Parliament Passes Finance Bill
The Lok Sabha on Thursday
approved the Finance Bill 2016, the legislative vehicle containing the FY17
Budget proposals, including a monetary policy committee that would now set
interest rates in tune with an inflation-targeting approach adopted by the Reserve
Bank of India.
The
contentious 1% excise duty on non-silver jewellery, jewellers with more than
Rs.12 crore annual turnover are liable to pay the duty. The procedures will be
decided by the High Level Committee Chaired by Economist Ashok Lahri.
Reserve
Bank Governor Cut to Size: A key proposal to reform how the
Reserve Bank of India sets monetary policy is now closer to reality. The Bill
gives the central bank a mandate to target inflation, guided by a six-member
committee that would set interest rates through a majority vote, a practice
followed by major central banks in the world. The committee would constitute of
three external members appointed by the government and three members from RBI,
including its governor who would have a casting (extra) vote in the event of a
tie. At present, the RBI governor is the sole authority to decide on monetary
policy.
Following are the changes in the Finance Bill passed in Lok Sabha on May 4:
Clause 3
Clause (29A) of section 2 of the Income-tax Act defines
"long-term capital asset" to mean a capital asset which is not a
short-term capital asset. Clause (42A) of section 2 of the IT Act defines
short-term capital asset to mean a capital asset held by an assessee
for not more than thirty-six months immediately preceding the date of its
transfer.
In view of the budget announcement, it is proposed to provide
that in case of shares of unlisted companies period of holding shall be more
than 24 months instead of more than 36 months for them to be treated as long
term capital asset.
Clause 7
Para 138 and 139 of Finance Minister’s budget speech 2016-17 are
reproduced below:-
“138. In case of superannuation funds and recognized provident
funds, including EPF, the same norm of 40% of corpus to be tax free will apply
in respect of corpus created out of contributions made after 1.4.2016.
139. Further, the annuity fund which goes to the legal heir
after the death of pensioner will not be taxable in all three cases. Also, we
are proposing a monetary limit for contribution of employer in recognized
Provident and Superannuation Fund of Rs. 1.5 lakh per
annum for taking tax benefit.”
Subsequent to the introduction of the Finance Bill in the
Parliament, in a statement made in the Lok Sabha on
8th March, 2016, the Finance Minister made the following announcement:-
“In view of the representations received, the Government would
like to do a comprehensive review of this proposal and, therefore, I withdraw
the proposals made in para 138 and 139 of my budget speech. The proposal of 40
per cent exemption given to NPS subscribers at the time of withdrawal
remains....”
The proposed amendment is to give effect to the aforesaid
announcements.
Clause 16
In order to provide clarity on the tax treatment of expenditure
for obtaining right to use spectrum for telecommunication services, the Finance
Bill, 2016 vide clause 16 proposed to insert a new section 35ABA in the IT Act
to provide that the fees paid for obtaining right to use the spectrum is to be
amortized over the period for which the right to use the spectrum has been
granted. Further, the deduction shall be available in equal installments
over the period beginning from the year of actual payment to the year upto which the right to use spectrum remains in force.
Department of Telecommunication has allowed for two options (i) upfront payment (ii) the payment for acquiring right to
use spectrum to be paid over installments along with
interest. In order to provide a level playing field, it is proposed to provide
that the scope of amortization regime for acquisition of spectrum shall be
extended to include, not only actual payments but also liability incurred in
terms of provision made for payment of spectrum fees as per the installment scheme granted by the Dept. of
Telecommunication provided the installments are paid
within the specified time. It is further proposed to provide that where, in a
previous year, any deduction has been claimed and granted to the assessee and subsequently there is failure to comply with
any of the conditions specified in the scheme, then such deduction shall be
deemed to have been wrongly allowed and Assessing Officer may re-compute the
total income of the assessee for the said previous
year by making necessary rectification.
Clause 19
Section 35CCC of the Act provides for weighted deduction of 150
per cent of expenditure incurred on notified agricultural extension project. In
view of the phasing out plan of deductions announced by the Government, the
Finance Bill, 2016 proposes to amend section 35CCC of the Act to restrict the
deduction to 100% from financial year 2017-18 (Assessment Year 2018-19).
Considering the importance and the need for support to
agriculture, it is proposed to extend the benefit of weighted deduction under
section 35CCC for notified agricultural extension project till 31.03.2020 i.e up to financial year 2019-20 (Assessment Year 2020-21).
New clause 29A
The Finance Bill, 2016 seeks to provide for an Income
Declaration Scheme, 2016. The Scheme provides that where the income chargeable
to tax is declared in the form of investment in any asset, the fair market
value of such asset as on the date of commencement of the Scheme shall be
deemed to be the undisclosed income for the purposes of the scheme.
As a consequence of the provisions of this Scheme, an amendment
in section 49 of the IT Act is proposed to be carried out so as to provide that
the cost of acquisition for the purposes of computation of capital gains upon
subsequent transfer of such asset by the declarant shall be the fair market
value as on the date of commencement of the Scheme.
In view of the above, it is proposed to insert Clause 29A in the
Finance Bill, 2016 so as to amend section 49 of the IT Act. This amendment will
be effective for the assessment year 2017-18 and subsequent assessment years.
Clause 41
Clause 41 of the Finance Bill, 2016 seeks to provide tax benefit
for ‘start-up’. For this purpose it is proposed to define start-up as a
‘company’ whose turnover does not exceed Rs. 25 crore
in any of the previous years beginning on or after 01.04.2016 and ending on
31.03.2021.
It is proposed to include, in addition to company, the Limited
Liability Partnership (LLP) in the definition of the term ‘start-up’.
Clause 43
Clause 43 of the Finance Bill 2016 seeks to insert a new section
80-IBA in the IT Act to provide that, subject to fulfillment
of certain conditions, the activity of developing and building housing projects
shall be allowed 100% deduction of profits derived from such projects.
Representations have been received seeking clarification
regarding certain conditions specified in the proposed new section.
Accordingly, it is proposed to provide for the following:-
a) the distance from municipal limits shall be measured aerially;
b) the limits for size of plot of land and size of residential unit will be
1000 square metres and 30 square metres respectively in four metros namely,
Chennai, Delhi, Kolkata and Mumbai and any place which is not more than 25 km
from these metros; and in any other place, the size limits for a plot of land
and size of residential unit will be 2000 square metres and 60 square metres
respectively;
c) the Competent Authority, for the purposes of the proposed new section
80-IBA, shall be the authority empowered to approve the building plan by or
under any law for the time being in force;
d) approval of the competent authority shall be required for the building plan;
and
e) the project, in respect of which deduction is being sought, should be the
only project on such plot of land.
New clause 47A
The Finance Bill, 2016 seeks to provide exemption from payment
of Securities Transaction Tax (STT) on transactions undertaken in foreign
currency on a recognised stock exchange in International Financial Services
Centre (IFSC) and extends the benefit of exemption for long term capital gains.
However, by implication, benefit of 15% of tax on short term capital gain under
section 111A may be denied in case of such transactions owing to non-fulfilment
of condition of payment of STT.
Accordingly, it is proposed to amend section 111A of the IT Act
so as to provide that the concessional rate of 15% on short term capital gain
will be available in respect of the transactions which take place in foreign
currency on a recognised stock exchange even if STT is not paid. This amendment
will be effective for the assessment year 2017-18 and subsequent assessment
years.
Clause 49
In order to provide relief to newly setup domestic companies
engaged solely in the business of manufacturing or production of any article or
thing, the Finance Bill, 2016 proposes to insert a new section to provide that
the income payable in respect of the total income of a domestic company for any
previous year relevant to the Assessment Year beginning on or after 01.04.2017
shall be computed @ 25% at the option of the company. For the purposes of
availing benefit of this section the company has to fulfil certain conditions
including that it has been setup and registered on or after 01.03.2016 and has
not claimed any benefit under the provision of section 10AA or accelerated
depreciation, investment allowance or any profit linked deduction etc. The
option by the company is to be furnished on or before the due date of
furnishing the return of income.
It is proposed to amend clause 49 so as to clarify that, -
i. for the purpose of availing
benefit of section 115BA, the company should not be engaged in any business
other than that of manufacture or production of any article or thing and the
associated activities in the nature of research in relation to, or distribution
of, any article or thing manufactured or produced by it;
ii. the option is to be exercised by the company on or
before the due date of filing of first return of income which it is required to
furnish and cannot be exercised thereafter; and
iii. the option once exercised cannot be changed in
any subsequent year.
Clause 50
Clause 50 of the Finance Bill, 2016 seeks to insert a new
section 115BBDA in the IT Act to provide that any income by way of dividend in
excess of Rs. 10 Lakh from domestic companies shall
be chargeable to tax at the rate of 10% on gross basis in the hands of an assessee being an individual, an HUF or a firm, resident in
India.
It is proposed to clarify that tax shall be chargeable on
dividend income only to the extent it is in excess of Rs.
10 lakh in aggregate as received from a domestic company or companies. This
amendment will be effective for the assessment year 2017-18 and subsequent
assessment years.
Clause 52
In order to encourage indigenous research & development
activities and to make India a global R & D hub, the Finance Bill, 2016
proposes to insert a new section 115BBF in the IT Act, to provide that a person
resident in India deriving income by way of royalty from patent developed and
registered in India will be taxed at a flat rate of 10% on gross basis.
It is proposed to amend the provisions of proposed Section
115BBF of the Act to provide option to eligible assesse to tax on gross basis.
Further, once the option is exercised, the assessee
shall remain in that regime for a period of five years. If the assessee opts out of the scheme before the expiry of the
period of five years, he shall not be eligible to take the benefit of the
provisions of section 115BBF for a period of five years subsequent to the year
in which he does not declare income in accordance with the provisions of the
proposed section 115BBF.
It is also proposed to provide that 75% of the total expenses
incurred for developing patent shall be incurred by the resident himself in
India.
Clause 53
The Finance Bill, 2016 seeks to provide concessional rate of MAT
at 9% in case of units, being companies, which are located in IFSC and
incorporated on or after 01.04.2016.
It has been represented that concessional rate of MAT at 9% may
also be made available to units, being companies, which are located in IFSC and
incorporated prior to 01.04.2016.
Accordingly, it is proposed to delete the condition that units
should be set-up on or after 01.04.2016.
Clause 60
Clause 60 of the Finance Bill, 2016 proposes to insert a new
Chapter XII-EB in the Income-tax Act consisting of sections 115TD to 115TF.
Under the proposed provisions an additional tax at the maximum marginal rate is
to be paid by a charitable trust or institution on its net assets on specified
date if the trust or institution which has been granted registration under
section 12AA of the Income-tax Act,
i. either converts into a
form which is not eligible for registration under section 12AA; or
ii. gets merged into an entity which is not another
trust or institution having similar object and registered under section 12AA;
or
iii. on its dissolution the assets are not transferred
to another registered charitable institution,
It has been represented that levy of such tax on mere order of
cancellation of registration would lead to genuine hardship as in several cases
the cancellation of registration by the tax administration is not upheld by the
appellate authority. Further many organisations obtain section 12AA
registration after several years of their creation and there is no provision
for condonation of delay. Therefore, such
institutions have duly paid taxes before their registration under section 12AA.
It has also been represented that there are certain exempt income like
agriculture income which should not be taxed at the time of exit from the
regime.
Accordingly, it is proposed to amend clause 60 of the Finance
Bill in order to provide that: -
i. the additional income-tax
on accreted income, in the cases where registration under section 12AA has been
cancelled or application for fresh registration under section 12AA has been
rejected, and an appeal has been filed against such order would apply only from
the date on which such order of cancellation or rejection has been upheld by
ITAT;
ii. for the purpose of computation of
accreted income, the assets as on the beginning of the previous year from which
the registration under section 12AA or section 12A is applicable shall be
excluded. However, if the trust or institution has been allowed to claim
benefit under section 11 & 12 for any earlier previous year on the basis of
registration under section 12AA (although of a later date) then the asset to be
excluded shall be those which the trust or institution had at the beginning of
the year being earliest of such previous years; and
iii. If it is established that any asset is acquired directly
from agricultural income by the trust or institution, then such asset and
liability relating thereto shall be excluded while computing the accreted
income.
Clause 66
Existing section 143(1D) provides that processing of a return
shall not be necessary, where a notice has been issued to the assessee under section 143(2). By the Finance Bill, a
proviso has been added to the said sub-section to read that “Provided that such
return shall be processed before the issuance of an order under sub-section
(3)”.
Clarifications have been sought on the proposed amendment
regarding the time available for processing of returns selected for scrutiny.
It is proposed to amend sub-section (1D) of section 143 to
provide that the processing of return shall not be necessary before expiry of
the period provided for processing of return where a notice has been issued to
the assessee under section 143(2). However, such
return shall be processed before the issuance of the assessment order.
Clause 81
Section 194LBB provides for deduction of tax @10% by Category –
I & II Alternate Investment Fund (AIFs) on payments made to their
investors. The proposed clause 81 seeks to amend section 194LBB in order to
provide that tax deduction shall be @10% where the payee is a resident and at
the “rates in force” where the payee is a non-resident.
It is proposed to amend clause 81 to provide that no deduction
shall be effected in respect of any income which is not chargeable to tax under
the provisions of the IT Act in case the payee is a non-resident.
Clause 86
The existing provisions of section 206C of the Act, inter alia,
provide that the seller shall collect tax at source at specified rate from the
buyer at the time of sale of specified items such as alcoholic liquor for human
consumption, tendu leaves, scrap, mineral being coal
or lignite or iron ore, bullion etc. in cash exceeding two lakh rupees.
In order to bring high value transactions within the tax net,
the Finance Bill, 2016, inter alia, proposes to amend the aforesaid section,
vide clause 86, to provide that the seller shall collect the tax at the rate of
one per cent from the purchaser on sale of motor vehicle of the value exceeding
ten lakh rupees.
In order to clarify that retail sale of motor vehicle of the
value exceeding ten lakh rupees is also liable to TCS, it is proposed to amend
the provisions of clause 86 of the Finance Bill, 2016 to clarify that buyer for
the purposes of tax collection at source shall be a person who obtains in any
sale, motor vehicle of the value exceeding rupees ten Lakh.
Clause 96
Brief
The proposed section gives power to Assessing Officer,
Commissioner (Appeals), Principal Commissioner or Commissioner to levy penalty
for under-reporting or misreporting of income. However, the proposed section
does not mention the point of time for initiation of penalty proceedings by the
respective authorities. It is hence proposed to provide that initiation of
penalty under the proposed section 270A is to be made during the course of
assessment, appellate or revision proceedings, as the case may be.
Sub-section (2) of the proposed section 270A provides
circumstances as to when a person shall be considered to have under-reported
his income. However it does not include the situation when the amount of deemed
total income reassessed as per the provisions of section 115JB or 115JC is
greater than deemed total income assessed or reassessed immediately before such
reassessment. It is proposed to provide for the said situation by inserting a
new clause in sub-section (2) of section 270A.
As per sub-section (10) of the proposed section 270A, the tax
payable on under-reported income shall be amount of tax calculated:
(a) in the case of a company, firm or
local authority, on under-reported income as if the under-reported income were
the total income; and
(b) in case of any other assessee, at the rate of 30%
on under-reported income.
With a view to rationalize the method for computation of tax for
the purposes of determining the quantum of penalty ,
it is proposed that the penalty be linked to tax determined on the under
reported income at the applicable rate. The income which has been taxed earlier
or the maximum amount not chargeable to tax, as the case may be, shall be taken
into account for the purpose of determination of tax on under reported income.
Clause 97
The proposed section 270AA provides for immunity from levy of
penalty for under reported income and prosecution under section 276C of the IT
Act if the assessee pays tax on the assessed income
and does not file any appeal against the assessment order.
Section 276CC of the Income-tax Act provides for prosecution in
case of wilful failure to furnish return of income. It is proposed to extend
the immunity available in proposed section 270AA to initiation of proceedings
under section 276CC.
New clause106A
Clause 96 of the Finance Bill, 2016 proposes to insert a new
section 270A in the IT Act to provide for levy of penalty on under reported
income. Section 270A proposes to substitute the penalty for concealment of
income as provided under section 271(1)(c) of the IT
Act.
Section 276C of the IT Act provides for prosecution for wilful
attempt to evade tax. It is proposed to amend section 276C of the Income-tax
Act to provide for initiation of proceedings under the said section in cases of
under-reporting of income under section 270A.
Clause 112
The Finance Bill, 2016 proposes to provide for a monetary limit
of Rs. 1.5 lakh per annum on the contribution by the
employer in recognized Provident Fund for the purpose of tax benefit to the
employee.
In view of the announcement made by the Finance Minister in the Lok Sabha on 08.03.2016, it is proposed to withdraw the
proposed amendment.
Clause 192
Chapter IX of the Finance Bill seeks to introduce the Income
Declaration Scheme, 2016 which provides an opportunity to persons who have not
paid full tax in the past to come forward and declare the undisclosed income
and pay tax, surcharge and penalty totalling in all to 45% of such undisclosed
income so declared.
It is proposed to import section 138 and 119 of the Income-tax
Act to the Income Declaration Scheme, 2016.
The government has been delaying discussion on Presidential
proclamation on Uttarakhand as it expected to suffer
reverses in the Rajya Sabha. The presidential
proclamation has to be approved by both the Houses of Parliament.