reduce, annul or enhance the Assessment or confirm or cancel the penalty – even enhance or Consider any other matter not considered by the AO or Consider and decide any matter arising out of the proceedings in which the order appealed against was passed.
Second appeal – Before ITAT : Section 18
Against the order of CIT(A) or CIT. Has to be filed within 60 days of receipt of order. Concept of cross objections – if desired. Same powers as in Income-tax Act.
Further appeals to HC & SC on question of law.
Concept of CIT Revision u/s. 23 if order is Erroneous/Prejudicial. The CIT may revise any order if the order is passed without making inquiries or verification which should have been made. Within two years from end of the year in which order is made.
Section 24 – Revision Application by assessee
The CIT may revise any order on Application of assessee. Time limit 1 year from end of financial year in which Application is made.
Section 32
Recoveries can be made against assets in India and also from debtors who will be treated as assessee in default unless debtor denies in Affidavit. For Companies, demand recoveries can be made from Managing Director or Manager, unless his innocence is proved.
All demands have to be paid in 30 days unless stayed. Else assessee will be in default
Section 40
Interest u/s. 234A, 234B or 234C will be charged on undisclosed foreign income/asset
PENALTIES
Section 41
AO may direct that in a case where Assessment done u/s 10, the assessee shall pay penalty of 3 times the tax i.e. 90%. No minimum or maximum limits and NO concept of reasonable cause.
Section 42
If a Resident who holds any foreign asset or has any foreign income fails to furnish any Income-tax return ( under the IT Act 1961 ) before the end of Assessment Year, AO may levy penalty of Rs. 10 lakhs. No minimum or maximum limits for penalty. However no such penalty if the only foreign asset is one or more foreign Bank accounts having aggregate balance less than Rs 5 lakhs at any time in Previous Year.
Section 43
If a Resident who holds any foreign asset or has any foreign income files his returns but fails to furnish any information on foreign assets or furnishes inaccurate particulars in returns, the AO may levy penalty of Rs 10 lakhs. No minimum or maximum. However no such penalty if the only foreign asset is one or more foreign Bank accounts having aggregate balance less than ` 5 lakhs at any time in Previous Year.
Section 44(1)
Every assessee who is in default or deemed to be in default, in making payment of tax in 30 days AND in case of continuing default by such assessee, shall be liable to a penalty of the amount, equal to the amount of Tax arrear. The Assessee shall be liable to any penalty u/s. 44(1), even if he has paid the tax before levy of such penalty.
Section 45
If the assessee without reasonable cause, fails to –
- answer any question put to him by AO.
- sign any statement made by him in course of any proceedings.
- attend or produce books of account or documents at the place or time in response to summons issued u/s. 8.
Then penalty shall be not less than ` 50,000 but may extend to ` 2 lakhs.
The AO shall issue a show cause notice before levying any penalty, such that the notice shall be issued during the pendency of any proceeding in case of penalty u/s 41 (90% penalty) or within a period of 3 years from the end of F.Y in which default is committed for Section 45 type penalty. Hence as such virtually no time limit set for Penalties u/s. 42 & 43.
Order imposing a penalty shall be passed before expiry of one year from the end of F.Y/ in which notice of penalty is issued.
An order imposing, or dropping the proceedings for imposition of penalty may be revised or revived on the basis of assessment after giving effect of higher authorities like the CIT(A)/ITAT/HC/SC.
PROSECUTION
Section 48
Prosecution in addition to penalty. Prosecution under other laws not hampered.
Possible even if any order is made or not made under this Act.
Sections 49/50
A Resident who at any time in the previous year held any foreign asset/foreign income & wilfully fails to furnish Return of Income or wilfully fails to furnish information in such returns shall be punishable with rigorous imprisonment for the term which shall not be less than 6 months but may be extended to 7 years AND FINE.
Section 51
If a PERSON wilfully attempts in any manner whatsoever to evade any tax, penalty or interest chargeable or imposable under this act, he shall be punishable with rigorous imprisonment for term not less than 3 years till 10 years & with FINE.
Section 51(2)
If a PERSON wilfully attempts to evade payment of tax/int/penalty shall be punishable with imprisonment for term not less than 3 months but extend to 3 years & be fined.
Section 51(3)
A wilful attempt will include any case wherein any person :
- has in his possession or control books of account or other document containing a false entry or statement relevant to any proceedings.
- makes or cause to be made any false entry or statement in such books of account or other documents.
- Wilfully omits or cause to be omitted any relevant entry or statement in books/doc.
- Cause any other circumstances to exist which will have the effect of enabling such person to evade any tax, penalty, interest chargeable/imposable under this Act.
Section 52
If a Person, makes a statement in any verification under this act or rule or delivers an account or statement which is false & he knows that it is false or does not believe it to be true shall be punishable Prosecution.
Section 53
If a person abets or induces in any manner another person to make or deliver an account or statement which is false & which he knows is false or does not believe to be true, he shall be punishable with rigorous imprisonment for term not less than 6 months but extend to 7 years & be fined
Section 56
If an offence is committed by a company then, every person who, at the time the offence was committed, was in charge of & was responsible to the company for conduct of business as well as the company shall be deemed to be guilty of the offence and shall be liable to be punished accordingly. Company includes unincorporated body & HUF.
In HUF all adult members are treated as director, thus liable, In firm – all partners are treated as Director and are thus liable. For 2nd offence – Min-imprisonment term not less than 3 years but extendable to 10 years & be fined ` 5 lakhs to ` 1 crore.
Wilful attempt to evade tax, interest or penalty will now be a recognized offence under PMLA 2002 – Part C.
If foreign asset is acquired prior to this Act & no amnesty was availed, asset will be deemed to have been acquired in the year in which notice u/s. 10 is issued.
The JCIT/Addl CIT are the authorized AO’s for the purpose of this Act.
WORD OF CAUTION TO ALL PRACTISING CA’s
Typically tax return softwares ( e-filing ) are handled by juniors or article staff and any unintentional error by them in filing up the Foreign assets part in the cases of Residents can result in violation of Sec. 43 of the Black Money Act. Similarly non filing of returns in such cases is also extremely risky and can be visited with Sec. 42 and penalties. Due care be exercised.
Advanced Pricing Agreement (APA) &
Mutual Agreement Procedures (MAP)
- Advanced Pricing Agreement (APA)
INTRODUCTION
An Advance Pricing Agreement (‘APA’) is an agreement between a taxpayer and tax authority, determining the transfer pricing methodology for pricing the taxpayer’s international transactions for future years. The methodology is to be applied for a certain period of time based on the fulfilment of certain terms and conditions (called critical assumptions). It is a voluntary process initiated by the taxpayer.
APA provisions were introduced in the Income-tax Act, 1961 (‘Act’) w.e.f. 1st July, 2012. The rules in respect of the APA scheme have been notified by the Central Board of Direct Taxes (‘CBDT’) by way of insertion of Rule 10F to Rule 10T and
Rule 44GA in the Income-tax Rules, 1962 (‘Rules’).
Since its introduction, the APA scheme has been progressing steadily showcasing the Government’s intention of fostering a non-adversarial tax regime. The Indian APA programme has been appreciated nationally and internationally for being able to address complex transfer pricing issues in a fair and transparent manner.
PROVISIONS – SECTIONS 92CC & 92CD
Section 92CC of the Act provides for Advance Pricing Agreement. It empowers the CBDT, with the approval of the Central Government, to enter into an APA with any person for determining the Arm’s Length Price (‘ALP’) or specifying the manner in which ALP is to be determined in relation to an international transaction(s) which is to be entered into by the person.
The agreement entered into is valid for a period, not exceeding 5 consecutive previous years, as may be specified in the agreement. With amendment to the provisions of the Act w.e.f. 1st October, 2014, the agreement entered into shall also be valid for a period, not exceeding 4 previous years preceding the first of the previous years.
Once the agreement is entered into, the ALP of the international transaction(s), which is subject matter of the APA, would be determined in accordance with such an APA. The agreement entered into shall be binding on taxpayer and income-tax authorities, unless there is change in law or facts having bearing on the agreement so entered.
CBDT with the prior approval of the Central Government can declare an agreement to be void ab initio if it finds that the agreement has been obtained by the taxpayer by fraud or misrepresentation of facts. Once the agreement has been declared as void ab initio, all the provisions of the Act shall apply to the taxpayer as if the agreement has never been entered into.
Section 92CD of the Act provides for Effect to Advance Pricing Agreement. It states that where taxpayer has entered into an agreement and prior to the date of entering into the agreement, any return of income has been furnished under the provisions of section 139 for any assessment year to which such agreement applies, such person shall furnish within a period of 3 months from the end of the month in which the said agreement was entered into, a modified return in accordance with the agreement. In case of assessment proceedings for an assessment year relevant to a previous year to which the agreement applies have been completed before the expiry of period allowed for furnishing of modified return, Assessing Officer shall proceed to assess the total income of the relevant assessment year in accordance with the agreement.
TYPES OF APA (‘RULE 10F’)
An APA can be unilateral, bilateral, or multilateral.
- Unilateral APA: an APA that involves only the taxpayer and the tax authority of the country where the taxpayer is located.
- Bilateral APA (BAPA): an APA that involves the taxpayer, associated enterprise (AE) of the taxpayer in the foreign country, tax authority of the country where the taxpayer is located, and the foreign tax authority.
- Multilateral APA (MAPA):an APA that involves the taxpayer, two or more AEs of the taxpayer in different foreign countries, tax authority of the country where the taxpayer is located, and the tax authorities of AEs.
ELIGIBLE TAXPAYER & PERMISSIBLE TRANSACTIONS (‘RULE 10G’)
Any taxpayer who has undertaken international transaction(s) or is contemplating to undertake international transaction(s) is eligible to file for an APA.
Eligible taxpayer can file an APA for any type of international transaction(s). The taxpayer have the option covering all or some of the international transaction(s) in an APA.
PROCESS IN APA
The APA process can be broken down in following 5 steps:
- PRE-FILING CONSULTATION (‘RULE 10H’)
The APA Rules provide for a preliminary consultation before formally lodging an APA application. In such consultation, the taxpayer and the APA team will discuss and clarify the scope of the APA, the transfer pricing issues involved and whether an APA can be executed or not. There is an option of pre-consulting on a no name basis. However, the discussion during the pre-filing meeting is not binding on either the taxpayer or the tax authorities. The pre-filing consultation was mandatory initially wherein specified information had to be filed as part of the pre-filing application (Form No. 3CEC). This process has been made optional now.
- FORMAL FILING OF APPLICATION (‘RULE 10-I’ & ‘RULE 10MA’)
The APA application is to be filed in Form No. 3CED. The application is to be filed with the Director General of Income-tax – International Taxation (‘DGIT’) in case of unilateral agreement and with the competent authority of India in case of bilateral or multilateral agreement. Every application shall be accompanied by the proof of payment of fees, which is based on amount of international transaction(s) entered into or proposed to be undertaken as per table below;
| Amount of international transaction(s) entered/ proposed during the period of agreement. | Fees |
| Amount not exceeding ₹ 100 crore | 10 lakhs |
| Amount not exceeding ₹ 200 crore | 15 lakhs |
| Amount exceeding ₹ 200 crore | 20 lakhs |
The Rollback application can be filed in Form No. 3CEDA provided the transaction(s) covered is same for which Form
No. 3CED is filed. The applicant should have furnished its return of income and Form 3CEB for the relevant years of rollback before the due date as specified is Section 139 of the Act. The fees for filing Rollback application is ₹ 5 lakh.
- PRELIMINARY PROCESSING OF APPLICATION & POST-FILING MEETINGS/ NEGOTIATIONS (‘RULE 10K’ & ‘RULE 10L’)
Every application filed shall be complete in all aspects and accompanied by requisite documents. In case any defect is noticed or relevant document is not attached, the DGIT or Competent authority shall serve a deficiency letter before the expiry of one month from the date of receipt of application. The applicant shall remove the deficiency or modify the application within fifteen days from the date of service of deficiency notice or within such further period for which an application is made in this behalf where the total period does not exceed thirty days. Upon non-removal of defect within the prescribed timeline and after providing an opportunity of being heard, DGIT or Competent authority may pass an order for non-processing the application and fees shall be refunded.
The APA team or the Competent Authority in India/his representative shall process the application in consultation and discussion with the applicant. It shall hold meetings, call for additional document or information, visit the applicant’s business premises and make such inquiries as it deems fit in the circumstances of the case. The APA team shall have a detailed understanding of entities involved, transaction(s) covered, the most appropriate method and on mark-up percentage.
- FINALISING AND SIGNING AN APA (‘RULE 10L’)
The APA team, based on the discussions with the taxpayer, finalises the pricing approach including mark-up percentage on the transaction(s). The team shall prepare a draft report which shall be forwarded to the DGIT or to the competent authority in India. Once an agreement has been entered into, the DGIT or the competent authority in India, as the case may be, shall send a copy to the Commissioner of Income-tax having jurisdiction over the taxpayer.
- ANNUAL COMPLIANCE/ MONITORING (‘RULE 10O’ & ‘RULE 10P’)
The taxpayer is required to comply with the annual compliances (filing of Form No. 3CEB) during the interim period, until the APA is concluded.
Post signing of agreement, the taxpayer will be required to prepare an annual compliance report (‘ACR’) in Form No. 3CEF, for each year covered under the APA, containing sufficient information to detail the actual results for the year, and to demonstrate compliance with the terms of the APA. The ACR shall be furnished in quadruplicate within thirty days of the due date of filing the income tax return for that year, or within ninety days of entering into an agreement, whichever is later. Further, the taxpayer is required to declare whether there are any changes in the business model, functional and risk profile, critical assumptions and organisational structure. Following the filing of the ACR, the jurisdictional TPO would carry out a compliance audit for each of the years under the APA term. The TPO would provide a report to the DGIT or the Competent Authority in India.
WITHDRAWAL OF APA (‘RULE 10J’)
An applicant may withdraw the APA application at any time before the finalisation of the terms of the agreement. The application needs to be filed in Form No. 3CEE. The application fees paid at the time of filing of APA shall not be refunded on withdrawal of the application.
TERMS OF THE AGREEMENT (‘RULE 10M’)
An APA agreement, among other things, would include:
- International transaction(s) covered;
- Agreed transfer pricing policy;
- Determination of ALP including the transfer pricing methodology to be applied;
- Definition of any relevant term; and
- Critical assumptions and the conditions (assumptions about the nature and functions and risks of the enterprises involved in the transaction(s), about economic conditions, assumptions about the enterprises that operate in each jurisdiction and the form in which they will do so etc.).
AMENDMENTS TO APPLICATION (‘RULE 10N’)
An applicant may request for an amendment to an application at any stage before the finalization of terms of the agreement. The DGIT or competent authority may allow the amendment if such an amendment does not have any effect of altering the nature of the application originally filed. The amendment shall be given effect only if it is accompanied by additional fees, if any as provided in Rule 10I.
REVISION OF AN AGREEMENT (‘RULE 10Q’)
An agreement subsequent to it having been entered into, may be revised by the CBDT where;
- there is a change in critical assumptions or failure to meet a condition subject to which the agreement has been entered into;
- there is a change in law that modifies any matter covered by the agreement but is not of the nature which renders the agreement to be non-binding; or
- there is a request from competent authority in the other country requesting revision of agreement, in case of bilateral or multilateral agreement.
The agreement may be revised suo motu by the CBDT or on request of the taxpayer or DGIT/competent authority. The agreement shall not be revised unless an opportunity of being heard has been provided to the taxpayer and the taxpayer is in agreement with the proposed revision.
CANCELLATION OF AN AGREEMENT (‘RULE 10R’)
An agreement shall be cancelled by the Board for any of the following reasons:
- the compliance audit referred to in rule 10P has resulted in the finding of failure on the part of the taxpayer to comply with the terms of the agreement;
- the taxpayer has failed to file the annual compliance report in time;
- the annual compliance report furnished by the taxpayer contains material errors; or
- the taxpayer is not in agreement with the proposed revision of agreement.
The CBDT shall give an opportunity of being heard to the taxpayer, before proceeding to cancel an application. The order of cancellation of the agreement shall be in writing and shall provide reasons for cancellation along with the effective date of cancellation. The order of cancellation shall be intimated to the Assessing Officer and the Transfer Pricing Officer, having jurisdiction over the taxpayer.
PROCEDURE FOR GIVING EFFECT TO ROLLBACK PROVISION OF AN AGREEMENT (‘RULE 10RA’)
The applicant shall furnish modified return of income referred to in section 92CD in respect of a rollback year to which the agreement applies along with the proof of payment of any additional tax arising as a consequence of and computed in accordance with the rollback provision.
If any appeal filed by the applicant is pending before the Commissioner (Appeals), Appellate Tribunal or the High Court for a rollback year, on the issue which is the subject matter of the rollback provision for that year, the said appeal to the extent of the subject covered under the agreement shall be withdrawn by the applicant before furnishing the modified return for the said year.
Similarly, if any appeal filed by the Assessing Officer or the Principal Commissioner or Commissioner is pending before the Appellate Tribunal or the High Court on the issue which is subject matter of the rollback provision for that year, the said appeal to the extent of the subject covered under the agreement shall be withdrawn by the Assessing Officer or the Principal Commissioner or the Commissioner, as the case may be, within three months of filing of modified return by the applicant.
RENEWING AN AGREEMENT (‘RULE 10S’)
The applicant can make a request for renewal of an agreement as a new application for agreement, using the same procedure as outlined in these rules except pre-filing consultation as referred to in Rule 10H.
BENEFITS OF APA
An APA provides the following benefits;
- Certainty with respect to tax outcome of the taxpayer’s international transaction(s), by agreeing in advance the arm’s length pricing or pricing methodologies to be applied to the taxpayer’s international transaction(s) covered by the APA;
- Removal of an audit threat (minimize rigours of audit), and deliverance of a particular tax outcome based on the terms of the agreement;
- Substantial reduction of compliance costs over the term of the APA;
- For tax authorities, an APA reduces cost of administration and also frees scarce resources; and
- Provides flexibility in developing practical approaches for complex transfer pricing issues.
Consequently, APAs provide a win-win situation for all the stakeholders involved.
RECENT UPDATES IN INDIA’S APA PROGRAMME
- India completed its 6th year of the APA program on March 31, 2018;
- A total of 219 APAs – 199 unilateral and 20 bilateral, have been concluded. 67 APAs – 58 unilateral and 9 bilateral were concluded during FY 2017-18;
- CBDT issued a notification on June 16, 2017, amending clauses 3 and 4 of the Form 3CED.
- Mutual Agreement Procedures (MAP)
INTRODUCTION
Mutual Agreement Procedures (‘MAP’) is an alternative mechanism available to taxpayers for resolving disputes giving rise to double taxation whether juridical or economic in nature. The agreement for avoidance of double taxation between the countries would give authorisation for assistance of Competent Authorities (‘CA’) in the respective jurisdiction under MAP. In the context of OECD Model Convention for the Avoidance of Double Taxation, Article 25 provides for assistance of Competent Authorities under MAP.
PROVISIONS – RULES 44G & 44H
Rules 44G and 44H of the Rules provide procedural guidance in respect of initiation of MAP.
Rule 44G
The taxpayer resident in India can make an application to the CA in India in Form No. 34F wherein the taxpayer is required to give relevant details in relation to the case along with documentary support.
Rule 44H
The Assessing Officer shall, within 90 days of receipt of the resolution by the Chief Commissioner or DGIT, give effect to the resolution provided:
- The taxpayer gives his acceptance to the resolution arrived at under MAP; and
- Withdraws the appeal, if any pending on the issue which was the subject matter for adjudication under mutual agreement procedure.
ELIGIBLE TAXPAYER & PERMISSIBLE TRANSACTION(S)
The taxpayer of the country having to bear the incidence of double taxation can apply for assistance of Competent Authorities under MAP to resolve the issue of such double taxation.
Generally, the issues giving rise to double taxation are submitted by the taxpayers for resolution under MAP. Some of the instances giving rise to double taxation are:
- Adjustment arising from Transfer Pricing assessment;
- Issues relating to existence of Permanent Establishment;
- Characterisation of income;
- Attribution of profits to Permanent Establishment.
TIME LIMIT FOR FILING MAP APPLICATION AND DISPOSAL
The time limitation for filing an application for MAP is governed by the respective treaty for avoidance of double taxation entered into between the countries. Generally, the time limit ranges between 2-3 years from the date of the notice giving rise to double taxation. The date of order of the original Assessment would be reckoned for computation of time limitation for filing an application for assistance of Competent Authorities under MAP.
Certain Conventions for Avoidance of Double Taxation between the countries provide for three years from the date of receipt of first notice giving rise to double taxation. (E.g., Convention between India-Australia, India-China, India-Germany etc.) In cases where the Convention for Avoidance of Double Taxation does not provide for time limit the domestic tax provision on time limit has to be looked into for filing an application for assistance of Competent Authorities under MAP. E.g., the Convention for Avoidance of Double Taxation between India and UK does not provide time limit for filing for assistance under MAP. However, the UK domestic regulation provides a time limit of six years from the end of the relevant financial year to which adjustment relates.
Under the Indian Tax Conventions (entered into with other countries) there is no timeline for disposal of application for assistance of Competent Authorities under MAP. Generally, the resolution under MAP can be expected within a period of two years from the filing of an application.
STEPS INVOLVED IN MAP
The MAP process involves the following steps;
- PREPARATION AND FILING OF MAP : APPLICATION – Taxpayer makes a request to the home country’s CA and filing of bank guarantees with the tax authorities, if any.
- POST FILING MEETING & DISCUSSIONS WITH CA –Taxpayer may be asked to provide further data in case of inadequate information available on record to reach a conclusion. In certain cases, where found necessary, the taxpayer may also be called upon to represent the matter before the Competent Authorities.
- NEGOTIATIONS AND RESOLUTION– Competent Authorities initiate negotiation and attempt to reach an amicable solution. The proposed agreement will be communicated to the taxpayer.
BENEFITS OF MAP
A MAP provides the following benefits;
- The main benefit of pursuing MAP is elimination of double taxation.
- In cases involving certain jurisdictions (US, UK and Denmark), the Indian authorities have entered into an agreement under which the taxpayer can choose to provide a bank guarantee for the outstanding tax demand. In such cases, the tax demand would not be pursued by the tax authorities until disposal of the MAP application
- The MAP resolution, once accepted, eliminates the need for protracted litigation.
- Taxpayers have the option of either accepting or rejecting the resolution arrived at under MAP. However, it will be binding on the Revenue for that international transaction(s) for the particular Assessment Year.
- Domestic appeal option is still open in case of no acceptable MAP resolution.
RECENT UPDATES IN INDIA’S MAP PROGRAMME
- CBDT in the last two years has invigorated the MAP proceedings with different countries, such as with the US, the UK, Japan and Canada.
- India and the US resolved not only cases of framework, but also non-framework TP cases and treaty interpretation cases.
Appeals, Revisions & Rectification
- Appeals
| Section, Appellate Authority and Form No. |
Time Limit | Filing fees | Documents to be submitted/attached |
Remarks |
| 246A
CIT(A) Form No. 35 |
A subsequent decision of Supreme Court or High Court resulting in change of legal position may be sufficient cause of condonation of delay. Sothiya Mining & Mfg. Corp. 186 ITR 182 (Cal.) |
|
The CBDT vide press release dated 30.12.2015 has made electronic filing of appeal mandatory for the persons who are required to file the return of income electronically
Form No. 35, grounds of appeal and form of verification appended thereto shall be signed and verified by the person authorised to sign the ROI u/s. 140. If the same is unsigned or unverified or is signed or verified by wrong person, an opportunity should be given to the assessee to rectify it. Rajendrakumar Maneklal Sheth (HUF) 213 ITR 715 (Guj.) Condonation of delay: An appeal wrongly filed before the AO and not CIT(A) is an unintentional lapse of the assessee. The AO ought to have returned the appeal to enable the assessee to take corrective steps. The likelihood of error is inherent in human nature The power of condonation is in view of human fallibility and must be exercised in cases of bona fide lapses. Prashanth Projects Ltd vs. DCIT (Bombay High Court) Normally, additional evidences are to be accompanied with an application stating the reasons for their admission, after which the Commissioner (Appeals) may admit the same after recording reasons in writing for its admission. Before taking into account the additional evidence filed, Commissioner (Appeals) is to provide reasonable opportunity to the Assessing Officer for examining the additional evidence or the witness as well as to produce evidences to rebut additional evidences filed by the tax payer.
|
Gouri Sahai Ghisa Ram 120 ITR 338 (All).
|
| 248
CIT(A) Form No. 35 |
|
Filing Fee ₹ 250/-
Appeal by person denying liability to deduct tax |
Same as above to the extent applicable.
Appeal to be signed by the person responsible for payment of income from which TDS is deductible Tax has to be paid before filing appeal u/s. 248. |
[TELCO vs. DCIT (2004) 83 TTJ 458 (Mum.)] |
| 253
ITAT Form No. 36 |
|
Appeal fees:
However, no such fee shall be payable in case
|
|
CIT vs. Hissaria Brothers (2016) 386 ITR 719 (SC)
|
| 253(4) (Cross Objection)
ITAT Form No. 36A |
30 days of receipt of notice of appeal by other party | NIL | Same as above [except instead of Form 36, Form 36A] |
|
| 260A
High Court Form No.- A Memorandum of appeal precisely stating therein substantial question of law |
120 days from the date on which the order appealed against is received | As per code of Civil Procedure | In the form of memorandum of appeal, precisely stating the substantial question of law involved.
If the High Court is satisfied that a substantial question is involved, it would formulate that question. High Court hears the appeal only on the question of law so formulated; however, the respondents can argue at the time of hearing that case does not involve such question of law. Appeal filed before High Court is heard by bench of not less than two Judges and decision is by majority. Guidelines for Typing and Preparation of Application
|
|
| 261
Supreme Court |
The application before the High Court for certificate of fitness of the case should be filed within 60 days. |
Union of India vs. Kaumudini Narayan Dalal (2001) 249 ITR 219 (SC) |
- Revisions
| Section | Subject matter of revision | Who can revise | Time limit | Remarks |
| 263 | Any order passed by the Assessing Officer which is erroneous and prejudicial to the interest of the revenue. | Principal CIT or CIT | 2 years from the end of the financial year in which order sought to be revised was passed except in situation enumerated u/s. 263(3).
|
|
| 264 | Any order passed by the officer subordinate to Pr. CIT or CIT Exception:
|
Principal CIT or CIT |
The assessee has to make an application within 1 year from the date of communication or knowledge of the order to the assessee whichever is earlier However, Pr. CIT or CIT has power to condone delay if assessee is prevented by sufficient cause from making the application after the expiry of that period. |
|
III. Rectification
| Section | Subject matter of rectification | Who can rectify | Time limit | What can be rectified | Remarks |
| 154 |
|
IT authority as referred to in section 116
If order is passed by CIT(A), then he can rectify the mistake on intimation being made by AO or Assessee. |
Within 4 years from the end of the financial year in which order sought to be rectified was passed.
If an order is revised, set aside, etc., then the period of 4 years will be counted from the date of such fresh order and not from the date of original order. In case an application for rectification is made by the taxpayer, the authority shall amend the order or refuse to allow the claim within 6 months from the end of the month in which the application is received by the authority. |
Any mistake ‘apparent’ from the record.
Mistake apparent from record must be an obvious and patent and must not be something which can be drawn by a long-drawn process of reasoning T S Balram, ITO vs. Volkart Brothers 82 ITR 40 (SC) |
|
| 254(2) | Any order passed by ITAT | Income Tax Appellate Tribunal ITAT
|
6 months from the end of the month in which the order was passed. (w.e.f. AY 2017-18) | Any mistake ‘apparent’ from the record. |
|
Buy-Back of Shares — Taxation on Distributed
Income of Domestic Company
BUY BACK TAX — CHAPTER XII-DA OF THE INCOME-TAX ACT 1961 – SPECIAL PROVISIONS RELATING TO TAX ON DISTRIBUTED INCOME OF DOMESTIC COMPANY FOR BUY-BACK OF SHARES
| Particulars | Rate of tax, Remittance, Interest & Consequence |
|
|
NOTE: RULE 40BB – COMPUTATION MECHANISM FOR DETERMINING AMOUNT RECEIVED ON ISSUE OF SHARES UNDER DIFFERENT SCENARIOS
| Sub-Rule | Manner of issue of shares to be bought back |
Amount to be deemed as amount received on issue of such shares |
| 2 | Shares issued by way of subscription | Amount actually received including share premium |
| 3 | Where at any time prior to buy-back, company had returned any sum out of the amount received at the time of issue | Amount actually received including share premium as reduced by the sum so returned. However, if Dividend Distribution Tax was paid on the amount so returned, then that amount shall not be reduced |
| 4 | Shares issued under an Employees’ Stock Option Plan (‘ESOP’) or as a part of sweat equity | Fair Market Value (‘FMV’) as per Rule 3(8) [i.e. FMV as determined by a merchant banker on the date of exercising the option or any other earlier date not being more than 180 days earlier], to the extent credited to the share capital and share premium account
Sweat equity shares shall have the meaning assigned to it in clause (b) of the Explanation to section 17(2)(vi) of the Act |
| 5 | Shares issued by amalgamated company in lieu of shares of amalgamating company | Amount received by the amalgamating company in respect of its shares determined in accordance with these rules |
| 6 | Shares issued by resulting company in a scheme of demerger | Amount received by the demerged company in respect of its shares determined in accordance with these rules, in the proportion of net book value of assets transferred to the net worth of the demerged company immediately before demerger |
| 7 | Original shares in demerged company | Amount received by the demerged company in respect of its shares as reduced by amount determined for shares issued by resulting company in such demerger (sub-rule 6 above) |
| 8 | Shares issued as part of consideration for acquisition of any asset or settlement of any liability | A / B, where
A = Lower of (i) or (ii)
B = Number of shares issued by the company as part of consideration |
| 9 | Shares issued on succession or conversion of a firm into the company or succession of sole proprietary concern by the company | (A – B)/C, where
A = Book value of assets (ignoring revaluation) shown in the Balance Sheet as reduced by
B = Book value of liabilities shown in the Balance Sheet (excluding capital, reserves and surplus, adjusted provision for tax, provisions for unascertained liabilities and contingent liabilities) C = Number of shares issued on conversion or succession |
| 10 | Shares issued to existing shareholders without any consideration | NIL |
| 11 | Shares issued on conversion of preference shares or bonds or debentures, debenture-stock or deposit certificate, or warrants or any other Security | Amount received by the company in respect of such instrument |
| 12 | Shares held in dematerialized form and not distinctly identifiable | To be determined in accordance with these rules, on the basis of the first-in-first-out method |
| 13 | Any other case | Face value of the shares |
Cash Credit and unexplained Investments Sections 68 & 69
Section 68 on Cash Credits specifies that any sum found credited in the books of the assessee (any assessee) maintained for any previous year and if the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not in the opinion of the Assessing Officer satisfactory, then the sum shall be taxed as the income of the assessee for that particular year.
Following two provisos were inserted by Finance Act, 2012 w.e.f. 1-4-2013:
First Proviso–
- Where the assessee is a company in which public are not substantially interested,
- and the sums so credited are in the nature of share application money, share premium, share capital or any such amount by whatever name called,
- then explanation offered by such company shall be deemed to be not satisfactory, unless
- any resident person in whose name such credit is recorded in the books of the company offers an explanation about the nature and source of such sum and
- such explanation as given by any resident person is satisfactory in the opinion of Assessing Officer.
Second Proviso –
- Second proviso states that the first proviso shall not be applicable if the person in whose name credit appears in the books of the company is a venture capital
fund or a venture capital company as referred to in
section 10(23FB).
Section 69 – Unexplained Investments
Where the assessee makes any investments which are not recorded in the books of account and the assessee offers no explanation or the explanation offered by the assessee is not satisfactory in the opinion of assessing officer, then it shall be deemed to be his income and chargeable to tax in that financial year.
Section 115BBE
The income tax payable on income referred to in Section 68 and Section 69, Section 69A, Section 69B, Section 69C or Section 69D should be calculated at the rate of 60% of such income as is reflected in return filed by the assessee or as determined by the Assessing Officer.
While computing income under ‘Section 68 to Section 69D’, deduction in respect of any expenditure or allowance or set off of any loss will not be allowed if such income is:
- included by the Assessee himself or
- determined by Assessing Officer (with retrospective effect from 1-4-2017 as inserted by Finance Act, 2018).
Clubbing of Income
| Section | Nature of Transaction |
Clubbed in the Hands of |
Conditions/Exceptions | Relevant Reference |
| 60 | Transfer of Income without transfer of Assets | Transferor who transfers the income | Irrespective of:
|
[Grandhi Narayana Rao 173 ITR 593 (AP)] |
| 61 | Revocable transfer of Assets | Transferor who transfers the Assets | Clubbing not applicable if:
|
Transfer held as revocable
|
| 64(1)(ii) | Salary, Commission, Fees or remuneration paid to spouse from a concern in which an individual has a substantial* interest | Spouse whose total income (excluding income to be clubbed) is greater | Clubbing not applicable if:
Spouse possesses technical or professional qualification and remuneration is solely attributable to application of that knowledge/qualification. (burden of proof of qualification is on asseesee — Yashwant Chhajta vs Dy. CIT |
|
| 64(1)(iv) | Income from assets transferred directly or indirectly to the spouse without adequate consideration | Individual transferring the asset | Clubbing not applicable if:
The assets are transferred;
|
|
| 64(1)(vi) | Income from the assets transferred to son’s wife | Individual transferring the Asset | Condition:
The transfer should be without adequate consideration |
Cross transfers are also covered [C.M. Kothari 49 ITR 107 (SC)] |
| 64(1)(vii), (viii) | Transfer of assets by an individual to a person or AOP for the immediate or deferred benefit of his:
(vii) — Spouse (viii) — Son’s wife |
Individual transferring the Asset | Condition:
|
|
| 64(1A) | Income of a minor child [Child includes step child, adopted child and minor married daughter]. |
CIT vs. Shardaben Kishorebhai Patel (2014) 225 Taxman 375/48 taxmann.com 296 (Guj.)(HC) |
Clubbing not applicable for:—
|
|
| 64(2) | Income of HUF from property converted by the individual into HUF property | Income is included in the hands of individual & not in the hands of HUF | Clubbing applicable even if:
The converted property is subsequently partitioned; income derived by the spouse from such converted property will be taxable in the hands of individual |
Fiction under this section must be extended to computation of income also. [M. K. Kuppuraj 127 ITR 447 (Mad.)] |
Note:
- An individual shall deemed to have substantial interest in a concern for the purpose of Section 64(1)(ii).
| IF THE CONCERN IS A COMPANY | IF THE CONCERN IS OTHER THAN A COMPANY |
| Person’s beneficial shareholding should not be less than 20% of voting power either individually or jointly with relatives at any time during the previous year. (Shares with fixed rate of dividend shall not be considered) | Person either himself or jointly with his relatives is entitled in aggregate to not less than 20% of the profits of such concern, at any time during the previous year |
- The clubbed income retains the same head under which it is earned.
- Income includes loss.
Commodities Transaction Tax
- COMMODITIES TRANSACTION TAX
Commodities Transaction Tax (CTT) is a tax levied in India, on transactions done on the domestic commodity derivatives exchanges. Globally, commodity derivatives are considered as financial contracts. Hence CTT can also be considered as a type of financial transaction tax.
In the Union Budget 2013-14 CTT was reintroduced, however, only for non-agricultural commodity futures at the rate equivalent to the rate of equity futures. The then Finance Minister, in his budget speech said,
“There is no distinction between derivative trading in the securities market and derivative trading in the commodities market, only the underlying asset is different. It is time to introduce Commodities Transaction Tax (CTT) in a limited way. Hence, I propose to levy CTT on non-agricultural commodities futures contracts at the same rate as on equity futures that is at 0.01% of the price of the trade”.
Vide Finance Act, 2016 it was stipulated that transactions carried out in a recognized commodity exchange located in an International Financial Center, where the payments are carried out in terms of foreign currency, would be exempt from the payment of CTT.
- IS THIS LEVIED ON ALL COMMODITIES?
As per Notification No. 13/2015, F. No. 142/09/2013-TPL dated February 10, 2015 a revised list of 61 agricultural commodities (exempt under clause (7) of section 116) was notified including certain commodities where trading is currently not taking place.
- WHAT WILL BE THE TAX TREATMENT OF CTT PAID?
The Government has allowed deduction of Commodity Transaction Tax (CTT) paid as it forms part of the business income. Transactions in commodity derivatives have been declared to be made non-speculative; and hence for traders in the commodity derivatives segment, any losses arising from such transactions can be set off against income from any other source under Section 71 of the Income-tax Act.
Country-by-Country Reporting
INTRODUCTION
Finance Bill, 2016 introduced additional compliance requirement for Indian Multinationals with the insertion of Section 286. These compliance requirements are introduced based on the three-tiered documentation i.e., Country-by-Country Report (CbCR), Master File and Local File, as introduced in Action Plan 13 of BEPS (Base Erosion and Profit Shifting) initiative of OECD (Organisation for Economic Co-operation and Development). This new documentation regime has been applied for the first time for FY 2016-17.
These amendments require Indian Multinationals crossing a consolidated turnover based threshold of INR 5,500 crore as per the consolidated financial statement for accounting year preceding the previous financial year to file CbCR. The CbCR filed by the companies around the world will be automatically exchanged with the Government for the purpose of tax risk assessment.
Reporting requirement as introduced under Section 286
- Indian Multinationals
These requirements apply to Indian Multinationals operating as an international group and crossing the threshold limit. International group means any group that includes (i) two or more enterprises which are resident of different countries; or (ii) an enterprise, being a resident of one country, which carries on any business through a permanent establishment in other countries.
Requires the parent company (the entity which prepares consolidated financial statement for all the group entities) of an Indian Multinational to furnish the following details on a Country-by-Country basis for all the entities considered in the consolidated financial statements:
Financial and Employee details
- Revenue and Profit / Loss Before Tax
- Tax (paid and accrued)
- Stated Capital and Accumulated earnings
- Number of employees and Tangible assets (not being cash or cash equivalents)
The above details are to be reported in aggregation for the presence in each country in which the group operates. E.g. there are 3 entities in Netherlands, the abovementioned details for all the three entities are to be clubbed and reported for Netherlands country.
Further following additional information also needs to be provided for each of the entities:
- The country in which such entity operates
- The country of which such entity is tax resident
- The nature and details of the main business activity (such as Manufacturing, Distribution, Providing services etc.)
The above details are to be furnished for every accounting year to the Director General of Income Tax (Risk Assessment) within period of 12 months from end of the said accounting year (which would be 31st March1 following the relevant fiscal year)
Further to the above, with amendment in Section 92D, now the taxpayers are also required to maintain and furnish details of the international group in Masterfile.
- Indian entity of overseas Multinationals
Notify the Indian Government:
The Indian entity of overseas Multinationals also referred to as constituent entity (CE) will have to notify following:
- whether it is the entity which is appointed to file CbCR of the international group on behalf of the parent entity; or
- the details of country of the parent entity/alternate reporting entity
The CbCR notification is to be filed at least two months prior to the due date for furnishing of report as specified above in case of Indian Multinationals (i.e., 10 months from the end of the accounting year – January 31 of each year following the accounting year).
Exceptional circumstances to the above:
In the following circumstances, even the Indian entities of overseas Multinationals will have to furnish the CbCR to the Director General of Income-tax (Risk Assessment):
- where the parent is not obliged to file the CbCR in its jurisdiction
- the parent entity of the International Group is resident of a country
– with which the mechanism of exchange of information fails; or
– India does not have agreement providing for exchange of the report
- if there is more than one Indian entity, only one entity will have to furnish the CbCR on behalf of all the Indian entities, if the overseas Multinational has identified such entity to do so and has informed the Director General of Income-tax (Risk Assessment) in writing.
- Other Procedural provisions
Forms to be furnished:
| Sr. No. | Filing entity | Forms |
| 1 | CE resident in India, of an international group, whose parent is a non-resident | Form No. 3CEAC |
| 2 | Parent entity, or alternate reporting entity, which is:
– resident in India; and – part of an international group, the consolidated group revenue of which exceeds INR 5,500 crore |
Form No. 3CEAD |
| 3 | CE resident in India, of an international group, whose parent is non-resident [and if conditions as explained in ‘Exceptional circumstances to the above’ in point B above are satisfied] | Form No 3CEAD |
| 4 | The designated entity, where there are multiple CEs resident in India of an international group, whose parent is non-resident [and if conditions as explained in ‘Exceptional circumstances to the above’ in point B above are satisfied] | Form No 3CEAE |
Inquiry by Director General of Income-tax (Risk Assessment)
The Director General of Income-tax (Risk Assessment) may require the entity to produce information/documentation, by issue of notice in writing, as may be required to determine the accuracy of the details furnished by any reporting entity.
The time provided to produce such details would be 30 days of the date of receipt of such notice. This period of 30 days can also be extended by the Director General of Income-tax (Risk Assessment) by period not more than
30 days based on application made by such entity.
Penalty provisions – Section 271AA and Section 271GB
These penalty provisions are inserted for failure of filing CbCR [as referred to in Section 286(2)] and
details regarding international group [as referred to in Section 92D(4)]
The Director General of Income-tax (Risk Assessment) (under this section) may direct the entity to pay penalty as follows:
| Sr. No. | Particulars | Penalty Amount (₹) |
| 1 | Failure to furnish details regarding international group [as referred to in Section 92D] |
5,00,000 |
| 2 | Failure to furnish CbCR or further information | 5,000 per day, or
50,000 per day depending on the delay of information |
| 3 | Providing inaccurate information in CbCR | 5,00,000 |
Other observations
Consolidated Financial Statements
Section 286 requires the details about the group entity which are reported in consolidated financial statement. Taxpayers await guidelines on the inclusion and exclusion of the type of entities i.e. Subsidiaries, Joint Venture, Associates to be considered as a part of consolidated financial statements, keeping into consideration Ind-AS, as relevant.
The first filing cycle for CbCR and Master File for FY 2016-17 recently concluded in March 2018.
- Assuming that the Indian Multinational will be following financial year ending 31st March.
Depreciation under Income-tax Act
WHAT IS DEPRECIATION?
Depreciation as per law of lexicon is defined as positive decline in the real value of a tangible asset because of consumption, wear and tear or obsolescence. In accountancy, depreciation refers to two aspects of the same concepts:
- The decrease in value of assets;
- The allocation of cost of assets over a period in which the assets are used.
For tax purpose, depreciation is charge against the income. It is an allowance on capital assets acquired and put to use.
There are different methods of calculating the depreciation like straightline method or written down value (WDV) method. The Income-tax Act, 1961 (‘the Act’) recognises WDV method of depreciating asset, save and except for undertaking engaged in generation or generation and distribution of power.
BLOCK OF ASSETS [SECTION 2(11)]
Prior to the 1986, the Income-tax Act required the calculation of depreciation in respect of each capital asset separately. The computation of depreciation allowance was a detailed and time-consuming exercise on part of taxpayer and the tax department due to difference in rate of depreciation depending on the date of purchase, the type of asset, the intensity of use etc.. Moreover, the system of granting the terminal allowance or taxing the balancing charge at the time an asset was sold, demolished, discarded, etc., necessitated the maintenance of records of depreciation already allowed in respect of each asset.
To simplify the cumbersome process of calculating depreciation and maintenance of records, the Finance Minister in his budget speech for the year 1986-87 announced new provisions for allowing depreciation in respect of blocks of asset. The concept of ‘block of assets’ was introduced by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 with effect from 1-4-1988.
Section 2(11) of the Act defines the term block of assets as
“block of assets means a group of assets falling within a class of assets comprising –
- tangible assets, being building, machinery, plant or furniture,
- intangible assets, being knowhow, patents, copyrights, trade-marks, licenses, franchises or any other business or commercial rights of similar nature
in respect of which the same percentage of depreciation is prescribed.”
CONDITIONS FOR CLAIMING DEPRECIATION
[SECTION 32(1) OF THE ACT]
The following are four basic conditions for claiming the depreciation:
- The asset must be owned, wholly or partly, by the assessee. (notnecessary to be a registered owner)
- The asset should be actually used for the purpose of business or profession of the assessee.
- The asset should have been used during the relevant year in which depreciation allowance is claimed
- The assets must fall under eligible blockof assets
Further, the following points can be noted in respect of depreciation:
- Co-owners are entitled to claim depreciation to the extent of the value of the asset owned by each co-owner.
- Depreciation is not allowable on the cost of land.
- Depreciation is mandatory from A.Y. 2002-03 and shall be allowed or deemed to have been allowed irrespective of claim made in the profit & loss account or not.
- Where the asset is not exclusively used for the purpose of business or profession, the depreciation shall be allowed proportionately with regards to such usage of assets (section 38).
Section 32(1) of the Act provides that depreciation is to be computed at the prescribed percentage on the written down value of the asset which in turn is calculated with reference to actual cost of the assets. In the context of computing depreciation, it is important to understand the meaning of the term ‘WDV’ & ‘Actual Cost’.
WRITTEN DOWN VALUE [SECTION 43(6) OF THE ACT]
WDV under the Act, means
- Where the asset is acquired in the previous year the actual cost of asset shall be treated as WDV.
- Where the asset is acquired in earlier year WDV shall be equal to the actual cost incurred less depreciation actually allowed under the Act or under the Indian Income-tax Act, 1922 or any Act repealed by that Act, or under any executive orders issued when the Indian Income-tax Act, 1886 (2 of 1886) was in force.
In case of block of assets, WDV is computed as under:
| Sr. No. | Particulars | Amount | Amount |
| 1 | In case of any P.Y. relating to A.Y. 1988-89 | ||
| a. The aggregate WDV of all assets falling within the same block in the beginning of P.Y. relating to A.Y. commencing from 1-4-1988 | XXX | ||
| b. Add : Actual cost of assets acquired during the previous year falling in the same block | XXX | ||
| c. Less: Moneys payable (including the scrap value) on assets sold, discarded or demolished or destroyed during the previous year to the extent it does not exceed (a+b) | (XXX) | XXX | |
| 2 | In case of slump sale in relation to any P.Y. relating to A.Y. 1988-89 | ||
| a. Actual cost of assets falling in the same block | XXX | ||
| b. Less : Depreciation actually allowed in A.Ys. prior to 1988-89 | (XXX) | ||
| c. Less : Depreciation allowable in respect of A.Y. beginning on or after 1-4-1988 as if the asset was the only asset in the relevant block. (However deduction under b & c shall not exceed a.) | (XXX) | XXX | |
| 3. | In case of P.Y. relevant to A.Y. commencing on 1-4-1989 the WDV would be the amount of WDV of block of assets in immediately preceding P.Y. as reduced by depreciation actually allowed in respect of said preceding P.Y. and as adjusted by clauses b & c of 1 above. | ||
| • The WDV in the case of the assessee whose income includes agricultural income shall be computed as the assets were used for the purpose of business and the whole depreciation is allowed under this Act. | |||
ACTUAL COST [SECTION 43(1)]
Actual Cost as per the Act, means:
| Sr. No. | Particulars | Actual Cost would mean |
| 1. | Asset is acquired by the assessee in previous year | Actual cost of asset to the assessee as reduced by cost met by any other person or authority directly or indirectly (in the form of subsidy or grant or reimbursement).
However, if any such amount of subsidy or grant or reimbursement is of such nature that it cannot be directly related to asset acquired, then the cost of the asset would be reduced on proportionate basis. In case of motor car acquired before 1-3-1975 but after Further, expenditure incurred for acquisition of any assets or part thereof shall be ignored while determining actual cost, if the payment for that expenditure is made otherwise than:
and the amount of payment to a person exceeds INR 10,000 in a day. |
| 2. | Asset acquired and used for scientific research when ceases to be so used on which depreciation has to be allowed | The amount of actual cost of asset to the assessee as reduced by any deduction allowed u/s. 35(1)(iv) of the Act or similar deductions allowed under the Income-tax Act, 1922. |
| 3. | An asset is acquired by way of gift or inheritance | Actual cost to the previous owner as reduced by
|
| 4. | The assets which were previously used by any other person | If the assessing office is satisfied that the main purpose of transfer of assets is to reduce the tax liability the actual cost shall be an amount as determined by the Assessing Officer with prior approval of Joint Commissioner of Income Tax. |
| 5. | An asset once belonging to the assessee and was used by him for the purpose of his business or profession and thereafter it ceased to be his property which is reacquired by him | Actual cost when he first acquired it, as reduced by the depreciation actually allowed in respect of previous year related to Assessment Year commencing from 1-4-1988 and the amount that would have been allowed to the assessee for assessment year starting from 1-4-1988 (taking the asset as the only asset in the block)
OR The actual price for which the asset is reacquired WHICHEVER IS LESS. |
| 6. | Where the assessee acquires the assets which were previously used at any time by any other person for the purpose of his business or profession & depreciation was allowed to such other person and such other person acquires the same assets on lease, hire or otherwise from the assessee | The written down value of such assets at the time of transfer by the other person to the assessee in his books of account. |
| 7. | A building previously the property of the assessee is brought into use for the purpose of the business or profession after 28-2-1946 | Actual cost of building to the assessee as reduced by an amount equal to the depreciation calculated at the rate in force on that date that would have been allowable had the building been used for the business or profession since the date of its acquisition by the assessee. |
| 8. | Any asset is transferred by a holding company to its subsidiary company or vice versa, and if conditions of clauses (iv) or (v) of section 47 of the Act are satisfied | The actual cost shall be the same as if the transferor company continued to hold the asset. |
| 9. | In a scheme of amalgamation, asset transferred by amalgamating company to amalgamated Indian company | The actual cost shall be the same as if the amalgamating company had continued to hold the asset for the purpose of its own business. |
| 10. | In a scheme of demerger, asset transferred by demerged company to resulting Indian company | The actual cost shall be the same as if the demerged company had continued to hold the asset for the purpose of its own business. Provided the actual cost shall not exceed the WDV of such asset in the hands of demerged company. |
| 11. | Asset is acquired outside India by a non-resident assessee and is brought into India for the use in business or profession | Actual cost to the assessee as reduced by an amount equal to the depreciation calculated at the rate in force that would have been allowable as if the asset had been used in India for the business or profession since the date of its acquisition by the assessee. |
| 12. | Any asset is acquired under a scheme of Corporatisation of a recognised stock exchange in India, approved by SEBI | The amount which would have been regarded as actual cost had there been no such Corporatization |
| 13. | Any asset on which deduction has been allowed or allowable u/s. 35AD of the Act | NIL
In either case of assessee or the other assessee acquiring the asset by way of gift, will, trust or distribution of liquidation of a company or any such mode referred to in Clauses (i), (iv), (v), (vi), (vib), (xiii), (xiiib) and (xiv) of section 47 of the Act. However, if the deduction under section 35AD of the Act is withdrawn, the actual cost of assets shall be the actual cost of the assets to the assessee, as reduced by an amount equal to the amount of depreciation calculated at the rate in force that would have been allowable had the asset been used for the purpose of business since the date of acquisition |
| 14. | Any block of assets is transferred by a private company or unlisted public company to an LLP where conditions u/s. 47(xiiib) of the Act are satisfied |
The actual cost shall be WDV of the block of assets as in the case of the said company on the date of conversion of the company into an LLP. |
Notes:
— Any amount paid or payable as interest in connection with the acquisition of an asset and the same is related to the period after the asset is first put to use shall not be included in actual cost of the asset.
— The actual cost for the assets acquired on or after
1-3-1994 shall be reduced by the amount of duty of excise or additional duty leviable under section 3 of The Customs and Tariff Act, 1975 in respect of which a claim of credit has been made and allowed under the Central Excise Rules,1944.
The term actual cost has not been defined under the Act and hence this expression has to be construed in accordance with the generally accepted principles of accounting. Accordingly, the actual cost of a depreciable asset comprises its purchase price (including import duties and other non-refundable taxes or levies) and any directly attributable cost of bringing the asset to its working condition for its intended use. Actual cost to the assessee would be what the assessee has in fact expended or laid out for the purpose of acquiring the asset.
DEPRECIATION ALLOWED [SECTION 32(1)]
- For all assessees other than Power Sector — Depreciation is calculated on written down value of “Block of Assets”, except for Power Sector, at rates provided in Appendix I read with Rule 5(1).
- For Power Sector assessees — Under Section 32(1)(i) in case of undertaking engaged in generation or generation and distribution of power, the depreciation will be allowed on actual cost (i.e. on straightline method) at the rates provided in Appendix IA read with Rule 5(1A). Such undertaking however has an option to claim depreciation on Written Down Value method at the rates provided in New Appendix I if the assessee exercises such option before the due date of filing the return as per provisions of section 139(1). In case of —
- Undertaking which began to generate power prior to
1-4-1997, for the A.Y. 1998-99 onwards. - In other case, for the A.Y. relevant to the P.Y. in which it begins to generate power.
- Undertaking which began to generate power prior to
- Once the option is exercised to claim depreciation on WDV method, it will apply for all subsequent assessment years.
- The rate of depreciation should be restricted to fifty per cent of rates prescribed if the assets acquired by the assessee during the previous year and put to use for the period less than one hundred and eighty days in that previous year.
- Depreciation allowable to predecessor and successor company in case of succession of business due to amalgamation or demerger shall not exceed in any previous year the amount of depreciation that would have been allowed as if there was no such succession and the depreciation so computed shall be divided between the amalgamating and amalgamated company or demerged and resulting company as the case may be on the basis of number of days the assets were used by such companies.
- Accounting standard on lease issued by ICAI requires capitalisation of the assets by the lessees in financial lease transaction. In such leases, the lessee can exercise the rights of the owner in his own right and hence depreciation is available to the lessee.
Assets Sold or Discarded
- When such asset on which depreciation is allowed is sold, discarded or demolished in a previous year, and if the insurance, salvage, compensation or sale value, as the case may be, receivable in respect of such asset falls short of the written down value, such difference would be allowed as deduction [Terminal Depreciation] u/s. 32(1)(iii) of the Act. The condition for allowing such deduction is that such deficiency is actually written off in the books of account. Similarly, excess of insurance, salvage, compensation or sale value, as the case may be, receivable in respect of such asset over the written down value is chargeable to tax [Balancing Charge] u/s. 41(2) of the Act up to the amount of actual cost of the asset. Since Section 50 of the Act does not apply to such assets, the provisions of capital gains in respect of these assets shall apply as if it is a transfer of asset not forming part of the block of assets.
- ADDITIONAL DEPRECIATION
In case of any new machinery or plant (excluding ships and aircraft) acquired and installed after March 31, 2005 by an assessee engaged in the business of manufacture or production of any article or thing additional depreciation of 20% of actual cost shall be allowed. From A.Y. 2013-14 the same is also allowed to assessee engaged in the business of generation or generation and distribution of power, where the depreciation is provided on WDV method as per Appendix I.
From assessment year 2017-18 the same is also allowed to the assessee engaged in the business of transmission of power.
However no such additional depreciation will be allowed in respect of machinery or plant—
- Used by any other person in India or outside India before its installation.
- Installed in any office premises or any residential accommodation, including a guest house.
- Any office appliances or road transport vehicles.
- The whole of actual cost of which is allowed as deduction in computing income chargeable under the head Profit and Gain of Business or Profession of any one previous year.
From assessment year 2016-17 where an assessee set up an undertaking for manufacture or production of articles on or after 1st April, 2015 in any notified backward area in the State of Andhra Pradesh, Bihar, Telangana or in West Bengal and acquires or install any new machinery or plant (other than ship or aircraft) after 1st April, 2015 but before 1st April, 2020 then the additional depreciation shall be allowed at 35% of cost of acquisition as against 20%.
- Where an asset acquired during the previous year and is put to use for the purpose of business or profession for a period of less than 180 days in that previous year, depreciation allowance shall be restricted to 50% of the amount calculated at prescribed rates, w.e.f. 1st April, 2016 the balance amount of 50% of such depreciation shall be allowed in the immediate subsequent year.
- In case of an asset acquired under hire purchase agreement, where the terms of the agreement provide that the equipment shall eventually become the property of the hirer or confer on the hirer an option to purchase the equipment, the hirer is entitled to claim depreciation allowance.
For computing the depreciation allowance, the difference between the aggregate amount of the periodical payments under the agreement and the initial value (i.e., the amount for which the hired subject would have been sold for cash at the date of agreement) would be spread evenly over the term of the agreement. (Circular No. 9, dated 23-3-1943).
- Fans, air-conditioners, refrigerators, etc., provided by the employer at the residence of the employees, is considered to have been used wholly for the purpose of the employer’s business and full depreciation in accordance with the rules, is allowed in the assessment of the employer. (F. No. 10/14/66-IT (A-I), dated 12-12-1966).
- Where the business or profession is carried on in a building not owned by assessee and any capital expenditure is incurred for construction of any structure or for renovation, improvement or extension of the building, then depreciation will be allowed in respect of such capital expenditure at the rates prescribed for “building”.
- No depreciation is allowable in respect of motor car manufactured outside India acquired after 25th February, 1975 but before 1st April, 2001 unless it is used by the assessee:
- In the business of running it on hire for tourists.
- In his business or profession outside India.
- In case of inadequate profit or loss any depreciation which could not be fully allowed for want of profit, the amount which could not be given full effect of shall be carried forward in the subsequent year and shall form part of the depreciation of such subsequent previous year.
[This condition is subject to Section 72(2) of the Act & Section 73(3) of the Act].
| RATES OF DEPRECIATION | (%) | |
| (I) | Buildings: | |
| (a) Buildings which are used mainly for residential purposes except hotels and Boarding House | 5 | |
| (b) Buildings which are not used mainly for residential purposes and other than mentioned in a & c | 10 | |
| (c) Buildings acquired on or after 1-9-2002 for installing P&M forming part of water supply project; or water treatment system and put to use for the purpose of providing infrastructure facilities u/s. 80-IA(4)(i) of the Act |
40 | |
| (d) Purely temporary erections such as wooden structures | 40 | |
Note
|
||
| (II) | Furniture and fittings including electrical fittings | 10 |
|
||
| (III) | Machinery and plant:
Plant has been held to include :
However, w.e.f. A.Y. 2004-05, it shall not include buildings, furniture and fittings. |
|
| 1) Machinery & plant other than those covered by sub-items 2, 3 and 8 below:
• Machinery and plant includes pipes needed for delivery from the source of supply of raw water to the plant and from the plant to the storage facility |
15 | |
| 2) Motor-cars (other than those used in business of running them on hire) acquired or put to use on or after 1st April, 1990 | 15 | |
| 3) (i) Aeroplane-Aeroengines | 40 | |
| (ii) Motor buses, Motor lorries and Motor used in a business of running them on hire | 30 | |
| (iii) Commercial vehicles acquired on or after 1-10-1998 but before 1-4-1999 and is put to use before 1-4-1999 for the purposes of business or profession | 40 | |
| (iv) New commercial vehicles acquired on or after 1-10-1998 but before 1-4-1999 and is put to use before 1-4-1999 in replacement of condemned vehicles of over 15 years of age for the purpose of business or profession | 40 | |
| (v) New commercial vehicles acquired on or after 1-4-1999 but before 1-4-2000 in replacement of condemned vehicles of over 15 years of age and is put to use before 1-4-2000 for the purpose of business or profession | 40 | |
| (vi) New commercial vehicles acquired on or after 1-4-2001 but before 1-4-2002 and is put to use before 1-4-2002 for the purpose of business or profession | 40 | |
| (vii) New Commercial vehicles acquired on or after 1-1-2009 but before 1-10-2009 and put to use before 1-10-2009 for the purpose of business or profession
• “Commercial vehicle” means — heavy goods vehicle, heavy passenger motor vehicle, light motor vehicle, medium goods vehicle, medium passenger motor vehicle. • It does not include “maxi-cab”, “motor-cab”, “tractor” and “road-roller”. |
40 | |
| (viii) Moulds used in rubber and plastic goods factories | 30 | |
| (ix) Air pollution control equipments | 40 | |
| (x) Water pollution control equipments | 40 | |
| (xi) Solid waste control equipments | 40 | |
| (xii) Machinery and plant used in semi-conductor industry | 30 | |
| (xiii) Life saving medical equipments | 40 | |
| (xiv) Any new plant and machinery installed in or after the P.Y. pertaining to A.Y. 1988-89 for manufacture of articles or things by using any technology or know-how developed or an article invented in a laboratory owned by a public sector company, Government, recognised University subject to specified conditions (See Rule 5(2)) | 40 | |
| 4) Containers made of glass or plastic used as refills | 40 | |
| 5) Computers (including computer software)
• “Computer Software” means any computer programme recorded on any disc, tape, perforated media or other information storage device. |
40 | |
| 6) Machinery and plants used in weaving, processing and garment sector of textile industry purchased under TUFS on or after 1-4-2001 but before 1-4-2004 and is put to use before 1-4-2004 | 40 | |
| 7) Machinery and plant, acquired and installed on or after 1-9-2002 in a water supply project or a water treatment system and which is put to use for the purpose of business of providing infrastructure facility under 80-IA(4)(i) | 40 | |
| 8) For other items of Plant & Machinery refer to Rule 5 App. 1 | 40 | |
| 9) (i) Books owned by assessees carrying on a profession
— Annual publications — Other books |
40
40 |
|
| (ii) Books owned by assessees carrying on business in running lending libraries | 40 | |
| (IV) | Ships
• “Speed boat” means a motor boat driven by a high speed internal combustion engine capable of propelling the boat at a speed exceeding 24 kilometres per hour in still water and so designed that when running at a speed, it will plane, i.e., its bow will rise from the water. |
20 |
| (V) | Intangible Assets
Know-how patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature acquired on or after 1-4-1998. |
25 |
Note : For details under items listed above please refer New Appendixes I & 1A (power companies) to Rule 5.
Depreciation Rate Chart as per Part “C” of Schedule II of The Companies Act 2013Depreciation Rate Chart as per Part “C” of Schedule II of The Companies Act 2013
| Nature of Assets | Useful Life | Rate [SLM] | Rate [WDV] |
I Buildings [NESD]
|
60Years
30 Years 30 Years 5 Years 3 Years |
1.58%
3.17% 3.17% 19.00% 31.67% |
4.87%
9.50% 9.50% 45.07% 63.16% |
| II Bridges, culverts, bunkers, etc. [NESD] | 30 Years | 3.17% | 9.50% |
| III Roads [NESD]
(a) Carpeted Roads
|
10 Years 5 Years 3 Years |
9.50% 19.00% 31.67% |
25.89% 45.07% 63.16% |
IV Plant and Machinery
|
|||
Plant and Machinery related to production and exhibition of Motion Picture Films
Plant and Machinery used in glass
Plant and Machinery used in mines and quarries Portable underground machinery and earth moving machinery used in open cast mining
|
15 Years
8 Years 13 Years 13 Years 13 Years 8 Years 10 Years – 8 Years |
6.33%
11.88% 7.31% 7.31% 7.31% 11.88% 9.50% 11.88% |
18.10%
31.23% 20.58% 20.58% 20.58% 31.23% 25.89% 31.23% |
Telecommunications [NESD]
|
18 Years
13 Years 18 Years 18 Years 25 Years 25 Years 25 Years 25 Years 30 Years 30 Years 8 Years 8 Years 40 Years 40 Years 40 Years 40 Years 22 Years 35 Years 30 Years 30 Years 20 Years 20 Years 20 Years 20 Years 25 Years |
5.28%
7.31% 5.28% 5.28% 3.80% 3.80% 3.80% 3.80% 3.17% 3.17% 11.88% 11.88% 2.38% 2.38% 2.38% 2.38% 4.32% 2.71% 3.17% 3.17% 4.75% 4.75% 4.75% 4.75% 3.80% |
15.33%
20.58% 15.33% 15.33% 11.29% 11.29% 11.29% 11.29% 9.50% 9.50% 31.23% 31.23% 7.22% 7.22% 7.22% 7.22% 12.73% 8.20% 9.50% 9.50% 13.91% 13.91% 13.91% 13.91% 11.29% |
|
–
40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 30 Years 30 Years 30 Years 30 Years 25 Years 25 Years 13 Years 15 Years 20 Years 20 Years 20 Years 20 Years 12 Years 20 Years 15 Years 10 Years 9 Years 12 Years 15 Years |
2.38%
2.38% 2.38% 2.38% 2.38% 2.38% 2.38% 3.17% 3.17% 3.17% 3.17% 3.80% 3.80% 7.31% 6.33% 4.75% 4.75% 4.75% 4.75% 7.92% 4.75% 6.33% 9.50% 10.56% 7.92% 6.33% |
7.22%
7.22% 7.22% 7.22% 7.22% 7.22% 7.22% 9.50% 9.50% 9.50% 9.50% 11.29% 11.29% 20.58% 18.10% 13.91% 13.91% 13.91% 13.91% 22.09% 13.91% 18.10% 25.89% 28.31% 22.09% 18.10% |
V Furniture and fittings [NESD]
|
10 Years 8 Years
|
9.50% 11.88%
|
25.89% 31.23%
|
VI Motor Vehicles [NESD]
|
10 Years 6 Years 8 Years 8 Years 8 Years
|
9.50% 15.83% 11.88% 11.88% 11.88%
|
25.89% 39.30% 31.23% 31.23% 31.23%
|
VII Ships [NESD]
Vessels ordinarily operating on inland waters
|
25 Years
20 Years 25 Years 20 Years 30 Years 30 Years 30 Years 20 Years 20 Years 25 Years 15 Years 10 Years 14 Years 13 Years 28 Years |
3.80%
4.75% 3.80% 4.75% 3.17% 3.17% 3.17% 4.75% 4.75% 3.80% 6.33% 9.50% 6.79% 7.31% 3.39% |
11.29%
13.91% 11.29% 13.91% 9.50% 9.50% 9.50% 13.91% 13.91% 11.29% 18.10% 25.89% 19.26% 20.58% 10.15% |
| VIII Aircrafts or Helicopters [NESD] | 20 Years | 4.75% | 13.91% |
| IX Railway siding, locomotives, rolling stocks, tramways and railway used by concerns, excluding railway | 15 Years | 6.33% | 18.10% |
| X Ropeway structures [NESD] | 15 Years | 6.33% | 18.10% |
| XI Office equipments [NESD] | 5 Years | 19.00% | 45.07% |
XII Computers and data processing units [NESD]
|
6 Years
3 Years |
15.83%
31.67% |
39.30%
63.16% |
XIII Laboratory equipment [NESD]
|
10 Years 5 Years |
9.50% 19.00% |
25.89% 45.07% |
| XIV Electrical Installations and Equipment [NESD] | 10 Years | 9.50% | 25.89% |
| XV Hydraulic woks, pipelines and sluices [NESD] | 15 Years | 6.33% | 18.10% |
Dividend Distribution Tax
CHAPTER XII–D OF THE INCOME-TAX ACT, 1961
“SPECIAL PROVISIONS RELATING TO TAX ON DISTRIBUTED
PROFITS OF DOMESTIC COMPANIES”
BRIEF ABOUT DIVIDEND
Dividend Distribution Tax (DDT) is an additional amount of tax to be paid compulsorily by every domestic company in addition to the income-tax chargeable in respect of the total income of such domestic company for any assessment year. In other words, all domestic companies are liable to pay DDT even if there is no income-tax is payable by such domestic companies on their total income computed in accordance with the provisions of Income-tax Act, 1961. These notes have been amended by the Finance Act, 2018.
115-O(1) Notwithstanding anything contained in any other provision of this Act and subject to the provisions of this section, in addition to the income-tax chargeable in respect of the total income of a domestic company for any assessment year, any amount declared, distributed or paid by such company by way of dividends (whether interim or otherwise) on or after the 1st day of April, 2003, whether out of current or accumulated profits shall be charged to additional income-tax (hereafter referred to as tax on distributed profits) at the rate of fifteen per cent:
Provided that in respect of dividend referred to in sub-clause (e) of clause (22) of section 2, this sub-section shall have effect as if for the words “fifteen per cent”, the words “thirty per cent” had been substituted.
115-O(1A) With effect from 1st day of June, 2013 the benefit of reduction of dividend received by a domestic company from its foreign subsidiary has been extended by the Finance Act, 2013 by amending the clause (i) of section 115-O(1A).
Accordingly, the dividend received by the domestic company from its foreign subsidiary, in respect of which tax is payable
u/s. 115BBD by the domestic company, would be reduced from the dividend declared, distributed or paid by the domestic company. Therefore, the dividend distribution tax shall be levied @15% on the amount so reduced.
As per section 115-O(1A) of the Income-tax Act, 1961 as substituted by the Finance Act, 2013, w.e.f. 1-6-2013, the amount referred to in section 115-O(1) shall be reduced by,
- The amount of dividend, if any, received by the domestic company during the financial year, if such dividend is received from its subsidiary and,
- Where such subsidiary is a domestic company, the subsidiary has paid the tax which is payable under this section on such dividend; or
- Where such subsidiary is a foreign company, the
tax is payable by the domestic company under section 115BBD on such dividend:
Provided that the same amount of dividend shall not be taken into account for reduction more than once;
- The amount of dividend, if any, paid to any person for, or on behalf of, the New Pension System Trust referred to in clause (44) of section 10.
Note that a company shall be a subsidiary of another company, if such other company, holds more than 50% in nominal value of the Equity Share Capital of the company.
115-O(1B) the sub-section (1B) has been inserted by the Finance (No. 2) Act, 2014 w.e.f. 1-10-2014 under the present statutory provisions, dividend tax is payable on amount distributed (without grossing up). After the insertion of the sub-section (1B) and the amended provisions as made applicable from 1-10-2014, the dividend tax u/s. 115(O) will be payable on the amount distributed (after grossing up).
The rate for dividend distribution tax is mentioned below:
| Name of Tax | Tax rates |
| Dividend Distribution Tax (DDT) | 15% |
| Surcharge | 12% |
| Education Cess | 2% |
| Secondary & Higher Education Cess | 1% |
A company wants to pay ₹ 85 as dividend, and then the DDT calculation will be as follows:
| Particular | Amount in ₹ |
| Dividend Payable | 85 |
| Increase by ₹ 15 i.e. [(85 × 0.15)/(1 – 0.15)] | 15 |
| Increased amount | 100 |
| Dividend distribution Tax @15% of ₹ 100 | 15 |
| Surcharge on DDT @12% | 1.8 |
| EC & SHEC on (DDT + Surcharge) i.e. 16.8 @3% |
0.504 |
| Total Dividend Distribution Tax Payable (15 + 1.8 + 0.45) |
17.304 |
Effective rate of DDT paid ₹ 17.304 paid on ₹ 85 so the effective rate is (17.25/85 × 100) i.e. 20.35765%.
115-O(3) Payment of Dividend
Dividend distribution tax is paid within 14 days from the date of Declaration of any dividend or Distribution of any dividend or Payment of any dividend whichever is earliest.
115-O(7) No Tax on dividend by Domestic Company to Business Trust
With effect from 1st April, 2016, there will be no tax on distributed profits shall be chargeable under section 115-O in respect of any amount declared, distributed or paid by the specified domestic company by way of dividends to a business trust out of its current income on or after the specified date.
Specified Domestic Company means a domestic company in which a business trust has become the holder of whole of the nominal value of equity share capital of the company.
However, the equity share capital required to be held mandatorily by any other person in accordance with any law for the time being in force or any directions of Government or any regulatory authority, or equity share capital held by any Government or Government body shall be excluded for the purpose of section 115-O(7) of the Income-tax Act, 1961.
Specified Date means the date of acquisition by the business trust of 100% equity share capital
OTHER RELEVANT POINTS
- As per section 115BBDAIncome-tax Act, 1961 where the total income of [a specified assessee*], resident in India, includes any income in aggregate exceeding ten lakh rupees, by way of dividends declared, distributed or paid by a domestic company or companies, the income-tax payable shall be the aggregate of—
- the amount of income-tax calculated on the income by way of such dividends in aggregate exceeding ten lakh rupees, at the rate of ten per cent; and
- the amount of income-tax with which the assessee would have been chargeable had the total income of the assessee been reduced by the amount of income by way of dividends.
No deduction in respect of any expenditure or allowance or set off of loss shall be allowed to the assessee under any provision of this Act in computing the income by way of dividends referred to in
clause (a) of sub-section (1)—
*”Specified assessee” means a person other than,—
-
- A domestic company; or
- a fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10; or
- A trust or institution registered under section 12A or section 12AA.]]
- The tax on distributed profits shall be payable by domestic company whether or not such profit is distributed out of current year profit or accumulated profit.
- Dividend received from a foreign company is not covered by section 115-O and shall not be exempted in the hands of shareholders u/s. 10(34). Such dividend is taxable in the hands of shareholder at the normal tax rates
- Dividend on both preference shares and equity shares shall be considered.
Interest payable for non-payment of tax by domestic companies
115P. Where the principal officer of a domestic company and the company fails to pay the whole or any part of the tax on distributed profits referred to in sub-section (1) of section 115-O, within the time allowed under sub-section (3) of that section, he or it shall be liable to pay simple interest at the rate of one per cent for every month or part thereof on the amount of such tax for the period beginning on the date immediately after the last date on which such tax was payable and ending with the date on which the tax is actually paid.
When company is deemed to be in default
115Q. If any principal officer of a domestic company and the company does not pay tax on distributed profits in accordance with the provisions of section 115-O, then, he or it shall be deemed to be an assessee in default in respect of the amount of tax payable by him or it and all the provisions of this Act for the collection and recovery of income-tax shall apply.
Equalisation Levy
A new Chapter titled “Equalisation Levy” was inserted in the Finance Act, 2016, which came into effect from 1st June, 2016. Key points are as follows:
- Levy of 6% of the amount of consideration for specified services received or receivable by a non-resident not having permanent establishment in India from:
- a resident in India who carries out business or profession or
- a non-resident have permanent establishment in India
- Key definitions
-
- The term ‘specified service’ is defined to mean online advertisement, any provision for digital advertising space or any other facility or service for the purpose of online advertisement and includes any other service as may be notified by the Central Government in this behalf
- The term ‘online’ means a facility or service or right or benefit or access that is obtained through the internet or any other form of digital or telecommunication network
- The term ‘permanent establishment’ includes a fixed place of business through which the business of the enterprise is wholly or partly carried on
- Exclusions
- If the non-resident service provider has a permanent establishment in India and income from such specified services are effectively connected to this permanent establishment
- If such consideration is not for the purpose of carrying out business or profession
- Amount does not exceed one lakh rupees in any previous year
- In order to avoid double taxation, there is exemption under section 10 of Income-tax Act, 1961 for any income arising from providing specified services on which equalisation levy is chargeable
- Compliance
- In order to ensure compliance, the expenses incurred by the assessee towards specified services chargeable to such levy shall not be allowed as deduction in case of failure of the asseseee to deduct and deposit the equalisation levy to the credit of Central Government
- Such levy to be deducted from the payments to non-resident and to be deposited to the credit of the Central Government by 7th day of the month following the month in which the equalisation levy is collected
- Payment of simple interest @ 1% for every month or part of a month where the equalisation levy collected is not credited to the account of the Central Government within the prescribed period
- The Central Board of Direct Taxes has notified the Equalisation Levy Rules, 2016, which lay down the procedural framework for implementation, including prescribing forms for filing of annual return and appeals.
ELECTRONIC TDS RETURN (E-TDS) – 2018
MANDATORY REQUIREMENT OF FILING E-TDS RETURNS
W.e.f. 1st April, 2010, the following persons are mandatorily required to file TDS/TCS returns electronically on quarterly basis :
[Section 200(3) and Rule 31A]
- The deductor is an office of Government, or
- The deductor is a principal officer of a company; or
- The deductor is a person required to get his accounts audited under section 44AB in the immediately preceding financial year; or
- The number of deductees’ records in a statement for any quarter of the financial year is equal to more than Twenty.
It is however optional for the non-corporate deductors, other than 3 & 4 above, to file TDS Returns in physical form or in electronic form.
Due dates
As per Section 200 (3), read with and Rule 31A, any person deducting tax on or after April 1, 2005 shall within the prescribed time, prepare and deliver quarterly statements for the period ending 30th June, 30th September, 31st December and 31st March in each financial year. Every person, being a person responsible for deducting tax shall deliver to NSDL or their TIN-facilitation Centres quarterly statements in Form No. 24Q in respect of tax deducted on salary [i.e., u/s.192(1) and u/s. 192(1A)], in Form No. 26Q in respect of other cases of T.D.S., in Form No. 27Q in respect of T.D.S. on payments to non-residents and in Form 27EQ in respect of T.C.S. on sale of certain goods. The due dates of submitting the said quarterly statements are as under:— Due dates of filing various forms for the Financial Year 1.4.2017 to 31.3.2018 & 1.4.2018 to 31.3.2019
- (Quarterly Statements – PAN and TAN both necessary)
| Nature of Payment ? | Salary – 24Q /
Others – 26Q |
Payments to
Non-residents |
TCS | Interest <Rs.10,000/- by Banks/Co-op. Sty. etc.Or < Rs. 5,000 by specified public companies u/s.194A(3)(i) |
| Form Nos. | 24Q & 26Q
(Quarterly Basis) |
27Q
(Quarterly Basis) |
27EQ
(Quarterly Basis) |
26QAA
(Quarterly Basis) |
| Section Nos. | 200(3) | 200(3) | 206C(3) | 206A(1) |
| Rule Nos. | 31A | 31A | 31AA | 31ACA |
| W.E.F. | 1.4.2010 | 1.4.2010 | 1.4.2010 | 17.3.2006 |
| Quarter | Due date | Due date | Due date | Due date |
| April to June | 31 July | 31 July | 15 July | 31 July |
| July to Sept. | 31 October | 31 October | 15 October | 31 October |
| Oct. to Dec. | 31 January | 31 January | 15 January | 31 January |
| Jan to March | 31 May | 31 May | 15 May | 30 June |
Notes :
- All the above forms & the due dates are same for the E-TDS as well as for Paper-form TDS.
- In the TDS Quarterly Returns, the deductor shall furnish particulars of amounts paid/credited on which tax was not deducted due to—
- issuance of certificate of no deduction of tax u/s. 197 by the Assessing officer of the payee (w.e.f.
01-04-2011) - provisions of section 194C(6) (w.e.f. 1-4-2011)
- furnishing of declaration under sub-section (1)/ (1A)/(1C) of section 197A by the payee. (w.e.f. 1-11-2011).
- issuance of notification under sub-section (1F) of section 197A by the Central Government (w.e.f.
19-2-2013).
- issuance of certificate of no deduction of tax u/s. 197 by the Assessing officer of the payee (w.e.f.
- (Monthly Statements – PAN Based – TAN not necessary) – Mandatory e-Filing
| Nature of Payment | TDS on Purchase Of Certain
Immoveable Property |
TDS on Rent for use of land / building payable by Individuals/HUF, Not having Audit u/s. 44AB (Tax Audit) |
| Form Nos. | 26QB
(Challan-cum-Statement – Monthly basis) |
26QC
(Challan-cum-Statement – Monthly basis) |
| Section Nos. | 194IA, 200(3) | 194IB, 200(3) |
| Rule Nos. | 30(2A) | 30(2B) |
| W.E.F. | 1.6.2013 | 1.6.2017 |
| Due date | Due date | |
| Within 30 days from the end of the Month in which deduction is
made.i.e. It is a Monthly and NOT a Quarterly Statement. |
Within 30 days from the end of the Month in which deduction is
made.i.e. It is a Monthly and NOT a Quarterly Statement. |
Quoting TAN/PAN
Person responsible for deducting tax at source shall quote his TAN and PAN and also quote the PAN of all persons in respect of whose income tax has been deducted, except in cases where deductee furnishes a declaration referred to in Section 197A (i.e., Form No.15H/15G). As far as NSDL Programme is concerned, deductor can write “PANNOTAVBL”, if PAN is not available or write “PANINVALID” for incorrect PAN or write “PANAPPLIED” where application for PAN is made. Deductees’ PAN should not be less than 95% for 24Q form and 85% for 26Q/27EQ form of the PAN data for q.e. 31-3-2008 and onwards. Deductors can file a return containing deductee details, who have provided valid PAN. It can subsequently file a correction return with details of remaining deductees.
Form 27A
The only thing to be furnished in physical form along with CD/ Pen-drive is Form No. 27A. Form No. 27A is a summary of TDS statement, which contains control totals of “Amount paid” and “Income tax deducted at source”. The control totals mentioned on Form No. 27A should match with the corresponding control totals in e-TDS statement file. W.e.f. 1st February 1, 2014, it is mandatory to submit Form 27A generated by the NSDL Utility.
CERTAIN IMPORTANT INFORMATION
- Related Websites:
- For New TAN: New TAN can be searched on website “incometaxindia.gov.in” by feeding old TAN or Company’s name.
- For downloading Form No. 24Q/26Q/27Q/27EQ and instruction, log on to “tin-nsdl.com”.
- If TAN is not available, taxes cannot be paid and e-TDS statement will not be accepted.
- Fees to be paid as under :
| Deductee Records | Fees (excluding GST) |
| Up to 100 records | Rs. 42.37 |
| 101 to 1000 records | Rs.178/- |
| More than 1000 records | Rs. 578.50 |
- For filing e-TDS returns, List of Facilitation Centres can be downloaded from Website: www.tin-nsdl.com
- Furnishing of e-TDS Returns in Pen Drive/CD w.e.f. 18-3-2011:
- e-TDS/TCS statement should be submitted in Pen Drive or CD.
- Deductors / Collectors should check the feasibility of acceptance of statement in pen drive with TIN Facilitation centres before submission
- The Pen Drive/CD may contain multiple e-TDS/TCS statements.
- The Pen Drive/CD will be returned after acceptance of statements i.e. TIN centre will copy the data in its record and return the Pen drive/CD.
PROCEDURE FOR PREPARING E-TDS RETURN (Form No. 24Q/26Q/27Q/27EQ)
- At present the following versions of utilities are applicable (w.e.f. 1st April, 2018) :
Following Return Preparartion Utility (RPU) Versions are available for Original as well for
Correction Statements :
| Type of Form | F.Y. 2007-08 & onwards |
| 24Q/26Q/27Q/27EQ | 2.2 |
Following File Validation Utility (FVU) Versions are available for Original as well for Correction
Statements :
| Type of Form | Upto F.Y. 2009-10 | F.Y. 2010-11 & Onwards |
| 24Q/26Q/27Q/27EQ | 2.153 | 5.7 |
All deductors are required to ensure that quarterly e-TDS/TCS returns filed are as per the latest data structure. Any statement filed as per the old data structure will be rejected at TIN.
PROCEDURE :
- The RPU can be best viewed under 1024 by 768 pixels (minimum) resolution.
Download the necessary files (RPU/FVU):- JRE version SUN JRE: 1.6 onwards should be installed in the computer.
- Download latest version of RPU (Java Based) files for Forms from the NSDL website –www.tin.nsdl.com
- The RPU/FVU will be downloaded in zip format, which can be downloaded in any folder by giving it the desired path.
- Double click the file so as to make it unzipped.
- As a result, a folder named e-TDS RPU 2.2 will be created. In this folder there are 3 system folders & 21 files/documents. For E-TDS Return preparation, RPU.exe [displayed as “TDS_RPU” (Executable Jar File) ] file is to be utilised.
- Double click on RPU. Java file will be displayed.
- Select the necessary Form (No. 24Q/26Q/27Q/27EQ) using the drop–box.
- Select the type of statement (Regular/Correction) to be prepared.
- Complete all sheets viz. Form, Challan details and Annexures (i.e., deductee details).
- Flags to be selected in the column “Reason for lower or non deduction of tax” as under:
| FLAG | FOR |
| A | Lower/No deduction for certificate u/s. 197 |
| B | No deduction for declaration u/s. 197A |
| C | Higher deduction where PAN is not available |
| T | No deduction for Transporters having PAN [sec.194C (6)] |
| Y | No deduction due to payment below threshold limit. |
| S | For software acquired u/s. 194J as per conditions given in Notification No.21/13-06-2012 |
| Z | No deduction due to payment u/s. 197(1F). |
- Challan Input File
This file has to be downloaded from the NSDL Website from Challan Status Inquiry for the verification of challan in TDS/TCS statement. Once the challans are matched, the file can be downloaded and saved in the appropriate (same) folder of the relevant form.
Specify the name (with the .csi extension) of the input file (including the path) i.e. the name of the challan file downloaded from Challan Status Inquiry for the verification of challan in TDS/TCS statement.
- Warning file is generated by FVU if:
- The value in the Bank Branch Code (BSR code) field of challan in the e-TDS/TCS statements is not present in the authorised list of collecting Bank Branch Codes in the FVU and/or
- If the PAN of the deductor is same as that of any deductee in the e-TDS/TCS statement.
- If the challans details of the statement do not match with the details uploaded by the bank.
- After filling up all the data in all the sheets and final saving of the input file, click on “CREATE FILE” option. Once this is done, the screen will display “File Validation Successful”. The file will be validated automatically and the validation results will be saved by default in the same folder, where the input file is saved along with Form 27A which needs to be printed and submitted physically. The valid e-file will be created, which may be copied on a CD or Pen-drive.
- In case of errors, an Error-Response file will be generated giving the error report.
PROCEDURE FOR REVISING E-TDS/TCS RETURN (CORRECTION IN E-TDS/TCS STATEMENTS)
For Correction of Returns, the Deductors/ Collectors have to register their TAN with the TDS Website “TRACES” viz. www.tdscpc.gov.in (and not with www.tin-nsdl.com). After the TAN is registered, the online request has to be made to download the latest consolidated file (i.e. the last TDS return as filed by the deductor and accepted by the NSDL). Once this file is generated, the e-TDS /TCS Return can be revised
(Corrected). For certain defaults, online Corrections also can be also done on “TRACES”.
NEW PROCEDURE w.e.f. 01.05.2016 TO UPLOAD e-TDS STATEMENT ON THE INCOMETAX WEBSITE www.incometaxindiaefiling.gov.in relating to A.Y. 2011-12 and onwards:
Now TDS statements (Returns) can be uploaded like Income Income Tax Returns on the Income Tax website.
Pre-requisites :
- TAN should be registered on e-filing website.
- TDS statements should be prepared using the prescribed RPU & FVU.
- DSC should be registered on e-filing website.
Upload Procedure :
- On e-filing Home page, Login using User ID (TAN) / Password.
- Go to “TDS” and click on “Upload TDS” .
- Fill up the Statement details using drop boxes. (FVU Version /A.Y./ Form Name / Quarter/ Upload Type)
- Click validate.
- “Upload TDS Return” page will open.
- Attach validated TDS zipped file.
- Attach DSC, using DSC Management Utility.
- Click on “Upload”.
- “Upload TDS Successful” message will be displayed on the screen. A confirmation mail will be sent to the Registered email ID.
- Status of TDS statement will be available after 24 hours. (Transaction no. / Token no. to be furnished)
- To view status, Login and go to “TDS” and click on “View Filed TDS”.
- Fill up the Statement details using drop boxes. (A.Y./ Form Name / Quarter )
- Click on “View Details”.
- The Statement status will be displayed as “Accepted” or “Rejected”. In case of “Rejected” , Reasons for rejection will also be displayed. Click on the Token No. to view error details.
General Anti-Avoidance Rule [GAAR]
The provisions relating to GAAR are contained in Chapter XA of the Income-tax Act, 1961, relevant sections being Section 95 to 102. These provisions were originally inserted by Finance Act 2012, to be effective from 1-4-2014, but have finally being made effective from 1-4-2018 i.e. A Y 2018-19 (financial year 2017-18).
The applicability of the provisions is in respect of an arrangement entered into by an assessee, which may be declared to be an impermissible avoidance arrangement and consequently the tax arising therefrom may be determined subject to the provisions of Chapter XA.
An impermissible avoidance arrangement means an arrangement, the main purpose or one of the main purposes of which is to obtain a tax benefit and it—
- creates rights, or obligations, which are not ordinarily created between persons dealing at arm’s length;
- results, directly or indirectly, in the misuse, or abuse, of the provisions of this Act;
- lacks commercial substance or is deemed to lack commercial substance, in whole or in part; or
- is entered into, or carried out, by means, or in a manner, which are not ordinarily employed for bona fide purposes.
Even if a step in, or part of, the arrangement is to obtain a tax benefit, the arrangement shall be considered to be impermissible avoidance arrangement.
An arrangement shall be deemed to lack commercial substance if —
- the substance or effect of the arrangement as a whole, is inconsistent with, or differs significantly from, the form of its individual steps or a part; or
- it involves or includes—
- round trip financing;
- an accommodating party;
- elements that have effect of offsetting or cancelling each other; or
- a transaction which is conducted through one or more persons and disguises the value, location, source, ownership or control of funds which is the subject matter of such transaction; or
- it involves the location of an asset or of a transaction or of the place of residence of any party which is without any substantial commercial purpose other than obtaining a tax benefit for a party.
“Round trip financing” includes any arrangement in which, through a series of transactions—
- funds are transferred among the parties to the arrangement; and
- such transactions do not have any substantial commercial purpose other than obtaining the tax benefit,
without having any regard to—
- whether or not the funds involved in the round trip financing can be traced to any funds transferred to, or received by, any party in connection with the arrangement;
- the time, or sequence, in which the funds involved in the round trip financing are transferred or received; or
- the means by, or manner in, or mode through, which funds involved in the round trip financing are transferred or received.
“An accommodating party” — if the main purpose of the direct or indirect participation of that party in the arrangement, in whole or in part, is to obtain, directly or indirectly, a tax benefit (but for the provisions of this Chapter) for the assessee whether or not the party is a connected person in relation to any party to the arrangement.
The following shall not be taken into account while determining whether an arrangement lacks commercial substance or not, namely:—
- the period or time for which the arrangement (including operations therein) exists;
- the fact of payment of taxes, directly or indirectly, under the arrangement;
- the fact that an exit route (including transfer of any activity or business or operations) is provided by the arrangement.
Consequence of impermissible avoidance arrangement
- If an arrangement is declared to be an impermissible avoidance arrangement, then the consequences, in relation to tax, of the arrangement, including denial of tax benefit or a benefit under a tax treaty, shall be determined, in such manner as is deemed appropriate, in the circumstances of the case, including by way of but not limited to the following, namely:—
- disregarding, combining or recharacterising any step in, or a part or whole of, the impermissible avoidance arrangement;
- treating the impermissible avoidance arrangement as if it had not been entered into or carried out;
- disregarding any accommodating party or treating any accommodating party and any other party as one and the same person;
- deeming persons who are connected persons in relation to each other to be one and the same person for the purposes of determining tax treatment of any amount;
- reallocating amongst the parties to the arrangement—
- any accrual, or receipt, of a capital or revenue nature; or
- any expenditure, deduction, relief or rebate.
- treating—
- the place of residence of any party to the arrangement; or
- the situs of an asset or of a transaction,
at a place other than the place of residence, location of the asset or location of the transaction as provided under the arrangement; or
- considering or looking through any arrangement by disregarding any corporate structure.
For the above —- any equity may be treated as debt or vice versa;
- any accrual, or receipt, of a capital nature may be treated as of revenue nature or vice versa; or
- any expenditure, deduction, relief or rebate may be recharacterised.
Treatment of connected person and accommodating party
In determining whether a tax benefit exists —
- the parties who are connected persons in relation to each other may be treated as one and the same person;
- any accommodating party may be disregarded;
- such accommodating party and any other party may be treated as one and the same person;
- the arrangement may be considered or looked through by disregarding any corporate structure.
The provisions of Chapter XA shall apply in addition to, or in lieu of, any other basis for determination of tax liability, in accordance with such guidelines and subject to such conditions and the manner as may be prescribed.
Definitions
In Chapter XA, unless the context otherwise requires,—
- “arrangement” means any step in, or a part or whole of, any transaction, operation, scheme, agreement or understanding, whether enforceable or not, and includes the alienation of any property in such transaction, operation, scheme, agreement or understanding;
- “asset” includes property, or right, of any kind;
- “benefit” includes a payment of any kind whether in tangible or intangible form;
- “connected person”, in relation to a person, means—
- any relative of the person, if the person is an individual;
- any director of the company or any relative of such director, if the person is a company;
- any partner or member of a firm or association of persons or body of individuals or any relative of such partner or member if the person is a firm or association of persons or body of individuals;
- any member of the Hindu undivided family or any relative of such member, if the person is a Hindu undivided family;
- any individual who has a substantial interest in the business of the person or any relative of such individual;
- a company, firm or an association of persons or a body of individuals, whether incorporated or not, or a Hindu undivided family having a substantial interest in the business of the person or any director, partner, or member of the company, firm or association of persons or body of individuals or family, or any relative of such director, partner or member;
- a company, firm or association of persons or body of individuals, whether incorporated or not, or a Hindu undivided family, whose director, partner, or member have a substantial interest in the business of the person, or family or any relative of such director, partner or member;
- any other person who carries on a business, if—
- the person being an individual, or any relative of such person, has a substantial interest in the business of that other person; or
- the person being a company, firm, association of persons, body of individuals, whether incorporated or not, or a Hindu undivided family, or any director, partner or member of such company, firm or association of persons or body of individuals or family, or any relative of such director, partner or member, has a substantial interest in the business of that other person;
- “fund” includes—
- any cash;
- cash equivalents; and
- any right, or obligation, to receive, or pay, the cash or cash equivalent;
- “party” means any person including a permanent establishment which participates or takes part in an arrangement;
- “relative” shall have the meaning assigned to it in the Explanation to clause (vi) of sub-section (2)of section 56;
- a person shall be deemed to have a substantial interest in the business, if—
- in a case where the business is carried on by a company, such person is, at any time during the financial year, the beneficial owner of equity shares carrying twenty per cent or more, of the voting power; or
- in any other case, such person is, at any time during the financial year, beneficially entitled to twenty per cent or more, of the profits of such business;
- “step” includes a measure or an action, particularly one of a series taken in order to deal with or achieve a particular thing or object in the arrangement;
- “tax benefit” means—
- a reduction or avoidance or deferral of tax or other amount payable under this Act; or
- an increase in a refund of tax or other amount under this Act; or
- a reduction or avoidance or deferral of tax or other amount that would be payable under this Act, as a result of a tax treaty; or
- an increase in a refund of tax or other amount under this Act as a result of a tax treaty; or
- a reduction in total income including increase in loss,
in the relevant previous year or any other previous year;
- “tax treaty” means an agreement referred to in sub-
section (1) of section 90 or sub-section (1) of section 90A.
SUMMARY OF CIRCULAR NO. 7 OF 2017 [F. NO. 500/43/2016-FT&TR-IV], DATED 27-1-2017
- It is internationally accepted that specific anti avoidance provisions may not address all situations of abuse and there is need for general anti-abuse provisions in the domestic legislation. The provisions of GAAR and SAAR can coexist and are applicable, as may be necessary, in the facts and circumstances of the case.
- Adoption of anti-abuse rules in tax treaties may not be sufficient to address all tax avoidance strategies and the same are required to be tackled through domestic anti-avoidance rules. If a case of avoidance is sufficiently addressed by LOB in the treaty, there shall not be an occasion to invoke GAAR.
- GAAR will not interplay with the right of the taxpayer to select or choose method of implementing a transaction.
- For GAAR application, the issue, as may be arising regarding the choice of entity, location etc., has to be resolved on the basis of the main purpose and other conditions provided under section 96 of the Act. GAAR shall not be invoked merely on the ground that the entity is located in a tax efficient jurisdiction. If the jurisdiction of FPI is finalised based on non-tax commercial considerations and the main purpose of the arrangement is not to obtain tax benefit, GAAR will not apply.
- Grandfathering under Rule 10U(1)(d) will be available to investments made before 1st April 2017 in respect of instruments compulsorily convertible from one form to another, at terms finalized at the time of issue of such instruments. Shares brought into existence by way of split or consolidation of holdings, or by bonus issuances in respect of shares acquired prior to 1st April 2017 in the hands of the same investor would also be eligible for grandfathering under Rule 10U(1)(d) of the Income Tax Rules.
- Grandfathering is available in respect of income from transfer of investments made before 1st April, 2017. As per Accounting Standards, ‘investments’ are assets held by an enterprise for earning income by way of dividends, interest, rentals and for capital appreciation. Lease contracts and loan arrangements are, by themselves, not ‘investments’ and hence grandfathering is not available.
- The AAR ruling is binding on the PCIT/CIT and the Income Tax Authorities subordinate to him in respect of the applicant.
- Where the Court has explicitly and adequately considered the tax implication while sanctioning an arrangement, GAAR will not apply to such arrangement.
- GAAR provisions are applicable to impermissible avoidance arrangements as under section 96. In so far as the admissibility of claim under treaty or domestic law in different years is concerned, it is not a matter to be decided through GAAR provisions.
- The proposal to declare an arrangement as an impermissible avoidance arrangement under GAAR will be vetted first by the Principal Commissioner / Commissioner and at the second stage by an Approving Panel, headed by judge of a High Court. Thus, adequate safeguards are in place to ensure that GAAR is invoked only in deserving cases.
- If the arrangement is covered under section 96, then the arrangement will be disregarded by application of GAAR and necessary consequences will follow.
- Period of time for which an arrangement exists is only a relevant factor and not a sufficient factor under
section 97(4) to determine whether an arrangement lacks commercial substance. - Adequate procedural safeguards are in place to ensure that GAAR is invoked in a uniform, fair and rational manner. In the event of a particular consequence being applied in the hands of one of the participants as a result of GAAR, corresponding adjustment in the hands of another participant will not be made. GAAR is an anti-avoidance provision with deterrent consequences and corresponding tax adjustments across different taxpayers could militate against deterrence.
- The application of the tax laws is jurisdiction specific and hence what can be seen and examined is the Tax Benefit enjoyed in Indian jurisdiction due to the ‘arrangement or part of the arrangement’. Further, such benefit is assessment year specific. Further, GAAR is with respect to an arrangement or part of the arrangement and therefore limit of ₹3 crore cannot be read in respect of a single taxpayer only.
- If the PCIT/Approving Panel has held the arrangement to be permissible in one year and facts and circumstances remain the same, as per the principle of consistency, GAAR will not be invoked for that arrangement in a subsequent year.
- Levy of penalty depends on facts and circumstances of the case and is not automatic. No blanket exemption for a period of five years from penalty provisions is available under law. The assessee, may at his option, apply for benefit u/s. 273A if he satisfies conditions prescribed therein.
Rule 10U of the Income Tax Rules apply to these provisions, which provide as under:
The provisions of Chapter X-A shall not apply to—
- an arrangement where the tax benefit in the relevant assessment year arising, in aggregate, to all the parties to the arrangement does not exceed a sum of rupees three crore;
- a Foreign Institutional Investor,—
- who is an assessee under the Act;
- who has not taken benefit of an agreement referred to in section 90 or section 90A as the case may be; and
- who has invested in listed securities, or unlisted securities, with the prior permission of the competent authority, in accordance with the Securities and Exchange Board of India (Foreign Institutional Investor) Regulations, 1995 and such other regulations as may be applicable, in relation to such investments;
- a person, being a non-resident, in relation to investment made by him by way of offshore derivative instruments or otherwise, directly or indirectly, in a Foreign Institutional Investor;
- any income accruing or arising to, or deemed to accrue or arise to, or received or deemed to be received by, any person from transfer of investments made before the 1st day of April, 2017 by such person.
- Without prejudice to the provisions of clause (d) of sub-rule (1), the provisions of Chapter X-A shall apply to any arrangement, irrespective of the date on which it has been entered into, in respect of the tax benefit obtained from the arrangement on or after the 1st day of April, 2017.
Rule 10UA. Determination of consequences of impermissible avoidance arrangement
where a part of an arrangement is declared to be impermissible avoidance arrangement, the consequences in relation to tax shall be determined with reference to such part only.
Rule 10UB. Notice, forms and reference u/s 144BA:
Form 3CEG : Reference by Assessing Officer to Commissioner of Income Tax
Form 3CEH : Commissioner’s directions to the Assessing Officer
Form 3CEI: Commissioner’s reference to Approving Panel
Rule 10UC : Time limits applicable
Section 144BA: Reference to Principal Commissioner
Important Due Dates under
Income-tax Act, 1961
DUE DATE CALENDAR — F.Y. 2018-19
| Date | Obligations |
| April 7, 2018 |
|
| April 14, 2018 |
|
| April 15, 2018 |
|
| April 30, 2018 |
|
| May 7, 2018 |
|
| May 15, 2018 |
|
| May 30, 2018 |
|
| May 31, 2018 |
|
| June 7, 2018 |
|
| June 14, 2018 |
|
| June 15, 2018 |
|
| June 29, 2018 |
|
| June 30, 2018 |
|
| July 7, 2018 |
|
| July 15, 2018 |
|
| July 30, 2018 |
|
| July 31, 2018 |
|
| August 7, 2018 |
|
| August 14, 2018 |
|
| August 15, 2018 |
|
| August 30, 2018 |
|
| September 7, 2018 |
|
| September 14, 2018 |
|
| September 15, 2018 |
|
| September 30, 2018 |
|
| October 7, 2018 |
|
| October 15, 2018 |
|
| October 30, 2018 |
|
| October 31, 2018 |
|
| November 7, 2018 |
|
| November 14,2018 |
|
| November 15, 2018 |
|
| November 30, 2018 |
|
|
|
| December 7, 2018 |
|
| December 15, 2018 |
|
| December 30, 2018 |
|
| January 7, 2019 |
|
| January 14, 2019 |
|
| January 15, 2019 |
|
| January 30, 2019 |
|
| January 31, 2019 |
|
| February 7, 2019 |
|
| February 14, 2019 |
|
| February 15, 2019 |
|
| March 1, 2019 |
|
| March 2, 2019 |
|
| March 7, 2019 |
|
| March 15, 2019 |
|
| March 17, 2019 |
|
| March 30, 2019 |
|
| March 31, 2019 |
|
Income from House Property
INCOME CHARGEABLE REAL & NOTIONAL
This is the only head of income, where the charging provision provides for taxing notional income i.e. Income under this head may be charged irrespective of income actually received or not (In exceptional circumstances notional income is computed under the head Capital Gains and income from other sources). Therefore, taxability under this head of income may not necessarily be of actual rent or income received but the fair amount of rent which the property could reasonably fetch when let out. Accordingly, if a person owns a property which even if it is lying vacant, notional income with respect to such property may be liable to tax even though the owner may not have received any income from such property. Further, if the property is let out and the rent received is less than the fair rent which the property could fetch when let-out would also be liable to tax. Thus tax would be payable on the rent which the owner should have received and not on the actual rent so received (Refer heading – “Determination of annual value”). Though the head of chargeability of the income is Income from House Property what is charged under this head is not only the income from house (dwelling) but all income arising out of letting of building (whether used for dwelling or commercial purpose). In other words Sections 22 to 27 are silent as to the purpose for which a building or a house property is to be used. This head of income can be aptly described as income from properties.
CHARGEABILITY U/S. 22
- What is chargeable under this head?
Annual value of property consisting of any buildings or lands appurtenant thereto except such property which is used by assessee for the purpose of business and profession. If the building is used by the assessee for the purposes of his business or profession, no notional income from such building can be assessed to tax under the head “Income from House Property” and no deduction on account of notional repairs is available to the assessee while computing the income under the head “Income from Business or Profession”. - In whose hand such income is taxable?
Income from house property is taxable in the hands of owner/deemed owner of the property. Owner is a person who is entitled to receive income from property in his own right. Income is chargeable in the hands of person even if he is not a registered owner. Rental income from sub-letting of property acquired on monthly tenancy basis or on lease for a period of less than twelve years may be taxable either as “Income from Business or Profession”, where such letting is the business of the assessee or taxable as “Income from Other Sources”. This would depend upon facts of each case.
Property owned by co-owners (Section 26)
Where property consisting of buildings and lands appurtenant thereto is owned by two or more persons and their respective shares are definite and ascertainable, such persons shall not be assessed as an A.O.P. (Association of Persons) but the share of each person in the income from the property as computed under sections 22 to 25 (i.e., Income from House Property) shall be included in their individual total income respectively.
Owner includes deemed owner u/s. 27 as under:
- A person, who transfers to his/her spouse otherwise than under the agreement to live apart, without adequate consideration or to a minor child not being a married daughter
- Holder of impartible estate shall be deemed to be owner of all the properties comprised in the estate
- A member of a co-operative society, company or other association to whom a building is allotted or leased under a house building scheme of such society, company or other association as a case may be
- A person who is allowed to take or retain possession of any building or part thereof in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882)
- A person who acquires any lease rights of not less than twelve years (excluding any rights by way of a lease from month to month or for a period not exceeding one year)
Official assignee can be treated as owner for the purpose of section 22 except when the receiver is appointed by court.
INCOME FROM PROPERTIES UNDER THE PURVIEW OF THE HEAD “INCOME FROM HOUSE PROPERTY”
- Predominantly, only income from letting out of building or land appurtenant thereto is taxable under the head “Income from House Property”. Accordingly, if letting out is of a bungalow along with the garden surrounding it, the income of the entire bungalow along with land appurtenant thereto; i.e., the garden would be taxed under this head. If the letting out is only of the vacant land, the rent received from such letting out of land is not taxable under the head “Income from House Property”. It may be taxable under the head “Income from Business or Profession” if the business of the assessee is to let out land or may be taxable as “Income from Other Sources” if letting out of land is not the business of the assessee. Further if composite rent is received for property as well as services and amenities (if such services/amenities are not incidental/subservient to letting of property), the annual value of such property is assessable under section 22 and profits arising from services and amenities is chargeable to tax under section 28; i.e., business income or under section 56; i.e., Income from Other Sources.
- Rental income from letting out of residential and, or commercial buildings is covered under this head of income, However, where business of assessee is to let out property, income is covered under the head Profits and Gains of Business & Profession. Further if letting out is subservient to the main business, the annual value will not be chargeable u/s. 22 rather it will be chargeable under Profits and Gains of Business & Profession.
- Refer section 56(2)(iii) and decision of the Hon’ble Supreme Court in the case of Shambhu Investments (P.) Ltd. vs. CIT (2003) 263 ITR 143 (SC) as also decision in case of Chennai Properties (Supreme Court in CIVIL APPEAL NO. 4494 OF 2004 April 9, 2015)
- Where an assessee let machinery, plant or furniture and also buildings, and the letting out of buildings is inseparable from the letting of the machinery, plant or furniture, the income from such letting, if it is not chargeable to tax under the head “Income from Business or Profession” would be taxable under the head “Income from Other Sources”. However, provision of services are incidental to the predominant object of letting out of the property and the income arising therefrom is inseparable the income shall be charged under this head.
- Where, even if, the property is held as stock-in-trade and is not let out during the whole or part of the year, the notional rent is taxable under this head if such property in stock is held for more than one year from the date of receipt of completion certificate of construction from the competent authority. However in case where the property held as stock-in-trade is held for less than one year from the date of completion certificate so received the annual value shall be treated as Nil.
DETERMINATION OF ANNUAL VALUE
For determining the annual value, one has to first determine the Gross Annual Value (GAV) which is the higher of:
- The sum for which the property might reasonably be expected to let from year to year. In cases of properties where Standard rent has been fixed, such sum cannot exceed the standard rent fixed [Refer Sheila Kaushish vs. CIT [1981] 7 Taxmann 1 (SC) & Amolak Ram Khosla vs. CIT [1981] 7 Taxmann 51 (SC)]. However where property was let out and was vacant during the whole or part of the previous year and rent actually received or receivable owing to such vacancy is less than expected rent, then rent actually received or receivable is taken as GAV.
- Where property is actually let out and the rent received or receivable is more than the amount determined in (a) above, the annual value would be the actual rent received.
ANNUAL VALUE TO BE TAKEN AS ‘NIL’ IN CERTAIN CASES
- The annual value of a property which is in occupation of the owner for the purposes of his residence would be considered to be nil if he does not derive any other benefit from the said residential house. If the owner has more than one house for the purposes of his residence, the annual value of any one of such houses, at his option, would be considered to be nil. Notional income of other residential houses would be liable to tax. In such case owner may choose to consider the annual value nil (for computation purposes) in respect of the one property at his option.
- Similarly, if the assessee is owner of only one residential house which he is unable to occupy on account of his employment, business or profession carried on at any other place and on account of which he has to reside at that other place in a building not owned by him, the annual value of such house shall be nil.
- The annual value of the property held as stock-in-trade and not let out for whole or part of the year, shall be taken as Nil for the period up to one year from the date of completion certificate of construction is obtained from the competent authority.
DETERMINATION OF NET ANNUAL VALUE (NAV)
The following amounts are required to be reduced while determining the net annual value:
- Any taxes levied by any local authority, which are liable to be paid by the owner, only on actual payment thereof during the previous year in which such payment is made irrespective of method of accounting followed; and
- The unrealisable rent subject to satisfaction of following conditions where the amount of unrealised rent shall be equal to the amount of rent payable but not paid by a tenant of the assessee and is proved to be lost and irrecoverable where,—
- the tenancy is bona fide
- the defaulting tenant has vacated, or steps have been taken to compel him to vacate the property
- the defaulting tenant is not in occupation of any other property of the assessee
- the assessee has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or satisfies the Assessing Officer that legal proceedings would be useless.
UNREALISED RENT REALISED SUBSEQUENTLY — SECTIONS 25A/25AA (UP TO A.Y. 2016-17)
- The entire amount of unrealised rent received in any of the PY, which is not subjected to tax in earlier year as per section 24(1)(x), (effective up to A.Y. 2002-03) shall be chargeable to tax in the year in which such amount is actually received. (The deduction u/ss. 23/24 shall not be allowed if the unrealised rent pertains to period up to
A.Y. 2001-02 & deduction u/s. 24(1)(x) in respect thereof was allowed in earlier years.) - Unrealised rent received subsequently is chargeable to tax even if the house property is not owned by the assessee in the year of such recovery.
ARREARS OF RENT RECEIVED — SECTION 25B (UP TO A.Y. 2016-17)
Where any arrears of rent is received which was not taxed earlier, such rent shall be assessed under the head “Income from House Property” in the year in which such arrears are received. The arrears would be taxable under this head irrespective of the fact whether the assessee is the owner of the buildings in the year in which such arrears are received. However, a deduction of 30% on account of repairs on the arrears of rent received would be allowed in the year in which such arrears are taxable.
SPECIAL PROVISION FOR ARREARS OF RENT AND UNREALISED RENT RECEIVED SUBSEQUENTLY
Section 25A : (substituted for sections 25A, 25AA and 25B w.e.f. A.Y. 2017-18)
- The arrears of rent or unrealised rent received from a tenant subsequently shall be deemed to be the income from House Property in respect of the financial year in which such rent is received or realised and shall be chargeable to tax under the head Income from House Property, irrespective of the fact that the assessee is the owner of such property in that financial year or not.
- From the above income sum equal to 30% of such rent shall be allowed as deduction while computing such income from arrears of rent or unrealised rent so received and included in total income.
DEDUCTIONS ALLOWED WHILE COMPUTING INCOME UNDER THIS HEAD
The following deductions shall be allowed from the annual value u/s. 24:
- 30% of the annual value as computed.
- Interest payable on borrowed capital for the purpose of acquisition, construction, repairs, renewals or reconstruction of house property (subject however in case of self occupied property it is subject to conditions and limits as mentioned hereinafter).
- Interest to the extent it is not claimed/allowed under any of the provisions of the Act, for the period prior to acquisition or construction of the premises would be deductible in five equal installments starting from the year in which property is acquired or constructed.
- However In case of self occupied House Property or the property not occupied due to employment etc. interest allowable is subject to following conditions:
| Sr. No. | Particulars | Limit of Deduction (in ₹) |
| 1. | Property acquired/constructed after 1st April, 1999 with borrowed capital (deduction is allowed only where such acquisition or construction is completed within 3 years (5 years w.e.f. F.Y. 2016-17) from the end of the financial year in which capital was borrowed) | 2,00,000/- w.e.f. 2015-16 |
| 2. | In case of property acquired/ constructed before 1st April, 1999 | 30,000/- |
Notes:
- Interest on new loan taken to repay original loan is considered as loan taken for such acquisition, construction, etc. (Refer CBDT Circular No. 28 dated 20-8-1969).
- Where interest is claimed as a deduction, a certificate from the lender certifying the amount of interest payable should be furnished by the assessee.
- The list of deduction specified u/s. 24 are exhaustive, no other deduction can be claimed other than specified therein.
- Interest on borrowed money which is payable outside India shall not be allowed as deduction u/s. 24(b) unless the tax on the same has been paid or deducted at source and in respect of which, there is a person in India, who may be treated as agent of the recipient for such purpose.
- Brokerage or commission paid to arrange a loan for house construction will not be allowed.
- A new section 80EE was introduced by Finance Act, 2013 to allow additional interest of ₹ 1,00,000 w.e.f. 1st April, 2014 (i.e. A.Y. 2014-15) against loan obtained for acquiring a residential house by an individual where such loan is sanctioned after 1-4-2013 but before 31-3-2014.
The said section 80EE has been amended by Finance Act, 2016, w.e.f. 1st April, 2017 (i.e. A.Y. 2017-18) to provide for a deduction of interest up to ₹ 50,000/- for loans sanctioned on after 1-4-2016 but before 31-3-2017) subject to such conditions as mentioned therein.
COMPUTATION OF INCOME FROM HOUSE PROPERTY IN NUTSHELL
| Particulars | Types of Property | ||||||
| Let-out Property u/s. 23(1) |
Self-occupied House Property u/s. 23(2) |
Deemed to be Let-out Property u/s. 23(4) |
|||||
| Amt. ₹ | Amt. ₹ | Amt. ₹ | Amt. ₹ | Amt. ₹ | Amt. ₹ | ||
| (i) | Reasonably Expected Rent | XXX | NIL | XXX | |||
| (ii) | Actual rent received or receivable | XXX | NIL | NIL | |||
| Gross Annual Value (GAV) | XXX | ||||||
| 1. | (i) or, | ||||||
| 2. | (ii)>(i), then (ii) or, | ||||||
| 3. | (ii)<(i) due to vacancy then (ii) | NIL | XXX | ||||
| Less : Municipal Taxes paid to local authority by the owner | (XXX) | NIL | (XXX) | ||||
| 1. | Net Annual Value (NAV) | XXX | NIL | XXX | |||
| Less: Deduction u/s. 24 | |||||||
| (a) | 30% of NAV | XXX | NIL | XXX | |||
| (b) | Interest on loans as allowed | XXX | XXX | XXX | |||
| 2. | Total Deductions (a) + (b) | (XXX) | (XXX) | (XXX) | |||
| A. | Income from House Property (1 – 2) | XXX | (XXX) | XXX | |||
| B. | Add Unrealised Rent Received subject to conditions of deduction u/ss. 23/24 | XXX | NIL | NIL | |||
| C. | Add arrears of Rent Received | XXX | NIL | NIL | |||
| Less: 30% of arrears of Rent | (XXX) | XXX | NIL | NIL | NIL | NIL | |
| Total Income from House Property (A + B + C) | XXX | XXX | XXX | ||||
Note: The rent received may be charged under the head Business Income or Income from Other Sources where the assessee carries out an organised activity of letting out of the properties and/or the predominant object of receiving such rent is the commercial exploitation of such property.
Section 23(5): Where the property consists of any building or land appurtenant thereto or any part thereof which is held as stock-in-trade and not let out for the whole or any part of previous year the annual value of such property shall be taken as NIL for the period of 1 year from the end of the financial year in which certificate of completion of property is obtained from authority concerned. Conversely now the property held in stock and not let out shall also be subjected to tax to be determined as above.
Section 71(3A): It is to be noted that w.e.f. 1-4-2018 (i.e. A.Y. 2018-19) onwards, Income being loss under the head House Property shall not be allowed to be set off against income under any other head in excess of ₹ 2,00,000/-.
Income from Other Sources
Synopsis
Section 2(24) defines the term “income” under the Act, and the same is charged to tax by section 4 of the Act. Section 14 enumerates the different heads under which the income of an assessee is classified, viz.
- Salaries,
- Income from house property,
- Profit and gains of business or profession,
- Capital gains, and
- Income from other sources.
Income of every kind which is not to be excluded from the total income under the Act, and if it is not charged to tax under the heads A to D specified in section 14, shall be charged under the head Income from other sources. Thus section 56 deals with this residuary head of income and covers all such taxable income.
Nature of income and the basis of charge
Sub-section 2 to section 56 enumerates various types of income which would be chargeable to tax under the residuary head, viz.
- Income by way of dividends [which includes deemed dividend as has been referred to in section 2(22)(e) of the Act].
Exemptions are:- Dividend income referred to in section 115-O (on which dividend distribution tax has been paid),
- Any income by way of income received in respect of units of a Mutual Fund, Administrator of a specified undertaking or from a specified company; (income arising from transfer of units is not exempt).
- Income by way of winning from lotteries, crossword puzzles, races, card games and other games, gambling or betting, etc. [Section 2(24)(ix)].
- Any sum received from employees by way of contribution to any P.F., ESIC or superannuation fund if such income is not chargeable under the head Profit and Gains of Business or Profession [Section 2(24)(x)].
- Any sum received under a keyman insurance policy including amount allocated by way of bonus on such policy, if not chargeable under the head Salaries or Profit and gains of business or profession [Section 2(24)(xi)].
- Income by way of interest on securities if not chargeable under the head Profit and Gains of Business or Profession [Section 2(24)(id)].
- Income from letting of machineries, plant or furniture belonging to assessee, if not chargeable to tax under the head Profit and Gains of Business or Profession [Section 2(24)(ii)].
- Income from letting of machineries, plant or furniture belonging to assessee and also building, where letting of building is not separable from letting of such machineries, etc., then entire income therefrom, if not chargeable to tax under the head Profit and Gains of Business or Profession. [Section 2(24)(iii)].
THE PROVISIONS OF SUB-SECTION (v) TO (viib) WHICH APPLIED TO GIFTS RECEIVED BY INDIVIDUALS, HUFS, FIRMS, CLOSELY HELD COMPANIES WHICH WERE APPLICABLE DURING DIFFERENT PERIODS FROM 1-4-2006 TO 31-3-2017 AND WERE COVERED IN EARLIER REFERENCERS ARE NOT BEING REPEATED, AS DELETED.
THE NEW SUB SECTION (x) WHICH IS APPLICABLE FROM 1-4-2017 TO ALL ASSESSEES ARE ENUMERATED FOR REFERENCE: - With effect from 1st April 2017:
Where any person (which includes individual, HUF, AOP, BOI, artificial juridical person, firm, cooperative society, company) receives, in any previous year, from any person or persons:
any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum;
any immovable property,—
without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property;
for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration; and the amount equal to 5 per cent of the consideration.(AY 2019-20 onwards)
Provided that where the date of agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of agreement may be taken for the purposes of this sub-clause:
Provided further that the provisions of the first proviso shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by way of an account payee cheque or an account payee bank draft or by use of electronic clearing system through a bank account, on or before the date of agreement for transfer of such immovable property:
Provided also that where the stamp duty value of immovable property is disputed by the assessee on grounds mentioned in sub-section (2) of section 50C, the Assessing Officer may refer the valuation of such property to a Valuation Officer, and the provisions of section 50C and sub-section (15) of section 155 shall, as far as may be, apply in relation to the stamp duty value of such property for the purpose of this sub-clause as they apply for valuation of capital asset under those sections;
any property, other than immovable property,—
without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property;
for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration:
EXCEPTIONS
Any sum of money or any property received—
from any relative; or
on the occasion of the marriage of the individual; or
under a will or by way of inheritance; or
in contemplation of death of the payer or donor, as the case may be; or
from any local authority as defined in the Explanation to clause (20) of section 10; or
from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or
from or by any trust or institution registered under section 12A or section 12AA; or
by any fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10; or
by way of transaction not regarded as transfer under section 47:
clause (i) i.e. any distribution of capital assets on the total or partial partition of HUF; or
clause (iv) i.e. transfer of a capital asset by a holding company to a subsidiary company before 29.2.1988
clause (v) ie. Transfer by wholly owned subsidiary company to Indian holding company before 29.2.1988
or clause (vi), i.e. any transfer, in a scheme of amalgamation, of a capital asset by the amalgamating company to the amalgamated company if the amalgamated company is an Indian company; or
clause (via), i.e. any transfer, in a scheme of amalgamation, of a capital asset being a share or shares held in an Indian company, by the amalgamating foreign company to the amalgamate foreign company, subject to conditions;
clause (viaa), i.e. any transfer in a scheme of amalgamation of a banking company with a bank; or
clause (vib), i.e. any transfer, in a demerger, of a capital asset by the demerged company to the resulting Indian company; or
clause (vic) i.e. any transfer in a demerger, of a capital asset being the shares of an Indian company, by the demerged foreign company to the resulting foreign company, subject to certain conditions; or
clause (vica) I.e. any transfer, in a business reorganization, of a capital asset of a co-operative bank to the successor co-operative bank; or
clause (vicb) I.e. any transfer by a shareholder, in a business reorganization, of a capital asset being a share or shares in the predecessor cooperative bank =, subject to conditions; or
clause (vid) i.e. any transfer or issue of shares by the resulting company, in a scheme of demerger to the shareholders of a demerged company, in the light of the demerger; or
clause (vii) i.e. any transfer by a shareholder in a scheme of amalgamation of a capital asset being a share held by him in the amalgamating company, subject to conditions.
from an individual by a trust created or established solely for the benefit of relative of the individual.
“Relative” means –
In the case of an individual:
Spouse of the individual;
Brother or sister of the individual;
Brother or sister of the spouse of the individual;
Brother or sister of either of the parents of the individual;
Any lineal ascendant or descendant of the individual;
Any lineal ascendant or descendant of the spouse of the individual;
Spouse of any of the above
In the case of HUF any member thereof.
(i) With effect from 1-4-2019 (AY 2019-20) compensation or other payment due to or received by any person, by whatever name called, in connection with the termination of his employment or the modification of the terms and conditions relating thereto.
Applicability of [Section 145(1)] in case of income chargeable under this head
Section 145(1) provides that income chargeable under the head Income from other sources shall be computed either on cash or mercantile system of accounting, depending on the method of accounting regularly employed by the assessee. The assessee is also required to follow the Accounting Standards notified by The Central Government (for Accounting Standard refer Notification No. 9949 [F. No. 132/7-95-TPL] dated 25-1-1996).
DEDUCTION ALLOWED FROM INCOME CHARGEABLE UNDER THIS HEAD [SECTION 57]
In case of income from dividend (other than Dividend referred in section 115-O) or interest on securities
Any reasonable sum, paid by way of commission or remuneration to a banker or any other person for the purpose for realising dividend (other than dividend referred to in Section 115-O), or interest as the case may be on behalf of the assessee.
In case of sum received by assessee from his employees as contribution to any funds, etc. as referred to in
Section 2(24)(x)
Any amount paid or credited by the assessee to the employee’s account of the relevant fund/s as referred to in section 2(24)(x) of the Act, provided such sum is paid or credited by the assessee to the employee’s account of the relevant fund on or before due date specified under those Acts.
In case of letting of machinery, plant, furniture, and building
In respect of building:
- amount paid by the assessee on the account of current repairs to the premises if the premises are occupied by the assessee otherwise than as the tenant.
- any premium paid for the risk of damage or destruction to the premises, and
- depreciation and unabsorbed depreciation as per
section 32(i), subject however, to the provisions of
section 38 which restrict such allowance based on usages.
In respect of plant and machinery and furniture
- amount paid by the assessee on the account of current repairs to the plant and machineries
- any premium paid for the risk of damage or destruction to such plant and machineries and
- depreciation and unabsorbed depreciation as per section 32, subject however, to the provisions of section 38 which restrict such allowance based on usages.
In case of income in the nature of family pension received by family of the employee in whose hand such amount is chargeable
Deduction is allowed to the extent of lower of (a) one-third of such income or (b) ₹ 15,000 (₹ 12,000 up to the assessment year 1997-98).
For this purpose family pension means a regular monthly amount payable by the employer to a person belonging to the family of the employee in the event of his death.
In case of income of the nature Interest on compensation or on enhanced compensation received in any year
Deduction is allowed of a sum equal to 50% of such Interest on compensation or on enhanced compensation received in any year. Other than this no other deduction will be allowed under any other clause of this section.
Any other expenditure [General deductions Section 57(iii)]
Any other expenditure (not being in nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning income chargeable under the head ‘Income from other sources’, is deductible.
For the purpose of claiming deduction under this clause it is not necessary that expenditure incurred should result in earning of income [CIT vs. Rajendra Prasad Moody 115 ITR 519 (SC)].
AMOUNTS NOT DEDUCTIBLE
Following sum irrespective of whatever or not allowed as deduction under Section 57, shall not be deductible in computing the income under the head “Income from Other Sources”.
- Personal expenses of the assessee.
- Any interest which is payable outside India on which tax has not been paid or deducted.
- Any payment chargeable under the head Salaries, payable outside India, if tax has not been paid or deducted therefrom.
- Any amount disallowable u/s 40(a)(i) or (ia) – i.e. for failure to deduct tax at source, if applicable (AY 2019-20).
- Any amount disallowed as per section 40A in so far as they are applicable to the income chargeable under this head as they may apply to income chargeable under profits and gains of business and profession.
- In case of foreign company, expenditure in respect of royalty or fees for technical services as deductible under the provision of section 44D in so far as they are applicable to income chargeable under the head profits and gains.
- In case of income in the nature of winning from lotteries, crossword puzzles, races including horse race and games of any sorts, etc., no deduction for expenses or allowances shall be allowed which are incurred in connection with such income. However, this provision of disallowance does not apply in computing income from the activity of owning and maintaining race horses of an assessee being the owner of the horses maintained by him for running in horse races.
APPLICABILITY OF SECTION 14A
Further by virtue of section 14A, no deduction is allowed in respect of expenditure incurred by the assessee in relation to the income which does not form part of the total income under the Act.
PROFITS CHARGEABLE TO TAX [SECTION 59]
Section 59 provides for applicability of section 41(1) of the Act as it would be applicable to income chargeable under the head Profits and Gains of Business and Profession. Thus if any expenditure, loss or trading liabilities incurred by the assessee in any previous year and is allowed as deduction while computing the Income under this head and if later any amount of recovery is made against any such expenses, for which deduction was previously allowed under this head, shall be included in the income of the assessee in the year in which such recovery is made as “Income from Other Sources”.
Income From Salaries
BASIC CONCEPT
Any payment made by an employer to an employee for the services rendered by him is chargeable to tax as salary and envisages a ‘contract of employment’. The employer – employee relationship or master-servant relationship is an essential ingredient of a ‘contract of employment’ as against a ‘contract for employment’.
The distinguishing feature of a ‘contract of employment’ that differentiates it from a ‘contract for employment’ is that the master or employer has the right to supervise and control the work done by the employee and not only directs what and when the work is to be done, but also how it should be done, and the employee is bound to carry out the said instructions. On the other hand, under a contract for employment, the master merely directs what is to be done, while the methodology for carrying out the work is left to the discretion of the servant. E.g. any fees received by a part-time consultant will not be assessed as salary but will be taxed as income from business or profession, or as income from other sources. Similarly, in the absence of master – servant relationship, any remuneration received by a partner from his firm is not regarded as salary.
BASIS OF CHARGE: [SECTION 15]
As per Section 15, salary consists of the following:
- any salary due from an employer or a former employer to an assessee in the previous year, whether actually paid or not;
- Any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer, though not due or before it became due;
- Any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer, if not charged to income-tax for any earlier previous year.
Salary is chargeable to tax either on ‘due’ basis or on ‘receipt’ basis, whichever is earlier. Once taxed on due basis, the same salary will not once again be taxed upon receipt and vice versa.
TAX TREATMENT OF DIFFERENT FORMS OF SALARIES
| Type of salary | Taxability |
| Advance salary | Taxable on receipt basis, in the year in which it is received. Relief under section 89 available. |
| Arrears of salary | Taxable on receipt basis if the same is not taxed earlier on due basis. Relief under section 89 available |
| Salary in lieu of notice period | Taxable under section 15 |
| Salary to a partner | Salary paid to a partner is an appropriation of profits. It is therefore not taxable under the head “Salaries” but is taxable under head “profit and gains of business or profession” |
| Fees and commission | Taxable as salary irrespective of the fact that they are paid in addition to or in lieu of salary |
| Salary paid tax free | Taxable amount includes the salary as well as the tax borne by the employer |
| Salary forgone | Application of salary already due; hence taxable |
| Salary diverted at source by overriding title | Not taxable |
| Deferred Salary | Taxable at the point of deferral if deferral is at the option of the employee |
DEDUCTIONS FROM SALARIES [SECTION 16]
- Standard Deduction [Section 16(ia)]
A standard deduction is allowed against the salary income subject to a limit of ₹ 40,000/- or the amount of salary whichever is less from A.Y. 2019-20.
- Entertainment Allowance [Section 16(ii)]
Entertainment allowance is a taxable allowance and forms a part of the taxable salary. However, Government employees who are in receipt of such an allowance are eligible for a deduction in respect of the entertainment allowance received by them to the extent of the least of the following:
- ₹ 5,000/-
- 1/5th of salary excluding allowances or benefits or perquisites
- Actual entertainment allowance received
The actual expenditure incurred for the purposes of entertainment is not relevant to the calculation of the deduction. No such deduction is available to employees other than Government employees.
- Tax on Employment [Section 16(iii)]
- Certain IndianStates levy a tax on employment commonly known as Profession tax which is required to be recovered by the employer from the salary paid to the employee and deposited into the treasury. Such tax paid by an employee is allowed as deduction from his Salary.
- Deduction is available in the year in which profession tax is actually paid, regardless of which year the profession tax pertains to.
- If Profession Tax is reimbursed/borne by the employer, then such Profession Tax reimbursed/borne by the employer is first included in the taxable income as a perquisite & then allowed as deduction under section 16(iii).
SALARY, PERQUISITES AND PROFITS IN LIEU OF SALARY [SECTION 17]
Section 17 provides inclusive definitions of ‘salary’, ‘perquisites’ and ‘Profits in Lieu of Salary’. Hence, the scope of these terms cannot be restricted to and can extend beyond the specific components listed in the definitions.
| Salary | Perquisite | Profit in lieu of salary |
|
|
|
ALLOWANCES
An allowance is a fixed amount of money paid regularly in addition to the salary for meeting specific requirements of the employees. As a general rule, any fixed allowance received by an employee forms part of his taxable salary unless specifically exempted. The taxability of various allowances an employee could receive is summarized in the table below:
| Allowances | Taxability/Limits | Section | ||||||||
| Leave Travel Allowance (LTA) | Assessee who incurs expenditure for
is eligible for exemption in respect of LTA to the extent of expenses actually incurred for the purpose of such travel subject to the following limits:
|
10(5) read with Rule 2B | ||||||||
Exemption only in 2 out of a block of 4 years (current block: |
||||||||||
| Allowance granted to Government Employees outside India | Fully Exempt | 10(7) | ||||||||
| House Rent Allowance (HRA) | The least of the following is exempt:
[Salary = Basic + Dearness Allowance (if provided by the terms of employment) + commission based on fixed % of turnover] Exemption shall not be allowed, if the employee resides in a house that is owned by him or if no actual expenditure is incurred by the employee on rent |
10(13A) read with Rule 2A | ||||||||
| Uniform Allowance | Exempt from tax, to the extent it is expended to meet actual expenditure on purchase or maintenance of uniform | 10(14) read with Rule 2BB(1) | ||||||||
| Academic, research and training allowance | Exempt from tax, to the extent it is actually expended by the employee for the purpose of academic, research and training pursuits in educational and research institutions | 10(14) read with Rule 2BB(1) | ||||||||
| Travel allowance | Exempt from tax, to the extent it is actually expended by the employee to meet cost of travel on tour or on transfer. This includes any sum paid in connection with transfer, packing and transportation of personal effects on transfer | 10(14) read with Rule 2BB(1) | ||||||||
| Per diem | Exempt from tax, to the extent it is actually expended to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty while on tour or for the period of journey in connection with transfer | 10(14) read with Rule 2BB(1) | ||||||||
| Conveyance allowance (official duties) | Exempt from tax, to the extent it is actually expended by the employee to meet expenditure incurred on conveyance in performance of duties of an office or employment of profit. Exemption is not available if free conveyance is provided by the employer | 10(14) read with Rule 2BB(1) | ||||||||
| Helper allowance | Exempt from tax, to the extent it is actually expended to meet the expenditure incurred on a helper where such helper is engaged for the performance of the duties of an office or employment of profit | 10(14) read with Rule 2BB(1) | ||||||||
| Children Education allowance | Exempt up to ₹ 100 per month per child; maximum 2 children | 10(14) read with Rule 2BB(2) | ||||||||
| Children hostel allowance | Exempt up to ₹ 300 per month per child; maximum 2 children | 10(14) read with Rule 2BB(2) | ||||||||
| Allowance granted to an employee working in any transport system | Lower of 70% of allowance or ₹ 10,000 per month is exempt
Exemption is not available if the employee is in receipt of a daily allowance |
10(14) read with Rule 2BB(2) | ||||||||
| Transport Allowance (between residence and office) to an employee who is blind or deaf and dumb or orthopedically handicapped with disability of lower extremities | Exempt up to ₹ 3,200 per month | |||||||||
| Tribal area allowance | Exempt up to ₹ 200 per month in specified areas | 10(14) read with Rule 2BB(2) | ||||||||
| Compensatory field area allowance | Exempt up to ₹ 2,600 per month in specified areas | 10(14) read with Rule 2BB(2) | ||||||||
| Compensatory modified field area allowance | Exempt up to ₹ 1,000 per month in specified areas | 10(14) read with Rule 2BB(2) | ||||||||
| Special Compensatory hill area or high altitude | Exempt up to ₹ 300 per month to ₹ 7,000 per month in specified areas | 10(14) read with Rule 2BB(2) | ||||||||
| Border area, remote area, Difficult/disturbed area allowance | Exempt up to ₹ 200 per month to ₹ 1,300 per month for specified areas | 10(14) read with Rule 2BB(2) | ||||||||
| High altitude allowance (Non-congenial climate) | Exempt up to ₹ 1,060 per month (Altitude for 9,000 ft. to 15,000 ft.), ₹ 1,600 per month (above 15,000 ft.) | 10(14) read with Rule 2BB(2) | ||||||||
| Special compensatory for highly active field area allowance to member of armed force | Exempt up to ₹ 4,200 per month. | 10(14) read with Rule 2BB(2) | ||||||||
| Underground allowance to an employee working in uncongenial, unnatural climate in underground mines | Exempt up to ₹ 800 per month | 10(14) read with Rule 2BB(2) | ||||||||
| Island duty allowance to member of armed force | Exempt up to ₹ 3,250 per month in Andaman & Nicobar and Lakshwadeep Group of Islands | 10(14) read with Rule 2BB(2) | ||||||||
| Counter Insurgency Allowance to member of armed forces operating in areas away from their permanent locations. | Exempt up to ₹ 3,900 per month | 10(14) read with Rule 2BB(2) | ||||||||
| Dearness allowance | Fully Taxable | 17 | ||||||||
| Overtime allowance | Fully Taxable | 17 | ||||||||
| Fixed Medical allowance | Fully Taxable | 17 | ||||||||
| City Compensatory allowance | Fully Taxable | 17 | ||||||||
| Interim allowance | Fully Taxable | 17 | ||||||||
| Servant allowance | Fully Taxable | 17 | ||||||||
| Project allowance | Fully Taxable | 17 | ||||||||
| Tiffin/Lunch/Dinner allowance | Fully Taxable | 17 | ||||||||
| Warden allowance | Fully Taxable | 17 | ||||||||
| Any other cash allowance | Fully Taxable | 17 |
VALUATION OF PERQUISITES [RULE 3]
Perquisites, for the purposes of taxation, are to be valued on the basis of valuation methodology as prescribed in Rule 3 of the Income Tax Rules. It is pertinent to note that the cost of the perquisite to the employer may be different from the taxable value of the perquisite. The taxable value of the perquisite provided by the employer is chargeable to tax whether or not expressly agreed in the contract of employment. A perquisite may be provided to the employee or any member of his household and may be provided before, during or after the employment by virtue of the employer- employee relationship. The beneficiary of the perquisite should be individually identifiable – Group benefits which are not identifiable to any particular employee are not taxable.
- RENT FREE ACCOMMODTION [‘RFA’]
Accommodation includes accommodation provided in
- House
- Flat
- Farm House or part thereof
- Caravan
- Mobile home
- Ship or other floating structures
- Hotel
Hotel Accommodation includes accommodation in
- Motels
- Service apartment
- Guest house
* Only to employees holding office or post in connection with the affairs of the Union or State
**As per 2001 census
*** Not taxable if hotel accommodation is provided for not more than 15 days on transfer of employee from one place to another
Furnished Accommodation
In case furniture including TV, washing machine, air conditioner, refrigerator and other household appliances are provided then the value of accommodation should be increased further by the following:
- 10% p.a. of cost of furniture, if the furniture is owned by the employer or
- actual hire charges, if the furniture is hired from a third party
Accommodation provided at concessional rate
For accommodation provided at concessional rate, the rent actually paid or recovered from the employee should be reduced from the value of the accommodation determined as above.
For the purpose of above calculation, Salary includes all emoluments paid to an employee but excludes dearness allowance which is not included in the computation for retirement benefits, allowances which are exempt from tax, value of perquisites under section 17(2), employer’s contribution to PF and lumpsum payments received on retirement/termination.
Accommodation provided to an employee working on a mining site, onshore exploration site, project site, dam site power generation site or any other offshore site with prescribed specifications in a remote area is not taxable.
If at the time of transfer from one place to another, an employee is provided accommodation at the new place while he retains accommodation at the other place, the accommodation with a lower perquisite valuation will be taxed for 90 days and thereafter the value of both accommodations will be taxable as perquisite.
- MOTOR CAR
A car provided by the employer to an employee is a popular tax efficient component of compensation especially among the senior employees of an organisation. The taxable value of a car provided by the employer is determined as per the valuation rules provided in the Income Tax Rules. The table below summarises the taxable value of a motor car provided by the employer:
| Purpose | CC* of engine =< 1.6 litres | CC* of engine > 1.6 litres |
| Motor car owned/leased by the employer | ||
| Official | NIL$ | NIL$ |
| Personal purposes only | Actual cost of R&M** of car + driver’s salary + normal wear and tear @ 10% per annum of the actual cost of car less any charges recovered from the employee | Actual cost of R&M of car + driver‘s salary + normal wear and tear @ 10% per annum of the actual cost of car less any charges recovered from the employee |
| Personal & Official – R&M met by employer | ₹ 1,800 p.m. + ₹ 900 p.m. (If driver is provided) | ₹ 2,400 p.m. + ₹ 900 p.m. (If driver is provided) |
| Personal & Official – R&M met by employee | ₹ 600 p.m. + ₹ 900 p.m. (If driver is provided). | ₹ 900 p.m. + ₹ 900 p.m. (If driver is provided). |
| Employee owns motor car but R&M and Driver’s salary met by employer | ||
| Official | NIL$ | NIL$ |
| Personal & Official – R&M met by employer | Actual expenses less ₹ 2,700 p.m. | Actual expenses less ₹ 3,300 p.m. |
| Employee owns any other automotive conveyance but R&M is met and reimbursed by employer | ||
| Official | NIL$ | Not Applicable |
| Personal & Official – R&M met and reimbursed by employer | Actual expenses less ₹ 900 p.m. | Not Applicable |
| *CC – Cubic capacity
**R&M – Running and maintenance $ – The employer is required to maintain complete details of journey undertaken for official purpose by the employee with date of journey, destination, mileage and the amount of expenditure actually incurred. Further, the employer is required to issue a certificate that such expenditure was incurred wholly and exclusively for official purpose. |
||
- DOMESTIC SERVANTS
| Servants | Perquisite Value |
| Sweeper, Gardener, Watchman or Personal attendant | Actual Cost to the employer less amount recovered from employee |
- GAS, ELECTRICITY OR WATER SUPPLIED BY EMPLOYER
| Source | Perquisite Value |
| Provided from own source | Manufacturing cost to the employer less amount recovered from employee |
| Provided from outside supplier | Amount paid to the supplier less amount recovered from employee |
- EDUCATION FACILITIES
| Facility provided to | Value of perquisite | |
| Provided in the school owned by the employer | Provided in any other school | |
| Children | Cost of such education in similar school if it exceeds ₹ 1,000 per month per child | Cost of such education if it exceeds ₹ 1,000 per month per child |
| Other household member | Cost of such education in similar institution in or near the locality | Cost of such education incurred |
The amount if any, recovered from the employee shall be reduced from the perquisite value.
- SPECIFIED SECURITY OR SWEAT EQUITY SHARES ALLOTTED
-
- “Specified Security” means the securities as defined in Section 2(h) of the Securities Contracts (Regulation) Act, 1956 and also includes securities offered under an Employee Stock Option Plan (ESOP);
- Sweat equity shares means equity shares issued by a company to its employees or directors at a discount or for consideration other than cash for providing know-how or making available rights in nature of Intellectual Property Rights or value additions.
- Perquisite will be taxable as the difference between the fair market value (FMV) of the share on the date of exercise of the options less the exercise price.
Calculation of FMV on date of exercising the option
| Particulars | FMV |
| Listed on a recognised stock exchange | Average of opening and closing price on that date |
| Listed on more than one recognised stock exchange | Average of opening and closing price of the share on the recognised stock exchange which records the highest volume of trading in the share |
| If there is no trading in the share on any recognised stock exchange on that date: | |
| If share listed on a recognised stock exchange | Closing price of share on any recognised stock exchange on a date closest to date of exercising the option and immediately preceding such date |
| If share listed on more than one recognised stock exchanges | Closing price of share on any recognised stock exchange, which records the highest volume of trading in such share on a date closest to date of exercising the option and immediately preceding such date |
| If shares not listed on a recognised stock exchange or any specified security other than equity shares | Such value as determined by a Category I merchant banker listed with SEBI on the specified date (i.e. Date of exercise or any date not being more than 180 days prior to the date of exercise) |
Note: Where the stock exchange quotes both “buy” and “sell” prices, the opening and closing price shall be the “sell” price of the first and last settlement respectively.
- MEDICAL EXPENSES
Certain medical expenses borne/reimbursed by the employer are not considered to be a perquisite and are specifically exempted under section 17(2). Such expenses are:
- Medical treatment provided to an employee or any member of his family:
- in the hospital maintained by the employer;
- in the hospital maintained by the Government/Local authority/any other hospital approved by the government for the medical treatment of its employee;
- in respect of prescribed disease or ailments in any hospital approved by the Chief Commissioner having regards to the prescribed guidelines and supported by a certificate and receipt from the hospital;
- premium paid/borne by the employer in respect of health insurance of employee or a member of his family under a scheme approved by the Central Government or the IRDA;
- In case of an employee whose gross total income does not exceed ₹ 2 lakh, any expenditure incurred outside India on the medical treatment of an employee or member of his family including travel and stay abroad for the patient and one attendant, subject to limits prescribed by Reserve Bank of India.
- INTEREST FREE LOAN
Where the employer grants a loan to an employee interest free or at a concessional rate of interest, a notional interest thereon is charged to tax in the hands of the employee. As per the Income tax rules, the value that will chargeable to tax shall be calculated on the maximum outstanding monthly balance based on the interest rates charged by the State Bank of India as on the 1st day of the financial year in respect of loans for the same purpose advanced by it (refer the page on interest rate for the purpose of perquisite valuation on https://www.sbi.co.in) as reduced by the interest actually recovered from the employee.
However no notional interest is charged to tax in the case of the following loans:
- A loan given for the purpose of medical treatment of certain prescribed diseases as mentioned in Rule 3A of the Income-tax rules (and is not reimbursed to the employee under a medical insurance scheme)
- A loan not exceeding in the aggregate ₹ 20,000/-.
In case the loan is given for medical purpose the employer should obtain the bills, certificate, supporting, etc. from the employee evidencing the fulfilment of the prescribed conditions.
- USE OF MOVABLE ASSETS
| Assets given | Value of benefit |
| a) Use of laptops and computers | Nil |
| b) Movable asset other than laptops and computers | i. 10% p.a of the actual cost, if owned by employer
ii. the amount of rent paid or payable by the employer if hired As reduced by the amount recovered from employee |
- MOVABLE ASSETS SOLD TO EMPLOYEE
| Assets given | Value of benefit |
| Computers and electronics | Depreciated value of the asset (depreciation is computed @50% on WDVfor each completed year of usage)
Less: amount recovered from employee |
| Motor Cars | Depreciated value of the asset (depreciation is computed @20% on WDV for each completed year of usage)
Less: amount recovered from employee |
| Any other asset | Depreciated value of the asset (depreciation is computed @10% on SLM for each completed year of usage)
Less: amount recovered from employee |
- TOUR OR TRAVEL
| Benefit provided | Value of benefit |
| Value of tour, travel and accommodation provided to an employee or member of his household paid or borne by employer and not covered under section 10(5) | Amount of expenditure actually incurred
Less: Amount recovered from the employee |
| Value of tour, travel and accommodation provided to an employee or member of his household where the facility is maintained by the employer and is not provided uniformly to all employees | Value at which such services are offered to public by other agencies
Less: Amount recovered from the employee |
| Value of tour, travel and accommodation provided to a member of the employee’s household where the employee is on official tour* | Amount of expenditure actually incurred
Less: Amount recovered from the employee |
| *Where an official tour is extended as vacation, the value of benefit shall be restricted to the extended period of stay or vacation. | |
- MISCELLANEOUS
| Particulars | Value of benefit |
| Free food and non-alcoholic beverages during office hours
(Free meal in remote area or offshore installation area is not a taxable perquisite) |
Food and non-alcoholic beverages during office hours or by way of vouchers is valued as the actual cost to the employer in excess of ₹ 50 per meal
Less: amount recovered from employee, if any Tea and snacks provided during working hours is not taxable |
| Value of any gift or voucher or token other than gifts made in cash or convertible into money (e.g., gift cheques) on ceremonial occasion | Value of gift. In case the aggregate value of gift during the previous year is less than INR 5,000, then it is not a taxable perquisite. |
| Expenditure incurred on credit card or add on card including membership fee and annual fee | Actual expenditure to the employer is taxable
Less: amount recoverable from employee If it is incurred for official purpose and supported by necessary documents (including a certificate from the employer) then it is not taxable |
| Expenditure on club (other than health club or sports club or similar facilities provided uniformly to all the employees) | Actual expenditure incurred by the employer
Less: Amount recoverable from employee If the expenditure is incurred exclusively for official purpose and supported by necessary documents (including a certificate from the employer) then it is not taxable. Initial fee of corporate membership of a club is not a taxable perquisite |
| Any other benefit or amenities or service or right or privilege provided by the employer other than telephone or mobile phone | Cost to the employer
Less: Amount recovered from the employee |
| Any sum paid to keep in effect an assurance on the life of an assessee or to keep in effect a contract for annuity** | Cost to the employer
Less: Amount recovered from the employee |
| Value of any benefit or amenity resulting from providing an employee or member of his household for personal use or private journey or the movement of goods for personal use in the employer’s owned transport where the employer is engaged in the carriage of goods or passenger *** | Value at which such benefit is offered to the public
Less: Amount recovered from the employee |
| **Will not apply if amount is paid to a recognised provident fund or approved superannuation fund or a Deposit Linked Insurance Fund established under section 3G of the Coal Mines Provident Fund and Miscellaneous Provision Act, 1948 or under section 6C of the Employees Provident Funds and Miscellaneous Provisions Act, 1952
***Does not apply to employees of an airline or railways |
|
- SUPERANNUATION FUND
Superannuation is a retirement benefit provided by employer. The employer’s contribution to an approved Superannuation Fund is exempt from tax in the employee’s hands if it does not exceed ₹ 150,000 per annum.
Any payment from an approved superannuation fund made on the death of the employee or in commutation of an annuity on his retirement at a specified age or on his becoming incapacitated prior to such retirement is exempt from tax under section 10(13).
EXEMPTIONS
- GRATUITY [SECTION 10(10)]
Gratuity is exempt only when it is received on – (a) retirement, or (b) becoming incapacitated prior to such retirement; or (c) resignation; or (d) termination of services.
Exemption is also available for gratuity received by the widow, children or dependents of the employee on his death.
| Particulars | Amount of exemption |
| Gratuity received by Government & Local Authority Employees | Fully exempt under section 10(10)(i) |
| Gratuity in case of employees covered by Payment of Gratuity Act, 1972 | Lower of following amount is exempt:
[Salary = Basic Pay + Dearness Allowance] |
| Gratuity in respect of any other employee | Lower of following amount is exempt:
[Salary = Basic Pay + Dearness Allowance + Commission based on the % of Turnover |
Notes:
- Average Salary = Average salary drawn for last 10 months preceding month of retirement.
- Gratuity received during continuation of service is not exempt under this section.
- The aggregate exemption allowable to an employee in one or more previous years should not exceed the maximum amount (currently ₹ 20 lakh or ₹ 10 lakh as the case may be)
- Completed years of service include period of service under current employer as well as previous employer (if no gratuity has been received from the former employers at that time)
- PENSION: [SECTION 10(10A)]
| Particulars | Government Employee | Non-Government Employee receiving gratuity | Non-Government Employee not receiving gratuity | From approved pension fund of LIC or other Insurer |
| Uncommuted Pension | Fully Taxable | Fully Taxable | Fully Taxable | Fully Taxable |
| Commuted Pension | Fully Exempt [section 10(10A)(i)] |
1/3rd of full value will be exempt [section 10(10A)(ii)] |
1/2 of full value will be exempt [section 10(10A(iii)] |
Fully Exempt |
- LEAVE SALARY (ENCASHMENT): [SECTION 10(10AA)]
| Particulars | Central or State Government Employee | For any other employee |
| Encashment of leave during service | Fully Taxable. However relief can be taken under section 89 | Fully Taxable. However relief can be taken under section 89 |
| Encashment of leave during retirement | Fully Exempt | Amount exempt shall be lower of following:
• Earned leave in months x Average Salary; • Average monthly Salary x 10; • Maximum Amount ₹ 3,00,000; • Actual amount received |
| Average monthly salary for this purpose means average salary drawn in last 10 months immediately preceding the retirement.
The aggregate exemption allowable to an employee in one or more previous years should not exceed the maximum amount (currently ₹ 3 lakh) Salary = Basic Pay + Dearness Allowance (forming part of retirement benefits) + Commission based on the % of turnover Steps to determine period of leave in months:
|
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- RETRENCHMENT COMPENSATION [SECTION 10(10B)]
Compensation received at time of retrenchment, is exempt from tax to the extent of lower of the following:
- 15 days’ average pay for each completed year of service or any part in excess of six months
- Maximum amount ₹ 500,000
- Actual amount received
- VOLUNTARY RETIREMENT COMPENSATION [SECTION 10(10C)]
Any amount received or receivable by an employee of —
- A public sector company
- Any other company
- Authority established under a Central, State or Provincial Act
- A local authority
- A co-operative society
- A university established under a Central, State or Provincial Act or covered under the University Grants Commission Act
- Notified Indian Institute of Technology
- Notified Institute of Management
- Indian Institute of Foreign Trade, New Delhi
- Any State Government
- Any Central Government
- Any other Institute notified by Central Government
at the time of his voluntary retirement under a scheme framed in accordance with guidelines prescribed by Rule 2BA is exempt up to specified limits.
Exemption is least of the following:
- Actual amount received under the Voluntary Retirement Scheme.
- 5 lakhs (to be reduced by total exemptions claimed in the past) in total from one or more employer
- TAX PAID BY EMPLOYER ON BEHALF OF EMPLOYEE [SECTION 10(10CC)]
Tax paid by the employer on behalf of the employee is ordinarily considered to be a perquisite in the hands of the employee. However, tax paid by the employer, at his option, on behalf of the employee, on a perquisite provided to the employee other than by way of monetary payment – e.g. motor car, accommodation, etc., shall be exempt in the hands of employee. Such tax shall not be allowed as a deduction to the employer in terms of Section 40(a)(v).
PROVIDENT FUND AND NPS – COMPARATIVE ANALYSIS
| Particulars | Employer’s contribution | Employee’s contribution | Income credited | Lump sum payment received at the time of retirement or termination of service or withdrawal |
| Statutory provident fund | Not taxable | Eligible for deduction under section 80C | Fully exempt | Exempt under section 10(11) |
| Recognised provident fund | Not taxable up to 12% of salary | Eligible for deduction under section 80C | Exempt up to 8.55% (Financial Year 2017-2018) |
Exempt from tax under section 10(12)
Subject to conditions: not taxable if employee retires after 5 years of service or due to inability to work. Otherwise treated as URPF |
| Unrecognised provident fund (URPF) | Not taxable | Not eligible for deduction under section 80C | Not taxable at the time of credit | Employee’s contribution exempt from tax and interest thereon is taxable under the head ‘income from other sources’.
Employer’s contribution and interest thereon is taxable as ‘Profits in lieu of salary’ under the head “Salaries” |
| Public provident fund | Employer does not contribute | Eligible for deduction under section 80C | Exempt from tax | Exempt under section 10(11) |
| National pension system | Taxable as salary and deductible up to 10% of employee’s salary under section 80CCD(2) | Eligible for deduction under sections 80CCD(1) [10% of salary] and 80CCD(1B) [₹ 50,000] |
Exempt from tax | 40% of NPS corpus tax exempt on lump sum withdrawal on closure of account.
Amount of corpus utilised for purchase of annuity is also exempt. No tax will be levied on partial withdrawal, not exceeding 25% of contribution, from NPS. The 25% withdrawal is permitted not on corpus but on contribution. Further, NPS subscriber has a one-time option to transfer funds from recognised provident fund/superannuation fund to his Tier I NPS account. This amount so transferred will neither be treated as income of the year of transfer nor will be eligible for any claim of contribution/deduction. |
Interest
INTEREST PAYABLE BY ASSESSEE
| Section | Amount on which interest payable |
Rate of interest | Period of interest |
| SECTION 115P — Failure to pay the whole or any part of the tax on distributed profits of domestic companies (i.e., dividend) referred u/s. 115-O(1) |
Amount of tax not paid on distributed profits remaining unpaid | W.e.f. 8-9-2003 Simple interest @ 1% for every month or part thereof | From the day immediately following the last date on which the dividend distribution tax was to be paid to the date of actual payment |
| SECTION 115S — Failure to pay the whole or any part of the tax on income distributed by Unit Trust of India/Mutual Fund referred u/s. 115R(1) or (2) | Amount of tax not paid on income distributed remaining unpaid | W.e.f. 8-9-2003 Simple interest @ 1% for every month or part thereof | From the day immediately following the last date on which the income distribution tax was to be paid to the date of actual payment |
SECTION 158BFA(1) —
|
Undisclosed income determined u/s. 158BC(c) | W.e.f. 8-9-2003 Simple interest @ 1% per month or part thereof | From the expiry of time allowed to furnish the return to the date of furnishing of return or where no return is filed to the date of completion of assessment u/s. 158BC(c) |
| SECTION 201(1A) — Failure to deduct whole or any part of tax deducted at source or failure to deposit tax deducted at source |
|
W.e.f. 1-7-2010
If tax is not deducted
|
From the date, on which the tax was to be deductible/deducted, to the date of actual payment.
W.e.f. 1-7-2012 If the deductee :
and he furnishes a certificate from a Chartered Accountant in such cases assessee will not be treated as “assessee in default” and in such cases interest shall be payable from the date on which such tax was deductible to the date of furnishing of return by aforesaid recipient |
| SECTION 206C(7) — Failure to collect tax at source or failure to deposit the same after collection at source |
|
W.e.f. 8-9-2003 simple interest @ 1% per month or part thereof | From the date, on which the tax was to be collected, to the date of actual payment |
| SECTION 220(2) — Failure to pay the amount specified in notice of demand u/s. 156 or delay to pay the demand issued u/s. 156 | Amount of tax demanded as per notice u/s. 156. | W.e.f. 8-9-2003 simple interest @ 1% per month or part thereof | From the day next following the day on which period specified in notice expires till the date of actual payment of specified amount |
| SECTION 234A(1) — Delay or failure to furnish return of income u/ss. 139(1)/139(4)/ 142(1) | Tax on total income determined u/s. 143(1) or on regular assessment as reduced by
|
W.e.f. 8-9-2003 Simple interest @ 1% per month or part thereof | From the date immediately following the due date to the date on which return is furnished or on the date on which best judgment assessment u/s. 144 is completed |
| SECTION 234A(3) — Failure to furnish return required by a notice u/ss. 148/153A within time allowed or failure to furnish the return | Difference between tax determined on reassessment and tax determined on earlier assessment | W.e.f. 8-9-2003 Simple interest @ 1% per month or part thereof | From the expiry of time allowed furnishing the return u/ss. 148/153A to the date of furnishing of return or where no return is filed to the date of completion of reassessment |
| SECTION 234B(1) — Failure to pay advance tax in entirety or (2) where advance tax paid falls short of 90% of assessed tax |
|
W.e.f. 8-9-2003 Simple interest @ 1% per month or part thereof | From 1st April of the relevant Assessment Year to the date of determination of income u/s. 143(1) or date of regular assessment if such assessment is made |
| SECTION 234B(3) — Where the amount on which interest is payable u/s. 234B(1) is increased as a result of reassessment u/ss. 147/153A | Difference between tax determined on reassessment and tax determined on earlier assessment | W.e.f. 8-9-2003 Simple interest @ 1% per month or part thereof | From the date of original assessment to the date of reassessment under Section 147 or Section 153A |
| SECTION 234C — Shortfall/ failure to pay advance tax or Deferment of advance tax | Amount of tax not paid or shortfall in payment during various installments. [Tax on returned income is considered]. If capital gains arises after any due date of installment, tax on capital gains shall be paid in balance available installments due after the date of gains | W.e.f. 8-9-2003 Simple interest @ 1% per month or part thereof | On the shortfall of prescribed amount; 1st Installment due on 15th June prescribed amount is 15%, due on 15th September, prescribed amount is 45%, due on 15th December, prescribed amount is 75% interest to be calculated for 3 months and for the installment due on 15th March, prescribed amount is 100%, straightforward 1% on shortfall amount for 1 month
(However it is further provided that for 1st installment paid by such assessee is not less than 12% and for 2nd installment if it is not less than 36% then Interest is not to be charged) However interest under this section shall not be levied in respect of shortfall of advance tax on account of capital gains or winnings from races, lotteries, income from Profits and Gains of Business or Profession for first time (w.e.f. 1-4-2017) etc. if assessee has paid the advance tax as a part of remaining installments of advance tax due if any or by 31st March of the Financial Year. |
| SECTION 234D — Where refund granted on assessment u/s. 143(1) is found to be not due on regular assessment or refund granted is in excess of refund determined on regular assessment | Whole of the amount so refunded or excess amount so refunded | Simple interest @ 0.50% per month or part thereof | From the date of grant of refund u/s. 143(1) to the date of regular assessment |
| SECTION 234E — Where a person fails to deliver or cause to be delivered a statement within the time prescribed in section 200(3) or proviso to section 206(c)(3) | Fees of ₹ 200/- per day | Fees of ₹ 200/- per day | Fees shall exceed the amount of tax deductible or collectible |
| SECTION 234F — Where a person fails to furnish a return of income u/s. 139, within time prescribed u/s. 139(1) (Applicable from Assessment year 2019-20) |
|
INTEREST RECEIVABLE BY ASSESSEE
| SECTION 244A | |||
| (a) Where refund arises as result of excess payment of advance tax or higher TCS or TDS | Amount of refund due | simple interest @ 0.50% per month or part thereof | I) From 1st April of relevant Assessment Year to the date on which the refund is granted where return is filed u/s. 139(1)
II) From the date of furnishing of return of income to the date on which refund is granted in case not covered in I above |
| (aa) Refund is out of any tax paid u/s. 140A | Amount of refund due | simple interest @ 0.50% per month or part thereof | From the date of payment of tax or date of furnishing of return whichever is later, to the date on which the refund is granted |
| (b) In any other case | Amount of refund due | simple interest @ 0.50% per month or part thereof | From the date of payment of tax or penalty, to the date on which the refund is granted |
Notes:
- It is important to note that Rule 119A governs the manner of charging of interest and as per the said rule.
- Fraction of month is to be ignored when annual rate is prescribed,
- Fraction of a month is to be considered as full month where monthly rate is provided and
- Amount of tax, penalty or any other sum in respect of which interest is calculated is rounded of to the nearest multiple of ₹ 100/- and for this purpose any fraction of ₹ 100/- is ignored.
- In certain circumstances, the assessee may approach CIT or CCIT for reduction or waiver of interest levied u/ss. 220(2), 234A, 234B and 234C.
Offences & Prosecutions
| Section | Nature of Failure/Default | Description of Default | Quantum of Penalty |
| SECTION 275A |
|
In the process of search u/s. 132 the AO may serve a restrain order on the owner or the person who is in immediate possession or control of any books of acoount other documents, money, bullion jewellery – which is not seized – any violation thereof | RI which may extend to two years and shall also be liable to fine |
| SECTION 275B | Failure to comply with provisions of clause (iib) of sub-section (1) of section 132 | If a person fails to afford the AO necessary facility to inspect books of acoount or other documents maintained in the form of electronic records | RI for a term which may extend to two years and shall be liable to fine |
| SECTION 276 | Removal, concealment, transfer or delivery of property to thwart tax recovery | — | RI for a term which may extend to two years and shall be liable to fine |
| SECTION 276A |
|
Liquidator –
|
|
| SECTION 276AB | Failure to comply with the provisions of sections 269UC, 269UE and 269UL | Provisions of Chapter XXC are not applicable w.e.f. 1-7-2002 |
|
| SECTION 276B |
|
— | RI for a term which shall not be less than three months and may extend to seven years and with fine |
| SECTION 276BB | Failure to pay the Tax Collected at Source (TCS) to the Central Government required u/s. 206C | — | RI for a term which shall not be less than three months and may extend to seven years and with fine |
| SECTION 276C | Sub-section (1)
|
|
|
Sub-section (2)
|
— | RI for a term which shall not be less than three months but which may extend to two years and with fine | |
| SECTION 276CC | A person wilfully fails to furnish returns of income u/s. 115WD or by Notice given u/s. 115WH or return u/s. 139 or notice given u/s. 142 or u/s. 148 or section 153A |
— |
|
| SECTION 276CCC | Wilfully failure to furnish return of income in search cases by notice given u/s. 158BC(a) | Chapter XIVB is not applicable with respect to. search conducted after 1-06-2003 | Imprisonment for a term which shall not be less than three months but which may extend to three years and with fine |
| SECTION 276D | A person willfully fails to produce the accounts and documents on the date specified in the notice u/s. 142(1). or wilfully fails to comply with a direction to get the accounts audited u/s. 142(2A) |
|
|
| SECTION 277 | If a person makes a false statement in verification under the Act |
|
|
| SECTION 277A | If any person (first person) willfully and with intent to enable any other person (second person) to evade any tax or interest or penalty chargeable and imposable under this Act, makes or causes to be made any entry or statement which is false and which the first person either knows to be false or does not believe it to be true, in any books of acoount or other documents relevant to or useful in any proceeding against the first person or the second person. | In such case the first person shall be punishable with :
RI for a term which shall not be less than three months but which may extend to two years and with fine |
|
| SECTION 278 | If a person abets or induces in any manner another person to make and deliver an account or statement or declaration relating to any income chargeable to tax which is false and which he either knows to be false or does not believe to be true or to commit an offence u/s. 276C(1) |
|
Important Notes
- RI – Rigorous Imprisonment, AO – Authorised Officer.
- Section 278A – Punishment for second and subsequent offences:
If any person is convicted of an offence u/s. 276B, 276C(1), 276CC, 276DD, 276E, 277, 278 is again convicted to an offence under any of the aforesaid provisions he shall be punishable for the second and every subsequent offence with RI for a term which shall not be less than 6 months which may extend to 7 years and with fine. - Section 278AA – Punishment not to be imposed in certain cases:
Notwithstanding anything contained in the provisions of sections 276A, 276AB, 276B no person shall be punishable for any failure referred to in in the said provisions if he proves that there was reasonable cause for such failure. - Section 278AB – this section gives power to Commissioner to grant immunity from prosecution.
- Section 278B – Offences by Companies:
Where an offence under this Act has been committed by a company every person who at the time of offence was committed was in charge of, and was responsible to, the company for the conduct of the business of the company shall be deemed to be guilty of the offence and shall be liable to proceeded against and punished accordingly. (However if such person proves that the offence was committed without his knowledge or that he has exercised all due diligence to prevent the commission of such offence the said provision will not apply). - Section 278C – Offences by HUF
In case of HUF the Karta of the said HUF will be deemed to be guilty of the offence. (However if such person proves that the offence was committed without his knowledge or that he has exercised all due diligence to prevent the commission of such offence the said provision will not apply). - Section 278E – In any prosecution for any offence under this Act, court shall presume the existence of culpable mental state and it shall be the defence for the accused to prove the fact that he had no such culpable mental state.
- Section 279 – Prosecution shall be at the instance of Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner of Income-tax.
- Section 279A – Offences punishable u/ss. 276B, 276C, 276CC, 277 & 278 shall be deemed to be non-cognisable within the meaning of Code of Criminal Procedure 1973, (2 of 1974).
- CBDT videits Circular No. F. No. 285/35/2013 IT(Inv-V)/108 dt. 23-12-2014, has issued Guidelines for compounding of offences under Direct Tax Laws, 2014, these guidelines has classified the offences in two categories Category “A” and Category “B” and accordingly prescribed differed compounding fees for each type of offences referred above.
Penalties
| Section | Nature of Failure/Default | Authority who can levy penalty |
Quantum of Penalty |
| SECTION 158BFA(2) |
|
Assessing Officer or Commissioner (Appeals) | Minimum 100% & maximum 300%; in case (a) of the tax leviable in respect of the undisclosed income determined by the Assessing Officer and in case (b), of the tax leviable on the difference between the undisclosed income as determined by the Assessing Officer and the amount of undisclosed income shown in the return |
| SECTION 221(1) | Default in making payment of tax within prescribed time; i.e., as required by notice u/s. 156 or wherever assessee is deemed to be in default in payment of tax. | Assessing Officer | Such amount as directed by Assessing Officer but not exceeding the amount of tax in arrears |
| SECTION 270A | Penalty for under reporting of income
Penalty for misreporting of income (Applicable from the Assessment Year 2017-18) |
Assessing Officer, CIT(Appeals) or Principal CIT or CIT | 50% of tax payable on under reported income
200% of such tax in the case of misreporting of income |
| SECTION 271(1)(b) | Failure to comply with the notice u/s. 115WD(2) or 115WE(2) or 143(2) or 142(1) or failure to comply with the direction u/s. 142(2A) to get the accounts audited.
(Applicable up to Assessment Year 2016-17) |
Assessing Officer or Commissioner or Principal Commissioner or Commissioner (Appeals) | ₹ 10,000/- for each such failure |
| SECTION 271(1)(c) | Concealment of particulars of income or furnishing of inaccurate particulars of such income.
(Applicable up to Assessment Year 2016-17) |
Assessing Officer or Commissioner or Principal Commissioner or Commissioner (Appeals) | Minimum 100% & maximum 300% of the tax sought to be evaded |
| SECTION 271(1)(d) | Concealment of particulars of fringe benefits or inaccurate particulars of such fringe benefits | Assessing Officer or Commissioner or Principal Commissioner or Commissioner (Appeals) | Minimum 100% & Maximum 300% of the tax sought to be evaded |
| SECTION 271(4) | Distribution of Profit by registered firm otherwise than in accordance with the partnership deed on the basis of which the firm has been registered and as a result of which partner has returned income below the real income (penalty leviable on the partner)
(Applicable up to Assessment Year 2016-17) |
Assessing Officer or Commissioner (Appeals) | A sum not exceeding 150% of the difference between the tax on partner’s income assessed and income returned |
| SECTION 271A | Failure to keep and maintain any such books of account and other documents as required under Section 44AA or rules made thereunder or to retain such books of account and other documents for the period specified under Income-tax Rules | Assessing Officer or Commissioner (Appeals) | A sum of ₹ 25,000/- |
| SECTION 271AA(1) | a. Failure to keep and maintain any information or document in respect of international transactions or (Specified domestic transactions w.e.f. 1-4-2013) as required by Section 92D(1) or 92D(2), or
b. Failure to report international transaction or furnishing of incorrect information |
Assessing Officer or Commissioner (Appeals) | 2% of the value of each international transaction or specified domestic transaction |
| SECTION 271AA(2) | Failure to furnish information document as required under section 92D(4)
(Applicable from the Assessment Year 2017-18) |
Assessing Officer or Commissioner (Appeals) | ₹ 5,00,000 |
| SECTION 271AAA | Undisclosed income found during Search initiated under section 132 on or after 1-6-2007 but before 1-7-2012 (Explanation to Section 271AAA) | Assessing Officer | A sum computed @ 10% of the undisclosed income of the specified previous year. Penalty cannot be levied if all the following conditions stipulated in Section 271AAA(2) are fulfilled.
W.e.f. A.Y. 2012-13 Provisions of this section are applicable if search is initiated on or after 1st June, 2007 but before 1st July, 2012. |
| SECTION 271AAB(1) | Undisclosed income found during search initiated under section 132 on or after 1-7-2012 but before 15-12-2016 | Assessing Officer | Penalty at the rate of 10% of undisclosed income if:—
Penalty at the rate of 20% of undisclosed income if:—
In any other case penalty shall be 60% (Applicable for A.Y. 2017-18)
|
| SECTION 271AAB(1A) | Undisclosed income found during search initiated under section 132 on or after 15-12-2016 | Assessing Officer | Penalty at the rate of 30% of undisclosed income if:—
In any other case penalty shall be 60% (applicable from A.Y. 2018-19) |
| SECTION 271AAC | Where the income determined includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D for any previous year, the assessee shall pay by way of penalty, in addition to tax payable under section 115BBE
(Applicable from the Assessment Year 2017-18) |
Assessing Officer | A sum computed at the rate of ten per cent of the tax payable under clause (i) of sub-section (1) of section 115BBE |
| SECTION 271B | Failure to get the accounts audited as required u/s. 44AB or furnish report of such audit before the specified date mentioned in Explanation (ii) below Section 44AB | Assessing Officer | 0.5% of the total sales, turnover or gross receipts Maximum ₹ 1,50,000/- |
| SECTION 271BA | Failure to furnish a report from an accountant in respect of international transaction as required u/s. 92E | Assessing Officer | A sum of ₹ 1,00,000/- |
| SECTION 271C |
|
Joint Commissioner | Amount of tax not deducted or amount of tax not so paid as the case may be |
| SECTION 271CA | Failure to collect whole or any part of tax at source (w.e.f. 1st April, 2007) under Chapter XVII-BB |
Joint Commissioner | A sum equal to the amount of tax failed to collect |
| SECTION 271D | Failure to comply with the provisions of Section 269SS; i.e., by taking or accepting any loan or Specified sum, (means any sum of money receivable, whether as advance or otherwise, in relation to transfer of an immovable property, whether or not the transfer takes place) of ₹ 20,000/- or more otherwise than by crossed account payee cheque/draft |
Joint Commissioner | A sum equal to the amount of loan or deposit or specified sum so taken or accepted |
| SECTION 271DA | Failure to comply with the provisions of Section 269ST; i.e., by receiving an amount of ₹ 2,00,000/- or more in specified situations |
Joint Commissioner | A sum equal to the amount of such receipt |
| SECTION 271E | Failure to comply with the provisions of Section 269T, i.e., repayment of any loan or deposit or specified advance (means any sum of money in the nature of advance, by whatever name called, in relation to transfer of an immovable property, whether or not the transfer takes place) of ₹20,000/- or more otherwise than by crossed account payee cheque/draft in the name of the person who has made the loan or deposit | Joint Commissioner | A sum equal to the amount of loan or deposit or specified advance repaid |
| SECTION 271F | Failure to furnish return of income before the end of relevant assessment year as required u/s. 139(1) or before the due date u/s. 139 or provisos to the said sub-sectionProvided that nothing contained in this section shall apply to and in relation to the return of income required to be furnished for any assessment year commencing on or after 1-4-2018 |
Assessing Officer | A sum of ₹ 5,000/- |
| SECTION 271FA |
(Applicable from 1st April, 2014) |
Prescribed Income-tax authority |
|
| SECTION 271FAA |
|
Prescribed Income-tax authority | ₹ 50,000/- |
| SECTION 271FAB | Failure to furnish statement of information or document by an eligible investment fund as required by section 9A(5)
(Applicable from Assessment Year 2016-17) |
Prescribed Income-tax authority | ₹ 5,00,000/- and above |
| SECTION 271FB | Failure to furnish fringe benefits return required u/s. 115WD(1) or failure to furnish such return within the time prescribed | Assessing Officer. | ₹ 100/- for every day during which failure continues |
| SECTION 271G | Failure to furnish any information or document as required by Section 92D(3) in respect of international transaction
w.e.f. 1-4-2013 Specified Domestic Transactions are also included |
Assessing Officer or Transfer Pricing Officer u/s. 92CA or Commissioner (Appeals) | 2% of the value of international transaction or specified domestic transaction for each such failure |
| SECTION 271GA | Failure to furnish statement of information or document u/s. 285A
(w.e.f. 1-4-2016) |
Prescribed Income-tax authority | In case of transferring right of management or control in relation to the Indian Control: 2% of value of transaction.
In any other case : ₹ 5,00,000/- |
| SECTION 271GB(1) | Failure to furnish report under section 286(2) in respect of international group
(Applicable w.e.f. 1-4-2017) |
Prescribed Income-tax authority | ₹ 5,000 per day (if period of default does not exceed 1 month) ₹ 15000 per day (for the period of default beyond 1 month) |
| SECTION 271GB(2) | Failure to produce information or document to the prescribed authority under section 286(6)
(Applicable w.e.f. 1-4-2017) |
Prescribed Income-tax authority | ₹ 5,000 per day (beginning immediately following the day on which the period for furnishing the information expires) |
| SECTION 271GB(3) | Continuity of failure referred to in section 271GB(1)/(2) after the order directing to pay penalty under section 271GB(1)/(2) has been served
(Applicable w.e.f. 1-4-2017) |
Prescribed Income-tax authority | ₹ 50,000 per day from the date of service of penalty order |
| SECTION 271GB(4) | Furnishing inaccurate report under section 286(2) in respect of international group
(Applicable w.e.f. 1-4-2017) |
Prescribed Income-tax authority | ₹ 5,00,000/- |
| SECTION 271H | Failure to submit (or furnishing incorrect statements in) quarterly TDS/TCS returns (Applicable from July 1, 2012) | Assessing Officer | Minimum Penalty – ₹ 10,000/- and Maximum Penalty ₹1,00,000/- |
| SECTION 271I |
Failure to furnish information or furnishing inaccurate information under section 195(6) (Applicable from June 1, 2015) | Prescribed Income-tax authority | ₹ 1,00,000/- |
| SECTION 271J | Penalty for furnishing incorrect information in reports or certificates by an accountant or a merchant banker or a registered valuer (Applicable w.e.f. 1-4-2017) | Assessing Officer or Commissioner Appeals | ₹ 10,000/- for each such report or certificate |
| SECTION 272A(1)(a)/(b)/(c) | Failure to answer questions, sign statements or attend summons u/s. 131(1) to give evidence/ produce books of account or other documents | Income Tax authority not lower in rank than a Joint Commissioner or a Joint Director. | ₹ 10,000/- for each such default or failure |
| SECTION 272A(1)(d) | Failure to comply with a notice under sections 142(1), 143(2) or failure to comply a direction issued under section 142(2A)
(Applicable from Assessment Year 2017-18) |
Income Tax authority not lowers in rank than a Joint Commissioner or a Joint Director | ₹ 10,000/- for each default or failure |
| SECTION 272A(2) | Failure to:
|
Income Tax authority not lower in rank than a Joint Commissioner or a Joint Director except for failure under Clause (f) above w.r.t. Section 197A wherein the authority is with Chief Commissioner or Commissioner | ₹ 100/- per day during which default continues. However, penalty shall not exceed the amount of tax deductible or collectible in case of failure to deliver or pay declaration u/s. 197A, furnish a certificate u/s. 203 or annual return of TDS/TCS u/s. 206 and 206C and for failure in relation to section 200(2A)/ 206C(3A). |
| SECTION 272AA | Failure to comply with the provisions of Section 133B (a general survey meant for collection of information) | Assessing Officer or Joint Commissioner or Assistant Director or Deputy Director | Maximum Penalty up to ₹ 1,000/- |
| SECTION 272B | Failure to comply with the provisions of Section 139A (i.e., failure to obtain PAN) or failure to quote PAN in documents and use of false PAN deliberately | Assessing Officer | A sum of ₹ 10,000/- |
| SECTION 272BB | Failure to comply with the provisions of Section 203A (failure to obtain TAN including failure to quote the same) including quoting of false TAN | Assessing Officer | A sum of ₹ 10,000/- |
Important Notes
- No penalty can be levied u/s. 221(1), if the assessee proves that the default in making payment of tax was for good and sufficient reasons.
- No order levying penalty can be passed for failure u/ss. 271(1)(b), 271A, 271AA, 271B, 271BA, 271BB, 271C, 271CA, 271D, 271E, 271F, 271FA, 271FAB, 271FB, 271FAB, 271G, 271GA, 271H, 271-I, 272A(1)(c)/(d), 272A(2), 272AA(1), 272B, 272BB(1)/(1A), 272BBB(1)(b), 273(1)(b), 273(2)(b)/(c). if the person or the assessee proves that there was a reasonable cause by virtue of Section 273B.
- No penalty shall be imposed on any person unless he is properly heard or has been provided with reasonable opportunity of being heard by virtue of Section 274(1).
- No order imposing penalty exceeding ₹ 10,000/- can be passed by the Income-tax Officer without previous approval of Joint Commissioner. Further, no order imposing penalty exceeding ₹ 20,000/- can be passed by the ACIT or DCIT without the previous approval of Joint Commissioner by virtue of Section 274(2).
- Penalty proceedings have to be completed before the end of financial year in which the proceedings, in the course of which action for imposition of penalty is initiated, are complete, or within 6 months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later by virtue of Section 275.
- While determining the amount of penalty, the law to be applied would be the law operative on the date when default was committed. In case of late filing of return, the default is said to be committed on the date when the return is to be filed and in case of non-compliance of notice, default is taken to be committed on the day when the date given in the notice expires.
- An application can be made to Commissioner for reducing or waiving any penalty levied under the Income-tax Act, 1961 or for staying or compounding any proceeding for the recovery of any such penalty by virtue of Section 273A(4). In such situations, where the aggregate of such penalties exceed ₹ 1,00,000/-, then the Commissioner can exercise these powers with the previous approval of Chief Commissioner or Director-General as the case may be.
- Explanation 1 to Section 271(1)(c) specifies that assessee shall offer an explanation, and only on failure to offer any explanation or such explanation is found to be false, or assessee is not in a position to substantiate then it will be deemed that such person has concealed the income.
- Explanation 4 to Section 271(1)(c) specifies that the amount of tax sought to be evaded also shall include reduction in the loss figure.
- With effect from A.Y. 2017-18 complete new scheme of Penalty, Section 270A, has been introduced in place of earlier
section 271(1)(c).
Place of Effective Management (PoEM) &
Base Erosion and Profit Shifting (BEPS)
Place of Effective Management (‘PoEM’) has been one of the most deliberated aspects under the Indian Income-tax regime since its introduction vide Finance Act, 2015, especially for Indian transnational groups. Historically, the tax residency of companies was considered to be in India if either it is an Indian company or if its control and management was wholly situated in India. However, introduction of the concept of PoEM under the Income-tax Act, 1961, has broadened the scope of tax residency for companies and sought to align the parameters as stipulated under the model tax conventions and existing tax treaties. Currently, a foreign company shall be treated as a resident in India if it is an Indian company or if its place of effective management in the previous year is in India. The term “Place of Effective Management” has been defined to mean a place where key management and commercial decisions necessary for the conduct of the business of an entity, as a whole, are in substance made.
The Finance Act, 2016 deferred the applicability of PoEM by one year to 1st April, 2017 i.e,. from A.Y. 2017-18 onwards. The Memorandum to the Finance Bill, 2015 had indicated that the guiding principles useful in determination of PoEM will be issued in the course of time. Thereby, the Central Board of Direct Taxes (CBDT), on 23rd December, 2015, issued the draft guidelines in this regard and on 24th January, 2017 issued final guidelines for determination of PoEM. Additionally, CBDT clarified that the PoEM guidelines shall not apply to companies having turnover or gross receipts of INR 50 crore or less in a financial year thereby providing relief to small business corporates. As per the guidelines, a company is said to be engaged in active business outside India if the passive income is not more than 50% of its total income and –
– Less than 50% of its total assets are situated in India; and
– Less than 50% of its total employees are situated/resident in India; and
– Payroll expenses incurred on such employees is less than 50% of its total payroll expenditure
The guidelines also provide the explanation of the terms “income”, “value of assets”, “number of employees” and “payroll” in relation to the above.
Further, passive income has been defined to mean aggregate of
– Income from transactions where both purchase and sale of goods is from/to associated enterprises; and
– Income by way of royalty, dividend, capital gains, interest or rental income.
PoEM of a company having active business outside India shall be presumed to be outside India if majority of the board meetings of the company are held outside India. However, if the Board is not exercising its powers of management and the same are being exercised by the holding company or any other person than PoEM shall be considered to be in India if the holding company is in India or that other person is a resident of India.
However, if active business of a company is not outside India then PoEM shall be determined by identifying the persons who make key management and commercial decisions and determine the place where such decisions are taken. Certain relevant points for determination of PoEM in case of foreign companies not having active business outside India are location of Board Meetings, Head Office, whether conduct represents shareholder activity or management activity, physical board meetings or meetings through VC’s, etc.
The Finance Act, 2016 vide Section 115JH and Chapter XII-BC aimed to provide directional guidance about effect of PoEM determination for impacted companies. Section 115JH provided that conditions may be notified by the Central Government with respect to computation of total income, treatment of unabsorbed depreciation, set-off or carry forward and set off of losses, collection and recovery and special provisions relating to avoidance of tax shall apply with such exceptions, modifications and adaptations as may be specified in that notification for the said previous year. Accordingly, CBDT on 15th June, 2017, issued a draft notification with respect to the exceptions, modifications and adaptations for application of provisions of the Act on a foreign company having PoEM in India. The important exceptions, modifications & adaptations pertain to WDV of the depreciable assets, preparation of financial statements, brought forward losses or unabsorbed depreciation, foreign tax credit etc.. Comments and suggestions of stakeholders and general public have been invited on the draft notification which shall be deemed to have come into effect from 1st April, 2017.
BEPS
The International tax issues, specifically the issue of erosion of sovereign revenue base by MNEs were never as high on the political agenda as they are today. This has placed a stress on the international tax framework, which was designed more than a century ago. Erosion of nation’s tax base by MNEs riding on the tax arbitrage scope permeated by tax treaties and divergent domestic tax laws of various countries, especially tax incentive regimes, have led to formulation of 15 action plans by the OECD to tackle such tax dodging menace (the BEPS Action Plans). The anti-BEPS measures focus on multiple aspects viz., substance, transparency in disclosure of global operations, coherence between domestic tax laws and treaties, centre of economic activity.
The findings of the work performed since 2013 indicate that the global corporate income tax (CIT) revenue losses could be between 4% to 10% of global CIT revenues. The losses can be due to variety of reasons like lack of transparency and co-ordination between tax authorities, aggressive tax planning by some multinational enterprises etc. The BEPS package is developed and agreed because there is a vital need to restore the trust of ordinary people in the fairness of their tax systems, to level the playing field among businesses and to provide Government with more effective tools to ensure the effectiveness of their sovereign tax policies.
The BEPS plan is structured around the following three pillars:
- Introducing coherence in the domestic rules that affect cross-border activities;
- Reinforcing substance requirements in the existing international standards to ensure alignment of taxation with the location of economic activity and value creation; and
- Improving transparency as well as certainty for businesses and Government.
The objective of BEPS is to address the root cause of concerns rather than merely the symptoms. To address the concerns, where no action by some countries would have created negative spillovers on other countries, minimum standards have been agreed in particular. Identifying the need to level the playing field, the Organisation for Economic Co-operation and Development (OECD) and G20 countries have committed for consistent implementation in the areas of preventing treaty shopping, country-by-country reporting and improving dispute resolution.
Implementation of BEPS will lay groundwork of a modern international tax framework under which profits will be taxed where economic activity and value creation follows. Some of the revisions requisite for BEPS implementation may be immediately applicable such as the revisions to the Transfer Pricing Guidelines, while the other required changes can be implemented via tax treaties.
The Organisation for Economic Co-operation and Development (OECD) released final reports on all 15 focus areas in its Action Plan on BEPS which are as follows:
- Action 1 – Address the Tax Challenges of the Digital Economy
- Action 2 – Neutralise the Effects of Hybrid Mismatch Agreements
- Action 3 – Strengthen Controlled Foreign Company (CFC) Rules
- Action 4 – Limit Base Erosion viaInterest Deductions and other Financial Payments.
- Action 5 – Counter Harmful Tax Practices more Effectively, Taking into Account Transparency and Substance
- Action 6 – Prevent Treaty Abuse
- Action 7 – Prevent the Artificial Avoidance of PE Status
- Actions 8-10 – Assure that Transfer Pricing Outcomes are in Line with Value Creation
- Action 11 – Measuring and Monitoring BEPS
- Action 12 – Require Taxpayers to Disclose their Aggressive Tax Planning Arrangements
- Action 13 – Re-examine Transfer Pricing Documentation
- Action 14 – Make Dispute Resolution Mechanisms More Effective
- Action 15 – Develop a Multilateral Instrument
India being a key player within the G20 nations and a part of the inclusive framework of the OECD for the BEPS project has already been incorporating some of the recommendations under the BEPS Action Plans in its domestic tax law. Illustratively, certain recommendations under BEPS Action Plans 1, 4, 7 and 13 find expression in the Indian income tax law through the provisions on Equalization Levy, Significant Economic Presence, Interest Deductibility Limits, CbCR and Master File Reporting. It is expected that the tax treaty interpretations and implications including approach on international tax dispute resolutions besides cross-border transaction disclosures will undergo significant
Presumptive Taxation
Businesses have grown over the period of time due to growth of economy. However at the same time various numbers of business and service providers, irrespective of their area of operations, earning substantial income are outside the tax net. Presumptive income scheme has been introduced to bring such business & service providers within tax net and also because there is lesser compliance cost for such taxpayers and lesser corresponding administrative burden on revenue. From the A.Y. 2011-12 various schemes of presumptive taxation as applicable to small businesses have been consolidated under section 44AD, and section 44AF (applicable to retail trade) has been deleted. Now scheme of presumptive taxation (other than presumptive taxation scheme applicable to non-residents) for small businesses is operated by sections 44AD and 44AE. A new section 44ADA has been introduced which deals with presumptive taxation for professionals.
SECTION 44AD
- Applicability
Any business except plying, hiring or leasing goods carriages referred in section 44AE and whose turnover is less than ₹ 200 lakh (₹ 100 lakh till Previous Year 2015-16) during the previous year. - Class of eligible assessees
Applies to any resident individual, HUF, partnership firm excluding LLPs, provided that no deduction u/ss. 10A, 10AA, 10B, 10BA, 80HH to 80RRB is claimed in the relevant assessment year. Provisions are also not applicable in case of person carrying profession as specified u/s. 44AA(1) or earning income in the nature of commission or brokerage or carrying on any agency business. (Introduced by Finance Act, 2012 w.r.e.f. A.Y. 2011-12). - Presumptive or estimated income
Sum equal to minimum 8% of the total turnover or gross receipt of the assessee shall be deemed to be the profits chargeable to tax. However, in respect of that turnover which is received by account payee cheque or such bank draft or through electronic clearing system, a sum equal to minimum 6% of such total turnover shall be deemed to be the profits and gains chargeable to tax. - Higher or lower income
Assessee at his option can claim such higher or lower amount earned by him. If assessee claims to have earned an income lower than specified amount, he has to fulfil the conditions of maintenance of books of account and getting the same audited. - Restriction on availing the presumptive taxation scheme
Where an assessee declares presumptive income u/s. 44AD but within next five succeeding Assessment years declares profit under normal scheme by maintaining books u/s. 44AA, then he shall not be eligible to claim benefit of 44AD for further next five Assessment years starting from the year in which he claimed income under normal scheme.
E.g. If in A.Y. 2017-18 and 2018-19, the assessee declared income u/s. 44AD. If in A.Y. 2019-20 he opts out of this presumptive taxation scheme (due to either NP ratio being lower than 8% or turnover higher than 2 crore) and files return by maintaining books of account u/s. 44AA, then he shall not be eligible to avail benefit for 44AD till A.Y. 2024-25, i.e. for 5 A.Y.s subsequent to A.Y. 2019-20 and shall be liable to audit u/s. 44AB of the Act. Thus an assessee has to spend atleast six Assessment years by maintaining books of account before he gets back an option to avail Section 44AD benefit.
- Maintenance of books of account and getting them audited
Where an assessee claims that he has earned income lower than specified percentage and such income is more than maximum amount not chargeable to tax, or the turnover of such assessee is more than 2 crore, then it is mandatory for him to maintain books of account and other documents as specified u/s. 44AA and also get them audited from the accountant and furnish report as required u/s. 44AB. Further, if an assessee is restricted from availing benefit of Section 44AD due to above provisions, he shall be liable to get the books audited even if he has a turnover of less than 2 crore and a profit ratio of more than 8% or 6% as the case may be.
E.g: If an assessee declares income u/s. 44AD for A.Y. 2017-18 and 2018-19 but not u/s. 44AD for AY 2019-20, then he shall be liable to get the books of accounts audited for the assessment years 2019-20 to 2024-25.
- Deduction from presumptive income
No deduction is allowable under provisions of sections 30 to 38. Further written down value of any depreciable asset of such business shall be calculated as if depreciation has been actually allowed. - No deduction for salary and interest to be paid to partners
Up to A.Y. 2016-17, salary and interest paid to the partners, where eligible assessee is a firm, was allowable as a further deduction after computing profits and gains chargeable to tax at the rate of 8%. However from A.Y. 2017-18, no such deduction shall be further allowed once profits are computed as per section 44AD at the rate of 8% or 6% as the case may be. Thus, for eligilble assessees being firms who wish to avail benefit of presumptive taxation under this section, the profits chargeable to tax after paying salary and interest to partners, shall not be less than the prescribed percentage. - Advance tax
No specific provision exempting assessees from payment of advance tax. [Unlike specific provision exempting such assessees from advance tax payment till A.Y. 2016-17]. However only the last installment date of 15th March is applicable for such assessees.
SECTION 44ADA
- Applicable
Assessee being resident and an individual, Hindu Undivided Family or partnership firm but not a Limited Liability partnership firm, engaged in profession mentioned in Section 44AA(1) and whose gross receipts/turnover does not exceed ₹ 50 lakh during the previous year. - Presumptive or estimated income
Sum equal to minimum 50% of the total turnover or gross receipts of the assessee. - Higher or lower income
Assessee at his option can claim such higher/lower amount earned by him. Assessee can claim to have earned income lower than specified amount, subject to fulfilment of conditions as to maintenance of books of account and getting the same audited. - Maintenance of books of account
Where an assessee claims that he has earned income lower than specified percentage and such income is more than maximum amount not chargeable to tax, or the turnover of such assessee is more than ₹ 50 lakh, then it is mandatory for him to maintain books of account and other documents as specified u/s. 44AA and also get them audited from the accountant and furnish report as required u/s. 44AB. - Advance tax
Advance tax payment is applicable for such assessees, however only the last installment date of 15th March is applicable for such assessees, where they are required to pay the whole amount of advance tax by that date. - No restriction on availing the presumptive taxation scheme
Like section 44AD, there is no restriction on availing the presumptive taxation scheme if an assessee opts out of the 44AD scheme in one year. Such assessee can still avail the benefit of the scheme u/s. 44ADA in succeeding year if he wishes to, subject to turnover limits available for 44ADA. - Deduction from presumptive income
No deduction is allowable under provisions of sections 30 to 38. Further written down value of any depreciable asset of such business shall be calculated as if depreciation has been actually allowed. - No deduction for salary and interest to be paid to partners
SECTION 44AE
- Applicable
Assessee engaged in business of plying, hiring or leasing goods carriages and who owns not more than 10 goods carriages anytime during the previous year. However unlike section 44AD, there is no condition of maximum turnover of the assessee. Assessee shall be deemed to be owner of goods vehicles taken on hire purchase or on installment basis, whether whole or part of the amount is payable, when such vehicles are in the possession of such assessee. - Applicable to class of taxpayer
All assessees including LLP and company. - Presumptive or estimated income for AY 2019-20
| Type of Vehicle | Deemed Income |
| For each of heavy goods vehicle | ₹ 1,000 for every ton of gross vehicle weight or unladen weight (₹ 7,500 up to A.Y. 2018-19) per month or part of month |
| For Each of Vehicle Other than Heavy Vehicle | ₹ 7,500 (₹ 7,500 up to A.Y. 2018-19) per month or part of month |
| OR | |
| Profit higher than aggregate of above as may be declared by the assessee | |
Terms ‘goods carriage’, ‘gross vehicle weight’ and ‘unladen weight ‘shall have meaning as per Motor Vehicles Act, 1988. The term ‘heavy goods vehicle’ means goods carriage whose gross vehicle weight exceeds 12,000 kgs.
- Higher or lower income
Assessee at his option can claim such higher/lower amount earned by him. Assessee can claim to have earned income lower than specified amount, subject to fulfilment of conditions as to maintenance of books of account, and getting them audited u/s. 44AB of the Act. - Maintenance of books of account
Assessee offering income on presumptive basis is not required to maintain books of account & other documents as prescribed u/s. 44AA and audit u/s. 44AB. However in case assessee claims that he has earned income lower than specified amount, sections 44AE(7) and 44AA(2)(iii), mandates him to maintain books of account and other documents as specified u/s. 44AA, get them audited from the accountant and furnish report as required u/s. 44AB. - Deduction from presumptive income
No deduction is allowable under provisions of sections 30 to 38. However in case of partnership firm remuneration to partner and interest on partner’s capital is allowable. For the computation of allowable partner’s remuneration, book profits would be deemed to be income less interest to partners subject to limits specified in Section 40(b). Further written down value of any depreciable asset of such business shall be calculated as if depreciation has been actually allowed. - Advance tax
No specific provision exempting assessees from payment of advance tax. - No restriction on availing the presumptive taxation scheme
Like section 44AD, there is no restriction on availing the presumptive taxation scheme if an assessee opts out of the 44AD scheme in one year. Such assessee can still avail the benefit of the scheme u/s. 44AE in succeeding year if he wishes to, subject to no. of goods carriages are within limits available for 44AE.
SECTION 211
- Applicability and payment of Advance Tax
Up to A.Y. 2016-17, all assessees (except companies) were required to pay advance in three installments viz. 15th September (30% of tax), 15th December (60% of tax) and 15th March (100% of tax). Now as per amended s. 211, from A.Y. 2017-18 all the assessees except assessees filing return u/s. 44AD and u/s. 44ADA, are required to pay advance tax in four installments viz. 15th June (15% of tax), 15th September (45% of tax), 15th December (75% of tax) and 15th March (100% of tax). For assessees availing benefit of section 44AD and 44ADA, only the due date of last installment of 15th March is mandatory.
Profits and Gains from Business or Profession
BUSINESS
As per section 2(13) of the Act, “Business” includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture.
PROFESSION
As per section 2(36) of the Act, “Profession” includes vocation.
PROFIT AND GAINS OF BUSINESS OR PROFESSION
Sections 28 to 44DB deals with computation of income under the head “Profits and Gains of Business or Profession”.
The sections may be classified into:
- Chargeability – Section 28
- Computation – Section 29
- Specific deductions – Sections 30 to 36, section 38
- General deduction not specifically covered – Section 37
- Amount not deductible – Section 40
- Expenses or payment not deductible in certain circumstances – Section 40A
- Deductions only on actual payment – Section 43B
- Special cases of profits chargeable to tax – Section 41
- Special provisions for computing income/cost of acquisition/deduction – Sections 42, 43A, 43AA, 43C, 43CA, 43CB, 43D, 44A, 44C, 44DB
- Special provision for computing income by way of royalty or fees for technical services connected with permanent establishment in case of non-resident – Section 44DA
- Insurance business – Section 44
- Presumptive taxation – Sections 44AD, 44ADA, 44AE, 44B, 44BB, 44BBA, 44BBB
- Definition – Section 43
- Maintenance of account – Section 44AA
- Audit of accounts – Section 44AB
BASIS OF CHARGE [SECTION 28]
Section 28 of the Act provides that the following income shall be chargeable under the head “Profit and Gains of Business of Profession”:
- the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year;
- Compensation or other payment due or received for:
(i) modification in, or termination of, management of affairs of Indian company/office for managing the affairs in India of other company/agency, (ii) nationalisation of business or property; and (iii) modification in, or termination of, terms and conditions of any contract relating to business;
- income derived by a trade, professional or similar association from specific services performed for its members;
- profits on sale of Import Entitlement licence granted to exporter;
- cash assistance received or receivable by exporter;
- any duty of customs or excise re-paid or re-payable as drawback to exporter;
- any profit on the transfer of the Duty Entitlement Pass Book Scheme;
- any profit on the transfer of the Duty Free Replenishment Certificate;
- the value of any benefit or perquisite arising from business or the exercise of a profession;
- any interest, salary, bonus, commission or remuneration due to, or received by, a partner of a firm from such firm (Subject to proviso);
- any sum, whether received or receivable under an agreement for — (i) not carrying out any activity in relation to any business or profession; or (ii) not sharing any know-how, patent, copyright, trade-mark, licence, franchise or any other business or profession or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision for services (Subject to proviso);
- any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy;
- w.e.f. 1-4-2019, fair market value of the inventory (which has been converted into capital asset) as on the date of conversion. The method for determining the fair market value is to be prescribed;
- any sum, whether received or receivable, on account of any capital asset (other than land or goodwill or financial instrument) being demolished, destroyed, discarded or transferred, if the whole of the expenditure on such
capital asset has been allowed as a deduction under Section 35AD.
It is explained that where speculative transactions which constitute a business are carried out by assessee, the business shall be deemed to be distinct and separate from any other business.
COMPUTATION OF INCOME FROM PROFIT AND GAIN OF BUSINESS OR PROFESSION [SECTION 29]
Income shall be computed in accordance with the provisions contained in sections 30 to 43D.
SECTIONS 30 to 44DB
| Purpose | Section | Particulars |
| Specific deduction | 30 | Rent, rates, taxes, repairs and insurance for buildings |
| 31 | Repairs and insurance of machinery, plant and furniture | |
| 32 | Depreciation | |
| 32AD | Investment in new plant and machinery in notified backward areas in certain States | |
| 33AB | Deposit in tea development, coffee development and rubber development accounts | |
| 33ABA | Deposit in site restoration fund | |
| 35 | Expenditure on scientific research | |
| 35ABA | Expenditure for obtaining right to use spectrum for telecommunication services | |
| 35ABB | Expenditure on obtaining licence to operate telecommunication services | |
| 35AD | Deduction in respect of expenditure on specified business | |
| 35CCA | Expenditure by way of payment to associations and institutions for carrying out rural development programmes | |
| 35CCC | Expenditure on agricultural extension project | |
| 35CCD | Expenditure on skill development project | |
| 35D | Amortisation of certain preliminary expenses | |
| 35DD | Amortisation of expenditure in case of amalgamation or demerger | |
| 35DDA | Amortisation of expenditure incurred under voluntary retirement scheme | |
| 35E | Deduction for expenditure on certain minerals | |
| 36 | Other deductions | |
| 38 | Deductions in case of building, etc. partly used for business | |
| General Deduction | 37 | General – Not covered in specific deductions, not being in the nature of capital expenditure or personal expenses, laid out or expended wholly and exclusively for the purpose of business or profession |
| Amount not deductible | 40 | Amounts expressly disallowed under the Act |
| Expenses not deductible in certain circumstances | 40A | Expenses or payments not deductible in certain circumstances |
| Deduction on actual payment | 43B | Deduction of certain expenditure on actual payment basis |
| Special cases of profits chargeable to tax | 41 | Profits chargeable to tax (allowance or deduction claimed in relation to which benefit derived subsequently by way of remission or cessation or recovery) |
| Special provisions for computing income/cost of acquisition/deduction | 42 | Special provision for deductions in case of business of prospecting etc. for mineral oil |
| 43A | Special provisions consequential to changes in rate of exchange of currency | |
| 43AA | Taxation of foreign exchange fluctuation w.e.f. 1-4-2017 | |
| 43C | Special provision for computation of cost of acquisition of certain assets | |
| 43CA | Special provision for full value of consideration for transfer of assets other than capital assets in certain cases | |
| 43D | Special provision for income of public financial institutions, public companies, etc. | |
| 44A | Special provision for deduction in the case of trade, professional or similar association | |
| 44C | Deduction of head office expenditure in the case of non-residents | |
| 43CB | Computation of income from construction and service contracts w.e.f. 1-4-2017 | |
| 44DB | Special provision for computing deductions in the case of business reorganization of co-operative banks | |
| Special provision for computing income | 44DA | Special provision for computing income by way of royalty or fees for technical services connected with permanent establishment in case of non-resident |
| Specific business | 44 | Insurance business |
| Presumptive taxation | 44AD | Special provision for computing profits and gains of business on presumptive basis |
| 44ADA | Special provision for computing profits and gains of profession on presumptive basis | |
| 44AE | Special provision for computing profits and gains of business on plying, hiring or leasing of goods carriages | |
| 44B | Special provision for computing profits and gains of shipping business in the case of non-residents | |
| 44BB | Special provision for computing profits and gains in connection with the business of exploration, etc., of mineral oils | |
| 44BBA | Special provision for computing profits and gains of the business of operation of aircraft in the case of non-residents | |
| 44BBB | Special provision for computing profits and gains of foreign companies engaged in the business of civil construction, etc., in certain turnkey power projects | |
| Definition | 43 | Definition of certain terms relevant to income from profits and gains of business or profession |
| Maintenance of accounts | 44AA | Maintenance of accounts by certain persons carrying on profession or business |
| Audit of accounts | 44AB | Audit of accounts of certain persons carrying on profession or business |
Reports under The Income-Tax Act, 1961
(To be furnished along with the Return of Income)
| In Form No. | Section | Rule | For Whom |
| 3AC | 33AB(2) | 5AC | Assessee growing and manufacturing tea or coffee or rubber Claiming deduction in respect of special deposits made u/s. 33AB(1) |
| 3AD | 33ABA(2) | 5AD | Assessee claiming deduction in respect of deposits under Site Restoration Fund account/scheme |
| 3AE | 35D(4) | 6AB | Assessee other than Cos. or Co-op. societies claiming amortization of certain preliminary expenses |
| 3AE | 35E(6) | -do- | Assessee other than Cos. or Co-op. societies claiming deduction for expenditure on prospecting, etc. of certain minerals |
| 3CA, 3CB, 3CD | 44AB | 6G | Assessee carrying on business/profession whose Turnover/Gross Receipt exceeds ₹ 1 crore [₹ 25 lakhs for profession] or profit and gains are deemed to be u/ss. 44D/44AE/44AF and assessee has claimed lower profits than specified in those sections |
| 3CE | 44DA | 6GA | Special provision for computing income by way of Royalties, etc. in case of Non-residents |
| 3CEA | 50B(3) | 6H | In case of Slum sale, for computation of Net Worth of Undertaking/Division |
| 3CEB | 92E | 10E | Accountant’s Report relating to International Transactions or Specified Domestic Transactions and Particulars thereof |
| 3CEJ | 9A | 10V(7) | Relating to arm’s length price in respect of the remuneration paid by an eligible investment fund to the fund manager |
| 3CLA | 35(2AB) | 6 | Audit report relating to certification of expenditure incurred for inhouse scientific research and development facility |
| 3CT | 9(1)(i) | 11UC | Income attributable to assets located in India under section 9 of the Income-tax Act, 1961 |
| 6B | 142(2A) | 14A | Special audit at the instance of the Assessing Officers |
| 10B | 12A(b) | 17B | Audit Report for Public Charitable or religious Trusts or Institutions whose income exceeds ₹ 180000/- before exemption |
| 10BB | 10(23C) | 16CC | Audit Report for Fund, Trust, Institutions, University, Educational institutions, Hospitals or medical institutions |
| 10BC | 288(2) | 17CA(12) | Audit Report for Electoral Trusts |
| 10CCB | 80-I(7)/80-IA/ 80-IB/80-IC |
18BBB | Assessee having an industrial undertaking or business of hotel or an enterprise for infrastructure Facility, Telecommunication services, Industrial Park or power, etc. and special provision in respect of certain undertakings or enterprises in certain special category status |
| 10CCBA/ 10CCBB | 80-IB(7A)& (7B) | 18DB/DC | Assessee claiming deduction in respect of business of owning and operating a multiplex theatre or a convention centre |
| 10CCBBA | 80-ID(3)(iv) | 18DE | Assessee claiming deduction in respect of profit & gains from business of hotels & convention centre in specified areas |
| 10CCBC | 80-IB(11B) | 18DD | Assessee having an undertaking deriving profits from business of operating and maintaining a hospital in a rural areas |
| 10CCBD | 80-IB(11C) | 18DDA | Assessee claiming deduction from profits & gains from operating and maintaining a hospital located anywhere in India |
| 10CCC | 80-IA(6) | 18BBE | Assessee claiming deduction in respect of profits of housing or other activity which is integral part of Highway Project |
| 10CCF | 80LA | 19AE | Scheduled bank which owns an offshore banking unit in Special Economic Zone |
| 10DA | 80JJAA(2) | 19AB | Assessee claiming deduction in respect employment of new workman |
| 26A/27BA | 201/206 | 31ACB/37J | For residents who has been failed to deduct/collect tax in accordance with provisions of chapter XVIIB/XVIIBB |
| 29B | 115JB | 40B | Company assessees to which the provisions of section 115JB applies |
| 29C | 201/206C | 40BA | For LLP (A.Y. 2012-13) and persons other than a company (from A.Y. 2013-14) to which provisions of S. 115JC applies |
| 56F | 10A(5) | 16D | Assessee claiming deduction in respect of newly established undertakings in Free Trade Zones, EPZ, SEZ, STP etc. |
| 56G | 10B(5) | 16F | Assessee claiming deduction in respect of newly established EOUs |
| 56H | 10BA(5) | 16F | Assessee claiming deduction in respect of profits from exports of eligible articles or things, [handmade articles or things made of wood as the main raw material] |
| 62 | 72(A)(2)(iii) | 9C | Assessee being amalgamated company-regarding compliance with prescribed conditions |
| 66 | 115VW(ii) | 11T | Companies engaged in the business of operating qualifying ships and which have opted for Tonnage Tax Scheme |
Reliefs under Income-tax Act, 1961
| INCOME TAX | RELIEFS |
| SECTION 87A | REBATE FROM INCOME TAX PAYABLE WHEN THE NET TOTAL INCOME OF THE RESIDENT INDIVIDUAL IS NOT EXCEEDING ₹ 3,50,000/- |
| Persons Covered | The rebate under this section is allowed only to the resident individual whose net total income is not exceeding ₹ 3,50,000/- |
| Rebate | Rebate under this section is available for amount which is lower of:
|
| SECTION 89 | RELIEF FROM INCOME TAX PAYABLE WHEN SALARY/FAMILY PENSION/GRATUITY PAID IN ARREARS/ADVANCE |
| Persons Covered | Any assessee in receipt of any kind of salary or profits in lieu of salary or family pension or gratuity, which is received in arrears or in advance |
| Relevant Conditions |
|
| Relevant Percentage/Amount | Method of computation of relief u/s. 89 [Rule 21A]
Find out two rates of tax. First is the rate of tax applicable to the extra amount (arrears or advance) in the year of receipt/getting taxed. Second is finding out the rate of tax on extra amount for the years to which they relate. Difference between the two is extent of relief. The mode of computation of relief for different types of receipts is given below:
Where compensation is received by assessee from his employer or former employer at or in connection with the termination of his employment after continuous service of not less than three years and the unexpired portion of his service is also not less than three years then, the relief is calculated in the same manner as if gratuity was paid to employee in respect of service rendered for a period of 15 years or more [same as (B)(a) above]. Relief u/s. 89(1) is admissible even/also in respect of compensation received under Voluntary Retirement Scheme/Voluntary Separation Scheme, to the extent the same is taxable. An employee of public sector company receiving any amount on his voluntary retirement or termination of service or voluntary separation in accordance with the specified scheme, will either be entitled to exemption up to ₹ 5,00,000 under Section 10(10C) or relief under Section 89 of spreading the taxability of such income over several years, but not both. These two sections being distinct in their scope, the assessee can claim the benefit u/s. 89 in respect of the amount in excess of the amount exempt under Section 10(10C).
In case of commutation of pension [in excess of exempt u/s. 10(10A)], the relief is calculated in the same manner as if gratuity was paid to employee in respect of service rendered for a period of 15 years or more [same as (B)(a) above]. |
Rates of Income Tax for
Assessment Year 2018-19
NORMAL TAX RATES APPLICABLE TO AN INDIVIDUAL
- Normal tax rates applicable to a resident individual below the age of 60 years i.e. born on or after 1-4-1958
| Net income range | Income-tax rates | Education Cess | Secondary and Higher Education Cess |
| Up to ₹ 2,50,000 | Nil | Nil | Nil |
| ₹ 2,50,000 – ₹ 5,00,000 | 5% of (total income minus ₹ 2,50,000) | 2% of income-tax | 1% of income-tax |
| ₹ 5,00,000 – ₹ 10,00,000 | ₹ 12,500 + 20% of (total income minus ₹ 5,00,000) |
2% of income-tax | 1% of income-tax |
| Above ₹ 10,00,000 | ₹ 1,12,500 + 30% of (total income minus ₹10,00,000) | 2% of income-tax | 1% of income-tax |
- Normal tax rates applicable to a resident individual of the age of 60 years or above at any time during the year but below the age of 80 years i.e. born during 1-4-1938 to 31-3-1958
| Net income range | Income-tax rates | Education Cess | Secondary and Higher Education Cess |
| Up to ₹ 3,00,000 | Nil | Nil | Nil |
| ₹ 3,00,000 – ₹ 5,00,000 | 5% of (total income minus ₹ 3,00,000) | 2% of income-tax | 1% of income-tax |
| ₹ 5,00,000 – ₹ 10,00,000 | ₹ 10,000 + 20% of (total income minus ₹ 5,00,000) |
2% of income-tax | 1% of income-tax |
| Above ₹ 10,00,000 | ₹ 1,10,000 + 30% of (total income minus ₹10,00,000) | 2% of income-tax | 1% of income-tax |
- Normal tax rates applicable to a resident individual of the age of 80 years or above at any time during the year i.e. born before 1-4-1937
| Net income range | Income-tax rates | Education Cess | Secondary and Higher Education Cess |
| Up to ₹ 5,00,000 | Nil | Nil | Nil |
| ₹ 5,00,000 – ₹ 10,00,000 | 20% of (total income minus ₹ 5,00,000) | 2% of income-tax | 1% of income-tax |
| Above ₹ 10,00,000 | ₹ 1,00,000 + 30% of (total income minus ₹10,00,000) | 2% of income-tax | 1% of income-tax |
- Non-resident individual irrespective of age
| Net income range | Income-tax rates | Education Cess | Secondary and Higher Education Cess |
| Up to ₹ 2,50,000 | Nil | Nil | Nil |
| ₹ 2,50,000 – ₹ 5,00,000 | 5% of (total income minus ₹ 2,00,000) [*] | 2% of income-tax | 1% of income-tax |
| ₹ 5,00,000 – ₹ 10,00,000 | ₹ 12,500 + 20% of (total income minus ₹ 5,00,000) |
2% of income-tax | 1% of income-tax |
| Above ₹ 10,00,000 | ₹ 1,12,500 + 30% of (total income minus ₹10,00,000) | 2% of income-tax | 1% of income-tax |
Following points should also consider regarding above one to four point:-
- Surcharge is levied @ 10% on the amount of income-tax if net income exceeds ₹ 50 lakh but doesn’t exceed ₹ 1 crore and @ 15% on the amount of income tax if net income exceeds ₹ 1 crore. In a case where surcharge is levied, EC of 2% and SHEC of 1% will be levied on the amount of income tax plus surcharge.
- However, marginal relief is available from surcharge in such a manner that in the case where net income exceeds ₹ 50 lakh but doesn’t exceed ₹ 1 crore, the amount payable as income tax and surcharge shall not exceed the total amount payable as income tax on total income of ₹ 50 lakh by more than the amount of income that exceeds ₹ 50 lakh.
- Further, in a case where net income exceeds ₹ 1 crore, marginal relief shall be available from surcharge in such a manner that the amount payable as income tax and surcharge shall not exceed the total amount payable as income-tax on total income of ₹ 1 crore by more than the amount of income that exceeds ₹ 1 crore.
- In the case of a non-corporate taxpayer to whom the provisions of Alternate Minimum Tax (AMT) apply, tax payable cannot be less than 18.5% (+SC+EC+SHEC) of “adjusted total income” computed as per section 115JC.
- Rebate under section 87A is available only to a resident individual (whose net income does not exceed ₹ 3,50,000), thus, no rebate is available to a non-resident individual.
- Normal tax rate applicable to Hindu Undivided Family (HUF)
| Net income range | Income-tax rates | Education Cess | Secondary and Higher Education Cess |
| Up to ₹ 2,50,000 | Nil | Nil | Nil |
| ₹ 2,50,000 – ₹ 5,00,000 | 5% of (total income minus ₹ 2,50,000) | 2% of income-tax | 1% of income-tax |
| ₹ 5,00,000 – ₹ 10,00,000 | ₹ 12,500 + 20% of (total income minus ₹ 5,00,000) |
2% of income-tax | 1% of income-tax |
| Above ₹ 10,00,000 | ₹ 1,12,500 + 30% of (total income minus ₹10,00,000) | 2% of income-tax | 1% of income-tax |
- Surcharge: Surcharge is levied @ 10% on the amount of income-tax if net income exceeds ₹ 50 lakh but doesn’t exceed
₹ 1 crore and @ 15% on the amount of income tax if net income exceeds ₹ 1 crore. In a case where surcharge is levied, EC of 2% and SHEC of 1% will be levied on the amount of income tax plus surcharge. However, marginal relief is available. - In the case of a non-corporate taxpayer to whom the provisions of Alternate Minimum Tax (AMT) apply, tax payable cannot be less than 18.5% (+SC+EC+SHEC) of “adjusted total income” as per section 115JC.
- Normal tax rates applicable to every AOP/BOI/Artificial juridical person
| Net income range | Income-tax rates | Education Cess | Secondary and Higher Education Cess |
| Up to ₹ 2,50,000 | Nil | Nil | Nil |
| ₹ 2,50,000 – ₹ 5,00,000 | 5% of (total income minus ₹ 2,50,000) | 2% of income- tax | 1% of income-tax |
| ₹ 5,00,000 – ₹ 10,00,000 | ₹ 12,500 + 20% of (total income minus ₹ 5,00,000) |
2% of income-tax | 1% of income-tax |
| Above ₹ 10,00,000 | ₹ 1,12,500 + 30% of (total income minus ₹10,00,000) | 2% of income-tax | 1% of income-tax |
- Surcharge: Surcharge is levied @ 10% on the amount of income-tax if net income exceeds ₹ 50 lakh but doesn’t exceed
₹ 1 crore and @ 15% on the amount of income tax if net income exceeds ₹ 1 crore. In a case where surcharge is levied, EC of 2% and SHEC of 1% will be levied on the amount of income tax plus surcharge. However, marginal relief is available. - In the case of non-corporate taxpayers to whom the provisions of Alternate Minimum Tax (AMT) apply, tax payable cannot be less than 18.5% (+SC+EC+SHEC) of “adjusted total income” computed as per section 115JC.
- Normal tax rates applicable to a firm
- A firm is taxed at a flat rate of 30%. Apart from tax @ 30%, Education Cess is levied @ 2% of income-tax and Secondary and higher Education Cess is levied @ 1% of income-tax.
- Surcharge is levied @ 12% on the amount of income-tax where net income exceeds ₹ 1 crore. In a case where surcharge is levied, EC of 2% and SHEC of 1% will be levied on the amount of income-tax plus surcharge. However, marginal relief is available.
- In the case of non-corporate taxpayers to whom the provisions of Alternate Minimum Tax (AMT) apply, tax payable cannot be less than 18.5% (+SC+EC+SHEC) of “adjusted total income” computed as per section 115JC. For provisions relating to AMT refer tutorial on “MAT/AMT” in tutorial section.
- Normal Tax rates applicable to a domestic company
- A domestic company is taxed at a flat rate of 30%. However, tax rate is 25% where turnover or the gross receipt of the company in the previous year 2015-16 doesn’t exceed ₹ 50 crore. Apart from tax @ 30% or 25%, as the case may be, Education Cess is levied @ 2% of income-tax and Secondary and Higher Education Cess is levied @ 1% of income-tax.
- In addition to tax at above rate, surcharge is levied @ 7% on the amount of income-tax if net income exceeds ₹ 1 crore but does not exceed ₹ 10 crore and @ 12% on the amount of income-tax if net income exceeds ₹ 10 crore. In a case where surcharge is levied, EC of 2% and SHEC of 1% will be levied on the amount of income-tax plus surcharge. However, marginal relief is available.
- In the case of a corporate taxpayer to whom the provisions of Minimum Alternate Tax (MAT) apply, tax payable cannot be less than 18.5% (+SC+EC+SHEC) of “Book profit” computed as per section 115JB. However, MAT is levied at the rate of 9% (plus surcharge and cess as applicable) in case of a company, being a unit of an International Financial Services Centre and deriving its income solely in convertible foreign exchange. For provisions relating to MAT refer tutorial on “MAT/AMT” in tutorial section.
- Normal tax rates applicable to a foreign company
- A foreign company is taxed at a flat rate of 40%. Apart from tax @ 40%, Education Cess is levied @ 2% of income-tax and Secondary and higher Education Cess is levied @ 1% of income-tax.
- In addition to tax at above rate, surcharge is levied @ 2% on the amount of income-tax if net income exceeds ₹ 1 crore but does not exceed ₹ 10 crore and @ 5% on the amount of income-tax if net income exceeds ₹ 10 crore. In a case where surcharge is levied, EC of 2% and SHEC of 1% will be levied on the amount of income-tax plus surcharge. However, marginal relief is available
- In case of a foreign company whose net income exceeds ₹ 10 crore, marginal relief is available from surcharge in such a manner that the amount payable as income-tax and surcharge shall not exceed the total amount payable as income-tax and surcharge on total income of ₹ 10 crore by more than the amount of income that exceeds ₹ 10 crore.
- In the case of a corporate taxpayer to whom the provisions of Minimum Alternate Tax (MAT) apply, tax payable cannot be less than 18.5% (+SC+EC+SHEC) of “Book profit” as per section 115JB. However, as per Explanation 4 to section 115JB as amended by Finance Act, 2016 with retrospective effect from 1-4-2001, it is clarified that the MAT provisions shall not be applicable and shall be deemed never to have been applicable to an assessee, being a foreign company, if— (i) the assessee is a resident of a country or a specified territory with which India has an agreement referred to in sub-section (1) of
section 90 or the Central Government has adopted any agreement under sub-section (1) of section 90A and the assessee does not have a permanent establishment in India in accordance with the provisions of such agreement; or [As amended by Finance Act, 2016] (ii) the assessee is a resident of a country with which India does not have an agreement of the nature referred to in clause (i) and the assessee is not required to seek registration under any law for the time being in force relating to companies.
- Normal tax rates applicable to a Co-operative societies
| Taxable income | Tax Rate |
| Up to ₹ 10,000 | 10% |
| ₹ 10,000 to ₹ 20,000 | 20% |
| Above ₹ 20,000 | 30% |
- Apart from tax at above rate, Education Cess is levied @ 2% of income-tax and Secondary and Higher Education Cess is levied @ 1% of income-tax.
- Surcharge is levied @ 12% on the amount of income-tax where net income exceeds ₹ 1 crore. In a case where surcharge is levied, EC of 2% and SHEC of 1% will be levied on the amount of income-tax plus surcharge. However, marginal relief is available.
- In the case of a non-corporate taxpayer to whom the provisions of Alternate Minimum Tax (AMT) apply, tax payable cannot be less than 18.5% (+SC+EC+SHEC) of “adjusted total income” computed as per section 115JC. For provisions relating to AMT refer tutorial on “MAT/AMT” in tutorial section.
Normal tax rates applicable to local authorities
- A local authority is taxed at a flat rate of 30%. Apart from tax @ 30%, Education Cess is levied @ 2% of income-tax and Secondary and Higher Education Cess is levied @ 1% of income-tax.
- Surcharge is levied @ 12% on the amount of income-tax where net income exceeds ₹ 1 crore. In a case where surcharge is levied, EC of 2% and SHEC of 1% will be levied on the amount of income-tax plus surcharge. However, marginal relief is available.
- In the case of a non-corporate taxpayer to whom the provisions of Alternate Minimum Tax (AMT) apply, tax payable cannot be less than 18.5% (+SC+EC+SHEC) of “adjusted total income” computed as per section 115JC.
Residential Status under Income-Tax Act, 1961
RESIDENTIAL STATUS
Tax implication for an assessee depends on his residential status as per Indian Income-tax Act, 1961. In the case of Indian citizen, whether an income accrued to such a person outside India, is taxable in India depends upon the residential status of the person in India. Similarly, whether an income earned by a foreign national in India (or outside India) is taxable in India depends on the residential status of the individual, rather than on his citizenship. Therefore, determining correctly the residential status of a person is very significant in order to find out a person’s tax liability.
Tests of Residence under the Act
NON-RESIDENT STATUS UNDER THE INCOME TAX/ WEALTH TAX ACTS
The term non-resident is negatively defined under section 2(30) of the Income-tax Act. An individual who is not a resident under the Income-tax Act is a non-resident (generally, termed NRI). For the purpose of section 92, 93 and 168, even not ordinarily resident is also considered as NRI.
Test of Residency for Individual
The status of a person as a resident or non-resident depends on his period of stay in India. The period of stay is counted in number of days for each financial year beginning from 1st April to 31st March (known as previous year under the Income-tax Act). The definition is explained in simple terms as under.
If an individual who satisfies any one of the understated conditions of section 6 of the Income-tax Act, then he becomes a Resident.
| Condition | Status | |
| 1. | He is in India for 182 days or more during the relevant previous year |
|
| 2. | He is in India for 60 days or more during the previous year and he is in India for 365 days or more during the 4 years prior to the previous year |
|
The above provisions are applicable to all individuals irrespective of their nationality.
However, as a special concession for Indian citizens and Person of Indian Origin, the period of 60 days referred to in condition 2 above, is extended to 182 days in two cases:
(i) where an Indian citizen leaves India in any year as a member of crew of an Indian ship or for the purpose of employment outside India; and (ii) where an Indian citizen or a Person of Indian Origin, who is outside India, comes on a visit to India.
Further for an Indian citizen, being a member of a crew of a foreign bound ship leaving India, the period beginning from the date of joining the ship till the date of sign off from the ship, as entered into the continuous discharge certificate, shall not be included while calculating period of stay in India.
If an Individual is not satisfying any of the above conditions to become resident, then he will be non-resident.
RESIDENT BUT NOT ORDINARILY RESIDENT (RNOR)
An Individual, who is resident in a given year and who satisfies one of the following conditions, is given a special status of RESIDENT BUT NOT ORDINARILY RESIDENT (RNOR) else he will be Resident and Ordinarily Resident in India.
| Condition | Status | |
| 1. | He is not a resident, as per the above provisions, for at least 9 out of 10 previous years prior to previous year under consideration |
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| 2. | His stay in India during the 7 previous years prior to the previous year under consideration should not be 730 days or more |
|
For HUF, the above test is to be applied on manager.
Test of Residency for Others
HUF, Firm and AOP is always considered as resident, except where during the year the control and management of its affairs is situated wholly outside India.
Company is resident if (i) it is an Indian Company or (ii) its place of effective management in that year is in India.
Place of Effective Management (POEM) is the country where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are in substance made.
Guiding Principles for POEM
- In case of a company engaged in active business outside India, POEM presumed to be outside India if majority of the meetings of the Board of Directors are held outside India. However, the powers of management are effectively exercised by any person resident in India then POEM shall be considered to be in India.
- The determine POEM in the case of other company (i.e., the company other than those engaged in active business outside India) is two stage process. First, identify/ascertain the person(s) who actually makes the key management and commercial decisions for conduct of the company’s business as a whole and second determine the place where these decisions are in fact being made.
CBDT through press release dated 24th January 2017 has clarified that the intention is to target shell companies and companies which are created for retaining income outside India although real control and management of affairs is located in India. Intention is not to cover foreign companies or to tax their global income merely on the ground of presence of PE or business connection in India.
Some of the other relevant points
- Residential status is always determined for the previous year (period of 12 months from 1st April to 31st March)
- If a person is resident in India in a previous year in respect of any source of income, he shall be deemed to be resident in India in the previous year relevant to the Assessment Year in respect of each of his other sources of Income [Section 6(5)].
- To calculate the number of days stay in India, both the day of Arrival into India and the day of departure from India are counted as the days of stay in India.
- Dates stamped on Passport are normally considered as proof of dates of departure from and arrival in India.
- Presence in territorial waters in India would also be regarded as stay in India.
- It is not necessary that the stay should be for a continuous period or at one place.
- A person is said to be of Indian Origin if he or either of his parents or any of his grandparents was born in undivided India [Section 115C].
- Official tours abroad in connection with employment in India shall not be regarded as employment outside India.
- A person may be resident of more than one country for any previous year.
- Citizenship of a country and residential status of that country are two separate concepts. A person may be an Indian national/Citizen but may not be a resident in India and vice versa.
- A Company can have more than one place of management, but it can have only one place of effective management. POEM is required to be determined on year to year basis.
- If the key decisions by the Directors are in fact being made at a place other than place where a formal board meetings are held, then such other place would be relevant for POEM.
- The place where the management decisions are taken is more important than the place where such decisions are implemented.
- The day-to-day routine operational decisions undertaken by junior or middle management shall not be relevant for determining POEM.
- For the purpose of determining POEM, a company is considered to be engaged in “active business outside India” if the passive income is not more than 50% of total income and
- less than 50% of its total assets are situated in India; and
- less than 50% of total number of employees are situated in India or are resident in India; and
- the payroll expenses incurred on such employees are less than 50% of the total payroll expenditure.
IMPLICATIONS OF RESIDENTIAL STATUS
The incidence of tax depends upon a person’s Residential Status and also upon the place and time of accrual and receipt of income.
The charge of income tax with regard to the three categories of taxpayers can be summarised as follows:
| Sources of Income | R & OR | R & NOR | NR |
| Indian Income | |||
| Income received or deemed to be received in India during the current financial year | Taxable in India | Taxable in India | Taxable in India |
| Income accruing or arising or deemed to accrue or arise in India during the current financial year | Taxable in India | Taxable in India | Taxable in India |
| Income accruing or arising or deemed to accrue or arise outside India, but first receipt is in India during the current financial year | Taxable in India | Taxable in India | Taxable in India |
| Foreign Income | |||
| Income accruing or arising or deemed to accrue or arise outside India and received outside India, during the current financial year | Taxable in India | Not Taxable in India | Not Taxable in India |
| Income accruing or arising outside India from a Business/ profession controlled in/from India during the current financial year | Taxable in India | Taxable in India | Not Taxable in India |
In the above context, it may be noted that the ‘receipt’ of income refers to the first occasion when the recipient gets the money under his own control and it is the first receipt that determines the year and place of receipt for the purposes of taxation. If the income is already received outside India, no tax liability will arise when the whole or any part of such income is remitted to India.
- Taxpayers in all categories are chargeable on income, from whatever source derived, which is received or is deemed to be received in India by or on behalf of them or which accrues or arises or is deemed to accrue or arise to them in India other than income specified as exempt income.
- A “resident and ordinarily resident” pays tax in India on his entire world income, wherever accrued or received.
- A “non-resident” pays tax only on his taxable Indian income and his foreign income (earned and received outside India) is totally exempt from Indian taxes.
- A “not-ordinarily resident” pays tax on taxable Indian income and on foreign income derived from a business controlled in or a profession set up in India.
TEST OF RESIDENCY UNDER THE TAX TREATY
To avail the benefit of the provisions of tax treaty, a person should be resident of one or both the contracting States. To prove that a non-resident or a foreign company is tax resident of a country with whom India has signed a tax treaty, they need to obtain a tax residency certificate (TRC) from their tax authorities. Finance Act, 2013 has done away with the requirement of obtaining TRC in the prescribed format. Hence, TRC obtained in any format is acceptable. However, now along with TRC, a non-resident is required to furnish certain information under self-declaration in the prescribed form, i.e. Form No. 10F.
Safe Harbour Rules
In order to reduce transfer pricing disputes, to provide certainty to taxpayers, to align safe harbour margins with industry standards and to enlarge the scope of safe harbour transactions, the Central Board of Direct Taxes (CBDT) has notified a new safe harbour regime based on the report of the Committee set up in this regard.
The salient features of the new Safe Harbour Regime are:
It has come into effect from 1st of April, 2017, i.e. A.Y. 2017-18 and shall continue to remain in force for two immediately succeeding years thereafter, i.e. up to A.Y. 2019-2020.Assessees eligible under the present safe harbour regime up to AY 2017-18 shall also have the right to choose the safe harbour option most beneficial to them. A new category of transactions being “Receipt of Low Value-Adding Intra-Group Services” has been introduced. The new safe harbour regime is available for transactions limited to Rs. 200 crore in provision of software development services, provision of information technology-enabled services, provision of knowledge process outsourcing services, provision of contract research and development services wholly or partly relating to software development and provision of contract research and development services wholly or partly relating to generic pharmaceutical drugs. In respect of transactions involving provision of software development services and provision of information technology-enabled services, safe harbour margins have been reduced to peak rate of 18% from 22% in the previous regime.In respect of transactions involving provision of knowledge process outsourcing services, a graded structure of 3 different rates of 24%, 21% and 18% has been provided, based on employee cost to operating cost ratio, replacing the single rate of 25% in the previous regime.In respect of transactions involving provision of contract research and development services wholly or partly relating to software development and provision of contract research and development services wholly or partly relating to generic pharmaceutical drugs, safe harbour margins have been reduced to 24% from 30% and 29% respectively in the previous regime. Risk spreads on intra-group loans denominated in foreign currency will be benchmarked to the 6-month London Inter-Bank Offer Rate (LIBOR) as on 30th September of the relevant year and on loans denominated in Indian Rupees to the 1-year SBI MCLR as on 1st April of the relevant year. The safe harbour regime is optional to taxpayers.
Section 14A and Rule 8D – Expenditure incurred in relation to income not includible in Total Income
Section 14 of the Act provides that the total income (under Chapter IV) is to be computed under the following five heads:
- Salaries
- Income from house property
- Profits and gains of business or profession
- Capital gains
- Income from other sources
Chapter III of the Act contains provisions for incomes which do not form part of total income.
Section 14A of the Act provides that while computing such total income under Chapter IV, no deduction shall be allowed in relation to income which does not form part of total income. The basic principle of taxation is to tax the net income, i.e., gross income minus the expenditure. On the same analogy the exemption is also in respect of net income. Expenses allowed can only be in respect of earning of taxable income. In many cases, the expenses incurred by the assessee may be relatable partly to the exempt income and partly to the taxable income. The expenditure/deduction though of the nature specified in sections 15 to 59 but related to the income not forming part of total income could not be allowed against other income includible in the total income for the purpose of chargeability to tax. Section 14A of the Act widens the theory of apportionment of expenses between exempt income and taxable income.
The assessee is required to compute and add back expenses incurred in relation to income which does not form part of total income. The section empowers the Assessing Officer to compute disallowance in respect of expenses incurred in relation to income which does not form part of total income in accordance with method prescribed under rule 8D. However, the application of rule 8D is not automatic. Rule 8D may be invoked by the Assessing Officer, having regard to the accounts of the assessee:
- is not satisfied with the correctness of the claim of the assessee in respect of expenditure incurred in relation to such exempt income;
- is not satisfied with the claim of the assessee that no expenditure was incurred in relation to such exempt income
The method prescribed as per rule 8D for disallowance of expenditure incurred in relation to exempt income is applicable only from assessment year 2008-09 onwards. For any prior assessment years, the disallowance has to be computed on a reasonable basis. The disallowance as per method prescribed under rule 8D is to be worked out as under:
| Particulars | Amount | |
| (1) | Expenditure directly incurred for earning exempt income (e.g. demat charges, bank charges, etc.) | XXX |
| (2) | Interest expenditure not directly incurred for earning any particular income or receipt in accordance with the following formula (i.e. A * B / C) | XXX |
| Interest expenditure (other than the direct interest attributed under 1) above [A] | ||
| The average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year [B] | ||
| the average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year [C] | ||
| (3) | 0.5% of the average value of investments computed in accordance with (2)[B] above | XXX |
| Total expenditure incurred for earning exempt income [1 + 2 + 3] | XXX | |
Vide Notification No. 43 dated 2nd June 2016, rule 8D has been amended. The disallowance per revised rule is to be worked out as under:
| Particulars | Amount | |
| 1) | Expenditure directly incurred for earning exempt income (e.g. demat charges, bank charges, etc.) | XXX |
| 2) | 1% of the annual average of the monthly averages of the opening and closing balances of the investments, income from which does not or shall not form part of the total income | XXX |
| Total expenditure incurred for earning exempt income [1 + 2] | XXX | |
As per the revised rule:
- disallowance of interest expenditure incurred for general purpose borrowings under old rule 8D(2)(ii) has been done away with
- disallowance under new rule would have to be made by a person at the rate of 1% as against 0.5% required to be made as per old rule, whether he has incurred interest expenditure or not
- instead of average of opening and closing balance of investments for the entire year, annual average of monthly averages of the opening and closing balance of investments has to be considered.
Set-off and Carry Forward of Losses
STEPS IN CARRY FORWARD AND SET-OFF OF LOSSES
| Sr. No. | Section | Types of Loss | Set-off against Income | Can be carried forward (subject to Notes 4 and 8) | |
| In same Assessment Year |
In subsequent Assessment Year | ||||
| 1 | 71B | House Property | Any income under any head of Income (Note 1) | Income from House Property | 8 years |
| 2 | 71/72 | Business or Profession (other than speculation/specified business or depreciation) | Any income under any head except salaries | Business income only (Note 2) | 8 years |
| 3 | 72 r.w.ss. 32(2) & 35(1)(iv) | Unabsorbed Depreciation and Unabsorbed Capital Expenditure for Scientific Research | Any income under any head except Salaries | Any income under any head except Salaries | No restriction on number of years |
| 4 | 73 | Speculation Loss (Notes 2 & 3) |
Speculation Profit Only | Speculation Profit Only | 4 years (w.e.f. A.Y. 2006-07) |
| 5 | 70/74 | Short-term Capital Loss r.w.s. 94(7) in respect of units of Mutual Funds/securities & 94(8) in respect of units of Mutual Funds or UTI (Notes 8 and 9) |
Any Capital Gain | Any Capital Gains | 8 years |
| 6 | 70/74 | Long-term Capital Loss [other than equity shares or units of equity oriented mutual fund or units of a business trust which are subjected to STT and which are exempt u/s. 10(38)] | Long-term Capital Gain | Long-term Capital Gains | 8 years |
| 7 | 71/74 | Long-term Capital Loss on equity shares & units of equity oriented mutual fund or units of a business Trust which are subjected to STT (See Note 12) | Not Eligible for Set off (See Note 12) | Not Eligible for Set-off (See Note 12) | N.A. |
| 8 | 74A | Loss from Owning and Maintaining race horses | Only against income from horse races | Only against income from horse races | 4 years |
| 9 | 71 | Other Sources | Any income under any head of income | Unutilized loss not allowed for carry forward | N.A. |
| 10 | 72A(1) r.w. Rule 9C | In case of amalgamation | |||
| a. Accumulated Business Losses (other than speculation business loss) of the Amalgamating Company |
For Conditions regarding transfer of accumulated Business losses – See Note 17 |
Business Income of the Amalgamated Company See Notes 16 & 17 | 8 years from the expiry of the year of amalgamation | ||
| b. Unabsorbed Depreciation of the Amalgamating Company | For Conditions regarding transfer of unabsorbed depreciation – See Note 17 |
Any Income of the Amalgamated Company | Indefinitely | ||
| 11 | 72A(4) | In case of Demerger | |||
| a. Accumulated Business losses (other than speculation business loss) of Demerged Company | For Conditions regarding transfer of accumulated Business losses – See Note 18 |
Business Income of the Resulting Company See Notes 16 & 18 |
Unexpired period out of total permissible period of 8 years | ||
| b. Unabsorbed Depreciation of the Demerged Company | For Conditions regarding transfer of unabsorbed depreciation – See Note 18 |
Any Income of the Resulting Company | Indefinitely | ||
| 12 | 72A, 72A(6) | In case of Firm/Prop. Concern succeeded by Company | |||
| a. Accumulated Business losses (other than speculation business loss) of Firm/Prop. Concern | For Conditions regarding set off of accumulated Business Loss – See Note 19 |
Business Income of the Successor Company See Notes 16 & 19 |
8 years from the expiry of the year of Conversion | ||
| b. Unabsorbed Depreciation of the Firm/Prop. Concern | For Conditions regarding set off of unabsorbed Depreciation – See Note 19 |
Any Income of the Successor Company | Indefinitely | ||
| 13 | 72A(6A) | Conversion of Private Company, Unlisted Public Company into LLP (w.e.f. A.Y. 2011-12) |
|||
| a. Accumulated Losses (other than speculation losses) of such Company | For Conditions regarding setoff of accumulated Business Loss – See Note 20 |
Business income of the successor LLP See Notes 16 & 20 |
8 years from the expiry of the year of Conversion | ||
| b. Unabsorbed Depreciation of such Company | For Conditions regarding set off of unabsorbed depreciation – See Note 20 |
Any Income of the successor LLP | Indefinitely | ||
| 14 | 72AA | Amalgamation of Banking Company with a Banking Company (w.e.f. A.Y. 2005-06) |
|||
| a. Accumulated Losses (other than speculation losses) of such bank | For Conditions regarding set off of accumulated Business Loss – See Note 22 |
Business income of the successor bank (See Notes 21 & 22) |
8 years from the expiry of the year of Conversion | ||
| b. Unabsorbed Depreciation of such bank | For Conditions regarding set off of unabsorbed depreciation – See Note 20 |
Any Income of the successor bank | Indefinitely | ||
| 15 | 72AB(1) | Amalgamation of Co-op. Banks (w.e.f. A.Y. 2008-09) | |||
| a. Accumulated Losses (other than speculation losses) of such bank | For definition of Accumulated Loss – See Note 23 |
Business income of the successor bank (See Note 23) |
8 years from the expiry of the year of Conversion | ||
| b. Unabsorbed Depreciation of such bank | For definition of unabsorbed depreciation – See Note 23 | Any Income of the successor bank | Indefinitely | ||
| 16 | 72AB(3) | Demerger of Co-operative Bank | |||
| a. Accumulated Losses (other than speculation losses) of such bank | For Conditions regarding set off of accumulated Business Loss – See Note 24 |
Business income of the successor bank (See Notes 23 & 24) |
8 years from the expiry of the year of Conversion | ||
| b. Unabsorbed Depreciation of such bank | For Conditions regarding set off of unabsorbed depreciation – See Note 24 |
Any Income of the successor bank | Indefinitely | ||
| 17 | 73A r.w.s. 35AD | Losses of Specified Business | Income from Specified Business | Income from Specified Business | No Time Limit |
Notes
- Where in respect of any assessment year, the net result of the computation under the head “Income from House Property” is a loss and the assessee has income assessable under any other head of income, the assessee shall not be entitled to set off such loss, to the extent the amount of the loss exceeds two lakh rupees, against income under the other head.
- From A.Y. 2000-01, conditions as to continuation of the same business in which the loss was incurred, has been dispensed with.
- Losses from under mentioned transactions would not be considered as speculation transactions and such losses can be set-off against any other income.
- Transactions entered into by the assessee to guard against the future price fluctuations of the raw material or merchandise in course of his manufacturing or merchandising [u/s. 43(5)
proviso (a)]. - Transactions of trading in derivatives (referred in section 2(ac) of Securities Contracts (Regulation) Act, 1956) entered into on recognised stock exchange through a broker or SEBI recognised intermediary and supported by a time stamped contract note
[u/s. 43(5) proviso (d)]. - Transaction in respect of trading in commodity derivatives carried out in a recognised association which is chargeable to commodities transaction tax shall not be considered to be a speculative transaction [u/s. 43(5) proviso (e)]
- Transactions entered into by the assessee to guard against the future price fluctuations of the raw material or merchandise in course of his manufacturing or merchandising [u/s. 43(5)
- As per the Explanation to Section 73 Losses from purchase and sale of shares would be treated as speculation losses except in case of following companies
- company whose gross total income consists mainly of income which is chargeable under the heads “Interest on securities”, “Income from House Property”, “Capital gains” and “Income from Other Sources”
- a company whose principal business is the business of banking or the granting of loans and advances (A.Y. 2014-15 & onwards)
- a company whose principal business is the business of trading in share or banking or the granting of loans and advances (A.Y. 2015-16 & onwards)
- Priority for set off of depreciation, business loss may be in the following order:
- Current Year’s Depreciation
- Unabsorbed Carried Forward Business Loss
- Unabsorbed Carried Forward Depreciation
- In case of firm, where a change has occurred in the constitution of a firm, the firm shall not be entitled to carry forward and set off so much of the loss in proportion to the share of a retired or deceased partner as exceeds his share of profits, if any, in the firm in respect of the previous year [Section 78(1)]. However, such restriction shall not be applicable where any person is succeeded by way of inheritance [Section 78(2)].
- In case of company in which public are not substantially interested (i.e., closely held companies), Unabsorbed Loss relating to any assessment year can be carried forward and set off against income in a subsequent year only if on the last day of the previous year in which the loss is sought to be set off, the shares of the company carrying not less than 51% of voting power are beneficially held by the persons who beneficially held the shares of the company carrying not less than 51% of the voting power on the last day of the previous year in which the loss was incurred (Section 79).
- In terms of section 80, the losses other than depreciation & house property loss can be carried forward only if determined in pursuance of the return filed within the time prescribed u/s. 139(1). However in case return is filed late, Income Tax Authorities have the power to condone delay on the basis of limit of losses – Circular No. 8/2001 dated 16-5-2001.
- As per section 94(7) if any person
- buys units of mutual funds/securities within the period of 3 months prior to record date for dividend, and
- transfers/sells such securities within 3 months of such record date or transfers/sells units within the period of 9 months of such record date
- dividend or income received or receivable on such securities/units is exempt
Then, the loss arising to the extent of the amount of dividend received or receivable shall be ignored while computing his total income chargeable to tax.
- As per section 94(8) if any person
- buys units of mutual funds or UTI within the period of 3 months prior to record date for issue of bonus units and receives bonus units on such date
- transfers/sells all or any of the original units within period of 9 months of such record date
- he continues to hold all or any of the bonus units
Then the loss arising in respect of such purchase & sale transaction shall be ignored while computing his total income. However loss so ignored shall be deemed to be the cost of purchase or acquisition of such additional units as are held on the date of sale or transfer.
- Capital gain resulted from the transfer of a depreciable asset held for a period of more than three years, may be set off against the brought forward loss from the long-term capital assets.
- Long-term Capital Gains in respect of equity shares sold on recognised stock exchange and units of equity oriented mutual fund or units of a business Trust which has suffered Securities Transaction Tax (STT) are exempt u/s. 10(38) with effect from 1-10-2004. However long-term gains is not exempt in case where STT is not paid on sale
e.g. off market transactions, off market buyback, etc. Further, Finance Act 2018 introduced tax u/s 112A from FY 2018-19 on the capital gains arise from the transfer of a long term capital asset being equity share in a company or a unit of an equity oriented fund or a unit of a business trust. - In case of buy-back of shares which is subject to tax u/s. 115QA, arisen losses may not be allowed to be set off or carried forward.
- Long-term capital losses except in case of sale/transfer of shares/units of equity oriented mutual funds/units of a business trust subjected to STT to be set off only against taxable long-term capital gains and not against exempt long-term capital gains. However, set off of indexed long-term capital loss can be set off against long-term capital gain without indexation.
- Provisions of sections 70, 71 and 72 are applicable even in respect of loss incurred in business which are eligible for deduction under section 80-IA, 80-IB, etc. Where section 71 grants an option to an assessee for set off of any head of loss against any head of income, then at the option of assessee such loss could be set off against respective income. E.g. where assessee has suffered loss under head ‘Business’ at his option such loss could be set off against ‘Income from other sources’, in first instance, and only surviving loss could be set off against ‘income from capital gains’.
- For the purpose of section 72A, Accumulated loss, Unabsorbed Depreciation and Industrial undertaking has been defined as :
“Accumulated loss” means so much of the loss of the predecessor firm or the proprietary concern or the private company or unlisted public company before conversion into limited liability partnership or the amalgamating company or the demerged company, as the case may be, under the head “Profits and Gains of Business or Profession” (not being a loss sustained in a speculation business) which such predecessor firm or the proprietary concern or the company or amalgamating company or demerged company, would have been entitled to carry forward and set off under the provisions of section 72 if the reorganization of business or conversion or amalgamation or demerger had not taken place.
‘Industrial undertaking” means any undertaking engaged in the manufacture or processing of goods, or the manufacture of computer software or in the business of generation or distribution of electricity or any other form of power or mining or the construction of ships, aircraft or rail systems or the business of providing telecommunication services whether basic or cellular including radio paging, domestic satellite service, network of trunking, broadband network and internet services.
“Specified bank” means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955) or a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959) or a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970) or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980).
- In case of Amalgamation of a company owning an industrial undertaking or a ship or a hotel with another company or of a banking company as referred to in section 5(c) of the Banking Regulations Act, 1949 with a specified bank or of a public sector company engaged in the business of operation of aircraft with one or more public sector companies engaged in the similar business, the accumulated loss and unabsorbed depreciation of Amalgamating (transferor) company can be transferred to Amalgamated (transferee) company, if
-
- Amalgamated company holds continuously 3/4th book value of fixed assets acquired from Amalgamating Company for at least 5 years from date of Amalgamation.
- Amalgamated company continues to carry on the business of the amalgamating company for at least 5 years.
- The Amalgamated company shall achieve the level of production of at least 50% of the installed capacity of the said undertaking before the end of the four years from the date of amalgamation and continue to maintain the said minimum level of production till the end of 5 years from the date of amalgamation. The amalgamated company shall also furnish to Assessing Officer a certificate in Form No. 62 providing prescribed production particulars, duly verified by chartered accountant. (Rule 9C). However, on application to Central Government, this condition may be relaxed
- Amalgamating company has been engaged in the business, in which the accumulated loss occurred or depreciation remains unabsorbed, for 3 or more years.
- Amalgamating company has held continuously as on the date of amalgamation at least 3/4th of the book value of fixed assets held by it 2 years prior to the date of amalgamation.
- In case of Demerger, accumulated loss and unabsorbed depreciation of Demerged Company can be transferred to Resulting Company:
- where such losses and unabsorbed depreciation is directly relatable to undertaking transferred, the whole of such losses or unabsorbed depreciation to be allowed to be carried forward and set off in the hands of the resulting company.
- where such losses and unabsorbed depreciation is not directly relatable to undertaking transferred, then such losses and unabsorbed depreciation would be apportioned in ratio of assets retained by the Demerged Company and transferred to the Resulting Company.
- The Central Government may by a notification in Official Gazette, specify such conditions as it considers necessary to ensure that the demerger is for genuine business purposes.
- Carry forward and set off of loss incurred by the erstwhile Partnership firm and Proprietary concern is allowed only if conditions prescribed u/s. 47(xiii)/47(xiv) is complied. In case prescribed conditions are not complied, aggregate set off of such losses or allowance of depreciation in any previous year shall be income of the successor company of the previous year in which such conditions are violated.
- Carry forward and set off of loss incurred by the erstwhile Private company or Unlisted public company is allowed only if conditions prescribed u/s. 47(xiiib) are complied. In case prescribed conditions are not complied, aggregate set off of such losses or allowance of depreciation in any previous year shall be income of the successor LLP of the previous year in which such conditions are violated.
- For the purpose of section 72AA Accumulated loss and Unabsorbed Depreciation has been defined as:
“Accumulated Loss” means so much of the loss of the amalgamating banking company under the head “Profits and gains of business or profession” (not being a loss sustained in a speculation business) which such amalgamating banking company, would have been entitled to carry forward and set-off under the provisions of section 72 if the amalgamation had not taken place.
“Unabsorbed Depreciation” means so much of the allowance for depreciation of the amalgamating banking company which, would have been allowed to such banking company as if the amalgamation had not taken place. -
- There is amalgamation of a banking company with any other banking institution.
- Amalgamation is sanctioned u/s. 45(7) of Banking Regulation Act, 1949.
- Condition of sections 72A and 2(1B)(i)/(ii)/(iii) need not be satisfied.
- For the purpose of section 72AB Accumulated loss and Unabsorbed Depreciation has been defined as:
“Accumulated Loss” means so much of the loss of the amalgamating co-operative bank or the demerged co-operative bank, under the head Profits and gains of business or profession (other than speculation loss), which such amalgamating co-operative bank or the demerged bank would have been entitled to carry forward or set off as if the business reorganization had not taken place.
“Unabsorbed Depreciation” means so much of the allowance for depreciation of the amalgamating co-operative bank or the demerged co-operative bank, which would have been allowed to such amalgamating co-operative bank or the demerged co-operative bank as if the business reorganization had not taken place.
-
- The predecessor bank is engaged in banking business for 3 or more years.
- The predecessor bank has held at least 3/4th of the book value of fixed assets as on the date of business reorganization, continuously for 2 years prior to the date of business reorganisation.
- The successor bank holds at least 3/4th of book value of fixed assets of the predecessor bank, continuously for minimum 5 years from the date of business reorganisation.
- The successor continues the business of the predecessor bank, continuously for minimum 5 years from the date of business reorganisation.
- The successor fulfils such other conditions as may be prescribed.
- In case of amalgamation/demerger, unabsorbed capital expenditure e.g., scientific research, family planning may also be allowed to be carried forward and set off in the hands of resulting company.
- Any loss under any head of income cannot be set off against the income from winnings from lotteries, crossword puzzles, race horses etc.
- It is proposed to provide that no expenditure or allowance or set off of any loss shall be allowed in respect of undisclosed income determined by the Assessing Officer under section 115BBE of the Act.
- It is proposed that the provision of section 79 of the Income-tax Act (the Act) regarding restriction on shareholding for the purpose of carry forward loss shall not apply in case of change of shareholding pursuant to an approved resolution plan under IBC, 2016 where an opportunity of being heard has been given to the Principal Commissioner or Commissioner.
Summary of Restrictions on Cash Transaction
- Acceptance of cash more than ₹ 2 lakhs in aggregate in a year, in a day or for one occasion or for one event or in one transaction.
Non-compliance : Penalty 100% of the amount
(Section 271DA). - Payment of any expenditure more than ₹ 10,000/- in a day (payment to transport operator for plying, hiring or leasing of goods carriage limit is ₹ 35,000/-).
Non-compliance : Expenditure not allowed as deduction from income from Business & Profession Section 40A(3). - Acceptance of loan or deposit of more than ₹ 20,000/- in cash.
Non-compliance : Penalty 100% such of loan or deposit Section 269SS. - Repayment of loan or deposit in cash Section 269-T.
Non-compliance : Penalty 100% such of loan or deposit Section 271E. - Acceptance of advance more than ₹ 20,000/- in a year for transfer of immovable property Section 269SS.
Non-compliance : Penalty 100% of such amount. - Payment of more than ₹ 10,000/- for purchase of business assets in cash.
Non-compliance : Such amount will be reduced from the cost of assets and no depreciation will be allowed on such amount Section 43(1). - Investment linked deduction for capital expenditure more than ₹ 10,000/- in cash.
Non-compliance : Deduction will not be allowed of such expenditure Section 35AD. - Payment of premium for medical Insurance in cash.
Non-compliance : Deduction will not be allowed of such payments Section 80D. - Acceptance of donation more than ₹ 2,000/- in cash by political parties Section 13A.
- Payment for donation for more than ₹ 2,000/- in cash to funds or trusts approved Section 80G.
Non-compliance : Deduction not allowed Section 80G. - Payment for donation more than ₹ 2,000/- in cash for research and rural development.
Non-compliance : Deduction not allowed Section 80GGA. - Payment for donation more than ₹ 2,000/- in cash to political parties.
Non-compliance: Deduction not allowed Sections 80GGB/ 80GGC.
Taxability of Gifts — Section 56
SECTION 56 – TAXABILITY OF GIFTS
| Particulars | Section 56(2)(viib) | Section 56(2)(x) |
| Recipient | Closely held company (i.e. a company not being a company in which public are substantially interested) | Any Person |
| Giver | Any Resident Person | Any Person |
| Period covered | With effect from 1st April, 2013 | With effect from 1st April, 2017 |
| Amount to be taxed | Any consideration received for issue of shares that exceeds the face value of such shares – aggregate consideration received as exceeds the FMV of the shares |
– stamp duty value as exceeds such consideration. (from AY 2019-20 onwards) Stamp duty value on date of agreement for transfer of immovable property to be considered, if date of agreement and the date of registration are not the same. This is applicable only if consideration or part thereof, is paid by way of an account payee cheque or an account payee bank draft or by use of electronic clearing system through a bank account on or before the date of agreement for transfer of such immovable property. Provided where the stamp duty value of immovable property is disputed by the assessee on grounds mentioned in section 50C(2) of Act, the AO may refer to a Valuation Officer and the provisions of section 50C and section 155(15) shall apply in relation to the stamp duty value of such property.
|
| Does not apply | Where the consideration for issue of shares is received
(i) by a venture capital undertaking from a venture capital company or a venture capital fund; or (ii) by a company from a class or classes of persons as may be notified by the Central Government in this behalf |
Any sum of money or any property received
|
| Relative means |
|
|
| Property means |
|
|
| Fair Market Value means | FMV of shares shall be the higher of:
|
FMV of a property, other than an immovable property, means the value determined in accordance with the prescribed method (Rules 11U and 11UA).
The CBDT vide Notification No.61/2017/F.No. 149/136/2014-TPL, dated 12-07-2017 has notified final rules for determining the FMV of unquoted equity shares for the purposes of section 56(2)(x) and section 50C of the Act. |
Survey, Search and Seizure
SURVEY
Survey in a wider sense means to scrutinize or to inspect. The power of Survey is granted under sections 133A and 133B of the Act which is overriding provision as both the section starts with Notwithstanding Clause. Both the sections are independent and exclusion to each other. The power of survey under the Income tax Act has been provided u/ss. 133A and 133B.
The purpose of conducting survey is to broaden the tax base by discovering the new assessees, to gather information and evidences for detecting evasion of taxes, to collect information on the spot from the place of business by inspecting stock, cash, books of account and other items related to business. All these help in preventing tax evasion. With effect from
1-4-2017 the powers to survey charitable trust has been granted by including premises where charitable activity is carried out.
Authorised Officers to conduct Survey
- The Principal Commissioner/Commissioner/Principal Director/Director of Income Tax
- The Additional/Joint Commissioner/Director of Income Tax
- The Deputy/Assistant Commissioner/Director of Income Tax
- The Assessing Officer
- The Tax Recovery Officer
- The Inspector of Income Tax
Power of Authorised Officers
- To enter any place within the limits assigned to him or
- the place occupied by any person in respect of which he exercises jurisdiction or
- the place in respect of which he is authorized by such an income tax authority, who is assigned the area in which such place is situated or who exercises the jurisdiction in respect of any person occupying such place.
Survey u/s 133A of the Act can be conducted only at the business premises including premises where charitable activity is carried out by charitable trust of the person concerned. No survey can be conducted at the residential premises unless the residential premises are shown to as the business premises by the assessee concerned or has stated that stock or books of account or cash related to business is kept at his residential premises. Survey can be conducted simultaneously at branches of business premises along with principal place of business.
The power of Survey is limited to the business premises or activity for charitable purpose, the Survey proceeding commences during business hours and in any other case after sunrise and before sunset. Once the Survey proceeding’s is commenced during business hours or after sunrise but before sunset, the same can be continued after sunset till the survey is concluded by the Authorised Officers. As the Survey proceedings are to be initiated during business hours, the same cannot be commenced on holidays when the business premises are closed.
In view of explanation to section 133A(1) if the assessee states that his books of account or any part of cash, stock or valuable articles are kept at any other place then the Authorized Officer can survey that place for limited purpose for obtaining information related to the assessee which may include office of tax consultants.
The Authorised Officers can verify stock, cash, other valuable articles, books of account and documents lying in the business premises, place marks of identification on books of account or other documents and can take copies therefrom. The seizure of cash, stock or valuable articles is not permissible in the course of Survey. The Officers can impound books of account after recording the reasons for the same. The impounded books of account can be kept only for 15 days after which he has to get approval of the Chief Commissioner.
The Survey authorities has power to record statement
u/s. 133A(3)(iii). The statement recorded during the course of survey can be used against the assessee during the assessment unless he proves that the statement was recorded under undue influence, coercion or threat and is retracted. Moreover, mere statement without the corroborative evidence cannot be made basis of the assessment – ACIT vs. Satya Narayan Agarwalla (91 TTJ 481- Cal), Abdul Qaymme vs CIT (184 ITR 404 – Allh). However, the Officers cannot force declaration of income from the assessee during the course of survey.
The statement recorded during survey proceeding cannot be statement on oath. There is difference between statement and statement on oath. A statement made on oath would have more sanctity than the statement made otherwise than on oath. The Kerala High Court in the case of Paul Mathews & Sons 263 ITR 101 has held that Survey Authorities do not have power to record statement on oath. The said view is affirmed by the Hon’ble Apex Court in the case of CIT vs. S. Khader Khan Son [352 ITR 480 (SC) arising out of 300 ITR 157 (Mad)]
However, in case of non-co-operation from the assessee, the provisions u/s. 133A(6) can be invoked and power under section 131(1) of the Act can be exercised wherein the statement can be recorded on oath.
It is pertinent to note that the provision of section 292C of the Act in respect of presumption has been extended to Survey proceedings. Thus, any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of survey it would be presume to be belonging to such person, the contents of such books of account and documents are true and that the signature and every other part of such books of account and documents are in that person’s handwriting.
SEARCH AND SEIZURE
Introduction
The fundamental right of privacy is protected by Article 19(1)(g) of the Indian Constitution. In case of violation of fundamental rights or when powers are exercised in a manner not authorised by law citizens can approach High Courts by way of writs as per Articles 226 and 227 of the Indian Constitution. The power of search and seizure, undoubtedly invades upon the privacy of a person. The constitutional validity of section 132 was raised before the Apex Court in the famous case of Pooran Mal vs. Director of Inspection (Investigation) Income Tax 93 ITR 505. It was contended that provisions pertaining to search and seizure are in violation of Article 19(1)(g). The Court held that in view of the benefit of the larger interest, reasonable restrictions could be imposed. The provision of section 132 is held not to be ultra virues of fundamental rights.
The search party has to consider the fundamental human rights and due regard as to human dignity and value cannot be ignored — Chief Commissioner of Income-tax (CCA) vs. State of Bihar through the Chief Secretary, [2012] 18 taxmann.com 70 (Pat.)
‘Search and Seizure’ is the last armoury with the Income Tax Department to unearth undisclosed assets/income. Since 1956 the provisions of search and seizure were introduced, were totally substituted by the Finance Act, 1964. Section 132 underwent a thorough overhaul in the year 1976.
Search and Seizure action is against person who is believed to be in possession of any money, bullion, jewellery or other valuable article or thing which is either wholly or partly (income or property) not been disclosed or would not be disclosed under the Act – Undisclosed income.
Authorised Officer to issue warrant of search
The Authorised Officer to issue warrant of search u/s. 132 of the Act are
- The Principal Director General of Income Tax, or
- The Principal Director/Director of Income Tax, or
- The Chief Commissioner of Income Tax, or
- The Principal Commissioner/Commissioner of Income Tax, or
- Any such Additional/Joint Director/Commissioner of Income Tax as may be empowered by the Board.
The above Officers as empowered by the Board can authorise any Officer subordinate to them not below the rank of Income Tax Officer to conduct search. The Officer so authorised is referred as Authorised Officer and the authorisation is done by issuing a search warrant in Form 45.
Authorisation of search by Authorised Officer other than Jurisdictional Authority
The Principal/Chief Commissioner/Commissioner of Income Tax has the power to authorise a search of any building, place, vessel, vehicle or aircraft of a person which is under his jurisdiction or area of jurisdiction even though he may not be having jurisdiction over the persons concerned, if he has reason to believe that delay in obtaining authorisation from the respective Commissioner having jurisdiction over that person would be prejudicial to the interests of revenue. The search warrant in such cases is issued in Forms 45A/45B.
Circumstances in which search and seizure is carried out
The Authorised Officer has information being reason to believe that
- The person who is called to produce books of account or other documents u/s. 131(1) or u/s. 142(1) fails or omits to produce or cause to be produced such records or is not likely to produce or caused to be produced.
- A person is in possession of money, bullion, jewellery or other valuable article or thing and such property represents wholly or partly income or property which has not been disclosed or would not be disclosed.
The Authorised Officer must have a reason to believe. The reason to belief is subject to be challenged before the Courts.- Mamchand and Co. vs. CIT (1970) 76 ITR 217 (Cal)
- Kusum Lata vs. CIT (1989) 180 ITR 365 (Raj)
Copy of reasons recorded for issuing a search warrant
The disclosure of the material or the information based on which search is conducted is not required to be disclosed for the reason that it would affect the investigation. It is only the Supreme Court and High Courts can call for the material or reasons recorded in order to ascertain the basis of issue of search warrant.
- Southern Herbals Ltd. vs. DIT (Investigations) (1994) 207 ITR 55 (Kar).
- Dr. Pratap Sing vs. Director of Enforcement (1985) 155 ITR 166 (SC)
Even if latter on it is held that the search action was not carried out in accordance with law the material gathered during such illegal or not valid search action can be used against the person in ordinary assessments.
- Pooranmal vs. Director of Inspection (Investigation)(1974) 97 ITR 505 (SC)
Powers of the Officer conducting search and seizure
The power of the Authorised Officer conduction search is:
- To enter and search any building, place, vessel, vehicle or aircraft where he has reason to suspect that such books of accounts, other documents, money, bullion, jewellery or other valuable article or thing are kept.
- Break open the lock of any door, box, locker, safe, almirah, etc. for exercising the powers where the keys are not available.
- Search any person who (a) has got out of, or (b) is about to get into, or (c) is in the building, place, vessel, vehicle or aircraft on reason to suspect that such person has secreted about any such books of account, other documents, money, bullion, jewellery or other valuable article or thing.
- Require any person who is found to be in possession or control of any books of account or other documents maintained in the form of electronic records, to afford the necessary facility to the authorised Officer to inspect all such books of account or other documents.
- Seize any such books of account, other documents, money, bullion, jewellery or other valuable article or thing found as a result of such search other than stock-in-trade. In respect of stock-in-trade the Officer can make a note or inventory of such stock-in-trade of business.
- Place marks of identification on any books of account or other documents or make or cause to be made extracts or copies therefrom.
- Make a note or an inventory of any such money, bullion, jewellery or other valuable article or thing.
- In case it is not possible or practicable to take physical possession of any valuable article or thing and remove it to a safe place due to its volume, weight or other physical characteristics or due to it being of a dangerous nature then such property may be placed under deemed seizure by ordering the person not to remove, part with or otherwise deal with it except with the previous permission of such Authorized Officer.
- Examination of any person on oath under section 132(4) of the Act who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter be used as evidence in any proceeding under the Act against him.
- To draw Panchnama (inventory) which is signed by two witnesses in respect of inventory of books of account, documents, records or assets found and/or seized during the course of search action.
Presumption of ownership
As per section 292C of the Act any books of account, record, other documents and assets found during the course of search action will be presumed to be belonging to the person searched and that the contents of such books of account and other documents are true. The signature and every other part of such record found would purport to be in the handwriting of any particular person is in handwriting of the person searched.
The above presumption howsoever it may be strong the same is rebuttable presumption if proved with supporting evidence.
Seizure of precious metal (Jewellery)/cash
- In case of precious metal found the same would not be seized if disclosed in the wealth tax return or is explained with records that the payments are made out of disclosed source of income.
- In case of gold jewellery, considering the Indian customs, to the extent of 500 gms per married lady, 250 gms per unmarried lady and 100 gms per male member of the family, need not be seized.
- The cash seized is normally deposited in Public Deposit Account which is appropriated against the tax liability.
Application of seized or requisitioned assets
The assets seized may be dealt with in the following manner:
- Seized assets may be applied towards existing and future liability
- Release of seized asset after meeting existing liabilities in certain cases
- Cash seized may be applied for discharging the liabilities
- Assets other than money may also be applied to discharge liabilities
Power of Provisional Attachment
In order to protect interest of revenue and safeguard recovery of tax and interest arising out of search assessments the Authorised Officer has the authority to provisionally attach property belonging to the assessee with the prior approval of higher authority. This can be done only when the officer is satisfied that the action requires to be taken to protect the interest of revenue.
Duties and Rights of person searched
- The person against whom warrant is issued is entitled to verify identity of the search party, verify warrant and have search of the search team at the time of leaving the premises. The search proceeding be carried out in presence of two witnesses.
- The person is entitled to copy of panchnama drawn in respect of inventory of books of account, records and assets found and seized during the course of search. The said copy of panchnama is important evidence in all proceedings carried under the Act. The copy of Panchnama is also required at the time of release of assets seized post search assessments.
- There is no provision under the Act to arrest the person searched. Children are allowed to go to school after search of their bags. Doctors are permitted to attend the person searched for any medical contingencies. Normal interval is permitted for meals and refreshments.
- The person searched need to verify the inventory (panchnama) drawn for correctness of the same especially inventory of stock-in-trade.
- To avail copy of records/documents found and seized, copy of statement recorded and inventory of assets found.
- To explain along with supporting page wise records/documents found during the course of search action.
- To reconcile the assets found during the course of search action.
Statement on Oath
There is considerable importance of statements recorded during search and seizure operations, which is clear from the intent of Legislature as it thought fit to include a separate section 132(4) for recording of statement during a search operation. Written statements are used as evidence in various proceedings under the Act. The word ‘statement’ is not defined in the Income-tax Act or in the Evidence Act. It assumes its dictionary meaning of ‘something that is stated’.
Admissions are statements by a party of the existence of a fact which is relevant to an issue in dispute. Section 17 of the Indian Evidence Act, 1872 defines admission as an oral or documentary statement which suggests any inference as to any fact in issue or relevant fact. As per section 31 of the Indian Evidence Act, admissions are not conclusive proof of the matters admitted, but they may operate as estoppel under the provisions of the law as contained. For an admission to be effective, corroboration evidence is required.
The person giving statement is bound to state the truth as per section 8 of Indian Oaths Act, 1969. The person whose statement is recorded has to reply to the queries raised. But what a party himself admits to be true, may reasonably be presumed to be so, unless it is satisfactorily explained or successfully withdrawn. So long as they do not operate as estoppel, persons making admissions are at liberty to contradict them or to show that they are untrue or mistaken or made under a misapprehension. Thus, the effect of an admission is to shift the burden of proof to the party making the admission. The burden to prove admission is incorrect is on the maker. The statement recorded on Oath can be retracted by way of affidavit to be filed with the Department.
- Their Lordship while observing that admission is an extremely important piece of evidence, held that, it cannot be said to be conclusive and the maker can show that it was incorrect – Pullangode Rubber Produce Co. Ltd. vs. State of Kerala (91 ITR 18)(SC).
- S. Arjun Singh vs. CWT [1989] 175 ITR 91.
- Kurukshetra University (AIR 1976 SC 377) (SC)
- A statement recorded u/s. 132(4) at midnight cannot be considered a voluntary statement if it is subsequently retracted by the assessee and necessary evidence is laid contrary to such admission – Kailashben Manharlal Chokshi (174 Taxmann 466) (Gujarat).
- Retraction of statement if required is to be made at the earliest. The burden of proof is on the person making retraction – Krishan Lal Shiv Chand Rai vs. CIT(1973) 88 ITR 293 (P&H).
Handing over of the records to Assessing Officer
On completion of the search action the Authorised Officer has to hand over the search record along with statement recorded, panchnama, etc. to Assessing Officer having jurisdiction for assessment over the person searched. Normally, post search the cases are centralised with Central Circle for better
co-ordination.
Post search – Assessments
The Finance Act, 2003 has changed the method of assessment of income in respect of search & requisition cases from block assessment u/ss. 158BC/158BD of the Act to reassessment proceedings as per sections 153A and 153C of the Act.
Section 153A
The provision of section 153A of Act is overriding provision to sections 139, 147 to 149, 151 and 153 of the Act. On assuming jurisdiction the Assessing Officer shall issue notice to furnish returns of income for each assessment year falling within six assessment years immediately preceding the year in which search has been initiated. The assessee will have to file separate returns for each of the years in the prescribed form within the time limit specified in the notice. There is no provision for extension of time. In case the returns are filed belated interest u/s. 234A of the Act would be levied.
With effect from AY 2017-18, the notice u/s. 153A can be issued for further 4 assessment years beyond the period of six assessment years if unexplained assets valuing ₹ 50 lakh or more in aggregate are found to escape assessment.
The AO shall complete the assessments u/s. 153A r.w.s. 143(3) of the Act within the time prescribed u/s. 153B of the Act. The assessments for which notice u/s. 143(2) have been issued shall get abated. In respect of unabated assessments additions, if any is to be based on incriminating material found during the course of search.
On search action initiated there would be reassessments for six/ten assessment years immediately preceding the assessment year relevant to the previous year in which search action has been initiated u/s. 153A r.w.s. 143(3) of the Act and regular assessment u/s. 143(3) of the Act in respect of the year in which search has been carried out.
Section 153C
As per sections 153C of the Act if any books of accounts, documents, assets, etc. are found or seized during the course of search and the same belongs to person other than person searched, the Assessing Officer of the person searched shall transfer the same to the Assessing Officer of that person. The AO of that person shall thereafter proceed against that person as provided under section 153A of the Act. Before initiating the proceedings u/s. 153C/153A of the Act the Assessing Officer has to draw satisfaction as whether the record/assets found forwarded has any impact on income of the that person.
Penalty
In case of search action initiated on or after 15-12-2016 the undisclosed income assessed pertaining to specified previous year (The return of income for the previous year which is not due to be filed and not filed on or before the date of search and the previous year in which search is initiated) will be subject to penalty proceedings u/s. 271AAB(1A) of the Act.
The penalty levied would be 30% of the undisclosed income assessed, if the undisclosed income is declared during recording of statement u/s. 132(4) of the Act i.e. on or before conclusion of search proceedings, manner in which undisclosed income earned is specified and substantiated and payment of taxes on the undisclosed income disclosed in the return of income filed post search.
In case the above conditions are not fulfilled, penalty @ 60% of undisclosed income assessed i.e. 200% of tax evaded would be payable. The penalty provision u/s. 270A of the Act would not be applicable for the undisclosed income assessed in respect of search cases.
In case of undisclosed income for the period other than specified previous year penalty provision of section 270A of the Act would be applicable in respect of misreporting of income and penalty @200% of the tax evaded would be payable.
It is a matter of common knowledge, which cannot be ignored that the search is being conducted with the completed team of the officers consisting of several officers with the police force. Usually telephone and all other connections are disconnected and all ingress and egress are blocked. During the course of search person is so tortured, harassed and put to a mental agony that he loses his normal mental state of mind and at that stage it cannot be expected from a person to pre-empt the statement required to be given in law as a part of his defence. Thus, unless the Authorised Officer puts a specific question with regard to the manner in which income has been derived, it is not expected from the person to make a statement in this regard and in case in the statement the manner in which income has been derived has not been stated but has been stated subsequently, that amounts to the compliance – CIT vs. Radha Kishan Goel 278 ITR 454 (Allahabad).
Immunity u/s 270AA
For availing immunity from levy of penalty u/s. 270A and prosecution u/s. 276C or 276CC of the Act, in respect of addition made on account of under reporting, the assessee has to pay the tax and interest as demanded in respect of income assessed and waive the right to appeal against the additions/enhancement of income. The application to that effect is to be filed before the AO on or before 30 days of receipt of Notice of Demand u/s. 156 of the Act.
The provision of Section 270AA specifies tax and interest payable as per order of assessment or reassessment
u/s. 143(3)/147 of the Act. The section debars immunity for misreporting of income as per sub-section 9 of section 270A of the Act and hence does not apply to additions/enhancement of income in search assessment u/ss. 153A/153C of the Act.
Section 276CC
It should be noted here that the provisions for prosecution u/s. 276CC will be attracted when the assessments are made u/ss. 153A and 153C of the Act in respect of assessment of undisclosed income. The said provision would also be attracted on admission of income in the statement recorded u/s. 132(4) of the Act.
Judicial proposition
- The documents, records or articles found during the course of search cannot be placed under prohibitory order to be examined at the leisure of Search Officers. The same has to be done within reasonable time – Dr. C. Balakrishnan Nair vs. CIT237 ITR 70.
- Search authorised merely on an intimation from CBI without any effort to ascertain the correctness of the allegation of money or other assets or primary verification the court held the search was invalid – Ajit Jainvs. Union of India242 ITR 302.
- The Hon’ble Bombay High Court after considering decision in the case of CITvs. Continental Warehousing Corpn. (Nhava Sheva) Ltd.(Bom.) and All Cargo Global Logistics Ltd. vs. DCIT (Bom.) held that only income related to incriminating documents found during search under section 132 can be considered in assessment under section 153A in case of unabated assessment proceedings. Additions under sections 68 and 14A in absence of any incriminating material found are beyond scope of section 153A – CIT vs. Deepak Kumar Agarwal 398 ITR 586 (Bom).
- For assuming jurisdiction under section 153C of the Act the incriminating material which was seized had to pertain to assessment years in question establishing co-relation of document-wise with assessment years in question. In absence of the same no jurisdiction u/s. 153C can be assumed – CITvs. Sinhgad Technical Education Society397 ITR 344 (SC).
- Statements recorded under section 132(4) of the Act of the Act do not by themselves constitute incriminating material as has been explained by this Court in Harjeev Aggarwal (Delhi) –PCITvs. Best Infrastructure (India) P L 397 ITR 82 (Delhi).
- Official visited premises on 15-5-2007 again on pretext of concluding search. They found nothing new for being seized that belonged to any of searched parties. Second panchnama was drawn. The second visit and panchnama drawn up on a later date could not lead to postponement of period for completion of assessment – PCITvs. PPC Business and ProductsP L 397 ITR 82 (Delhi).
Taxability of Income from Patents
The Finance Act, 2016 had introduced a new section 115BBF in the Income-tax Act, 1961 to provide a concessional tax regime for patent income, in order to encourage indigenous R&D and to make India a global R&D hub. The section is effective from assessment year 2017-18 (i.e. previous year 2016-17).
Certain key features are as follows:
- Royalty income of a patentee who is resident in India is to be taxed at a reduced corporate tax rate of 10% (plus applicable surcharge and cess) on gross basis
- The patentee means the person who is the true and first inventor, whose name is entered in the patent register as the patentee
- No deduction for any expenditure or allowance in respect of such royalty income is to be allowed
- The patent to be developed and registered in India
- At least 75% of the expenditure should be incurred by the eligible taxpayer in India
- The regime is optional for eligible taxpayer who has to opt for the regime by furnishing a declaration in Form No. 3CFA on or before the due date of furnishing return of income under section 139(1) of the relevant previous year. If an eligible taxpayer opts for concessional tax regime in any tax year but opts out of the regime in any of five tax years succeeding such year, it shall not be eligible to claim benefit of the concessional regime for a period of five consecutive tax years succeeding the year of opting out
- The term ‘royalty’ has been defined to mean consideration (including lump sum consideration) for any of the following:
- transfer of rights (including granting of licence) in respect of the patent
- imparting any information concerning the working of, or use of the patent
- use of the patent
- rendering of any services in connection with the above activities
Following are excluded from the definition of royalty:
-
- any income that would be chargeable under the head capital gains
- Sale of product manufactured using a patented process or patented article for commercial use
- Definitions of terms like ‘developed’, ‘invention’, ‘patent’, ‘patented article’, ‘patented process’, ‘true and first inventor’ have been drawn from the Patents Act, 1970
- For computation of MAT, the royalty income and corresponding expenditure incurred by the taxpayer are to be ignored.
Taxability of Start-Ups
The Income-tax Act provides certain tax incentives for start-ups. In addition, it is important for the start-ups to be aware of certain income-tax provisions which are mainly relevant in the initial years of incorporation or setting up. The important tax provisions as may be relevant to start-ups are discussed below:
Definition of previous year
- In the case of business or a profession which is either newly set up or a source of income newly coming into existence in any financial year, the previous year commences from the date on which business or profession is set up or from the date on which source of income newly comes into existence in the said financial year and ends on the last date of the said financial year [Section 3].
Provisions relating to computation of taxable income
- Any assistance in cash or in kind in the form of subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement by the Central Government or a State Government or any authority or body or agency is considered as income. Any assistance granted for meeting the cost of asset is reduced from the cost of asset [Section 2(24)(xiii)].
- The assessee setting up an undertaking or enterprise on or after 1st April, 2015 for manufacture or production of any article or thing in the notified backward areas in the states of Andhra Pradesh, Bihar, Telangana and West Bengal is eligible for additional depreciation at the rate of 35% of the actual cost if it acquires new asset between
1st April, 2015 and 31st March, 2020. The assets qualifying for additional depreciation are new machinery or plant (other than ships and aircraft). The deduction will not be allowed in respect of the following:- Machinery and plant which was used within or outside India by any other person before installation by the assessee.
- Machinery or plant is installed in the office premises or residential accommodation or in the guest house.
- Office appliances or road transport vehicles.
- Machinery or plant where whole cost of such machinery or plant was allowed as deduction while computing income chargeable under the head “Profits or gains of business or profession” of any previous year [Section 32(1)(iia)].
- In addition, the assessees referred to in Sr. No. 3 are also eligible for investment allowance of 15% of the actual cost of new asset in the year in which such new asset is installed subject to a condition that asset so acquired is not sold or otherwise transferred within a period of five years from the date of its installation. Upon sale or transfer, the allowance granted at the time of installation is taxed in the year in which sale or transfer has taken place. Where new asset is transferred or sold in connection with the amalgamation or demerger or reorganisation of business referred to in clause (xiii) or clause (xiiib) or clause (xiv) of section 47 of Income-tax Act within a period of five years form the date of installation, the period of holding and consequence of sale or transfer as discussed above will apply to the amalgamated, resulting or successor company as they would have applied to amalgamating, demerged or the predecessor company [Section 32AD].
- In respect of assessees engaged in the manufacture or production of any article or thing set up in locations other than those covered in Sr. No. 3 above are eligible for additional depreciation of 20% of the actual cost. The conditions mentioned at Sr. Nos. (3)(i) to (iv) will also apply here [Section 32(1)(iia)].
- In addition, the assessees referred to in Sr. No. 5 are also eligible for investment allowance of 15% of the actual cost of new assets if actual cost of such new assets acquired in any previous year exceeds ₹25 crores and such assets are installed on or before 31st March, 2017. The investment allowance is allowable in the year in which new asset is installed. The condition that new asset is not sold within five years and the consequences if such condition is not met are same as discussed at Sr. No. 4 above. The provisions in relation to transfer in connection with the amalgamation or demerger or reorganisation as discussed at Sr. No. 4 above will also apply here [Section 32AC(1A)].
- Assessees engaged in business of generation, transmission or distribution of power are also eligible for additional depreciation of 20% of the actual cost. The conditions mentioned at Sr. No. (3)(i) to (iv) will also apply here [Section 32(1)(iia)].
- The following expenses incurred before the date of set up are considered as preliminary expenses and are amortised over a period of five years. 1/5th of such expenses are allowed each year starting from the year when business is set up.
- Preparation of feasibility or project report;
- Conduct of market survey or any other survey necessary for the business;
- Engineering services;
- Legal charges for drafting any agreement between the assessee and any other person for any purpose relating to setting up or conduct of the business;
- Legal charges for drafting and printing of the Memorandum and Articles of Association of the company;
- Fees for registration of the company under the Companies Act;
- Underwriting commission, brokerage and charges for drafting, typing, printing and advertisement of the prospectus in connection with the issue, for public subscriptions of shares or debentures of the company.
The aggregate amount of preliminary expenses in excess of 2.5% of the cost of the project or capital employed is ignored [Section 35D].
Tax Holidays
- A company or a Limited Liability Partnership incorporated between 1st April, 2016 and 31st March, 2021 and holding a certificate of eligible business from the notified Inter-Ministerial Board of Certification will be allowed 100% deduction of profits and gains derived from such business for three consecutive assessment years. The deduction at the option of the assessee can be claimed for any three consecutive assessment years out of seven years beginning from the year in which such company or a limited liability partnership is incorporated. Eligible business means a business carried out by an eligible start-up engaged in innovation, development or improvement of products or processes or services or a scalable business model with a high potential of employment generation or wealth creation. The conditions to be fulfilled for claiming deduction are as under:
- Total turnover does not exceed ₹ 25 crores in the year in which deduction is claimed.
- Business is not formed by splitting up, or the reconstruction of a business already in existence. Revival of business discontinued on account of flood, typhoon, hurricane, cyclone, earthquake or otherwise convulsion of nature, riot or civil disturbance, accidental fire or explosion, action by an enemy or action taken in combating an enemy is permissible subject to fulfilment of certain conditions.
- Business is not formed by the transfer of previously used machinery or plant for any purpose
[Section 80-IAC].
- The loss incurred in any year prior to the previous year by an eligible start-up company referred to in Sr. No. 9 which is not a company in which the public are substantially interested shall be carried forward and set off against the income of the previous year on fulfilment of following conditions:
- If all the shareholders of such company which held shares carrying voting power on the last day of the year or years in which the loss was incurred continue to hold those shares on the last day of such previous year.
- Such loss has been incurred during the period of seven years beginning from the year in which such company is incorporated [Section 79(b)].
- Assessee who is subject to tax audit under section 44AB of the Income-tax Act is eligible for deduction at the rate of 30% of additional employee cost incurred in the previous year for three years starting from the year in which employment is provided. The deduction will not be allowed, if:
- Business is formed by splitting up, or the reconstruction of a business already in existence. Revival of business discontinued on account of flood, typhoon, hurricane, cyclone, earthquake or otherwise convulsion of nature, riot or civil disturbance, accidental fire or explosion, action by an enemy or action taken in combating an enemy is permissible subject to fulfilment of certain conditions.
- Business is acquired by the assessee by way of transfer from any other person or a result of business reorganisation.
- Failure to submit Accountant’s report as may be prescribed.
The emoluments paid or payable in the first year of a new business is regarded as additional employee cost. Emoluments means any sum paid or payable to employee in lieu of his employment but excludes employer’s contribution to provident or pension fund and lump sum payable at the time of termination of service or superannuation or voluntary retirement such as gratuity, severance pay, leave encashment, voluntary retirement benefits, commutation of pension and like [Section 80JJAA].
Interest under section 234C
- The shortfall for the purpose of computing interest under section 234C is ignored to the extent such shortfall is on account of under-estimate or failure to estimate income under the head “Profits or Gains of Business or Profession” in cases where the income accrues or
arises under the said head of income for the first time. [Section 234C]
Measures to discourage cash transactions/ promote digital payments
- The threshold of cash payment to a person has been reduced to ₹10,000 in a single day. The cash payment in excess of ₹10,000 to a person in a single day will not be allowed as deduction in computing income under the head “Profits and Gains of Business or Profession”
[Section 40A(3)]. - The expenditure incurred in a particular year and paid in any subsequent year in cash in excess of ₹10,000 to a person in a single day shall be deemed as profits and gains of business or profession in the year of payment [Section 40A(3A)].
- The expenditure incurred for acquisition of any asset or part thereof in respect of which a payment or aggregate payments made to a person in a single day in cash in excess of ₹10,000 shall be ignored for the purpose of determining actual cost of asset [Section 43(1)].
- The presumptive tax rate as applicable to individual, Hindu undivided family or partnership engaged in a business other than plying, hiring or leasing goods carriages and having total turnover or gross receipts not exceeding ₹2 crore is subject to tax at the rate of 8% of the total turnover or gross receipts. The tax rate is reduced to 6% in respect of the amount of total turnover or gross receipts received by an account payee cheque or an account payee draft or use of electronic clearing system through a bank account during the previous year or before the due date of filing of return of income [Section 44AD].
Taxation of Association of Persons (AOP)/Body of Individuals (BOI)
Any person can be a member in an association of persons whereas only individuals can be members in a body of individuals;
There is common will and desire among the members of an association of persons and they voluntarily join together to carry on the activities. In the case of a body of individuals such common will and desire is lacking and it is formed by operation of law.
The Supreme Court in CIT vs. Indira Balkrishna (1960) 39 ITR 546, defines an association of persons to mean two or more persons joining for a common purpose or common action with an object to produce income, profits or gains and not merely to receive income jointly.
It is only when they associate themselves with a common objective of carrying on an income producing activity that they become an AOP. There must be a common design, combined will and meeting of minds on common objective to constitute an association of persons.
Where land belonging to 5 persons was acquired, compensation paid to them is not assessable in their hands as AOP but it is assessable individually – Sudhir Nagpal vs. Income-tax Officer (2012) 349 ITR 636 (P&H); CIT vs. Memo Devi (1971) 113 ITR 335 (Del.).
If Mr. A, a Firm and a company join together to carry on any business activity otherwise than as a partnership firm, such an entity will be recognised as an association of persons.
A profit –yielding joint venture has to be taxed as a single unit – Meera and company vs. CIT (1997) 224 ITR 635 (SC).
Merely because individual members have been wrongly assessed to tax in respect of profit derived from the joint activity, the AOP does not get absolved from assessment of such income – CIT vs. Ch. Atchaiah (1995) 218 ITR 239 (SC).
In the case of an AOP as well as a BOI the provisions relating to computation and taxability of income are the same.
- In the case of an AOP/BOI any payment of interest, salary, bonus, commission or remuneration paid or payable by such AOP/BOI to any of its member shall be disallowed in the hands of AOP/BOI while computing income under the head P/G/B/P. However, the following points must be noted:
- Rent paid by AOP/BOI to its members, for use of member’s premises for its business, is allowed subject to section 40A(2).
- If any interest is received from the member to whom any interest is also paid then only the net interest will be disallowed under this section.
- If the individual is the member in representative capacity and the interest is paid to him in his individual capacity then no disallowance will be made under this section.
- If the individual is a member in his individual capacity and interest is paid to him in his representative capacity then no disallowance will be made under this section.
- If an individual is a member in a representative capacity in an AOP/BOI and he receives remuneration from the AOP/BOI in his individual capacity, then the same will be disallowed under section 40(ba).
- Section 67A deals with method as to how the share is computed in the Income of AOP/BOI
- Compute taxable income of AOP/BOI, say A
- salaries and interest u/s. 40[ba] as above said is
say B - Allocate A-B to the members in their profit sharing ratio
- Add salary and interest paid to the respective members to the amount
- The sum total shall be the share of each member in AOP/BOI
- N.B : Head wise share of income of AOP/BOI shall remain same in the hands of member.
- Any interest paid by the member on the capital borrowed for the purpose investment in the AOP/BOI from respective share of income assessable under the head income from P/G/B/P
- Every AOP or BOI is chargeable to tax in accordance with Section 167B. According to Section 66 in computing the total income of an assessee, there shall be included share of income of a member of an AOP or BOI subject to Sections 86 and 110.
The head of income under which the share of income of the members shall be taxable is the same head of income as taxable in the hands of AOP/BOI.
Inclusion of share of income and rebate depends upon tax rates applicable to AOP/BOI u/s. 86.
| Applicable Rates | Share of Income to be Included in Total Income of Member | Available Rebate |
| Normal | Yes | Average rate of tax |
| Normal but AOP LIABLE TO NIL TAX | Yes | No |
| Maximum marginal rate | No | Does not arise |
- Tax rates on AOP/BOI are as follows u/s 167B when the shares of members are unknown/indeterminate if such shares unknown at the time of formation or at any time thereafter in respect of full/part of income.
| Where none of the members is liable at a rate higher than MMR à | Entire income of AOP/BOI is liable to MMR |
| Where one OR more members is liable at a rate higher than MMR à | Entire income of AOP/BOI is liable to such higher rate |
- Tax rates on AOP/BOI are as follows u/s. 167B when the shares of members are known and determinate
| Where one of the members have total income[**] exceeding maximum amount not chargeable to tax à | Entire income of AOP/BOI is liable to normal rates applicable to an individual. |
| Where one or more of the members have total income[**] exceeding maximum amount not chargeable to tax à | Entire income of AOP/BOI is liable MMR |
| Where one OR more members is liable at a rate higher than MMR à | Tax on income of AOP/BOI is total of
• Tax at such higher rates on such member’s share in total income • Tax at MMR ON BALANCE INCOME |
| ** MEANS in computing total income of member his share of income from AOP/BOI SHALL BE EXCLUDED | |
The effect of the provisions of Section 167B, is that only those AOP and BOI where the shares of the members are determinate and where none of the members have taxable income, the income of the AOP will be taxed at normal rates applicable to individuals.
- Loss of AOP/BOI shall be carried forward by them only and can’t be allocated to members.
- If the adjusted total income exceeds ₹ 20,00,000/- then provisions of Section 115JEE of Alternate Minimum Tax (AMT) shall be applicable to AOP/BOI.
| Taxation of Charitable Organisations
Charitable organisations are non-profit organisations; however, not all non-profit organisations are charitable organisations. All Charitable organisations may exist as non-profit companies, societies or trusts. However, structure or management is not the essence of the charitable organisation. It is the objectives, which distinguish a charitable organisation from a business organisation. Its functions can range from helping others in times of disaster, giving financial aid, medical services, public works and conducting human right activities. It also encompasses a wide-range of activities, including designing and implementing innovative programmes in various sectors of development, research, documentation, and training and advocacy. They range from very small people’s organisations to highly sophisticated and technologically advanced research and health care or educational institutions. They generally function as a welfare organisation and work for the improvement of the society through their charitable function. A charitable organisation is usually managed by ‘Board of Trustees’ or ‘Governing Council’ and not controlled from the outside. Key participants in the management of a charitable organisation are supposed to act in fiduciary capacity. A charitable organisation cannot distribute profits. It can earn and retain a profit, which is referred to as surplus. A charitable organisation should not serve private cause and public element for its activities is very important. ‘Charitable Purpose’ includes relief of the poor, education, medical relief, preservation of environment (including watersheds, forest and wildlife), preservation of monuments or places or objects of artistic or historic interest and the advancement of any object of general public utility – [Section 2(15)]. The Finance Act, 2015 has added one more limb to the definition with effect from Assessment Year 2016-17 i.e. “Yoga”, thus taking such activities outside the term “advancement of any other object of general public utility”. Where predominant object of the activity is to carry out charitable purpose, it would not lose its character of charitable purpose, merely because some profit arises from such activity. The Finance Act, 2009, has amended the definition of ‘charitable purpose’ to provide that ‘advancement of any other object of general public utility’ will not be considered as ‘charitable purpose’ if it involves carrying on of any activity in the nature of trade, commerce, or business or any activity of rendering any service in relation to any trade, commerce or business for any fee, cess or other consideration irrespective of nature of use or application or retention of the income from such activity. A retrospective amendment is made in the Finance Act, 2010 with effect from A.Y. 2009-10, to the effect that if the aggregate value of the receipts from such activities is not more than ₹ 10,00,000 during the year, such purpose would still be charitable. The monetary limit of ₹ 10,00,000 has been enhanced to ₹ 25,00,000 (A.Y. 2012-13 i.e., w.e.f. 1st April, 2011). From the assessment year 2016-17 onwards monetary limit has been changed to 20% of total receipts of the relevant previous year of the trust undertaking such activities (provided the benefit of monetary limit has been changed to 20% of total receipts of the relevant previous year is available only if such activity is undertaken in the course of actual carrying out of such advancement or any other object of general public utility, regardless of nature of use or application, or retention, of the income from such activity). The effect of this amendment would therefore be that in a particular year, an object of the trust may be regarded as a charitable purpose, but in a subsequent year or an earlier year, it may not be so regarded depending upon the amount of receipts from such activity. Promotion of sports and games is considered to be a charitable purpose within The Bombay High Court in case of DIT (E) vs. Shree Nashik Panchvati Panjrapole (2017) 81 taxmann.com 375 (Bom.) has held that incidental activity which may result in receipt of money, by itself would not make it trade, commerce or business nor an activity in the nature of trade, commerce or business to be hit by the proviso to section 2(15). There is no bar in law to a trust selling its produce at market price – this factor alone will not make it an activity of trade, commerce or business or even in its nature. Similarly, Hyderabad High Court in case of CIT (E) vs. Water & Land Management Training & Research Institute has held that activity carried on by trust had direct connection with preservation of environment, it was not a fit case for invoking first proviso to section 2(15). Though the assessee was providing guidance to farmers and rendering consultancy services to various other organizations as well by charging certain fee the said activity had a direct casual connection to the activity of preservation of environment. Further Delhi High Court in case of Delhi Bureau of Text Books vs. DIT (E) [2017] 81 taxmann.com 412 (Del.) has held that “Preparation & distribution of text books certainly contributes to the process of training & development of the mind and the character of students. There does not have to be a physical school/institution to be eligible for exemption. What is important is the activity. It has to be intrinsically connected to ‘education’. Merely because the assessee had generated profits out of the activity of publishing and selling of school text books it did not cease to carry on the activity of ‘education’. The question to be asked was whether the activity of the assessee contributed to the training and development of the knowledge, skill, mind and character of students?” Also in case of CIT (E) vs. Patanjali Yogapeeth (NYAS) [2017] 87 taxmann.com 54 (Delhi), Delhi High Court has held that “The mere inclusion of yoga specifically w.e.f. 1-4-2016 did not per se imply that it came to be included as a specific charitable category on the same lines as education, medical relief, relief to the poor, etc., but that dissemination of yoga or Vedic philosophy or the practice of yoga or education with respect to yoga was well within the larger term “medical relief”. INCOME OF THE TRUST Subject to sections 60 to 63, Income derived from property under trust wholly for charitable or religious purposes is exempt to the extent such income is applied on the objects of the trust in India, during the previous year. The trust must apply at least 85% of such income on the objects. In such cases balance 15% will deemed to be accumulated for the purpose of charity and exempt. Section 11 provides exclusion of income of a trust subject to the provision of sections 60 to 63. Therefore before excluding any portion of income, first of all it is necessary, to find that income in question is includible in the total income of trust or not. For, if any income received by trust, is includible in the total income of another person by virtue of Section 60 to 63, then the question of exemption doesn’t arise. An explanation has been inserted to sub-section (1) of section 11 by the Finance Act, 2017, w.e.f. 1-4-2018. According to said explanation any amount credited or paid, out of income from property held under the trust to any other trust or institution registered under section 12AA, being contribution with a specific direction that they shall form part of the corpus of the trust or institution, shall not be treated as application of income for charitable or religious purposes. Similar provision is added as twelfth proviso to section 10(23C). Clause ba has been inserted to sub-section (1) of section 12A by the Finance Act, 2017, w.e.f. 1-4-2018 which mandates furnishing of return of income within due date allowed under section 139(4A) for claiming exemption under section 11 In the case of CIT vs. Institute of Banking Personnel Selection 264 ITR 110 (Bom.), the Bombay High Court held that income derived from the trust property is to be computed on commercial principles. Accordingly, adjustment of expenses incurred by the trust for charitable purpose in the earlier years against the income earned by the trust in the subsequent year will have to be regarded application of income of the trust in the subsequent year. The High Court has also held that the depreciation debited in the books should be treated as expenditure for this purpose. The concept of commercial income necessarily envisages deduction of depreciation on assets of the trust. Section 11 provides that the income of the trust is to be computed on commercial basis i.e., as per normal accounting principles. Normal accounting principles clearly provide for deducting depreciation to arrive at income. Also Hon’ble P & H Court in case of CIT vs. Market Committee, Pipli (2011) held that deduction of depreciation in the case of a charitable/religious trust does not amount to double deduction. Further the Hon’ble P & H Court in case of CIT vs. Tiny Tots Education Society (2011) 330 ITR 21 has distinguished the decision in Escorts v. Union of India (1993) 199 ITR 43 (SC) that in present case the income of the assessee being exempt, the assessee is only claiming that the depreciation should be reduced from the income for determining the percentage of funds which have to be applied for the purposes of trust and hence it cannot be held that double deduction is given in allowing the claim for depreciation for computing income for the purposes of section 11. In order to avoid this double benefit, The Finance (No. 2) Act, 2014, now provides that from However, recently the Hon’ble Supreme Court in case of “Rajasthan & Gujarati Charitable Foundation Poona” has upheld the validity of depreciation claim while computing income for charitable purpose as per section 11. It has also concurred with the view of Delhi High Court regarding prospective nature of amendment brought in by Finance Act No. 2/2014. The Court further held that once the assessee is allowed depreciation, he shall be entitled to carry forward the depreciation as well. In the case of CIT vs. Maharana of Mewar Charitable Foundation (1987) 164 ITR 439, the Rajasthan High Court has considered the Circular dated 24th Jan, 1973 of CBDT where CBDT has considered the question as to whether “where a trust incurs a debt for the purpose of the trust, the repayment of the debt would amount to an application of income for the purpose of trust.” According to said circular, if the trust wants to spend more money on charitable and religious purpose, then, in a particular year, it can take a loan and the said loan can be repaid out of the income of the subsequent year & the repayment of the said loan amount out of the income of the subsequent year would amount to application of income for charitable & religious purpose under section 11(1)(a) of the Act. Also in decision of 2009 in the case of DDIT (E) vs. Govindu Naicker Estate (Mad.) 227 CTR 283 it was held Income can be applied by a trust outside of India with a specific permission from CBDT as follows:
If a trust or institution expends or applies more than its income, it can only mean that such excess amount is from corpus or future income. If such deficit is debited to corpus in accounts, it means that the corpus is used to apply for the trust. However, if the deficit is merely carried forward, such deficit is to be absorbed against future income. Hence the excess application in an earlier year may be set off against next year’s income. Under the existing provisions of section 11, the corpus donations given by one trust to another trust were considered as application of income in the hands of donor trust. Further, the recipient trust was able to claim the exemption in respect of such corpus donations without applying them for charitable or religious purposes. In order to curb such a practice, amendment of the section provides that any corpus donation out of the income to any other trust or institution registered u/s. 12AA shall not be treated as application of income of donor trust for charitable or religious purposes. Similar amendment has been made in section 10(23C) in respect of corpus donations given by any fund, trust, institution, any university, educational institution, any hospital or other medical institution referred to in Section 10(23C)(iv) to (via) or to any other trust or institution registered u/s. 12AA.
If the amount applied by the trust is less than 85%, the shortfall in application is not taxable in the following cases [Section 11(2)] —
Section 11, 12, 12A, 12AA & 13 are the complete code dealing with the Charitable Trusts/Institutions and they are required to function under these sections in order to claim exemption. However certain Trusts/Institutions claim exemption under general provisions of Section 10 of the IT Act on their income. Vide The Finance (No. 2) Act, 2014 a trust will now not be entitled to claim exemption under any of the general provisions of section 10. Agricultural income of such a trust however will continue to enjoy exemption as provided under section 10(1). Similarly, a trust eligible for exemption under section 11 will not be barred from claiming exemption under section 10(23C). Further, the entities registered u/s. 12AA are required to file return of income, if the total income without giving effect to the provisions of sections 11 and 12 exceeds the maximum amount which is not chargeable to income-tax. A new clause (ba) has been inserted in section 12A(1) so as to provide for a further condition that the trust shall furnish the return of income within the time allowed u/s. 139 of the Act. In case the return of income is not filed by a trust in accordance with the provisions of section 139(4A), within the time allowed, the trust or institution will lose exemption u/ss. 11 and 12. REGISTRATION The trust shall make an application to the Commissioner for registration u/s. 12A in Form 10A within one year of creation of trust. In such cases registration can be granted from the date of creation of trust. In case of delay, the registration could be granted from inception if Commissioner was satisfied with the reasons of delay. W.e.f. 1-6-2007 Commissioner’s power of condonation of delay was withdrawn. So, the registration would be granted from 1st day of financial year in which application is made. Charitable organisations eligible for exemption & fulfilling other substantive condition were facing genuine hardship due to non application of retrospective registration. In order to provide relief to such charitable organisations, amended section 12A vide the Finance (No. 2) Act, 2014, provides that exemption benefit shall be allowed also in respect of the trust for any preceding assessment year the assessment proceedings for which are pending as on the date of grant of registration provided the objects & activities of the trust remain the same for such preceding assessment year. Further if such organisation has not obtained registration u/s. 12AA for earlier years, no reopening on grounds of non registration would be permitted. The benefits of the amendments would not be available for organisations, which have applied for registration in earlier years and were either refused or cancelled. The Commissioner on receipt of application can call for such documents/information as he thinks fit to satisfy himself about genuineness of activities of trust. On being satisfied, an order shall be passed in writing registering the trust or institution. If not satisfied, an order shall be passed in writing, refusing to register. Every order granting or rejecting registration has to be passed within 6 months from the end of the month in which application is made. The Commissioner can revoke the registration granted to the trust after giving an opportunity of being heard. The appeal against the order u/s. 12AA can be made to Appellate Tribunal. At present, there is no explicit provision in the Act which mandates the trust or institution to approach for fresh registration in the event of adoption of new object or modifications of the objects after the registration has been granted. Section 12A has now been amended by the Finance Act, 2017, w.e.f. 1-4-2018 which mandates furnishing of fresh registration application, within a period of thirty days from the date of said adoption or modification, in case trust has adopted or undertaken modifications of the objects which do not conform to the conditions of existing registration. Upon failure to comply with these conditions, the trust will lose the exemption. Rule 17A of The Income Tax Rules has been substituted by the Income-tax (First Amendment) Rules, 2018, w.e.f. 19-2-2018 and accordingly now the application for registration of charitable or religious trust needs to be furnished electronically through DSC or EVC, as applicable along with requisite documents listed as per amended rule. The incomes of the following Institutions are exempt u/s 10.
** Subject to the condition of application of income to the extent of 85% of the income. Further, Investment of the accumulation has also to be in accordance with provisions of Section 11(5) of the Act. In respect of other institutions listed above, these conditions do not apply. As per Explanation to clause (iiiac) of section 10(23C), any university or other educational institution, hospital or other institution referred to in sub-sections (iiiab) and (iiiac) of section 10(23C) shall be considered as substantially financed by the Government for any previous year, if the Government grant to such institution exceeds prescribed percentage for total receipts (including voluntary contributions) of such institution during the relevant previous year. From A.Y. 2016-17 onwards such institutions are mandatorily required to file their return of income. The Finance Act, 2012 has amended sections 10(23C) and 13 of the Act retrospectively from 1st April, 2009 to ensure that if the purpose of a trust or institution does not remain charitable due to the application of the amended definition of the term “charitable purpose” on account of commercial receipt in a previous year, then such organisation should not get benefit of tax exemption u/s. 10(23) irrespective of whether or not the registration or approval granted or notification issued is cancelled withdrawn or rescinded. Further the memorandum also explains that, this temporary excess in one year may not be treated as altering the very nature of the trust or institution so as to lead to cancellation of registration or withdrawal of approval or rescinding of notification issued in respect of trust or institution. Charities registered for Charitable purpose u/s 12A or Recognition u/s. 80G(5) is governed by rule 11AA and such recognition could be granted up to a period of five years. This position of law has undergone change w.e.f. 1-10-2009. The registration valid and subsisting as on 1-10-2009 will continue to be so recognized in perpetuity. Commissioner of Income Tax has power to recall this recognition after giving opportunity of being heard to charity whose recognition is proposed to be withdrawn. Orders passed under section 12AA or under Section 80G, rejecting the registration of trust/rejecting approval granted under section 80G, are appealable. The appeal lies to the Income Tax Appellate Tribunal. CANCELLATION OF REGISTRATION Section 12AA (3) provides for cancellation of registration of a charitable trust, where the Commissioner is satisfied that the activities of the trust are not genuine or are not being carried out in accordance with the objects of the trust. With effect from 1st October, 2014 the power of Commissioner to cancel registration has been widened to also cover the issues wherein the trust or institution are noticed carrying on activities in contravention of Section 13(i), namely: (1) Income does not ensure for the benefit of the public; (2) Income is applied for the benefit of any religious community or caste; (3) Income is applied for the benefit of specified persons; (4) Funds are invested in prohibited modes. The Tribunal, in the case of Bharati Vidyapeeth vs. ITO 119 TTJ (Pune) 261, had held that this provision does not empower a Commissioner to cancel registration granted under Section 12A before the insertion of Section 12AA. The ratio of this decision is being reversed, by extending the right to cancel registration even to trusts registered under Section 12A. No order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard. AUDIT Where total income before the exemptions u/ss. 11 and 12 of the trust exceeds the maximum amount not chargeable to tax; i.e., ₹ 2,50,000 in order to get exemption u/ss. 11 and 12, the accounts have to be audited by an accountant as defined in explanation below sub-section 2 of Section 288, who will give his report in Form 10B. If the income of the trust/institution referred to in clause (iv), (v), (vi) or (via) of Section 10(23C) without giving effect to the provisions of these clauses exceeds the maximum amount not chargeable to tax, such trusts will have to get their accounts audited by the accountant as defined in Explanation below sub-section (2) of Section 288 (As provided in the Taxation (Amendment) Act, 2006) in Form 10BB. From April 1, 2014, audit report should be submitted electronically. Provisions pertaining to electronic submission of audit report were not applicable prior to April 1, 2014 (for the period prior to April 1, 2014, audit report may be retained by the assessee and it may be furnished in original whenever the Assessing Officer wants to examine it in assessment proceedings or otherwise). INVESTMENTS All investments of the trust must be in forms and modes provided in Section 11(5), which are as under —
All investments of the trust must be in modes provided in Section 11(5). If not, they must be brought in conformity within 1 year from the end of the previous year in which such investments are acquired, or 31st March, 1993, whichever is later. Contravention results in income CORPUS DONATION Where a trust receives voluntary contributions (Income-tax Act 2(24(iia)) made with a specific direction that they will form part of the corpus, such donation will not be included in the total income of the trust [Section 11(1)(d) r.w.s. 12]. Although corpus donation is fully exempt but these are to be considered for the limit of maximum amount, which is not chargeable to income tax i.e., ₹ 250,000/- prescribed for audit of accounts. However, u/s. 12 other voluntary contributions would be deemed to be income of the trust. Subsidy or grant by the Central Government for the purpose of the corpus of a trust or institution established by the Central Government or a State Government as the case may be shall not form part of income of such trust or institution. BUSINESS INCOME Section 11(4A) provides that tax exemption will not apply in relation to any income of a trust being profits and gains of the business unless the business is incidental to the attainment of the objectives of the trust and separate books of account are maintained by such trust in respect of such business. The benefit of exemption to a trust, having the object of advancement of general public utility, would be lost if any business is carried on with gross receipt in excess of ₹ 25 lakh by virtue of proviso to section 2(15). This restriction of ₹ 25 lakh does not apply to a trust having object other than the object of advancement of general public utility. From the assessment year 2016-17 onwards monetary limit has been changed to 20% of total receipts of the relevant previous year of the trust undertaking such activities (the benefit of monetary limit changed to 20% of total receipts of the relevant previous year is available only if such activity is undertaken in the course of actual carrying out of such advancement or any other object of general public utility, regardless of nature of use or application, or retention, of the income from such activity). CAPITAL GAINS Where a capital asset is transferred and entire net consideration is utilised to acquire a new capital asset, the whole of capital gains is deemed to have been applied for charitable/religious purposes. If part of the net consideration is used to acquire a new capital asset, then the capital gains equal to the amount, if any, by which the amount so utilised exceeds the cost of the transferred asset, will be deemed to have been applied for charitable/religious purposes [Section 11(1A)]. There is no period of holding of the asset for availing such exemption by re-investment. Also refer Instruction 883 dated 24-9-1975. TDS The trust is required to deduct tax at source under Chapter XVIIB as per the provisions of the Act. The trust may obtain certificate from the AO u/s. 197 so that it can receive income without deduction of tax at source. The Finance Act, 2018 had extended the application of provisions of section 40(a)(ia) with effect from A.Y. 2019-20 to section 11 for the purposes of determining the amount of application under clause (a) or clause (b) of sub-section (1) thereof. Therefore from A.Y. 2019-20, if a trust fails to comply with the provisions Chapter XVIIB then claim of expenses as application of income will not be allowed. Accordingly so much of expenses not regarded as application will become subject to tax. Also the benefit of exemptions applicable under section 11(1)/(2) cannot be extended to said income. EXEMPTION U/S. 11 NOT TO APPLY IN CERTAIN CASES (SECTION 13)
MISCELLANEOUS POINTS
In case of partly religious and partly charitable institutions where the anonymous donations are directed towards medical or educational institutions run by such entities or anonymous donations are received by wholly charitable institutions, it will be taxable to the extent such donations exceeds 5% of total donations received or ₹ 1,00,000 whichever is more. Such anonymous donations in excess of 5% of the total donations received or ₹ 1 lakh (whichever is higher) are taxed at the rate of 30% and the residual income of such trust is computed after deducting the anonymous donations, would be chargeable to tax as per Regular Slab applicable to the assessee. Such residual income will be eligible for exemption under sections 11/10(23C) subject to satisfaction of conditions of that section. Finance (No. 2) Act, 2014 has provided that the residual income of the trust will be computed by reducing from the total income of the trust, the anonymous donations that have been taxed at the rate of 30% and not the total anonymous donations received by the trust.
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