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DIRECT TAX LAWS

AMENDMENTS AT A GLANCE – FINANCE ACT, 2016
S.No. Particulars Section
Income-tax
A. Basic Concepts
1. Rates of income-tax
2. Government grant or subsidy, for the purpose of the corpus 2(24)
of a trust or institution established by the Central
Government or State Government not to be included in the
definition of income”
3. Set-off of losses not permissible against unexplained 115BBE
income, investments, money etc. chargeable under
sections 68/69/69A/69B/69C/69D
4. Increase in quantum of rebate 87A
B. Residential Status and Scope of Total Income
5. No income deemed to accrue or arise in India to a foreign 9(1)(i)
mining company through or from the activities which are [Explanation 1]
confined to display of uncut and unassorted diamonds in a
Special Notified Zone
6. Deferral of applicability of POEM based residence test and 6(3) & 115JH
incorporation of transition mechanism for a company
incorporated outside India, which has not earlier been
assessed to tax in India
7. Special Taxation Regime for offshore funds: Modification of 9A
certain conditions
C. Incomes which do not form part of total income
8. Exemption under section 10(34) not to apply to dividend 10(34) &
chargeable to tax in accordance with section 115BBDA 115BBDA
9. Exemption of income accruing or arising to a foreign company 10(48A)
on account of storage of crude oil in a facility in India and sale
of crude oil therefrom to any person resident in India
10. Exemption of interest on deposit certificates issued under 10(15)(vi) & 2(14)
the Gold Monetization Scheme, 2015
11. Payment from NPS Trust to an employee on closure of his 10(12A)
account or on his opting out of the pension scheme exempt
to the extent of 40% of such payment

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D. Income from house property
12. Extension of period for completion of construction from 3 24
years to 5 years, for claiming higher deduction of upto Rs.2
lakh in respect of interest on capital borrowed for
construction of self-occupied house property
13. Special provision for arrears of rent and unrealized rent 25A
received subsequently

E. Profits and gains of business or profession
14. Non-compete fee received/receivable for not carrying on a 28(va) & 55
profession chargeable under the head “Profits and gains of
business or profession”
15. Assessees engaged in the business of transmission of 32(1)(iia)
power eligible for additional depreciation
16. Deduction under section 32AC to be available in the year
of installation in respect of actual cost of new plant and
32AC
machinery acquired in the P.Y.2015-16 and P.Y.2016-17, if
the actual cost of such new plant and machinery acquired
in the relevant previous year exceeds Rs. 25 crores, even
if the new plant and machinery has not been installed in
the relevant previous year but has been installed on or
before 31.3.2017
17. Phasing out of incentives under the Income-tax Act, 1961 35/35AC/35AD/
35CCC/35CCD
18. Tax treatment for spectrum fee 35ABA
19. Scope of section 35AD expanded to include the business 35AD & 80-IA
of developing, maintaining and operating a new
infrastructure facility
20. NBFCs eligible for claim of deduction for provision for bad 36(1)(viia)
and doubtful debts
21. Sum payable to Indian Railways for use of railway assets 43B
allowable as deduction in the year in which the liability to
pay such sum is incurred, only if payment is made on or
before the due date of filing of return
22. Increase in threshold limit of gross receipts/turnover under 44AA, 44AB &
section 44AD of a business to be eligible for opting the 211
presumptive taxation scheme
23. Presumptive Taxation Scheme for assessees engaged in 44ADA & 44AB
eligible profession

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F. Capital Gains
24. Period of holding of unlisted shares to qualify as a long- 2(42A)
term capital asset to be reduced from “more than 36
months” to “more than 24 months”
25. Total value of assets of a private company or unlisted 47(xiiib)
company not to exceed Rs.5 crore in any of the three
preceding previous years for exemption of transfer of
capital asset or intangible asset on conversion of such
company into LLP
26. Transfer of units by unit holders on consolidation of plans 47(xix)
within a mutual fund scheme not to be regarded as transfer
27. Redemption by an individual of sovereign gold bonds 47(viic) & 48
issued by RBI not to constitute transfer for the purpose of
levy of capital gains tax
28. Cost of acquisition of asset, whose fair market value has 49(5)
been taken into account for the Income Declaration
Scheme, 2016
29. Stamp duty value on the date of agreement may be adopted 50C
as full value of consideration of immovable property, being
land or building or both, if whole or part of the consideration
has been paid by an account payee cheque or account
payee bank draft or use of electronic clearing system
through a bank account, on or before the date of the
agreement for the transfer of such immovable property
30. Exemption of long-term capital gains on investment in 54EE
notified units of specified fund
31. Exemption of long-term capital gains on sale of residential 54GB
property, where net consideration on sale is invested in
shares of an eligible start-up
32. Long-term capital gains on shares of private companies to be 112(1)(c)
subject to concessional rate of tax@10% in the hands of non-
corporate non-residents and foreign companies
G. Income from Other Sources
33. Shares received by an individual or HUF as a consequence of 56(2)(vii)
demerger or amalgamation of a company or a business
reorganisation of a co-operative bank not to be subject to tax
by virtue of section 56(2)(vii)
H. Set-off and Carry Forward and Set-off of losses
34. Filing of return of loss on or before the due date under 80 & 139(3)
section 139(1) mandatory for carry forward of loss from
specified business under section 73A

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115TA. with BEPS action plan . 92D. Additional deduction for interest on loan borrowed for 80EE acquisition of self-occupied house property by an individual 36. 10(23FC). 115UA& 194LBA 45. 80-IAB. Furnishing of report in respect of international group in line 286. Transfer Pricing and Other Provisions to check avoidance of tax 48. 271AA. Deductions from Gross Total Income 35. Deductions in respect of profits and gains from housing 80-IBA projects 39. Tax incentives for new start-ups 80-IAC 38. 111A. Concessional Taxation Regime for royalty income in 115BBF & 115JB respect of patent developed and registered in India 42. Taxation of E-Commerce Transactions 50. I. 115JB & 115-O 44. Non-applicability of MAT in respect of certain foreign 115JB companies 43. New Taxation Regime for Securitisation Trusts 115TCA. 115TC & 10(35A) 47.Country-By-Country Report and 271GB & 273B Master file L. Dividend distributed by SPV to business trust exempt from 115-O. 35AD 40. Rationalisation of the definitions of “buyback” and “distributed income” for the purpose of levy of additional 115QA income-tax on income distributed by a company on buyback of unlisted shares from a shareholder 46. levy of DDT 10(23FD). 10(50). Tax on accreted income of certain trusts and institutions 115TD K. Deduction in respect of employment of new employees 80JJAA J. 80-IB. Assessment of various entities 41. Phasing out of profit-linked incentives 80-IA. Monetary limit for deduction under section 80GG increased 80GG 37. Equalisation levy Chapter VIII of Finance Act. 2016. 4 © © The The Institute Institute of of Chartered Chartered Accountants Accountants of of India India . Extension of time limit available to TPO for making an order 92CA(3A) 49. Tax incentives to International Financial Services Centres 10(38).

reassessment 153 and recomputation revised 56. Appeals and Revision 58. Provision for filing of appeal by the Assessing Officer 253 against the order of DRP done away with 60. 270A. 40(a)(ib) M. Scope of permissible adjustments while processing a return 143(1)(a) expanded 54. Time limit for passing an order for waiver of interest and 220(2A). 119. 273A & 279 63. 273A & penalty 273AA 65. in search cases where assessee does not admit 271AAB(1)(c) such income in the course of search nor discloses the same in the return of income for the specified previous year filed on or before the specified date 5 © © The The Institute Institute of of Chartered Chartered Accountants Accountants of of India India . Rationalisation of provisions relating to filing of return of 139 income 53. Income-tax Authorities 51. Time limit for completion of assessment under section 153A 153B 57. 271AAB. Reduction in time limit for rectification of mistake apparent 254(2) from the record by the Appellate Tribunal 61. Raising the total income limit of the cases that may be 255(3) decided by single member bench of Appellate Tribunal P. Penalty leviable for under-reporting of income and mis. Removal of reference to “Senior Vice President” 252 59. Time limit for calling in question jurisdiction of Assessing 124(3) Officer where notice is served under section 153A(1) or 153C(2) N. 253. Deemed escapement of income on the basis information 147 & 133C obtained by the Income-tax authorities O. Time limits for completion of assessment. Mandatory processing of return of income before issuance 143(1D) of assessment order 55. Immunity from imposition of penalty and prosecution 270AA & 249 64. 271AA. reporting of income 271. 271A. Levy of penalty at a flat rate of 60% on undisclosed income. Assessment Procedure 52. Penalties 62.

significant notifications and circulars issued between the period 1. 2017 and November. Expansion of scope of TCS 206C 74.2016 have been included under the respective chapters. Provision of legal framework for automated processing and 282A. Deduction of tax at source under section 194LBB at ‘rates 194LBB. Deduction. 2(37) & in force’ on income distributed by an Investment Fund to its 197 non-resident unit-holders and enabling provision for obtaining certificate of nil deduction or lower deduction of tax at source under section 197 70. are not relevant for May. 143(2) & paperless assessment 2(23C) R. 194BB. 194H.In addition. 6 © © The The Institute Institute of of Chartered Chartered Accountants Accountants of of India India . [Chapter XVII-B] 194DA. 194EE. 66. Interest on refunds 244A 73. Penalty for failure to comply with notice under section 142(1) 272A & 288 or 143(2) of failure to comply with a direction u/s 142(2A) Q.2015 and 30.Y. which are effective from A. Increase in threshold limits and reduction of rates for 192A. Collection & Recovery of Tax 69. Requirement to furnish PAN for avoiding higher tax deduction not to apply to non-corporate non-residents and 206AA foreign companies subject to certain conditions Note . 194LA 71. deduction of tax at source in respect of certain payments 194C.2018-19 or any subsequent assessment year. Provision for bank guarantee in lieu of provisional 281B attachment of property for protecting interests of the revenue 68. 2017 examinations. 194D.5.4. 194G. Advance tax payment scheme to be the same for 211 & 234C companies and other assessees 72. Miscellaneous Provisions 67. Students may note that certain amendments included in this Supplementary Study Paper – 2016.

Part II lays down the rate at which tax is to be deducted at source during the financial year 2016-17 from income subject to such deduction under the Income-tax Act. 194D. 2016 (A) Rates of Tax Section 2 of the Finance Act.Y. the rate of tax deduction at source has been decreased from 10% to 5% in respect of income by way of insurance commission payable to a resident non-corporate assessee. 2016 will become Part I of the First Schedule to the Finance Act. 194B. 194BB.2016-17 from certain income Part II of the First Schedule to the Finance Act. surcharge@12% would be levied on such income- tax if the income or aggregate of income paid or likely to be paid and subject to deduction exceeds ` 1 crore. These rates of tax deduction at source are the same as were applicable for the F. 1961. 1 BASIC CONCEPTS AMENDMENTS BY THE FINANCE ACT. 194A. rates for deducting income-tax from income chargeable under the head "salaries" and the rates for computing advance tax for the financial year 2016-17 i. seeks to specify the rates at which income-tax is to be levied on income chargeable to tax for the assessment year 2016-17. 2016 read with Part I of the First Schedule to the Finance Act. Further. However. If the recipient is a non-resident individual or HUF or AOP or BOI. 2016 specifies the rates at which income-tax is to be deducted at source under sections 193. Surcharge would be levied on income-tax deducted at source in case of non-corporate non-residents and foreign companies. A. Part III lays down the rates for charging income- tax in certain cases.. If the recipient is co-operative society or a firm. whether incorporated or not. the scope of Part II of the First Schedule has been expanded to include the “rates in force” for the purpose of tax deduction at source under section 194LBB from income distributed to a non-resident unit holder of an investment fund and under section 194LBC from income distributed to a non-resident investor of a securitization trust. surcharge@15% would be levied on such income-tax if the income or aggregate of income paid or likely to be paid and subject to deduction exceeds ` 1 crore.e. or artificial juridical person. 194. Rates for deduction of tax at source for the F.2017-18.Y. Part III of the First Schedule to the Finance Act. 194LBA and 195 during the financial year 2016-17. 7 © The Institute of Chartered Accountants of India . being a non-resident. 2017 and so on.Y.2015-16. 2016.

e..000 income exceeds ` 5. being resident individuals of the age of 60 years or more but less than 80 years at any time during the previous year also remains the same.000 but does not exceed total income exceeds ` 5. A. Also.00.00. However. If the recipient is a foreign company. where the income or aggregate of such incomes paid or likely to be paid and subject to deduction exceeds ` 10 crore.Y.000 8 © The Institute of Chartered Accountants of India .000 for senior citizens.e.000 Where the total income exceeds 10% of the amount by which the ` 2.00.00. Surcharge would not be levied on deductions in all other cases.000 but does not exceed amount by which the total ` 10.00.00. wherever applicable. Resident individuals of the age of 80 years or more at any time during the previous year would continue to be eligible for the higher basic exemption limit of (i.. The tax slabs are shown hereunder - (i) (a) Individual/ HUF/ AOP / BOI and every artificial juridical person Level of total income Rate of income-tax Where the total income does not exceed Nil ` 2. and (ii) 5% would be levied on such income-tax.. 2016 specifies the rate at which income- tax is to be deducted at source from "salaries" and also the rate at which "advance tax" is to be computed and income-tax is to be calculated or charged in certain cases for the financial year 2016-17 i. The basic exemption limit of ` 3. 2017-18.000).50.000 ` 2. It may be noted that education cess @2% and secondary and higher education cess @1% would continue to apply on tax deducted at source in respect of salary payments. ` 2.50.00. where the income or aggregate of such incomes paid or likely to be paid and subject to deduction exceeds ` 1 crore but does not exceed ` 10 crore.50.50. education cess and secondary and higher education cess would not be added to tax deducted or collected at source in the case of a domestic company or a resident non-corporate assessee.e.000 plus 30% of the ` 10. ` 5. computation of "advance tax" and charging of income-tax in certain cases during the financial year 2016-17 Part III of the First Schedule to the Finance Act.000 Where the total income exceeds ` 1. Rates for deduction of tax at source from "salaries".000 plus 20% of the ` 5.25.00. would be added to tax deducted at source in cases of non-corporate non-residents and foreign companies.000). The general basic exemption limit for individuals/HUFs/AOPs/BOIs and artificial juridical persons remains unchanged (i.000 Where the total income exceeds ` 25. education cess @2% and secondary and higher education cess @1% on income-tax plus surcharge. surcharge@ – (i) 2% would be levied on such income-tax.000 amount by which the total income exceeds ` 10.

00.00.00.00.00.000 ` 10.20.000 Where the total income exceeds ` 1.00.00.000 Where the total income exceeds 10% of the amount by which the ` 3.000 plus 30% of the ` 10.000 9 © The Institute of Chartered Accountants of India .000 plus 30% of the amount by exceeds ` 20.000 Where the total income exceeds 20% of the amount by which the ` 5.000 (c) For resident individuals of the age of 80 years or more at any time during the previous year Level of total income Rate of income-tax Where the total income does not Nil exceed ` 5.201 6-17.000 Where the total income exceeds ` 1.00.00.000 exceeds ` 5.000 amount by which the total income exceeds ` 10.000 Where the total income exceeds ` 20.000 but does which the total income exceeds not exceed ` 20.Y. (b) For resident individuals of the age of 60 years or more but less than 80 years at any time during the previous year Level of total income Rate of income-tax Where the total income does not Nil exceed ` 3.000 but does not exceed total income exceeds ` 3.000 plus 30% of the ` 10.00.000 (3) Where the total income ` 3.000 but does not exceed total income exceeds ` 5.000 amount by which the total income exceeds ` 10.00.00.000 but does not exceed by which the total income ` 10.000 plus 20% of the amount by exceeds ` 10.000 (ii) Co-operative society There is no change in the rate structure as compared to A.000 plus 20% of the amount ` 5.000 (2) Where the total income ` 1.000 ` 5.00.000 ` 10.00. Level of total income Rate of income-tax (1) Where the total income does 10% of the total income not exceed ` 10.00.000 which the total income exceeds ` 20.00.

This rate would apply to an LLP also. making substantial investment (i. being an entrepreneur from his Unit in SEZ. 10 © The Institute of Chartered Accountants of India . 1961 (1) 10AA Exemption of profits and gains derived from export of articles or things or from services by a assessee. or distribution of.Y. exceeding ` 25 crores) in new plant and machinery during the previous year.e.2017-18 is the same as that for A..Y. and (iii) the company while computing its total income has not claimed any benefit under any of the provisions of the Act listed hereunder - Section Incentive under the Income-tax Act.Y.2017-18 and thereafter. - (i) the company has been setup and registered on or after 1st March. at the option of the company.e. 30% on the whole of the total income of the local authority.2017-18 is the same as that for A.2017-18 are as follows: (1) In the case of a domestic company (i) Where the total turnover or gross receipt in the 29% of the total previous year 2014-15 does not exceed ` 5 crore income (ii) In case of other domestic companies 30% of the total income New section 115BA has been inserted to provide that the income-tax payable in respect of the total income of a domestic company for any previous year relevant to A. (v) Company The rates of tax for A.Y.Y. 2016. (iii) Firm/Limited Liability Partnership (LLP) The rate of tax for a firm for A. if.2016-17 i. such article or thing manufactured or produced by it. (4) 32AD Deduction@15% of actual cost of new plant and machinery acquired and installed by an assessee in a manufacturing undertaking located in the notified backward areas of specified States. (3) 32AC Deduction@15% of actual cost of new plant and machinery acquired and installed by manufacturing companies. (iv) Local authority The rate of tax for a local authority for A. (2) 32(1)(iia) Additional depreciation@20% of actual cost of new plant and machinery acquired and installed by manufacturing and power sector undertakings.Y.. (ii) the company is not engaged in any business other than the business of manufacture or production of any article or thing and research in relation to.e.. shall be computed @25%.2016-17 i. 30% on the whole of the total income of the firm.

(7) 35(1)(ii)/ Weighted deduction for payment to any research (iia)/(iii) association. company. while computing its total income. (v) the company has also not claimed set-off of any loss carried forward from any earlier assessment year. for undertaking scientific research or social science or statistical research. (6) 33ABA Deduction of 20% of the profits of a business of prospecting for. (10) 35AC Deduction of expenditure by way of payment to a public sector company or local authority or to an association or institution approved by the National Committee for carrying out any eligible project or scheme. other than the provisions of section 80JJAA. depreciation other than 11 © The Institute of Chartered Accountants of India . coffee or rubber in India. (5) 33AB Deduction of 40% of profits and gains of business of growing and manufacturing tea. university etc. (11) 35AD Investment-linked tax deduction for specified businesses. (12) 35CCC Weighted deduction in respect of expenditure incurred on notified agricultural extension project (13) 35CCD Weighted deduction in respect of expenditure incurred by a company on notified skill development project. if such loss is attributable to the deductions specified in (iii) and (iv) above [such loss shall be deemed to have been already given full effect to and no further deduction for such loss shall be allowed for any subsequent year].e.. (iv) the company has also not claimed benefit of any deduction in respect of certain income under Part-C of Chapter-VI-A. or extraction or production of. to the extent deposited with SBI in an approved scheme or deposited in Site Restoration Account. (8) 35(2AA) Weighted deduction for payment to a National Laboratory or University or IIT for scientific research (9) 35(2AB) Weighted deduction for in-house scientific research expenditure incurred by a company engaged in the business of bio-technology or in the business of manufacture or production of an article or thing. to the extent deposited with NABARD in accordance with scheme approved by the Tea/Coffee/Rubber Board. (vi) normal depreciation under section 32 [i. petroleum or natural gas or both in India.

(vii) the option is exercised in the prescribed manner on or before the due date specified under section 139(1) for furnishing the first of the returns of income which the person is required to furnish under the provisions of the Income-tax Act. surcharge is payable at the rate of 7% of income-tax computed in accordance with 12 © The Institute of Chartered Accountants of India .. (ii) Co-operative societies/Local Authorities/Firms/LLPs Where the total income exceeds ` 1 crore. whose total income is > ` 1 crore but ≤ ` 10 crore Where the total income exceeds ` 1 crore but does not exceed ` 10 crore. (2) In the case of a 40% of the total income company other than However. specified royalties and fees for rendering a domestic company technical services (FTS) received from Government or an Indian concern in pursuance of an approved agreement made by the company with the Government or Indian concern between 1. 1961.3. the additional amount of income-tax payable (together with surcharge) on the excess of income over ` 1 crore should not be more than the amount of income exceeding ` 1 crore. (iii) Domestic company (a) In case of a domestic company. the additional amount of income-tax payable (together with surcharge) on the excess of income over ` 1 crore should not be more than the amount of income exceeding ` 1 crore. surcharge is payable at the rate of 15% of income-tax computed in accordance with the provisions of para (i)(a)/(b)/(c) above or section 111A or section 112. additional depreciation under section 32(1)(iia)] is determined in the prescribed manner. it cannot be subsequently withdrawn for the same or any other previous year.e.1976 (in case of royalties) and between 1..Y.2017-18 are as follows - (i) Individual/HUF/AOP/BOI/Artificial juridical person Where the total income exceeds ` 1 crore.3.4. Marginal relief is available in case of such persons having a total income exceeding ` 1 crore i. Surcharge The rates of surcharge applicable for A. Marginal relief is available in case of such persons having a total income exceeding ` 1 crore i. However. once the option has been exercised for any previous year. surcharge is payable at the rate of 12% of income-tax computed in accordance with the provisions of para (ii)/(iii)/(iv) above or section 111A or section 112.3.1976 (in case of FTS) would be chargeable to tax @50%.1964 and 31.e.1961 and 31.

100.The gross receipts of X Ltd.600.00.36. being the amount of total income exceeding ` 10 crore].000. computed@ 32. However.01.000. Therefore.00. Example Compute the tax liability of X Ltd. is ` 1.000).01.01.. Example Compute the tax liability of Y Ltd.00.100 (i. However.. Marginal relief is available in case of such companies i.Y.2014-15 is ` 7. 13 © The Institute of Chartered Accountants of India . a domestic company.Y.000 would be ` 31.000 of X Ltd. ` 32. The marginal relief is` 1. whose total income is > ` 10 crore Where the total income exceeds ` 10 crore.000.22.22. the tax cannot exceed ` 3. [Note . the tax of ` 30. The marginal relief is ` 14..2017-18 and the total income does not include any income in the nature of capital gains [Note .33.600 . for the P.Y.00.00.00. assuming that the total income of X Ltd.2014-15 is ` 9.00.1% (including surcharge@7%) is ` 32. surcharge is payable at the rate of 12% of income-tax computed in accordance with the provisions of para (v)(1) above or section 111A or section 112.33.e. a domestic company.01.00.00.000 payable on total income of ` 1 crore plus ` 1.22..42.000 and the total income does not include any income in the nature of capital gains.000).01.00.The gross receipts of Y Ltd..00.` 3. the additional amount of income-tax payable (together with surcharge) on the excess of income over ` 10 crore should not be more than the amount of income exceeding ` 10 crore.000 [i. the tax payable on ` 10.00. assuming that the total income of Y Ltd.33.100 .00. the provisions of para (v)(1) above or section 111A or section 112.01.000 would be ` 3.00. being the amount of total income exceeding ` 1 crore).1% of ` 10 crore) payable on total income of ` 10 crore plus ` 1.000] Answer The tax payable on total income of ` 1. for the P.e.00.e.000.6% (including surcharge@12%) is ` 3.Y.000 for A.000 (32... Therefore.00. the tax of ` 3.00. (b) In case of a domestic company.000 of Y Ltd. computed@ 33. the tax payable on ` 1.21.e.e.00. ` 3.600 (i. for A.2017-18 is ` 10.e.00.000] Answer The tax payable on total income of ` 10.42.` 31. Marginal relief is available in case of such companies i. the tax cannot exceed ` 31.00.42. the additional amount of income-tax payable (together with surcharge) on the excess of income over ` 1 crore should not be more than the amount of income exceeding ` 1 crore.36.000 (i.

Rates of Surcharge A.Y. 10 crore. Nil 15% Nil 12% 5% Nil 7% 12% Nil 2% 14 © The Institute of Chartered Accountants of India . 2017-18 Individual/HUF/AOP/ Co-operative Society/ BOI/AJP Local Authority/Firm/LLP Domestic Company Foreign Company If TI ≤ If TI > If TI ≤ If TI > If TI ≤ If TI ≤ If TI > `1 If TI > ` 1 If TI > If TI > ` 1 `1 `1 `1 `1 ` 10 `1 ` 10 crore crore crore but ≤ ` crore but ≤ ` crore crore crore crore crore crore 10 crore.

. co - operative societies. Education cess. No marginal reli ef would be available in respect of such cess. (iv) Foreign company (a) In case of a foreign company. Education cess / Secondary and higher education cess on income-tax The amount of income-tax as increased by the union surcharge.304% way of dividend 115QA Tax on distributed income of domestic company for 20% 23. wherever applicable.e. education cess@2% and secondary and higher education cess@1% would be leviable on the distribution tax inclusive of surcharge. wherever applicable. LLPs. Applicability of surcharge and cess on distribution tax Surcharge@12% would be leviable on distribution tax levied under sections 115-O. local authorities and companies. Further. Marginal relief is available in case of such companies i. Further. 115- QA. calculated at the rate of 2% of such income-tax plus surcharge. AOP/BOIs.e. is leviable in the case of all assessees i. should further be increased by an “Education cess on income-tax”. is leviable to fulfill the commitment of the Government to provide and finance secondary and higher education.e. 115R. including SHEC. the additional amount of income - tax payable (together with surcharge) on the excess of income over ` 1 crore should not be more than the amount of income exceeding ` 1 crore. (1) (2) (3) (4) Section Particulars Rate Effective of tax rate of tax 115-O Tax on distributed income of domestic companies by 15% 17. surcharge is payable at the rate of 5% of income-tax computed in accordance with the provisions of para (v)(2) above or section 111A or section 112.e.. surcharge is payable at the rate of 2% of income-tax computed in accordance with the provisions of paragraph (v)(2) above or section 111A or section 112. individuals. respectively. artificial juridical persons. deemed total income) exceeds ` 1 crore and ` 10 crore. firms. whose total income is > ` 10 crore Where the total income exceeds ` 10 crore. Marginal relief is available in case of such companies i. “Secondary and higher education cess on income-tax” (SHEC) @1% of income-tax and surcharge. (b) In case of a foreign company.072% buyback of shares 15 © The Institute of Chartered Accountants of India . the additional amount of income-tax payable (together with surcharge) on the excess of income over ` 10 crore should not be more than the amount of income exceeding ` 10 crore. Note – Marginal relief would also be available to those companies which are subject to minimum alternate tax under section 115JB. 115TA and 115TD. whose total income is > ` 1 crore but ≤ ` 10 crore Where the total income exceeds ` 1 crore but does not exceed ` 10 crore. in cases where the book profit (i. if applicable.. HUFs.

respectively. (B) Government grant or subsidy. cash incentives. 16 © The Institute of Chartered Accountants of India .608% 115TD Tax on accreted income of certain trusts and 30% 34.3. Thereafter. (2) Where the Government grant is not directly relatable to the asset acquired. duty drawbacks etc.5.608% institutions Note – The dividend and income referred to in section 115-O and 115R.768% corporate non-residents and foreign companies 115TA Tax on income distributed by securitization trusts (upto 31.608%  Distribution by infrastructure debt funds to non. under section 115-O and 115R.84% HUFs  Distribution by debt funds to other persons 30% 34. for the purposes of computation of income chargeable to income-tax under the head “Profit and gains of business or profession” or “Income from other sources”. have to be first grossed up by applying the rates of tax mentioned in column (3) above. (1) This ICDS requires Government grants relatable to depreciable fixed assets to be reduced from actual cost/WDV. following the mercantile system of accounting. for the purpose of the corpus of a trust or institution established by the Central Government or State Government not to be included in the definition of income [Section 2(24)] Effective from: A.84%  Distribution to other persons 30% 34. the effective rates of tax under section 115-O and 115R mentioned in column (4) above have to be applied on gross dividend/income to compute the additional income-tax payable by domestic companies and mutual funds. 5% 5. (ii) ICDS VII deals with the treatment of government grants. in exercise of the powers conferred under section 145(2).Y. notified ten income computation and disclosure standards (ICDSs) to be followed by all assessees. vide Notification dated 31. then. It recognizes that government grants are sometimes called by other names such as subsidies. respectively.2017-18 (i) The Central Government had.2016)  Distribution to persons exempt from tax Nil Nil  Distribution to individuals and HUFs 25% 28.2015. a pro-rata reduction of the amount of grant should be made in the same proportion as such asset bears to all assets with reference to which the Government grant is so received. 115R Tax on distributed income of mutual funds  Distribution by debt funds to individuals and 25% 28.

. Subsidy or Grant which are not included in the definition of income u/s 2(24) Subsidy or grant or reimbursement taken into account for determination of actual cost of depreciable asset Subsidy or grant by the Central Government for the purpose of the corpus of a trust or institution established by a Central Govt. in line with the requirement in ICDS VII. grant or cash assistance or subsidy etc. assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement. all other grants ha d to be recognized as upfront income or as income over the periods necessary to match them with the related costs which they are intended to compensate. (iv) Further. (5) All other Government Grants have to be recognized as income over the periods necessary to match them with the related costs which they are intended to compensate. (4) Government grants receivable as compensation for expenses or losses incurred in a previous financial year or for the purpose of giving immediate financial support to the person with no further related costs to be recognized as income of the period in which it is receivable. (vi) In order to avoid genuine hardship in such cases. the Finance Act. provided by the Central Government for budgetary support of a trust or any other entity formed specifically for operationalizing certain government schemes would become taxable in the hands of trust or any other entity. (v) Consequently. by the Central Government or a State Government or any authority or body or agency in cash or kind to the assessee is included in the definition of income. which has to be reduced from written down value or actual cost. (iii) Thus. (3) Grants relating to non-depreciable fixed assets have to be recognized as income over the same period over which the cost of meeting such obligations is charged to income. as the case may be. The only exclusion was the subsidy or grant or reimbursement which has been taken into account for determination of the actual cost of the asset in accordance with Explanation 10 to section 43(1). Accordingly. by whatever name called. section 2(24) has been amended to provide that subsidy or grant by the Central Government for the purpose of the corpus of a trust or institution established by the Central Government or State Government shall not be included in the definition of income. or State Govt. except in case of government grant relating to a depreciable fixed asset. 17 © The Institute of Chartered Accountants of India . 2015 had included sub-clause (xviii) in the definition of income under section 2(24).

(iii) However. and many Courts have taken a view that losses shall not be allowed to be set-off against income referred to in section 115BBE.Y. no deduction in respect of any expenditure or allowance in relation to income referred to in the said sections shall be allowable under any provision of the Income-tax Act.Y. section 115BBE(2) has been amended to expressly provide that no set off of any loss shall be allowable against income brought to tax under sections 68 or section 69 or section 69A or section 69B or section 69C or section 69D. a rebate of an amount equal to 100% of income-tax or an amount of ` 2.2016-17) 18 © The Institute of Chartered Accountants of India . (D) Increase in rebate under section 87A Effective from: A.000 (from ` 2. (ii) Further. section 87A has been amended to increase the maximum amount of rebate available under this provision from existing ` 2. money etc. 1961. (ii) In order to provide further relief to resident individuals in the lower income slab. the subject matter of litigation. unexplained expenditure under section 69C and amount borrowed or repaid on hundi under section 69D are taxable at the rate of 30%.2017-18. chargeable under sections 68/69/69A/69B/69C/69D [Section 115BBE] Effective from: A. unexplained money under section 69A.2017-18 (i) Under section 87A. therefore. undisclosed investments under section 69B.Y. there is no specific provision prohibiting set-off of losses against income referred in section 115BBE.2017-18) A.000 to ` 5.000. whichever is less.2017-18 (i) Under section 115BBE. This issue was. Rebate under section 87A ` 5.000 from A.Y. (C) Set-off of losses not permissible against unexplained income. unexplained investments under section 69.000 (upto A.Y. is allowed from the amount of income-tax payable by an individual resident in India whose total income does not exceed ` 5 lakh. (iv) In order to avoid further litigation and clarify the real intent of law. investments. unexplained cash credits under section 68.

(ii) Income accruing through business connection: Deemed to accrue or arise in India Section 9 provides circumstances under which income is deemed to accrue or arise in India. Since the activity of mere display of rough diamonds even with no actual sale taking place in India may lead to creation of business connection in India of the FMC. 2016 (A) No income deemed to accrue or arise in India to a foreign mining company through or from the activities which are confined to display of uncut and unassorted diamonds in a Special Notified Zone [Explanation 1 to section 9(1)(i)] Effective from: A. 2 RESIDENCE AND SCOPE OF TOTAL INCOME AMENDMENTS BY THE FINANCE ACT.Y. 2016-17 (i) Scope of total income of a non-resident The scope of total income of a non-resident is provided under section 5(2). It includes all income which accrues or arises in India or which is deemed to accrue or arise in India or is received or is deemed to be received in India. through or from a business connection in India is deemed to accrue or arise in India. As per section 9(1)(i). whether directly or indirectly. (iii) Possible creation of business connection on account of display of rough diamonds by foreign mining companies (FMCs) to India : A matter of concern for FMCs In order to ease shifting of operations by FMCs to India and to allow the trading of rough diamonds in India by the leading diamond mining companies of the world. clause (e) has been inserted in Explanation 1 to section 9(1)(i) to provide that in the case of a foreign company engaged in the business of 19 © The Institute of Chartered Accountants of India . a “Special Notified Zone” (SNZ) has been created. (iv) No income shall be deemed to accrue or arise in India from activities confined to display of rough diamonds in SNZs: Insertion of new clause (e) in Explanation 1 to section 9(1)(i) In order to facilitate the FMCs to undertake activity of display of uncut diamond (without any sorting or sale) in the SNZ. the probable tax consequence has been a matter of concern for the mining companies contemplating to undertake these activities in India. all income accruing.

(3) Since the condition for a company to be resident was that the whole of control and management should be situated in India and that too for whole of the year. (2) A company is said to be resident in India in any previous year. 1961 (1) Incorporation of the concept of POEM in the Income-tax Act. or (b) during that year. (2) The place of effective management has been defined in the OECD commentary on model convention to mean a place where key management and commercial decisions that are necessary for the conduct of the entity's business as a whole. (iii) Incorporation of concept of POEM in the Income-tax Act. 2017-18 (i) Determination of residential status of a company. conditions to be satisfied by a company. if- (a) it is an Indian company. no income shall be deemed to accrue or arise in India to it through or from the activities which are confined to display of uncut and unassorted diamonds in any special zone notified by the Central Government in the Official Gazette in this behalf. in substance. made. are.Y. (B) Deferral of applicability of POEM based residence test and incorporation of transition mechanism for a company incorporated outside India and which has not earlier been assessed to tax in India [Section 6(3)] Related amendment in section: 115JH Effective from: A. to be a resident in India for a previous year are provided. The existing provision gave scope for creation of shell companies which were incorporated outside but controlled from India. 1961 to determine the residence of a company would be in line with international standards. the control and management of its affairs is situated wholly in India. It would also 20 © The Institute of Chartered Accountants of India . a company could easily avoid becoming a resident by simply holding a board meeting outside India. other than an Indian company: Certain concerns: (1) Under section 6(3). The Organisation of Economic Cooperation and Development (OECD) also recognises the principle of POEM. The concept of 'place of effective management' for determination of residence of a company as a tie-breaker rule for avoidance of double taxation is recognised by many of the tax treaties entered into by India. mining of diamonds. (ii) Place of effective management: Globally recognized concept for determination of residence of a foreign company (1) 'Place of effective management' (POEM) is a globally recognized concept for determination of residence of a company incorporated in a foreign jurisdiction.

Y. the issues concerning the applicability of specific provisions of the Income-tax Act.2017-18. Explanation to section 6(3) defines “place of effective management” to mean a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are.Y. from A.Y. Particularly. help in aligning the provisions of the Act with the Double Taxation Avoidance Agreements (DTAAs) entered into by India with other countries..Y. (2) This requirement would also discourage the creation of shell companies outside India but being controlled and managed from India. since they are in the nature of compliance requirements which would 21 © The Institute of Chartered Accountants of India . 1961 to a company which is incorporated outside India and has not earlier been assessed to tax in India. or (ii) its place of effective management.Y P.Y. section 6(3) was substituted by the Finance Act. TDS provisions. computation of total income. in that year. 2015 with effect from A. set off of losses and manner of application of transfer pricing regime have to be addressed.2016-17 to A. Determination of residential status of a company Is the company an Whether POEM of The company is No No Indian company? the company is in a non-resident India in the relevant for the relevant P. (iv) Implementation of concept of POEM for determining residential status of foreign companies: Certain concerns (1) In order to address the concerns regarding the applicability of provisions of the Income-tax Act. Yes Yes The company is a resident in India for the relevant P. in substance made. 1961 on advance tax payment.2016-17 to provide that a company would be resident in India in any previous year. the applicability of POEM has been deferred by one year i. is in India . if- (i) it is an Indian company. (3) Accordingly.e.

modification and adaptation subject to which.Y. not have been undertaken by the company at the relevant point of time on account of absence of any such requirement under tax laws of country of incorporation of such company. issues relating to depreciation computation also arise when in earlier years it has not been subject to computation under the Income-tax Act. (v) Deferral of applicability of POEM-based residence test by one year and putting in place requisite transition mechanism Therefore. if the foreign company is resident in India in that previous year and the previous year ends on or before the date on which such assessment proceeding is completed.2017-18. it may be held to be resident based on POEM being in fact in India. (2) Transition Mechanism for a company incorporated outside India and has not been assessed to tax earlier [New Chapter XII-BC – Section 115JH] A transition mechanism for a company which is incorporated outside India and has not earlier been assessed to tax in India has been provided by insertion of Chapter XII-BC comprising of section 115JH. (a) Accordingly. In effect. Likewise. 2016 has provided the following : - (1) Deferral of applicability of POEM-based residence test by one year [Section 6(3)] The applicability of POEM based residence test has been deferred by one year and the determination of residence based on POEM shall be applicable from A. treatment of unabsorbed depreciation. (2) It is also possible that a company may be claiming to be a foreign company not resident in India. set- off or carry forward and set off of losses. the transition provisions would also cover any subsequent amendment upto the date of determination 22 © The Institute of Chartered Accountants of India . This assessment would be well after closure of the previous year and it may not be possible for company to undertake many of procedural requirements. the Central Government is empowered to notify exception. (b) In a case where the determination regarding foreign company to be resident in India has been made in the assessment proceedings relevant to any previous year. the Finance Act. special provision relating to avoidance of tax and the collection and recovery of taxes shall apply in a case where a foreign company is said to be resident in India due to its POEM being in India for the first time and the said company has never been resident in India before. these transition provisions would also cover any subsequent previous year. However. so as to ensure clarity in respect of implementation of POEM based rule of residence and to address concerns of the stakeholders. the provisions of the Act relating to computation of income. then. in the course of assessment. 1961.

Example ABC Inc. in that year.2017-18. is in India.Y.Y. ABC Inc. of POEM in an assessment proceeding.. Determine the residential status of ABC Inc. the benefit of such notification would not be available to the foreign company. Answer Section 6(3) has been substituted by the Finance Act. in substance made by the Board of Directors at Sweden. is a foreign company. exemption or relief has been claimed and granted to the foreign company in accordance with the notification. Accordingly. in that year. or (ii) its place of effective management. normal provisions of the Act would apply. if- (i) it is an Indian company. it would be resident in India for P. 23 © The Institute of Chartered Accountants of India . where in a previous year. then. however. spread awareness about the company’s products and explore further opportunities. (c) In the notification issued by the Central Government. has set up a liaison office in Mumbai in April. apply thereto and the period of four years for rectification of mistake apparent from the record has to be reckoned from the end of the previous year in which the failure to comply with the condition stipulated in the notification takes place. once the transition is complete. any benefit. (d) Every notification issued in exercise of this power by the Central Government shall be laid before each house of the Parliament. The significant management and commercial decisions are. not having a permanent establishment in India. (ii) the Assessing Officer may re-compute the total income of the assessee for the said previous year and make the necessary amendment as if the exceptions. is in India .Y. 2016 with effect from A. a Swedish company headquartered at Stockholm. then – (i) the benefit. Therefore. there is failure to comply with any of the conditions specified therein. The liaison office takes decisions relating to day to day routine operations and performs support functions that are preparatory and auxiliary in nature.2016-17 only if its place of effective management. In this case. exemption or relief shall be deemed to have been wrongly allowed. certain conditions including procedural conditions subject to which these adaptations shall apply can be provided for and in case of failure to comply with the conditions.2017-18 to provide that a company would be resident in India in any previous year. so far as may be. and (iii) the provisions of section 154 shall. for A. 2016 in compliance with RBI guidelines to look after its day to day business operations in India. modifications and adaptations as per the notification does not apply. However. and subsequently.

there are instances where a fund may not qualify as a tax resident of a country on account of domestic tax laws or legal framework of the country. has only a liaison office in India through which it looks after its routine day to day business operations in India. an eligible investment fund shall not be said to be resident in India merely because the eligible fund manager undertaking fund management activities on its behalf is located in India. for the eligibility of the fund. 2016: 24 © The Institute of Chartered Accountants of India . These conditions relate to residence of fund. investor base. India would still be able to collect information regarding fund under the applicable DTAA or TIEA as under the agreements with many of the countries. (iv) The benefit under section 9A is available subject to satisfaction of the conditions provided in.. investment diversification and payment of remuneration to fund manager at arm's length. information can be exchanged in respect of persons who may not be resident of the country.Y. being a foreign company is a non-resident for A.2016-17.Y. in substance made.Y. (v) However. ABC Inc. The place where decisions relating to day to day routine operations are taken and support functions that are prepara tory or auxiliary in nature are performed are not relevant in determining the place of effective management. section 9A(3). made by the Board of Directors outside India in Sweden. in substance. since the significant management and commercial decisions are. (ii) In the case of an eligible investment fund. since its place of effective management is outside India in the P. Accordingly. the fund management activity carried out through an eligible fund manager acting on behalf of such fund shall not constitute business connection in India of the said fund. In the case of ABC Inc. the following amendments have been made in section 9A by the Finance Act.2016-17 is not in India.. Hence. corpus size. The legal and regulatory framework of the country of incorporation of funds forms the basis for their global structure and the same cannot be modified in respect of any investment made in a specific country.Y. (C) Special Taxation Regime for offshore funds: Modification of certain conditions [Section 9A] Effective from: A. large pension funds or mutual funds from USA or SICAVs (open ended collective investment schemes) from Luxembourg. inter-alia. For example. the conditions relating to restriction on fund carrying on business or controlling fund managing business in India or from India restricts the flexibility of operation for funds and focus should be on nature of activities undertaken in India. Further. ABC Inc. 2017-18 (i) Under section 9A.2017-18. a special regime has been provided in respect of offshore funds. its place of effective management for P. (iii) Further. Explanation to section 6(3) defines “place of effective management” to mean a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are.

SIGNIFICANT NOTIFICATIONS/CIRCULARS 1. dated 17. directly controlling and of section or indirectly.2015] Section 6(1) of the Income-tax Act. whose activities constitute a Accordingly. Basis for determining the period of stay in India for an Indian citizen. is in India for a period or periods amounting in all to 60 days or more in that year. being a member of the crew of a foreign bound ship leaving India [Notification No. 1961 provides that an individual is said to be resident in India in any previous year. (2) Activities The fund shall not carry on or The condition of fund not [Clause (k) control and manage. in India or from India Note – Further. clause (k) business connection in India of section 9A(3) has other than the activities been amended to undertaken by the eligible fund provide that the fund manager on its behalf. if he— (a) is in India in that year for a period or periods amounting in all to 182 days or more. the Fund shall shall be restricted only in neither engage in any activity the context of activities which constitutes a business in India and will not connection in India nor have apply in respect of any person acting on its behalf activities from India. directly or indirectly. 9A(3). any business in managing any business 9A(3)] India or from India. 70/2015. or (b) having within the four years preceding that year been in India for a period or periods amounting in all to 365 days or more. notified by the Central Government in this behalf. 25 © The Institute of Chartered Accountants of India . 2016 (1) Residence The Eligible Investment Fund The Eligible Investment [Clause (b) has to be resident of a country Fund shall also mean a of section or specified territory with fund established or 9A(3)] which India has entered into a incorporated or Double Taxation Avoidance registered outside India Agreement (DTAA) or Tax in a country or a Information Exchange specified territory Agreement (TIEA). This is shall not carry on or provided in clause (l) of section control and manage.8. any business in India. Condition Existing Provision Amendment by the Finance Act.

the CBDT has. Thus. However. not include the period commencing from the date entered into the Continuous Discharge Certificate in respect of joining the ship by the said individual for the eligible voyage and ending on the date entered into the Continuous Discharge Certificate in respect of signing off by that individual from the ship in respect of such voyage. The residential status is determined on the basis of the number of days of his stay in India during a previous year.Y. he will be resident only if he stayed in In dia for 182 days during the previous year. 2016. the period or periods of stay in India shall. 2001 made under the Merchant Shipping Act. Eligible voyage A voyage undertaken by a ship engaged in the carriage of passengers or freight in international traffic where- (i) for the voyage having originated from any port in India. vide this notification. To remove this uncertainty. According to Rule 126. determine the 26 © The Institute of Chartered Accountants of India . with retrospective effect from 1st April. there is uncertainty regarding the manner and the basis of determining the period of stay in India for an Indian citizen. and (ii) for the voyage having originated from any port outside India. the period or periods of stay in India shall.2016-17. in exercise of the powers conferred by Explanation 2 to section 6(1) read with section 295. Explanation 2 has been inserted to section 6(1) to provide that in the case of an individual. inserted Rule 126 in the Income-tax Rules. in case of an individual. However. has as its destination any port in India. Anand is an Indian citizen and a member of the crew of a Singapore bound Indian ship engaged in carriage of passengers in international traffic departing from Chennai port on 6 th June. Example Mr. From the following details for the P. being a crew member. where an Indian citizen leaves India as a member of crew of an Indian ship or for the purpose of employment outside India. be determined in the prescribed manner and subject to the prescribed conditions. in respect of such voyage. being a citizen of India and a member of the crew of a foreign bound ship leaving India. has as its destination any port outside India. Accordingly. being a citizen of India and a member of the crew of a ship. 1958. The Explanation to this Rule defines the meaning of the following terms: Terms Meaning Continuous Discharge This term has the meaning assigned to it in the Merchant Certificate Shipping (Continuous Discharge Certificate-cum-Seafarer's Identity Document) Rules. in respect of an eligible voyage. 1962 to compute the period of stay in such cases. under section 6(1). the conditions to be satisfied by an individual to be a resident in India are provided. 2015. in case of foreign bound ships where the destination of the voyage is outside India.

2016 and ending on 9 th December. Anand’s period of stay in India during the P. residential status of Mr.. the Singapore port).2016-17) is 750 days: Particulars Date Date entered into the Continuous Discharge Certificate in respect 6th June. the voyage is an eligible voyage for the purposes of section 6(1)..e. the Chennai port) and having its destination at a port outside India (i. 2016 of joining the ship by Mr. Therefore.2017-18. an Indian citizen who is a member of the crew of the ship.Y. Anand.Y. the period beginning from 6 th June. Anand Date entered into the Continuous Discharge Certificate in respect 9th December. Hence. Consequently. Mr.2016-17) is 400 days and last seven previous years (preceding P. originating from a port in India (i.Since the residential status of Mr.2016-17 being less than 182 days. of signing off the ship by Mr.Y. 27 © The Institute of Chartered Accountants of India . he is a non-resident for A.2017-18. Anand 2016 Answer In this case.Y.Y.Y.Y. assuming that his stay in India in the last 4 previous years (preceding P. 365 days – 187 days].2016 -17 would be 178 days [i.Y. Anand for A. Accordingly.. Anand is “non-resident” for A. has to be excluded for computing the period of his stay in India. 2016. being the dates entered into the Continuous Discharge Certificate in respect of joining the ship and signing off from the ship by Mr. the voyage is undertaken by an Indian ship engaged in the carriage of passengers in international traffic. Note .e. 187 days [25+31+31+30+31+30+9] have to be excluded from the period of his stay in India.2016-17 is less than 182 days. his period of stay in the earlier previous years become irrelevant.e. Since his period of stay in India during the P.2017-18 consequent to his number of days of stay in P.

. Mr. 3 INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME AMENDMENTS BY THE FINANCE ACT. This may result in vertical inequity amongst the tax payers since dividend distributed to those shareholders (who receive high dividend) are subject to tax only at the rate of 15% whereas had such income been taxable in their hands directly. Hindu undivided family (HUF) or a firm who is resident in India. the same would have been subject to tax at the rate of 30%.e... section 115BBDA has been inserted to provide that any income by way of aggregate dividend in excess of ` 10 lakh shall be chargeable to tax in the case of an individual. (iv) Further. holding 5% shares in A Ltd. X. Mr.50 lakh. Example A Ltd.X and Mr. holding 10% shares in A Ltd. Mr. (v) Accordingly.2017-18 (i) Section 10(34) exempts dividend received by a shareholder of a domestic company. at the rate of 10%. (iii) In order to remove this vertical inequity.2015-16 and distributed the same on 10. since the same is subject to dividend distribution tax (DDT) under section 115-O..2016. a proviso has been inserted in section 10(34) to provide that the exemption available thereunder in respect of dividend received by a shareholder from a domestic company would not apply to income by way of dividend chargeable to tax under section 115BBDA.. receives dividend of ` 17 lakh in July. Y. receives dividend of ` 8. a domestic company. 28 © The Institute of Chartered Accountants of India . Discuss the tax implications in the hands of A Ltd. declared dividend of ` 170 lakh for the year F.Y.Y.Y. the taxation of dividend income in excess ` 10 lakh shall be on gross basis i.7. no deduction in respect of any expenditure or allowance or set -off of loss shall be allowed to the assessee in computing the income by way of dividends. 2016. 2016 (A) Exemption under section 10(34) not to apply to dividend chargeable to tax in accordance with section 115BBDA Effective from: A. (ii) Under section 115-O. dividends distributed by a domestic company are subject to tax@ 15% at the time of distribution in the hands of company declaring dividend.

100 [i. The gross dividend is ` 200 lakh [` 170 lakh × 100/85]. heavy financial burden arises on account of the filling cost of such facility.e. being dividend received in excess of ` 10 lakh. Resultantly. X on dividend of ` 7 lakh under section 115BBDA would be ` 72.2016-17 is subject to dividend distribution tax under section 115-O in the hands of A Ltd. (iii) An underground storage facility is being set up by the Indian Strategic Petroleum Reserves Limited for storage of crude oil as part of strategic reserves.Y. Dividend distribution tax @17. However. it also guarantees price stability for Indian oil companies. Therefore. (ii) In the hands of Mr. (iii) In the hands of Mr. the activities of storage of crude oil by such foreign companies and its sale in India would result in business connection and hence. since only dividend received in excess of ` 10 lakh would be taxable under section 115BBDA. (v) For achieving tax neutrality to encourage the NOCs & MNCs to store their crude oil in India and to build up strategic oil reserves. the entire dividend of ` 8. Solution (i) The dividend of ` 170 lakh declared and distributed in the P. Section 9(1)(i) provides that income would be deemed to accrue or arise in India if any income accrues or arises. dividend received upto ` 10 lakh would be exempt under section 10(34). the dividend received has to be grossed up by applying the rate of 15%.Y have not received dividend from any other domestic company during the year.304% is ` 34. Y.Y.X and Mr. First of all. these entities would be subject to tax in India.608 lakh. assuming that Mr.2016-17 (i) As per section 5(2). ` 7 lakh. X. (ii) Section 9 lists the circumstances in which the income is deemed to accrue or arise in India. tax payable by Mr. (iv) In order to address this concern. the scope of total income of a non-resident includes only the income which accrues or arises in India or is deemed to accrue or arise in India or is received in India or is deemed to be received in India. However. such income would be deemed to accrue or arise in India. Further. the Government is considering meeting a significant portion of the financial burden through participation of private players including foreign national oil companies (NOCs) and multinational companies (MNCs). Such dividend would not be exempt under section 10(34). directly or indirectly. It is in the country’s national interest to maintain the strategic reserves. clause (48A) has been inserted in 29 © The Institute of Chartered Accountants of India . 10% of ` 7 lakh + cess@3%]. would be taxable@10% as per section 115BBDA. through or from a business connection in India. (B) Exemption of income accruing or arising to a foreign company on account of storage of crude oil in a facility in India and sale of crude oil therefrom to any person resident in India [Section 10(48A)] Effective from: A..50 lakh received would be exempt under section 10(34).

Y. (3) However. (D) Payment from NPS Trust to an employee on closure of his account or on his opting out of the pension scheme exempt to the extent of 40% of such payment [Section 10(12A)] Effective from: A. the tax treatment for the National Pension System (NPS) referred to in section 80CCD is Exempt. Consequently.2017-18 (i) Currently. under the Income-tax Act. 1999 to this scheme – (1) Section 10(15)(vi) has been amended to provide that the interest on Deposit Certificates issued under the Scheme. transfer of the same would be exempt from capital gains tax. 2015. (iii) For the purpose of extending the tax benefits available under the Gold Deposit Scheme. These bonds are also excluded from the definition of capital asset under section 2(14) and therefore. (ii) The Government of India has now introduced the Gold Monetization Scheme. shall be exempt from income-tax. (2) Section 2(14) has been amended to specifically exclude Deposit Certificates issued under Gold Monetisation Scheme. 1999 notified by the Central Government. Exempt and Tax (EET). in the form of lump sum withdrawals. 2015 notified by the Central Government from the definition of capital asset. if. (2) the returns generated on these contributions during the accumulation phase are also exempt from tax.Y. 30 © The Institute of Chartered Accountants of India . section 10 to exempt any income accruing or arising to a foreign company on account of storage of crude oil in a facility in India and sale of crude oil therefrom to any person resident in India. 1961. are taxable in the hands of the individual subscriber or his nominee in the year of receipt of such amounts. - (1) such storage and sale by the foreign company is pursuant to an agreement or an arrangement entered into by the Central Government or approved by the Central Government. and (2) having regard to the national interest. This implies that – (1) the monthly/periodic contributions during the pension accumulation phase are allowed as deduction from income for tax purposes. the terminal benefits on exit or superannuation. the foreign company and the agreement or arrangement are notified by the Central Government in this behalf. (C) Exemption of interest on deposit certificates issued under the Gold Monetization Scheme. transfer of such bonds is exempt from capital gains tax.2016-17 (i) Sub-clause (vi) of section 10(15) exempts interest on Gold Deposit Bonds issued under Gold Deposit Scheme. 2015 [Section 10(15)(vi)] Related amendment in section: 2(14) Effective from: A.

2015] Section 10(22B) provides that any income of a news agency set up in India solely for collection and distribution of news as the Central Government may notify shall be exempt. inter alia. such income so accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of the income. published in the Official Gazette vide notification number G. dated 23-03-2016] Section 11(2)(b) provides that where 85% of the income is not applied. 72/2015.8. New Delhi as a news agency set up in India solely for collection and distribution of news. or is not deemed to have been applied. the whole amount received by the nominee. for the purpose of section 10(22B) for three assessment years 2016-17 to 2018-19. amended Rule 17C to insert clause (ix) to include Investment in “Stock Certificate” [as defined in clause (c) of paragraph 2 of the Sovereign Gold Bonds Scheme. 21/2016. vide this notification. dated 30th October. Rule 17C provides for the various forms or modes of investment or deposits by a charitable or religious trust or institution. through this notification. 2. 2015] as an eligible form/mode of investment. The income of such news agency will not be included in computing the total income of a previous year of such agency for these three years. shall be exempt from tax. 827(E). Investment in Stock Certificate as defined in the Sovereign Gold Bonds Scheme. to charitable or religious purposes in India during the previous year but is accumulated or set apart.R. SIGNIFICANT NOTIFICATIONS/CIRCULARS 1. (iii) New clause (12A) has been inserted in section 10 to provide that any payment from National Pension System Trust to an employee on account of closure or his opting out of the pension scheme referred to in section 80CCD. any payment from National Pension System Trust to an employee on account of closure or his opting out of the pension scheme is chargeable to tax. the Central Government has. The CBDT has. on death of the assessee shall be exempt from tax. 2015. to the extent it does not exceed 40% of the total amount payable to him at the time of closure or his opting out of the scheme. provided it applies its income or accumulates it for application solely for collection and distribution of news and does not distribute its income in any manner to its members. the money so accumulated or set apart is invested or deposited in the forms or modes as specified in section 11(5). either in whole or in part. dated 24. subject to the condition that such news agency applies its income or accumulates it for application solely for collection and distribution of news and does not distribute its income in any manner to its members. specified the Press Trust of India Limited. 31 © The Institute of Chartered Accountants of India . (iv) However. (ii) As per section 80CCD. Accordingly. 2015 notified as eligible form of investment by a charitable trust [Notification No. for application to such purposes in India.S. provided. News agency notified for the purpose of section 10(22B) [Notification No.

5
INCOME FROM HOUSE PROPERTY
AMENDMENTS BY THE FINANCE ACT, 2016

(A) Extension of period for completion of construction from 3 years to 5 years, for
claiming higher deduction of upto ` 2 lakh in respect of interest on capital borrowed
for construction of self-occupied house property
Effective from: A.Y.2017-18
(i) Section 24(b) provides that interest payable on capital borrowed for acquisition or
construction of a house property shall be deducted while computing income from
house property.
(ii) In case of self-occupied house property, the annual value is Nil as per section 23(2).
(iii) However, a deduction of an amount of upto ` 2 lakh is allowed under section 24 in
respect of interest on capital borrowed on or after 1 st April, 1999 for acquisition or
construction of a house property for the purpose of self-occupation, where such
acquisition or construction is completed within three years from the end of the
financial year in which capital was borrowed.
(iv) Since housing projects are taking a longer time for completion, a higher deduction
of upto ` 2 lakh on account of interest paid on capital borrowed for acquisition or
construction of a self-occupied house property shall be available if the acquisition or
construction is completed within five years from the end of the financial year in
which capital was borrowed.
Time period for completion of construction (from the end of the financial year
in which capital was borrowed)

5 years
(from A.Y.2017-18)

3 years
(upto A.Y.2016-17)

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(B) Special provision for arrears of rent and unrealized rent received subsequently
[New Section 25A]
Effective from: A.Y.2017-18
(i) At present, section 25AA contains the special provisions on taxation of unrealised
rent allowed as deduction when realised subsequently and section 25B contains the
tax treatment of arrears of rent received.
(ii) These two provisions are now merged in new section 25A, in order to ensure
uniformity in tax treatment of arrears of rent and unrealised rent. Thus, new section
25A substitutes erstwhile sections 25A, 25AA and 25B.
(iii) As per new section 25A(1), the amount of rent received in arrears from a tenant or
the amount of unrealised rent realised subsequently from a tenant by an assessee
shall be deemed to be income from house property in the financial year in which
such rent is received or realised, and shall be included in the total income of the
assessee under the head “Income from house property”, whether the assessee is
the owner of the property or not in that financial year.
(iv) Summary:
New section 25A(2) provides a deduction of 30% of arrears of rent or unrealised
rent realised subsequently by the assessee.
New Section 25A
Arrears of Rent / Unrealised Rent
(i) Taxable in the year of receipt/realisation
(ii) Deduction@30% of rent received/realised
(iii) Taxable even if assessee is not the owner of the property in the financial
year of receipt/realisation.

Example
Mr. Anand sold his residential house property in March, 2016.
In June, 2016, he recovered rent of ` 10,000 from Mr. Gaurav, to whom he had let out
his house for two years from April 2010 to March 2012. He could not realise two months
rent of ` 20,000 from him and to that extent his actual rent was reduced while computing
income from house property for A.Y.2012-13.
Further, he had let out his property from April, 2012 to February, 2016 to Mr. Satish. In
April, 2014, he had increased the rent from ` 12,000 to ` 15,000 per month and the
same was a subject matter of dispute. In September, 2016, the matter was finally settled
and Mr. Anand received ` 69,000 as arrears of rent for the period April 2014 to February,
2016.
Would the recovery of unrealised rent and arrears of rent be taxable in the hands of Mr.
Anand, and if so in which year?

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Solution
Since the unrealised rent was recovered in the P.Y.2016-17, the same would be taxable
in the A.Y.2017-18 under section 25A, irrespective of the fact that Mr. Anand was not the
owner of the house in that year. Further, the arrears of rent was also received in the
P.Y.2016-17, and hence the same would be taxable in the A.Y.2017-18 under section
25A, even though Mr. Anand was not the owner of the house in that year. A deduction of
30% of unrealised rent recovered and arrears of rent would be allowed while computing
income from house property of Mr. Anand for A.Y.2017-18.
Computation of income from house property of Mr. Anand for A.Y.2017-18
Particulars `
(i) Unrealised rent recovered 10,000
(ii) Arrears of rent received 69,000
79,000
Less: Deduction@30% 23,700
Income from house property 55,300

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2016 (A) Non-compete fee received/receivable for not carrying on a profession chargeable under the head “Profits and gains of business or profession” [Section 28(va)] Related amendment in section: 55 Effective from: A. (iii) However. the proviso to section 28(va) has been amended to clarify that receipts for transfer of right to carry on any profession. franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision for services as business income. trade mark.2017-18 (i) Section 28(va) brings to tax any sum received or receivable. non-compete fee received/receivable for not carrying on a profession was not covered under these provisions. would not be taxable as profits and gains of business or profession. or not sharing any know-how. (v) Further. within the scope of profits and gains of business or profession. 6 PROFITS AND GAINS OF BUSINESS OR PROFESSION AMENDMENTS BY THE FINANCE ACT.Y. patent. licence. which are chargeable to tax under the head "Capital gains". which are chargeable to tax under the head "Capital gains". produce or process any article or thing or right to carry on any business. (iv) Clause (va) of section 28 has been amended to bring the non-compete fee received/receivable (which are recurring in nature) in relation to not carrying out any profession. would not be taxable as profits and gains of business or profession. copyright. in cash or in kind. The amount of capital gains chargeable to tax is 35 © The Institute of Chartered Accountants of India . so far. (vi) Any receipt arising out of transfer of any business or commercial rights is taxable under the head "Capital gains". under an agreement for not carrying out any activity in relation to any business. (ii) The proviso to section 28(va) clarifies that receipts for transfer of right to manufacture.

Y. 2017-18 (i) Section 32(1)(iia) allows additional depreciation@20% in respect of the cost of new plant or machinery acquired and installed by certain assessees engaged in. (iv) The benefit of additional depreciation@20% of actual cost of new machinery or plant acquired and installed in a previous year under section 32(1)(iia) has now been extended to an assessee engaged in the business of transmission of power also. shall also be taken as Nil. However. being right to carry on any profession. computed according to section 48. the business of generation and distribution of power . 'cost of acquisition' and 'cost of improvement' are defined under section 55. (vii) Section 55 has also been amended to provide that. Businesses eligible for claim of additional depreciation under section 32(1)(iia) 36 © The Institute of Chartered Accountants of India . (iii) This incentive was so far not available in respect of new machinery or plant installed by an assessee engaged in the business of transmission of power. in the case of acquisition of such asset by the assessee by purchase from a previous owner. inter alia. (ii) This additional depreciation available under section 32(1)(iia) is over and above the deduction allowed for normal depreciation under section 32(1)(ii) at the rates specified in new Appendix 1A read with Rule 5. the cost of acquisition and cost of improvement in relation to a capital asset. for the purposes of sections 48 and 49. For this purpose. (B) Assessees engaged in the business of transmission of power eligible for additional depreciation [Section 32(1)(iia)] Effective from: A. the amount of purchase price would be the cost of acquisition for the purpose of section 48 and 49.

03. However. provided the actual cost of plant and machinery acquired and installed in the relevant previous year exceeds ` 25 crore.2017-18 Manufacture or Manufacture or production of an article production of an or thing article or thing Generation or Generation.2016-17. has to be made in the relevant previous year. even if the new plant and machinery has not been installed in the relevant previous year but has been installed on or before 31.Y. (iv) Therefore. 37 © The Institute of Chartered Accountants of India . However.2015-16 and P.Y. for claim of deduction.3.Y. P. if the actual cost of such new plant and machinery acquired in the relevant previous year exceeds ` 25 crores.2017 Effective from: A.2016-17 From A. (ii) This tax benefit is available in respect of new plant and machinery acquired and installed in the P.2017 in order to avail the benefit of deduction of 15%.Y.2016-17. the actual cost of which exceeds ` 25 crore.Y.2015-16 and P.2014-15.Y. if the actual cost exceeds ` 25 crore.2016-17 (i) Section 32AC(1A) provides for deduction@15% of actual cost of new plant and machinery acquired and installed in a previous year by a company engaged in manufacturing or production of any article or thing. section 32AC(1A) has been amended to provide that acquisition of the plant and machinery. installation may be made by 31.Y. generation and transmission or distribution of distribution of power power (C) Deduction under section 32AC to be available in the year of installation i n respect of actual cost of new plant and machinery acquired in the P. the acquisition and installation had to be done in the same previous year. Upto A. (iii) The requirement of acquisition and installation in the year causes genuine hardship in cases in which assets having been acquired could not be installed in same previous year.Y.

Y.e.50 crores D Ltd.2021-22 scientific research.2018-19 to A. from A.2020-21) (ii) an approved univer- sity.2015-16 P. 2017-18 (i) The Finance Minister in his Budget Speech.e. the deduction under this sub-section shall be allowed in the year in which the new asset is installed. 2015 has indicated that the rate of corporate tax will be reduced from 30% to 25% over the next four years along with corresponding phasing out of exemptions and deductions. Example Actual cost Previous Previous Assessment Deduction u/s Company of new year of Year of Year in which 32AC plant and acquisition installation deduction u/s (` ) machinery 32AC can be (` ) claimed B Ltd.Y.2016-17 A.2019-20 of undertaking scientific research.2016-17 A. (i.Y.Y.3. - (D) Phasing out of incentives under the Income-tax Act.Y.Y.Y. (ii) Accordingly. from A. The Government proposed to implement this decision in a phased manner.Y..Y.Y. (v) Where the installation of the new asset is in a year other than the year of acquisition. the following incentives under the Act are to be phased out in the manner given hereunder: Section Incentive under the Amendment by the Finance Act.2016-17 P. if such onwards sum is used for (i. college or other (ii) 100% from P.Y.2017-18 to which has the object P. provided the installation is on or before 31.2020-21 institution. 1961 Effective from : A.2017-18 . 60 crores P. 40 crores P. 1961 restricting/phasing out the incentive 35 Expenditure on/Contribution for scientific research 35(1)(ii) 175% of sum paid to: Weighted deduction to be restricted to – (i) an approved scientific Rate Period research association (i) 150% from P. 50 crores P.Y. onwards) 38 © The Institute of Chartered Accountants of India .2017-18 7.Y.2017-18 6 crores C Ltd.2016-17 P.2017.Y.Y.. 2016 Income-tax Act.

from A.Y. from A.2017-18 (i.e.Y.Y..Y.Y.2018-19 to research and A.e.2019-20 scientific research (i.2021-22 of bio-technology or in the onwards) business of manufacture or production of any article or thing with the exceptions of items 39 © The Institute of Chartered Accountants of India .2018-19 to programme.Y. 35(1)(iia) 125% of any sum paid Deduction to be restricted to 100% from as contribution to an P..Y.2020-21) development facility (ii) 100% from P. A.. from A.2020-21) (ii) 100% from P.2020-21 onwards (i..e.2018-19) approved research association or university or college or other institution to be used for research in social science or statistical research 35(2AA) 200% of any sum paid to Weighted deduction to be restricted to – a National Laboratory or Rate Period a University or an IIT or a specified person for (i) 150% from P.2017-18 (i.Y..e. A. A.Y.Y.Y. from A.2017-18 to the purpose of approved P.e. onwards engaged in the business (i.Y.2020-21 incurred by a company..Y.2018-19) Indian company for approved scientific research 35(1)(iii) 125% of any sum paid Deduction to be restricted to 100% from as contribution to an P.Y.2021-22 onwards) 35(2AB) 200% of the expenditure Weighted deduction to be restricted to – (not being expenditure in Rate Period the nature of cost of any land or building) on (i) 150% from P.2017-18 to scientific research on P.e.Y.2019-20 approved in-house (i.Y.

35CCC Expenditure on notified agricultural extension project Weighted deduction of Deduction to be restricted to 100% from 150% of expenditure P. 40 © The Institute of Chartered Accountants of India .e. chain facility or This is effected by omission of sub-section warehousing facility for (1A) providing for such weighted deduction.2021- incurred on notified 22 onwards). goodwill and financial assets) is allowed. specified in the Eleventh Schedule.2018-19) public sector company or a local authority or to an approved association or institution.2020-21 onwards (i. on certain eligible social development project or a scheme. from A.Y.Y.Y. 35AD Deduction in respect of specified business In case of specified The deduction shall be restricted to 100% business of setting up of capital expenditure from P. agricultural extension project is allowed..4. if the operations are commenced on or after 1.Y. from payment of any sum to a A.. storage of agricultural produce or building and operating a hospital with atleast 100 beds for patients or developing and building an affordable housing project or production of fertiliser in India. from A.e. 35AC Expenditure on eligible projects or schemes Deduction for expenditure No deduction under this section shall be incurred by way of available from P.2017-18 (i..2017-18 and operating a cold onwards (i.2018-19 onwards).Y.e.2012. weighted deduction@150% of capital expenditure (other than expenditure on land. etc.Y.

(ii) The Government has newly introduced spectrum fee for auction of airwaves.s year and for which business to operate during which the spectrum.2017-18 (i) Section 32 allows depreciation in respect of assets including certain intangible assets.Y.Y.Y.Y.2020-21 onwards (i. shall been made (actual services be in force. from A. whether spectrum is an intangible asset and the spectrum fees paid is eligible for depreciation under section 32 or whether it is in the nature of a 'license to operate telecommunication business' and eligible for deduction under section 35ABB. (E) Tax treatment for spectrum fee [New section 35ABA] Effective from: A.. payment has actually telecommunication for which the fee is paid.Y. 41 © The Institute of Chartered Accountants of India . (iv) Tax treatment of spectrum fee [New section 35ABA] Transaction Manner of deduction (1) Acquisition of right to use spectrum Any capital Appropriate fraction of the amount of such expenditure incurred expenditure [1/total number of relevant previous for acquisition of any years] right to use spectrum Meaning of relevant previous years: for telecommunication services either before Case Meaning the commencement of Where the spectrum The previous years beginning the business or fee is actually paid with the P. Section 35ABB provides for amortisation of licence fee in case of telecommunication service.2021- incurred (not being 22 onwards). expenditure in the nature of cost of any land or building) by a company on any notified skill development project is allowed.e. in which such thereafter at any time before the business commenced and the during any previous commencement of subsequent P. or P..e. 35CCD Expenditure on skill development project Weighted deduction of Deduction shall be restricted to 100% from 150% of any expenditure P.Y. new section 35ABA has been inserted to provide for tax treatment of spectrum fee. (iii) In order to resolve the uncertainty in tax treatment of payments in respect of spectrum i.

payment of In any other case The previous years beginning expenditure or payable with the P. and under Case 2 above) (ii) dividing the remainder by the number of relevant 42 © The Institute of Chartered Accountants of India . in which the in the prescribed spectrum fee is actually paid manner) to obtain a and the subsequent P. However. for which the fee is paid. shall be in force. expenditure incurred remaining unallowed.Y. years during which the spectrum. the taxability would arise in the above manner as though the business is in existence in that previous year.Y. Case 4: Where a part Unallowed expenses would be amortised in the of the spectrum is following manner – transferred (and the (i) subtracting the proceeds of transfer from the case is not covered expenditure remaining unallowed. or right to use spectrum. Case 3: Where the No deduction for such expenditure shall be allowed proceeds of the in the previous year in which spectrum is transferred transfer are not less or in respect of any subsequent previous year or than the amount of years. amount of expenditure the excess should not exceed the difference remaining unallowed between the expenditure incurred to obtain the spectrum and the amount of expenditure remaining unallowed. (2) Transfer of the spectrum Case 1: Where the The expenditure remaining unallowed as reduced by proceeds of the the proceeds of transfer shall be allowed in the transfer are less than previous year in which the spectrum has been the expenditure transferred. incurred remaining unallowed Case 2: Where the The excess amount shall be chargeable to tax as proceeds of the profits and gains of business in the previous year in transfer exceed the which the spectrum has been transferred. If the spectrum is transferred in a previous year in which the business is no longer in existence.

previous years which have not expired at the
beginning of the previous year during which the
licence is transferred.
(3) Transfer of spectrum in a scheme of amalgamation
If the amalgamating The provisions of section 35ABA will apply to
company sells or amalgamated company as they would have applied
transfers the spectrum to amalgamating company as if the latter has not
to the amalgamated transferred the spectrum.
company, being an
The tax treatment in cases 1,2 & 3 given in (2)
Indian company under
above will not apply to the amalgamating company.
the scheme of
amalgamation

(4) Transfer of spectrum in a scheme of demerger
If the demerged The provisions of section 35ABA will apply to
company sells or resulting company as they would have applied to
transfers the spectrum demerged company as if the latter has not
to the resulting transferred the spectrum.
company, being an
The tax treatment in cases 1,2 & 3 given in (2)
Indian company under
above will not apply to the demerged company.
the scheme of
demerger

(v) Consequences of failure to comply with the conditions after grant of deduction:
Where, in a previous year, any deduction has been claimed and granted to an
assessee and subsequently, there is failure to comply with any of the provisions of
this section, then –
(1) the deduction shall be deemed to have been wrongly allowed;
(2) the Assessing Officer may recompute the total income of the assessee for the
said previous year and make the necessary rectification. This is
notwithstanding anything contained in the Income-tax Act, 1961;
(3) the provisions under section 154 for rectification of mistake apparent from the
record would apply. The period of four years would be reckoned from the end
of the previous year in which the failure to comply with the prov isions of
section 154 takes place.
(F) Scope of section 35AD expanded to include the business of developing,
maintaining and operating a new infrastructure facility
Related amendment in section: 80-IA

43

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Effective from: A.Y.2018-19
(i) The Finance Minister in his Budget Speech, 2015 has indicated that the rate of
corporate tax will be reduced from 30% to 25% over the next four years along with
corresponding phasing out of exemptions and deductions. The Government
proposed to implement this decision in a phased manner.
(ii) The profit-linked deduction under section 80-IA(4)(i) available to any enterprise
which develops or operates and maintains a new infrastructure facility is also being
phased out. Accordingly, this deduction would not be available in respect of any
enterprise which starts the development or operation and maintenance of the
infrastructure facility on or after 1 st April, 2017.
(iii) However, such enterprise would be eligible for investment-linked tax deduction
under section 35AD –

Section Particulars Provision

(i) 35AD(8)(c) Definition of The business of developing or maintaining
“Specified and operating or developing, maintaining and
business” operating a new infrastructure facility has
been included in the definition of “specified
business”.

(ii) 35AD(8)(ba) Definition of (i) A road including toll road, a bridge or a
“infrastructure rail system.
facility”
(ii) A highway project including housing or
other activities being an integral part of
the highway project.

(iii) A water supply project, water treatment
system, irrigation project, sanitation
and sewerage system or solid waste
management system.

(iv) A port, airport, inland waterway, inland
port or navigational channel in the sea.

(iii) 35AD(5) Date of On or after 1.4.2017, where the specified
commencement business is in the nature of developing or
of such operating and maintaining or developing,
specified operating and maintaining, any infrastructure
business facility.

(iv) 35AD(2) Conditions to (i) The business should be owned by a

44

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be satisfied by company registered in India or by a
such specified consortium of such companies or by an
business authority or a board or corporation or any
other body established or constituted
under any Central or State Act.

(ii) The entity should have entered into an
agreement with the Central Government
or a State Government or a local
authority or any other statutory body for
developing or operating and maintaining
or developing, operating and
maintaining, a new infrastructure facility.

(G) NBFCs eligible for claim of deduction for provision for bad and doubtful debts
[Section 36(1)(viia)]
Effective from: A.Y.2017-18
(i) Under sub-clause (c) of section 36(1)(viia), in computing the profits of public
financial institutions, State financial corporations and State industrial investment
corporations, deduction of an amount not exceeding 5% of total income, computed
before making any deduction under section 36(1)(viia) and Chapter VI-A, is allowed
in respect of any provision for bad and doubtful debt.
(ii) Since Non-Banking Financial Companies (NBFCs) are also engaged in financial
lending to different sectors of society, sub-clause (d) has been inserted in section
36(1)(viia) to provide deduction on account of provision for bad and doubtful debts
of an amount not exceeding 5% of total income (before making any deduction under
section 36(1)(viia) and Chapter VI-A) in the case of NBFCs also.
(iii) Meaning of “Non-Banking Financial Company” [Section 45-I (f) of the Reserve
Bank of India Act, 1934]:
(i) a financial institution which is a company
(ii) a non-banking institution which is a company and which has as its principal
business the receiving of deposits, under any scheme or arrangement or in
any other manner, or lending in any manner
(iii) such other non-banking institution or class of such institutions, as the Bank
may, with the previous approval of the Central Government and by
notification in the Official Gazette, specify.

(H) Sum payable to Indian Railways for use of railway assets allowable as deduction in
the year in which the liability to pay such sum is incurred, only if payment is made
on or before the due date of filing of return [Section 43B]

45

© The Institute of Chartered Accountants of India

the threshold limit specified in the definition of "eligible business" has been increased from ` 1 crore to ` 2 crore. section 43B requires actual payment of tax. clause (g) has been inserted in section 43B to expand its scope to include any sum payable by the assessee to the Indian Railways for use of Railway assets. if an eligible assessee claims that the income earned by him is less than the deemed income of 8% of the total turnover or gross receipts. duty or fee. (iv) Further.2017-18 (i) Under section 43B. (vi) For the purpose of reducing the compliance burden of the small tax payers and facilitating the ease of doing business. (iii) In order to encourage timely payment of dues to Railways for use of the Railway assets. etc. an eligible assessee.Y. Effective from: A. remuneration. (ii) As per this scheme. where in the case of an eligible assessee engaged in eligible business having total turnover or gross receipts not exceeding rupees one crore.Y. is not required to pay advance tax. paid to th e partner as per section 40(b) shall not be deductible while computing the income under section 44AD since section 40 does not mandate for allowance of any 46 © The Institute of Chartered Accountants of India . within its ambit.2017-18 (i) Section 44AD contains the presumptive taxation scheme for an eligible business. It would be sufficient compliance if they pay their tax while filing their return of income before the due date. the assessee will be deemed to have been allowed the deductions under sections 30 to 38. cess. interest etc. employer contribution to Provident Fund. expenditure in the nature of salary. or as the case may be. 44AB and 211 Effective from: A. a sum equal to 8% of the total turnover or gross receipts. (I) Increase in threshold limit of gross receipts/turnover under section 44AD of a business to be eligible for opting the presumptive taxation scheme Related amendments in sections: 44AA. is allowable as deduction of the previous year in which the liability to pay such sum was incurred (relevant previous year) if the same is actually paid on or before the due date of furnishing of the return of income irrespective of method of accounting followed by a person. (v) Also. (vii) Further.. cess. he has to maintain books of accounts as per section 44AA and get the same audited as per 44AB. duty or fee on or before the due date of filing return of income for claim of deduction in the previous year in which the liability to pay such sum was incurred. as far as eligible business is concerned. any sum payable by the assessee by way of tax. (ii) In effect. a sum higher than the aforesaid sum shall be deemed to be profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession" [Section 44AD(1)] (iii) Under the scheme.

(viii) Where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and he declares profit for any of the five consecutive assessment years relevant to the previous year succeeding such previous year not in accordance with the provisions of sub-section (1). interest. otherwise allowable under section 30 to 38. (xi) Further. (ix) An eligible assessee to whom the provisions of sub-section (4) are applicable and whose total income exceeds the basic exemption limit has to maintain books of account under section 44AA and get them audited and furnish a report of such audit under section 44AB. he shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year relevant to the previous year in which the profit has not been declared in accordance with the provisions of sub-section (1). the proviso to section 44AD(2) has been omitted. (xii) Summary of amendments in section 44AD Increase in treshold limit of eligible business from Rs. Therefore. (x) Consequential amendments have been made in sections 44AA and 44AB to require maintenance of books of account and audit of the same in the case of an eligible assessee. eligible assessee cannot opt for section 44AD for the next five AYs after the assessment year of first non-option 47 © The Institute of Chartered Accountants of India . This is provided in new sub-section (4) of section 44AD. since the threshold limit of presumptive taxation scheme has been enhanced to ` 2 crore. where the provisions of section 44AD(4) are applicable and his income exceeds the basic exemption limit. the eligible assessee is now required to pay advance tax by 15th March of the financial year. it merely places a restriction on deduction of amounts. This is provided in new sub-section (5) of section 44AD.1 crore to Rs. remuneration paid to partner as per section 40(b) not deductible Advance tax to be paid on or before 15th March of the financial year In case of non-offering of income as per section 44AD for five continuous years.2 crore Salary. expenditure.

Y.2017-18.e.2019-20.000 12. he will not be eligible to claim the benefit of section 44AD for next five assessment years succeeding A.00.Y. being an eligible assessee whose gross receipts do not exceed ` 2 crore in any of the assessment years between A. He maintains books of account under section 44AA and gets the same audited under section 44AB. (J) Presumptive Taxation Scheme for assessees engaged in eligible profession [Section 44ADA] Related amendment in section: 44AB Effective from: A.000 Income offered for taxation (` ) 14. he shall not be required to get his accounts audited if the total turnover or gross receipts of the relevant previous year does not exceed ` 2 crore.2019-20 i. The CBDT.000 % of gross receipts 8% 8% 6% Offered income as per presumptive Yes Yes No taxation scheme u/s 44AD In the above case.Y.00. Note – Section 44AB makes it obligatory for every person carrying on business to get his accounts of any previous year audited if his total sales.20 lakh on gross receipts of ` 1.00.000 15.Y. clarified that the higher threshold for non-audit of accounts has been given only to assessees opting for presumptive taxation scheme under section 44AD. which amounts to 6% of his gross receipts. However. from A.2018-19 A.90 crore.80 crore and ` 1. an eligible assessee.40.Y. has vide its Press Release dated 20th June.2017-18 A.Y. (ii) For reducing the compliance burden of small tax payers having income from profession.20.2017-18 and A. he offers income of only ` 12 lakh on turnover of ` 2 crore.2017-18 to A.2019-20 Gross receipts (` ) 1. for A.Y. 2016.Y. 2016 has introduced a presumptive taxation regime for professionals.40 lakh and ` 15. 48 © The Institute of Chartered Accountants of India . Mr. after A.000 1. A.90. A. S ince he has not offered income in accordance with the provisions of section 44AD(1) for five consecutive assessment years. if an eligible person opts for presumptive taxation scheme as per section 44AD(1).2019-20 - Particulars A.00.2018-19 and offers income of ` 14. 2017-18 (i) Section 44AD provides for a presumptive taxation scheme for eligible persons engaged in eligible business in order to reduce compliance burden of small tax payers.. opts for presumptive taxation under section 44AD for A.Y.Y.Y. the Finance Act. Mr. However.000 2.2020-21 to 2024-25. (xiii) Example: Let us consider the following particulars relating to a resident individual.Y. respectively. turnover or gross receipts exceed ` 1 crore.80.00.

engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette. as the case may be . and (b) his income exceeds the maximum amount which is not chargeable to income-tax. SIGNIFICANT NOTIFICATIONS/CIRCULARS 49 © The Institute of Chartered Accountants of India . (vi) Further. (vii) The eligible assessee opting for presumptive taxation scheme will not be required to keep and maintain books of account under section 44AA(1) and get the accounts audited and furnish a report of such audit as required under section 44AB in respect of such income unless the assessee claims that: (a) the profits and gains from the aforesaid profession are lower than the profits and gains deemed to be his income under section 44ADA(1). and  whose total gross receipts does not exceed fifty lakh rupees in a previous year. 1961 providing a presumptive taxation scheme for estimating the income of an assessee:  who is engaged in any profession referred to in section 44AA(1) such as legal. new section 44ADA has been inserted in the Income-tax Act. medical. the written down value of any asset used for the purpose of the profession of the assessee will be deemed to have been calculated as if the assessee had claimed and had actually been allowed the deduction in respect of depreciation for the relevant assessment years. the assessee will be deemed to have been allowed the deductions under section 30 to 38. (viii) Consequential amendment has been made in section 44AB requiring every person carrying on profession to have his accounts audited by an accountant before the specified date and furnish audit report by that date if such person has claimed lower profits and gains than the deemed profits under section 44ADA and his income exceeds the basic exemption limit. Accordingly. no further deduction under those sections shall be allowed. a sum higher than the aforesaid sum claimed to have been earned by the assessee. (iv) Meaning of Eligible Assessee: Eligible Assessees Resident assessee engaged in notified Total gross receipts ≤ `50 profession u/s 44AA(1) lakhs (v) Under the scheme. (iii) In this regard. at a sum equal to 50% of the total gross receipts. or.

notified the following 21 districts of the State of Bihar as backward areas under the first proviso to section 32(1)(iia) and section 32AD(1): - S. dated 17. District S. 1. Vaishali 21. Further. Madhubani 4. Accordingly. Nawada 20. Bihar. 71/2015. Bhojpur 14. 2015 and 31st March. if the following conditions are satisfied by the assessee– (a) the assessee sets up an undertaking or enterprise for manufacture or production of any article or thing on or after 1st April. Lakhisarai 9. Katihar 6. Sheohar 50 © The Institute of Chartered Accountants of India . 2020 in the said backward areas. Jehanabad 18. 2015. Samastipur 2. the Central Government has.2015] In order to encourage the setting up of industrial undertakings in the backward areas of the States of Andhra Pradesh. Purnea 5. section 32AD(1) provides for a deduction of an amount equal to 15% of the actual cost of new plant and machinery acquired and installed in the assessment year relevant to the previous year in which such plant and machinery is installed. 2015 in any backward area notified by the Central Government in the State of Andhra Pradesh or Bihar or Telangana or West Bengal. first proviso has been inserted to section 32(1)(iia) to allow higher additional depreciation at the rate of 35% (instead of 20%) in respect of the actual cost of new machinery or plant (other than a ship and aircraf t) acquired and installed during the period between 1 st April. and (b) the assessee acquires and installs new plant and machinery for the purposes of the said undertaking or enterprise during the period between 1st April. Patna 12. Gaya 17. 2015 and 31 st March. Muzaffarpur 11. 2020 by a manufacturing undertaking or enterprise which is set up in the notified backward areas of these specified States on or after 1 st April. Darbhanga 3. Rohtas 15. Araria 7. in order to encourage acquisition and installation of plant and machinery for setting up of manufacturing units in the notified backward areas of the States of Andhra Pradesh. No. Telangana and West Bengal. Aurangabad 19. Supaul 10. Certain districts of Bihar notified as backward areas under the first proviso to section 32(1)(iia) and section 32AD(1) [Notification No. District 1. Jamui 8. Bihar. Telangana and West Bengal. Nalanda 13. vide this notification. Kaimur 16. No.8.

11. The cost of production of an abandoned feature film is to be treated as revenue expenditure and allowed as per the provisions of section 37 of the Income-tax Act. Oil wells included in New Appendix I under Mineral Oil concerns under “III. since certificate of Board of Film Censors is not received.10. the income arising from such investments is attributable to the business of banking falling under the head "Profits and Gains of Business and Profession". Plant and Machinery” to be eligible for depreciation@15% [Notification No. Nawanshahar Central Cooperative Bank Ltd. however. (2007) 160 Taxman 48 (SC).2015] The issue addressed by this circular is whether in the case of banks. Consequently. 2. in some cases no deduction was allowed by applying Rule 9A of the Rules or by treating the expenditure as capital expenditure. Ltd. dated 6.1. if the income is not chargeable to income-tax under the head "Profits and Gains of Business and Profession". The rate of depreciation for oil-wells included as entry (c) is 15%.2015] The deduction in respect of the cost of production of a feature film certified for release by the Board of Film Censors in a previous year is provided in Rule 9A.2015 in ITA 310 of 2013 in the case of Venus Records and Tapes Pvt. it is clarified that Rule 9A does not apply to abandoned feature films and that the expenditure incurred on such abandoned feature films is not to be treated as a capital expenditure. 4. In the case of CIT v. In the case of abandoned films." Section 56(1)(id) provides that income by way of interest on securities shall be chargeable to income-tax under the head "Income from Other Sources". 13/2016 dated 03-03-2016] The CBDT has. Deduction in respect of cost of production allowable under section 37 in the case of Abandoned Feature Films [Circular No. The CBDT has examined the matter in light of judicial decisions on this subject. 2016. The order of the Hon’ble Bombay High Court dated 28. expenses relatable to investment in non-SLR securities need to be disallowed under section 57(i). Allowability of Employer's Contribution to funds for welfare of employees paid 51 © The Institute of Chartered Accountants of India . the Apex Court held that the investments made by a banking concern are part of the business of banking. Therefore. 1961. The amendment shall come into force on 1st April. 3. 18. on this issue has been accepted and the aforesaid disputed issue has not been further contested. vide this notification. The CBDT has examined the matter in light of the judicial decisions on this issue. 16. dated 2. by considering interest on non-SLR securities as “Income from other sources. included Oil wells as entry (c) under sub-item (xii) “Mineral Oil concerns” under item (8) of sub-heading III “Plant and Machinery” in new Appendix I. 5. Interest from non-SLR Securities of Banks: Whether chargeable under the head “Profits and gains of business or profession” or “Income from other sources”? [Circular No.

1961. It is further clarified that this Circular does not apply to claim of deduction relating to employee's contribution to welfare funds which are governed by section 36(1)(va) of the Income-tax Act. cess or fee. by whatever name called. 1961. if it has been paid after the 'due dates' as per the relevant Acts. certain deductions are admissible only on payment basis. 52 © The Institute of Chartered Accountants of India . Accordingly. Alom Extrusions Ltd. by invoking the provisions of section 43B. In the case of Commissioner vs. [2009] 185 Taxman 416.22/2015 dated 17-12-2015] Under section 43B of the Income-tax Act. under any law for the time being in force. the settled position is that if the assessee deposits any sum payable by it by way of tax. after the due date under the relevant Act but before the due date of filing of return of income under section 139(1) [Circular No. no disallowance can be made under section 43B. the Apex Court held that the deduction is allowable to the employer assessee if he deposits the contributions to welfare funds on or before the 'due date' of filing of return of income. on or before the 'due date' applicable in his case for furnishing the return of income under section 139(1). The CBDT has examined the matter in light of the judicial decisions on this i ssue. duty. The CBDT has observed that some field officers disallow employer's contributions to provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees. 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.

Y. One of the conditions is that the company's gross receipts. Therefore. turnover or total sales in any of the preceding three previous years should not exceed ` 60 lakh 53 © The Institute of Chartered Accountants of India . any transfer of a capital asset or intangible asset on conversion of a private company or unlisted public company to a Limited Liability Partnership (LLP) shall not be regarded as transfer for levy of capital gains tax. (ii) Section 2(29A) defines a long-term capital asset to mean a capital asset which is not a short-term capital asset.Y.2017-18 to provide that a share of a company (not being a share listed in a recognized stock exchange in India) would be treated as a short-term capital asset if it was held by an assessee for not more than 24 months immediately preceding the date of its transfer. (iii) Third proviso has been inserted in section 2(42A) with effect from A. (B) Total value of assets of a private company or unlisted company not to exceed ` 5 crore in any of the three preceding previous years for exemption of transfer of capital asset or intangible asset on conversion of such company into LLP [Section 47(xiiib)] Effective from: A. (ii) The proviso to section 47(xiiib) stipulates the various conditions to be fulfilled for the transaction to not constitute a transfer for the purpose of capital gains. on fulfilment of certain conditions.2017-18.2017-18 (i) Section 2(42A) defines a short-term capital asset to mean a capital asset held by an assessee for not more than 36 months immediately preceding the date of its transfer. 2016 (A) Period of holding of unlisted shares to qualify as a long-term capital asset to be reduced from “more than 36 months” to “more than 24 months” [Section 2(42A)] Effective from: A.Y. 7 CAPITAL GAINS AMENDMENTS BY THE FINANCE ACT. a capital asset held by an assessee for more than 36 months immediately preceding the date of its transfer would be a long-term capital asset. the period of holding of unlisted shares for being treated as a long-term capital asset has been reduced from “more than 36 months” to “more than 24 months” from A.2017-18 (i) Under section 47(xiiib). (iv) Thus.Y.

being a unit or units. (iii) Exemption of transfer of units in the consolidation of Plans within a Mutual Fund scheme: For the purpose of facilitating consolidation of mutual fund plans within a scheme in the interest of the investors and to provide tax neutrality to unit holders upon consolidation or merger of mutual fund plans within a scheme.. being a unit or units. (ii) Consolidation of mutual fund plans within a scheme: SEBI guidelines SEBI has also issued guidelines for consolidation of mutual fund plans within a scheme. Accordingly. being a unit or units. any transfer by a unit holder of a capital asset.Y. any transfer by a unit holder of a capital asset. i. 54 © The Institute of Chartered Accountants of India . 1992. in the consolidated plan of that scheme of the mutual fund shall not be considered transfer for capital gain tax purposes. the tax exemption under section 47. 1996 made under SEBI Act. 2017-18 (i) Exemption for consolidation of mutual fund schemes: Under section 47(xviii).e. in the consolidated scheme of the mutual fund is not regarded as a transfer and is. the total value of assets as appearing in the books of account of the company in any of the three previous years preceding the previous year in which the conversion takes place. made in consideration of the allotment to him of a capital asset. made in consideration of the allotment to him of a capital asset. (i) a Mutual Fund registered under the SEBI Act. on account of which. 1992 or regulations made thereunder. Consolidated The plan with which the consolidating plan merges or which is Plan formed as a result of such merger. not subject to capital gains tax. available on merger or consolidation of mutual fund schemes has been extended to the merger or consolidation of different plans in a mutual fund scheme. held by him in the consolidating plan of a mutual fund scheme. Mutual Fund A mutual fund specified under section 10(23D). (iii) Clause (ea) has been inserted in the said proviso to stipulate an additional condition for claim of exemption under section 47(xiiib). (C) Transfer of units by unit holders on consolidation of plans within a mutual fund scheme not to be regarded as transfer [Section 47(xix)] Effective from: A. (iv) Meaning of the following terms: Term Meaning Consolidating The plan within a scheme of a mutual fund which merges Plan under the process of consolidation of the plans within a scheme of mutual fund in accordance with the SEBI (Mutual Funds) Regulations. should not exceed ` 5 crore. Accordingly. held by him in the consolidating scheme of a mutual fund. being a unit or units. new clause (xix) has been inserted in section 47. hence.

(ii) Redemption by an individual of sovereign gold bonds (SGBs) not to constitute transfer Section 47 enlists transactions which are not considered as transfer for levy of capital gains. 2015 This scheme has been introduced by the Government of India to reduce the demand for physical gold and consequently. in case of non-resident assessees. New clause (viic) has been inserted in section 47 with effect from A.Y. (v) Rupee appreciation gains on redemption of RDBs not to be included in full value of consideration [Fourth proviso to section 48] Accordingly. as a measure to enable Indian companies to raise funds from outside India. The two-fold benefit of this scheme are: (1) The gold bond would serve as a substitute for physical gold. 2015. (ii) such other Mutual Fund set up by a public sector bank or a public financial institution or authorised by the RBI and subject to conditions notified by the Central Government. This would provide relief to the non- resident investor who bears the risk of currency fluctuation. (iii) Benefit of indexation available on LTCG on transfer of SGBs [Third proviso to section 48] Further. by an assessee being an individual would not constitute a transfer for the purpose of levy of capital gains tax.2017-18 to provide that any transfer of sovereign gold bonds issued by RBI under Sovereign Gold Bonds Scheme. and (2) The gold bond would provide security to the individual investor investing in gold for meeting their social obligation.Y. the RBI has permitted them to issue rupee denominated bonds outside India. benefit of indexation would be available in respect of long-term capital gains arising from transfer of such sovereign gold bonds. any gains arising on account of rupee appreciation against foreign currency at the time of redemption of rupee denominated bond of an Indian company subscribed by him shall not be included in computation of full value of consideration. (iv) Rupee Denominated Bonds (RDBs) Also. (D) Redemption by an individual of sovereign gold bonds issued by RBI not to constitute transfer for the purpose of levy of capital gains tax [Section 47(viic)] Related amendment in section: 48 Effective from: A. 55 © The Institute of Chartered Accountants of India .2017-18 (i) Sovereign Gold Bond Scheme. reduce the foreign exchange outflow due to import of gold. by way of redemption.

(4) A declaration under the Scheme can be made anytime on or after 1st June. surcharge and penalty have been paid 56 © The Institute of Chartered Accountants of India .2017-18 (i) Income Declaration Scheme.Y. 2016 is contained in the Finance Act. Where the income chargeable to tax is declared in the form of investment in any asset. or failed to disclose such income in a return furnished before the date of commencement of the Scheme or such income had escaped assessment by reason of the omission or failure on the part of such person to make a return under the Income -tax Act or to disclose fully and truly all material facts necessary for the assessment or otherwise. In addition. 2016 but before a date to be notified by the Central Government. surcharge and penalty mentioned above shall be paid . 2016 shall be deemed to be the undisclosed income. (2) Sub-section (5) has been inserted with effect from A. 2016. (2) A declaration under the aforesaid Scheme may be made in respect of any income or income in the form of investment in any asset located in India and acquired from income chargeable to tax under the Income-tax Act. (ii) Cost of acquisition of an asset declared under Income Declaration Scheme. he would also be liable to pay penalty at the rate of 25% of such tax. (3) The person making a declaration under the Scheme would be liable to pay tax at the rate of 30% of the value of such undisclosed income as increased by surcharge at the rate of 25% of such tax. Therefore. The Scheme provides an opportunity to persons who have paid not full taxes in the past to come forward and declare the undisclosed income and pay tax. 2016 as the last date for making a declaration under the Scheme and 30th November. The Central Government has notified 30th September. 1961 for any assessment year prior to the assessment year 2017-18 for which the declarant had failed to furnish a return under section 139.Y. 2016 as the last date by which the tax. surcharge and penalty totalling in all to 45% of such undisclosed income declared. 2016 and the tax. surcharge and penalty specified in the Scheme will override any rate or rates specified under the provisions of the Income-tax Act or the annual Finance Acts. 2016: Significant Features (1) The Income Declaration Scheme. the fair market value of such asset as on 1st June. which received the assent of the President on 14th May 2016. 2016 [Section 49(5)] Relevant from: A. whose fair market value has been taken into account for the Income Declaration Scheme. 2016 computed in accordance with Rule 3 of the Income Declaration Scheme Rules.2017-18 to provide that where capital gain arises from the transfer of asset declared under the Income Declaration Scheme. the declarant would be liable to pay a total of 45% of the value of the undisclosed income declared by him. 2016 (1) Section 49 of the Income-tax Act. (E) Cost of acquisition of asset. 1961 provides for determination of cost with reference to certain modes of acquisition. This special rate of tax.

(ii) Adoption of stamp duty value on the date of agreement as full value of consideration under section 43CA Section 43CA. being land or building or both. in case of transfer of a capital asset being land or building o r both. on or before the date of the agreement for the transfer of such immovable property [Section 50C] Effective from: A. (iii) Absence of provision in section 50C to adopt stamp duty value on the date of agreement The Income Tax Simplification Committee under the chairmanship of Justice Easwar has. the value adopted or assessed by the stamp valuation authority for the purpose of payment of stamp duty shall be taken as the full value of consideration for the purposes of computation of capital gains. in its first report. if the date of agreement and the date of registration are not the same and amount of consideration or part thereof has been received by any mode other than cash on or before the date of agreement for transfer of the asset. The stamp duty value on the date of transfer has to be considered for the purpose of section 50C. if whole or part of the consideration has been paid by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account. the stamp duty value on the date of the agreement may be taken for the purposes of computing the full value of consideration. provisos have been inserted in section 50C(1) so as to provide that where the date of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same. the cost of acquisition of the asset shall be deemed to be the fair market value of the asset which has been taken into account for the purposes of the said scheme. permits adoption of stamp duty value on the date of agreement instead of the date of registration. in accordance with the provisions of the Scheme on the fair market value of the asset as on the date of commencement of the Scheme. which contains a similar provision in case of transfer of land or building or both constituting stock-in-trade of the assessee. 57 © The Institute of Chartered Accountants of India . pointed out that section 50C does not provide any relief where the seller has entered into an agreement to sell the property much before the actual date of transfer of the immovable property and the sale consideration is fixed in such agreement in line with section 43CA. (iv) Amendment in section 50C to ensure parity in tax treatment vis-a-vis section 43CA Accordingly. in order to ensure parity in tax treatment. (F) Stamp duty value on the date of agreement may be adopted as full value of consideration of immovable property.2017-18 (i) Adoption of stamp duty value on the date of transfer as full value of consideration under section 50C Under section 50C. where the actual consideration is less than such value.Y.

500 crores annually for four years to finance the start-ups.2017-18 (i) Objective: For incentivising the start-up ecosystem in India. Transfer of capital asset. new section 54EE has been inserted to provide exemption from capital gains tax if the long term capital gains proceeds are invested by an assessee in units issued before 1 st April. Section 43CA Section 50C Transfer of an asset. being trade land or building or both. the 'start-up India Action Plan' envisages establishment of a Fund of Funds which intends to raise ` 2. being land or building or both. on or before the date of the agreement for the transfer of such immovable property. 2019 of such fund. or a part thereof. (v) Condition for adoption of stamp duty value on the date of agreement However. the stamp duty value on the date of agreement can be adopted only in a case where the amount of consideration. held as stock-in. as may be 58 © The Institute of Chartered Accountants of India . has been paid by way of an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account. (ii) Exemption of LTCG invested in units of specified fund: In order to achieve this objective. Stamp duty value on the date of Stamp duty value on the date of agreement may be adopted as agreement may be adopted as consideration consideration Whole or part of consideration should Whole or part of consideration be paid by any mode other than should be paid by A/c payee cash on or before the date of cheque/bank draft or ECS agreement through a bank A/c on or before the date of agreement (G) Exemption of long-term capital gains on investment in notified units of specified fund [New Section 54EE] Effective from: A.Y.

(iii) Quantum of Exemption: Case Amount exempted If amount invested in notified units of specified fund Entire capital gains is exempt ≥ Capital gains If amount invested in notified units of specified fund Capital gains to the extent of < Capital gains cost of amount invested in notified units is exempt (iv) Time limit for investment: The investment has to be made within 6 months after the date of transfer. (vi) Conditions for availing exemption: Investment of LTCG in units of specified fund Units should Investment not be within 6 transferred Conditions months from for a period the date of of 3 years transfer Maximum investment is ` 50 lakhs 59 © The Institute of Chartered Accountants of India . notified by the Central Government in this behalf. whether the investment is made in the same financial year or subsequent financial year or partly in the same financial year and partly in the subsequent financial year. The lower of the capital gains or the amount so invested would be exempt under section 54EE. cannot exceed ` 50 lakh. Further. (v) Ceiling limit for investment in units of the specified fund: The maximum investment in units of the specified fund in any financial year is ` 50 lakh. the investment made by an assessee in the units of specified fund out of capital gains arising from the transfer of one or more capital assets.

2006 .Y. Small and Medium Enterprises Act. (2) the individual or HUF holds more than 50% shares of the company or 50% voting rights after the subscription in shares by such individual or HUF. would be chargeable as capital gains in the year of transfer. (viii) Deemed transfer of notified units: Further. if: (1) the net consideration is invested in subscription of equity shares of a company which qualifies to be an eligible start-up on or before the due date of filing return of income under section 139(1). and (3) such company utilises the amount invested in shares to purchase new plant and machinery within one year from the date of subscription in equity shares. inter alia. office appliances including computer and computer software. to the extent exempt earlier. and such subscription is used in purchase of new plant and machinery. (ii) Scope of exemption under section 54GB expanded to cover LTCG on sale of residential property invested in shares of eligible start-up company: In order to encourage individuals/HUF to setup a start-up company by selling a residential property and investing in the shares of such company. Cost of new plant and machinery LTCG × Net sale consideration 60 © The Institute of Chartered Accountants of India . he shall be deemed to have transferred such units on the date on which such loan or advance is taken. (iii) Quantum of exemption: If the cost of new plant and machinery ≥ Net sale consideration of residential house. the capital gains.e. only proportionate capital gains is exempt i. entire capital gains is exempt. (vii) Consequence of transfer of units before 3 years: Where the units are transferred at any time within a period of three years from its acquisition. where net consideration on sale is invested in shares of an eligible start-up [Section 54GB] Effective from: A. which excludes. section 54GB has been amended to provide that long term capital gains arising on account of transfer of a residential property shall not be charged to tax. (H) Exemption of long-term capital gains on sale of residential property.2017-18 (i) Exemption available under section 54GB so far Under section 54GB. if the assessee takes any loan or advance on the security of such units. exemption is available from tax on long term capital gains arising on account of transfer of a residential property. If the cost of new plant and machinery < Net sale consideration of residential house. if such capital gains are invested in subscription of shares of a company which qualifies to be a small or medium enterprise under the Micro.

Y. (iii) Since some courts have opined that shares of a private company are not "securities". the expression "securities" has the same meaning as in section 2(h) of the Securities Contracts (Regulations) Act. business from the notified period 1. (v) Meaning of eligible start-up: Company engaged in eligible business Total turnover ≤ ` 25 crores Holds a certificate of eligible Incorporated during the in any P.Y. driven by technology or deployment processes or intellectual property services commercialization (i) Long-term capital gains on shares of private companies to be subject to concessional rate of tax@10% in the hands of non-corporate non-residents and foreign companies [Section 112(1)(c)] Effective from: A. (iv) Purchase of computers or computer software out of amount invested in shares of an technology driven start-up permitted In case of an eligible start-up.2016-31.2016. section 112(1)(c) has been amended to provide that long-term capital gains arising to a non-corporate non-resident or a foreign company from the transfer 61 © The Institute of Chartered Accountants of India .2020-21 IMBC (vi) Meaning of eligible business : A business which involves - innovation development of new products.2019 17 to P. 1956. This is because computers or computer software form the core asset base of such technology driven start-ups.3. 2017-18 (i) Section 112(1)(c) prescribes a concessional tax rate of 10% (without indexation benefit) for long-term capital gain arising from transfer of unlisted securities in the hands of non-corporate non-residents and foreign companies. (ii) For the purposes of this provision. the company can also utilise the amount invested in shares to purchase computers or computer software.Y.4.Y. being a technology driven start-up so certified by the notified Inter-Ministerial Board of Certification (IMBC). from P.

1987-88 150 25. 1993-94 244 31. dated 2. 2010-11 711 13. 1989-90 172 27. 2005-06 497 8. 2006-07 519 9. 1994-95 259 32. SIGNIFICANT NOTIFICATIONS/CIRCULARS 1. 1995-96 281 33. 2009-10 632 12.2016] Clause (v) of Explanation to section 48 defines "Cost Inflation Index". 2002-03 447 5. specified the Cost Inflation Index for the financial year 2016-17 as 1125. Financial Cost Inflation S. in relation to a previous year. 2012-13 852 15. 2000-01 406 3. S. 2011-12 785 14. 1999-2000 389 2. in exercise of the powers conferred by clause (v) of Explanation to section 48. in the hands of non-corporate non-residents and foreign companies. No. 42/2016. 2015-16 1081 18. to mean such Index as the Central Government may. 2007-08 551 10. 1984-85 125 22. 1991-92 199 29. 1992-93 223 30. 1990-91 182 28. the Central Government has. 2004-05 480 7. 1981-82 100 19. without indexation benefit. 1988-89 161 26. of a capital asset. shall also be chargeable to tax at the concessional rate of 10%. 2008-09 582 11. 2013-14 939 16. 1997-98 331 35. 1982-83 109 20. Notification of Cost Inflation Index for Financial Year 2016-17 [Notification No. 1983-84 116 21. 1985-86 133 23. 2016-17 1125 62 © The Institute of Chartered Accountants of India . 2003-04 463 6. having regard to 75% of average rise in the Consumer Price Index (Urban) for the immediately preceding previous year to such previous year. 2014-15 1024 17. 1998-99 351 36. specify in this behalf. Accordingly. 1986-87 140 24. Year Index Year Inflation Index 1. 2001-02 426 4. being shares of a company not being a company in which the public are substantially interested. Financial Cost No. 1996-97 305 34. by notification in the Official Gazette.6.

debenture-stock or deposit certificate. Note: Section 47(x) provides that any transfer by way of conversion of bonds or debentures. is essentially a fact- specific determination and has led to a lot of uncertainty and litigation in the past. 2. Method of determination of period of holding of capital assets in certain cases [Notification No. 3. Determination of the character of a particular investment in shares or other securities. Parameters laid down by CBDT and Courts to distinguish shares held as investments and shares held as stock in trade Over the years. through Instruction No. which becomes the property of the assessee in the circumstances mentioned in section 47(x). Clause (ii) of Explanation 1 to section 2(42A) provides that in respect of capital assets. Principles to determine whether gains on sale of listed shares and other securities would constitute capital gains or business income Disputes. in the case of a capital asset. As regards shares and other securities. debenture. 2007. Clause (i) of Explanation 1 to section 2(42A) provides for inclusion/ exclusion of certain periods in respect of specified transactions listed thereunder for the purpose of determination of the period of holding of asset. whether the same is in the nature of a capital asset or stock-in-trade. the courts have laid down different parameters to distinguish the shares held as investments from the shares held as stock-in-trade. debenture-stock or deposit certificates in any form.whether taxable as capital gains or business income? [Circular No. of a company into shares or debentures of that company shall not be regarded as transfer for the purposes of levy of capital gains tax. being a share or debenture of a company. dated 17-03-2016] Section 2(42A) provides for the meaning of the term "short-term capital asset" as a capital asset held by an assessee for not more than thirty-six months immediately preceding the date of its transfer. The CBDT has also. Surplus on sale of shares and securities . 1827. Specifically. dated 29-2-2016] Section 2(14) defines the term "capital asset" to include property of any kind held by an assessee. Accordingly. The said rule shall come into force with effect from 01-04-2016. summarized the said principles for guidance of the field formations. however. 1962 to provide for method of determination of period of holding of capital assets. whether or not connected with his business or profession. continue to exist on the application of these principles to the facts of 63 © The Institute of Chartered Accountants of India . as the case may be. the period for which the capital asset is held by the assessee shall be determined subject to rules made in this behalf by the CBDT. 18/2016. was held by the assessee prior to the conversion. but does not include any stock-in-trade or personal assets subject to certain exceptions. there shall be included the period for which the bond. the same can be held either as capital assets or stock -in- trade/trading assets or both. other than the capital assets mentioned in clause (i) of the Explanation 1 to section 2(42A). 06/2016. the CBDT has inserted new Rule 8AA in the Income-tax Rules. 4 of 2007 dated June 15. other than those mentioned in clause (i). 1989 and Circular No. dated August 31.

CBDT realizing that major part of shares/securities transactions takes place in respect of the listed ones and with a view to reduce litigation and uncertainty in the matter. whether the same is in the nature of capital gain or business income) shall continue to be decided keeping in view the aforesaid Circulars issued by the CBDT. shall remain applicable in subsequent Assessment Years also and the taxpayers shall not be allowed to adopt a different/contrary stand in this regard in subsequent years. however. such as bogus claims of Long Term Capital Gain/Short Term Capital Loss or any other sham transactions. this stand. Principles listed above not to apply in case of sham transactions It is. b) Listed shares and securities held for a period of more than 12 months: In respect of listed shares and securities held for a period of more than 12 months immediately preceding the date of its transfer. whether the same is in the nature of capital gain or business income). the nature of transaction (i. All the relevant provisions of the Act shall continue to apply on the transactions involving transfer of shares and securities. an individual case since the taxpayers find it difficult to prove the intention in acquiring such shares/securities. Objective of formulation of principles: Reducing litigation and ensuring consistency It is reiterated that the above principles have been formulated with the sole objective of reducing litigation and maintaining consistency in approach on the issue of treatment of income derived from transfer of shares and securities. in partial modification to the aforesaid Circulars. c) Other cases: In all other cases. irrespective of the period of holding the listed shares and securities. further instructs the Assessing Officers to take into account the following while deciding whether the surplus generated from sale of listed shares or other securities would be treated as Capital Gain or Business Income — a) Where assessee opts to treat such shares and securities as stock-in-trade: Where the assessee itself.e. while recognizing that no universal principle in absolute terms can be laid down to decide the character of income from sale of shares and securities (i. once taken by the assessee in a particular Assessment Year.e. the same shall not be put to dispute by the Assessing Officer. 64 © The Institute of Chartered Accountants of India . if the assessee desires to treat the income arising from the transfer thereof as Capital Gain. clarified that the above shall not apply in respect of such transactions in shares/securities where the genuineness of the transaction itself is questionable. In this background. the income arising from transfer of such shares/securities would be treated as its business income. However. opts to treat them as stock-in-trade.

(iii) Such a transaction is not regarded as transfer where the recipient is a firm or a company. immovable property or other property received without consideration is chargeable to tax. being an individual or an Hindu undivided family (HUF). it is proposed to amend the second proviso of section 56(2)(vii) which provides for cases where the taxability provisions under the section would not be attracted. 2016 (A) Shares received by an individual or HUF as a consequence of demerger or amalgamation of a company or a business reorganisation of a co-operative bank not to be subject to tax by virtue of section 56(2)(vii) Effective from: A. and the difference between the stamp duty value (in case of immovable property) or the fair market value (in case of other property) exceeds ` 50. the taxability provisions thereunder are attracted in a case where shares of a company are received as a consequence of demerger or amalgamation of a company. such difference is chargeable to tax under section 56(2)(vii). 8 INCOME FROM OTHER SOURCES AMENDMENT BY THE FINANCE ACT.2017-18 (i) Under section 56(2)(vii). not being a company in which public are substantially interested. on account of a specific exemption provided in the proviso to section 56(2)(viia).Y.000. clause (h) has been inserted in the second proviso to section 56(2)(vii) to provide that any shares received by an individual or HUF as a consequence of demerger or amalgamation of a company or business reorganisation of a co- operative bank shall not be subject to tax by virtue of the provisions contained in section 56(2)(vii). is in excess of ` 50. (v) Accordingly. (iv) In order to ensure uniformity in tax treatment. (ii) Since the definition of “property” for the purpose of section 56(2)(vii) includes capital asset being shares and securities. any money.000. where shares are received as a consequence of demerger or amalgamation of a company. if immovable or other property is received by an individual or HUF for inadequate consideration. Likewise. 65 © The Institute of Chartered Accountants of India . if aggregate sum received by an assessee.

computed in respect of any specified business referred to in section 35AD shall not be set off except against profits and gains.Y. if any. section 80 has been amended so as to provide that the loss determined as per section 73A shall not be allowed to be carried forward and set off if such loss has not been determined in pursuance of a return filed in accordance with the provisions of section 139(3). 73(2). be carried forward indefinitely for set-off against profits of the same or any another specified business. there was no such stipulation for carry forward of loss from specified business under section 73A. of any other specified business. (iv) Accordingly. 74(1) and 74A(3) has been amended to include reference to section 73A(2). any loss. 10 SET-OFF AND CARRY FORWARD AND SET-OFF OF LOSSES AMENDMENT BY THE FINANCE ACT. Such loss can. (v) Correspondingly. however. 2016 (A) Filing of return of loss on or before the due date under section 139(1) mandatory for carry forward of loss from specified business under section 73A [Section 80] Related amendment in section: 139(3) Effective from: A. section 139(3) requiring filing of return of loss mandatorily within the time allowed under section 139(1) for claiming carry forward of losses under sections 72(1).2016-17 (i) Under section 73A. (ii) Section 80 requires mandatory filing of return of loss under section 139(3) on or before the due date specified under section 139(1) for carry forward of the following losses – (1) Business loss under section 72(1) (2) Speculation business loss under section 73(2) (3) Loss under the head “Capital Gains” under section 74(1) (4) Loss from the activity of owning and maintaining race horses under section 74A(3) (iii) However. 66 © The Institute of Chartered Accountants of India .

Y.Y. first-home buyers availing home loans are encouraged. 2016 (A) Additional deduction for interest on loan borrowed for acquisition of self-occupied house property by an individual [Section 80EE] Effective from: A. (ii) As a step towards achieving the Government’s aim of providing ‘housing for all’.Y.2017-18 (i) Under section 80EE. by providing additional deduction under section 80EE from A.2015-16.Y.Y.2016-17 sanction of loan Loan sanctioned ≤ ` 35 lakhs 67 © The Institute of Chartered Accountants of India .000. a deduction of upto ` 1 lakh in respect of interest paid on loan by an individual for acquisition of a residential house property was allowed for A.2014-15 and A.2017-18 in respect of interest on loan taken by an individual for acquisition of residential house property from any financial institution. The maximum deduction allowable is ` 50. 11 DEDUCTIONS FROM GROSS TOTAL INCOME AMENDMENTS BY THE FINANCE ACT. (iii) The conditions to be satisfied for availing this deduction are as follows – Value of house ≤ ` 50 lakhs The assessee should not own any residential Loan should be house on the Conditions sanctioned during the date of P.

Y. Compute the eligible deduction in respect of interest on housing loan for A.Y.2016.00.3. A purchased a residential house property for self-occupation at a cost of ` 45 lakh on 1.000 (ii) Deduction under Chapter VIA from Gross Total Income Deduction under section 80EE ` 1. assuming that the entire loan was outstanding as on 31. Answer Particulars ` Interest deduction for A.20.000 under section 80EE is over and above the deduction of upto ` 2. (vi) Meaning of certain terms: Term Meaning (a) Financial institution  A banking company to which the Banking Regulation Act.000 available under section 24 for interest paid in respect of loan borrowed for acquisition of a self-occupied property.000) Restricted to 50. 1949 applies .20.2017 and he does not own any other house property. 1961. (b) Housing finance A public company formed or registered in India with the company main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes.00.833 [` 35. (iv) The benefit of deduction under this section would be available till the repayment of loan continues.000 68 © The Institute of Chartered Accountants of India .2017-18 (i) Deduction allowable while computing income under the head “Income from house property” Deduction under section 24(b) ` 3.2017-18 under the provisions of the Income-tax Act. or  A housing finance company. in respect of which he took a housing loan of ` 35 lakh from Bank of India@11% p.20. (v) The deduction of upto ` 50. on the same date.a.833 – ` 2. or  Any bank or banking institution referred to in section 51 of the Banking Regulation Act. 1949.6. Example Mr.000 × 11% × 10/12] Restricted to 2.00.00.833 (` 3.

000 per month. (ii) The deduction is allowable up to the least of the three limits – (1) 25% of total income. Compute the deduction allowable to him under section 80GG for A.000 (A) 100 69 © The Institute of Chartered Accountants of India .m.Y.2017-18 is ` 4.000 p. section 80GG has been amended to increase the maximum limit of deduction [third limit given in (ii) above] from ` 2000 per month to ` 5000 per month.10% of total income. (2) Rent paid .44. (iii) With a view to provide relief to the individual tax payers who pay rent for the purpose of their own residence. a deduction of any expenditure incurred by an individual (who is not in receipt of house rent allowance from his employer) on payment of rent in respect of any furnished or unfurnished accommodation occupied by him for the purposes of his own residence is allowed. Maximum limit of deduction u/s 80GG ` 5.Y.Y. in respect of residential accommodation occupied by him at Mumbai.60. Solution The deduction under section 80GG will be computed as follows: (i) Actual rent paid less 10% of total income (10 4. (3) ` 2.000 p.m.2016-17) Example Mr.Y 2017-18 (i) Under section 80GG.000 (-) = ` 98. (B) Monetary limit for maximum deduction under section 80GG increased Effective from: A.m.2017-18. (from A. provided he or his spouse or minor child or the HUF of which he is a member does not own a residential house at the place where he ordinarily resides or performs his duties of office or carries on his business or profession.000 p.000. paid house rent at ` 12.000) 1. Ganesh.60.2017-18) ` 2. (upto A. whose total income (before allowing deduction under section 80GG) for A.Y. a businessman.

(ii) 25% of total income 25 4.Y. (iii) Meaning of eligible start-up: Company or LLP engaged in eligible business Total turnover ≤ Rs.Y.4.m.2016-17 to P.2016-31.3. from period 1.000 p.000 (B) 100 (iii) Amount calculated at ` 5.Y. B and C) = ` 60.25 Holds a certificate of eligible Incorporated during the business from the notified crores in any P.000 (C) Deduction allowable (least of A.2020-21 (iv) Meaning of eligible business : A business which involves - innovation development of new products.000 = ` 1.Y.15.= ` 60.2017-18 (i) Objective: In order to provide an incentive to start-ups and aid their growth in the early phase of their business.2019 IMBC P.60. (ii) Quantum of deduction: Accordingly. a deduction of 100% of the profits and gains derived by an eligible start-up from an eligible business is allowed for any three consecutive assessment years out of five years beginning from the year in which the eligible start up is incorporated. driven by technology or deployment processes or intellectual property services commercialization 70 © The Institute of Chartered Accountants of India . new section 80-IAC has been inserted.000 (C) Tax incentives for new start-ups [Section 80-IAC] Effective from: A.

of a business already in existence. the condition specified that it should not be formed by transfer to a new business of plant and machinery used for any purpose shall be deemed to have been complied with. Further. (vii) Audit of Accounts: The deduction shall be allowed only if the accounts of the start-up for the relevant previous year have been audited by a chartered accountant and the assessee furnishes the audit report in the prescribed form. 1961 in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee. any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant or part so transferred does not exceed 20% of the total value of the machinery or plant used in the business. where in the case of a start-up. However. any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose. then. at any time previous to the date of the installation by the assessee. if all the following conditions are fulfilled. or the reconstruction. reconstruction or revival by the assessee of the business of any such undertaking as referred to in section 33B. (c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of the Income-tax Act. used in India. in the circumstances and within the period specified in that section. However. this condition shall not apply in respect of a start-up which is formed as a result of the re-establishment. the profits and gains of the eligible business shall be computed as if such eligible business were the only source of income of the assessee during the relevant previous years. (2) It is not formed by the transfer to a new business of machinery or plant previously used for any purpose. 71 © The Institute of Chartered Accountants of India . duly signed and verified by such accountant along with his return of income. (v) Conditions to be fulfilled: This incentive is available to an eligible start-up which fulfils the following conditions: (1) It is not formed by splitting up. (b) such machinery or plant is imported into India. namely: — (a) such machinery or plant was not. (vi) Eligible business to be considered as the only source of income: For the purpose of computing deduction under this section.

However. development.2018-19 P.2020-21 are as follows: P.42 18.2020-21 Particulars (Rupees in crores) Total 15.2016 -17 to P.72 24. the amount of profits from such transaction shall be determined having regard to the arm’s length price. It holds a certificate of eligible business from the notified IMBC 1. and if the consideration for such transfer does not correspond with the market value of the goods or services. where deduction is claimed and allowed under this section for any assessment year no deduction in respect of such profits will be allowed under any other section under this chapter. (x) Assessing Officer empowered to make adjustment in case any transaction produces excessive profits to eligible business: The Assessing Officer is empowered to make an adjustment while computing the profit and gains of the eligible business on the basis of the reasonable profit that can be derived from the transaction. in the opinion of the Assessing Officer. Its total turnover and profits and gains from such business for the P. However. deployment and commercialization of new processes driven by technology.36 20.21 22. was incorporated on 1.95 turnover 1 Inter-Ministerial Board of Certification 72 © The Institute of Chartered Accountants of India . (viii) Transfer of goods/services between eligible business and other business of the assessee: Where any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee.Y.Y.2017-18 P. The denial of exemption shall be with effect from such date as may be specified in the notification issued in Official Gazette. the profits and gains of the eligible business shall be computed as if the transfer was made at market value.Y. if. such computation presents exceptional difficulties.2019-20 P.Y.4.Y. if the arrangement involves a specified domestic transaction referred to in section 92BA.Y. then.2016 to carry on the business of innovation. Example A Ltd. or vice versa.Y. in case the transaction between the assessee carrying on the eligible business under section 80-IAC and any other person is so arranged that the transaction produces excessive profits to the eligible business. Further.2016-17 P. (ix) Deduction not to exceed profits of eligible business: The deduction claimed and allowed under this section shall not exceed the profits and gains of the eligible business. the Assessing Officer may compute the profits on such reasonable basis as he may deem fit. (xi) Central Government empowered to deny deduction to any class of start-up: The section empowers the Central Government to declare any class of start-up as not being entitled to deduction under this section.

2018-19. (ii) Quantum of deduction: Where the gross total income of an assessee includes any profits and gains derived from the business of developing and building housing projects. claim 100% of its profits as deduction under section 80-IAC from the P.87 Losses Is A Ltd..2020-21. since – (1) it is a company engaged in eligible business of innovation. (2) it is incorporated during the period 1.37) 6. deployment and commercialization of new processes driven by technology. (D) Deductions in respect of profits and gains from housing projects [New Section 80-IBA] Effective from: A. (4) it holds a certificate of eligible business from the notified IMBC Therefore. P.2016- 17 and P.2019. eligble for any tax benefit under the provisions of the Income-tax Act.2020-21. 2016 and 31st March. for P.Y.Y.2018-19.e.2017-18.4.Y.2016 to 31.e. In the first two years i.2016- 17 to P. A Ltd. an amount equal to 100% of the profits and gains derived from such business is allowable as deduction under new section 80-IBA.2019-20 and P.. A Ltd. what is the benefit available? Answer A Ltd.13 9.2017-18 (i) Objective: In order to provide impetus to affordable housing sector to achieve the larger objective of 'Housing for All'. is eligible for deduction under section 80-IAC of 100% of the profits and gains derived by it from an eligible business for any three consecutive assessment years out of five years beginning from the year in which the eligible start up is incorporated i.2016-17.e.3.Y. 2019. P. However.. P.Y.2017-18. P.Y. is an eligible start-up. the profits eligible for deduction would be the profits after set-off of brought forward losses of P.52) (1.Y.2020-21.25 crores in any previous year from P.Y.Y.Y. (3) its total turnover does not exceed Rs.52 8.Y. development. being an eligible start-up.2016-17 and P. Profits/ (2. new section 80-IBA has been inserted. has incurred a loss. A Ltd.Y.Y. 1961? If yes. subject to fulfilment of certain conditions. In the subsequent three years i. (iii) Conditions to be fulfilled for claim of deduction: (a) the project is approved by the competent authority between 1st June.2018-19 to P. has earned profits from eligible business and can hence. It holds a certificate of eligible business from the notified IMBC. 73 © The Institute of Chartered Accountants of India .Y.

residential units etc. ratio permissible in or Mumbai or respect of the plot of within the land under the rules distance.m. 74 © The Institute of Chartered Accountants of India . as of these cities the case may be.m. Location of Size onBuilt-up area Percentage of floor the housing plot of of the area ratio to be project land on residential utilised by the which the unit project comprised in project is located the housing project (1) (2) (3) (4) (5) (i) Within the cities Not less Not more than Not less than 90% of Chennai. (c) the built-up area of the shops and other commercial establishments included in the housing project does not exceed 3% of the aggregate built-up area. than 1.000 60 sq. (e) Conditions relating to size of plot of land. (ii) In any other Not less Not more than not less than 80% of place than 2. (f) The project is the only housing project on the plot of land [referred to in column (3)]. of 25 or the State kms from the Government or the municipal limits local authority. (g) the assessee maintains separate books of account in respect of the housing project. the project shall be deemed to have been approved on the date on which the building plant of such housing project was first approved by the competent authority and the project shall be deemed to have been completed when a certificate of completion of project as a whole is obtained in writing from the competent authority. such floor area ratio sq. (d) where a residential unit in the housing project is allotted to an individual.m. m. to be made by the measured Central Government aerially. of the floor area Delhi. in a case where the approval in respect of a housing project is obtained more than once.000 30 sq. no other residential unit in the housing project shall be allotted to the individual or the spouse or the minor children of such individual. Kolkata sq. (b) the project is completed within a period of three years from the date of approval by the competent authority: However.

(vi) No deduction under any other provision of the Act in respect of such profits: Where any amount of profits and gains derived from the business of developing and building housing projects is claimed and allowed under this section for any assessment year. shall be deemed to be the income of the assessee chargeable under the head “Profits and gains of business or profession” of the previous year in which the period for completion so expires. (vii) Meaning of certain terms: Term Meaning (a) Built-up area The inner measurements of the residential unit at the floor level. the total amount of deduction so claimed and allowed in one or more previous years. unit cooking and sanitary requirements. built-up area does not include –  the common areas shared with other residential units. deduction to the extent of such profit and gains shall not be allowed under any other provision of this Act. (iv) No deduction for person executing the housing project as a works contract: An assessee who merely executes the housing project as a works-contract awarded by any person (including the Central Government or the State Government) would not be eligible for deduction under this section. (c) Floor area The quotient obtained by dividing the total covered area of ratio plinth area on all the floors by the area of the plot of land (d) Housing A project consisting predominantly of residential units with project such other facilities and amenities as the competent authority may approve subject to the provisions of this section (e) Residential An independent housing unit with separate facilities for living. (v) Consequence of non-completion of housing project within 3 years: In a case where the housing project is not completed within the period of three years from the date of approval by the competent authority and in respect of which a deduction has been claimed and allowed under this section. distinctly separated from 75 © The Institute of Chartered Accountants of India . and  any open terrace so shared (b) Competent The authority empowered by the Central Government to authority approve the building plan by or under any law for the time being in force. including –  projections and balconies. as increased by –  the thickness of the walls. However.

other residential units within the building, which is directly
accessible from an outer door or through an interior door in a
shared hallway and not by walking through the living space
of another household.

(E) Phasing out of profit-linked incentives [Sections 80-IA, 80-IAB, 80-IB]
Related amendment in section: 35AD
Effective from: A.Y. 2017-18
(i) The Finance Minister in his Budget Speech, 2015 has indicated that the rate of
corporate tax will be reduced from 30% to 25% over the next few years along with
corresponding phasing out of exemptions and deductions. The Government
proposes to implement this decision in a phased manner.
(ii) Accordingly, the following incentives under the Act are to be phased out in the
manner given hereunder:
Section Incentive under the Income-tax Amendment by the Finance
Act, 1961 Act, 2016 restricting/phasing
out the incentive
80-IA(4) Deduction of 100% of profits Any enterprise which starts
derived by an enterprise carrying the development or operation
on the business of developing or and maintenance of the
operating and maintaining or infrastructure facility on or
developing, operating and after 1.4.2017 will not be
maintaining any infrastructure allowed deduction under
facility which fulfils the conditions section 80-IA.
stated thereunder. Deduction Instead, they would be eligible
would be allowed for any ten for investment-linked tax
consecutive assessment years out deduction under section 35AD.
of fifteen years beginning from the
year in which the enterprise
develops and begins to operate
any infrastructure facility.
80-IAB Deduction of 100% of profits No deduction would be
derived by an undertaking or available to an assessee,
enterprise from any business of being a developer, where the
developing a SEZ which fulfils the development of SEZ begins on
conditions stated thereunder. or after 1st April, 2017.
Deduction would be allowed for
any ten consecutive assessment
years out of fifteen years
beginning from the year in which
the SEZ has been notified by the
Central Government.

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80-IB(9) Deduction of 100% of profits for a Sunset clause has been
period of seven consecutive inserted and commercial
assessment years, if the production of mineral oil and
undertaking fulfils the following natural gas in licensed blocks
conditions – should have commenced on or
before 31.3.2017, for availing
(i) it is located in any part of India
benefit of deduction under
and has begun or begins
section 80-IB. No deduction
commercial production of
would be available under
mineral oil on or after 1.4.1997;
section 80-IB where the
(ii) it is engaged in commercial commercial production of
production of natural gas in mineral oil and natural gas
licensed blocks [NELP-VIII] and commences on or after
begins commercial production 1.4.2017.
of natural gas on or after
1.4.2009;
(iii) it is engaged in commercial
production of natural gas in
licensed blocks [IV Round of
bidding] and begins
commercial production of
natural gas on or after
1.4.2009.

(F) Deduction in respect of employment of new employees [New Section 80JJAA]
Effective from: A.Y. 2017-18
(i) Existing incentive under section 80JJAA:
Under section 80JJAA, a deduction of 30% of additional wages paid to new regular
workmen in a factory is allowed. The section applies to an assessee, whose gross
total income includes any profits and gains derived from the manufacture of goods
in a factory. The deduction is allowable for three assessment years, including the
assessment year relevant to the previous year in which such employment is
provided. The 'workmen' should be employed for not less than 300 days in a
previous year. Further, in case of an existing factory, benefits are allowed only if
there is an increase of atleast 10% in the total number of workmen employed on the
last day of the preceding year.
(ii) Objective of substitution of new section:
In order to extend this employment generation incentive to all sectors, section
80JJAA has been substituted.

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(iii) Quantum of deduction:
Accordingly, where the gross total income of an assessee to whom section 44AB
applies, includes any profits and gains derived from business, a deduction of an
amount equal to 30% of additional employee cost incurred in the course of such
business in the previous year, would be allowed for three assessment years
including the assessment year relevant to the previous year in which such
employment is provided.
(iv) Conditions to be fulfilled:
The deduction would be allowed only subject to fulfilment of the following conditions:

The business should not be formed by splitting up, or the
reconstruction, of an existing business

The business is not acquired by the assessee by way of
transfer from any other person or as a result of any
business reorganisation

The report of the accountant, giving the prescribed
particulars, has to be furnished along with ROI

(v) Meaning of certain terms:
Term Meaning
(a) Additional employee Total emoluments paid or payable to additional
cost employees employed during the previous year.
In the case of The additional employee cost shall be
an existing Nil, if—
business
(a) there is no increase in the number
of employees from the total
number of employees employed
as on the last day of the preceding
year;
(b) emoluments are paid otherwise
than by an account payee cheque
or account payee bank draft or by
use of electronic clearing system
through a bank account

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In the first The emoluments paid or payable to year of a new employees employed during that business previous year shall be deemed to be the additional employee cost.000 per month. Exclusions from the definition: (a) any contribution paid or payable by the employer to any pension fund or provident fund or any other fund for the benefit of the employee under any law for the time being in force. 1952. leave encashment. severance pay. voluntary retrenchment benefits. and (b) any lump-sum payment paid or payable to an employee at the time of termination of his service or superannuation or voluntary retirement.Y. or (b) an employee for whom the entire contribution is paid by the Government under the Employees’ Pension Scheme notified in accordance with the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act. such as gratuity. commutation of pension and the like. as they stood immediately prior to their amendment by the Finance Act. 2016. shall apply to an assessee eligible to claim any deduction for A. (c) Emoluments any sum paid or payable to an employee in lieu of his employment by whatever name called. Exclusions from the definition: (a) an employee whose total emoluments are more than ` 25. (b) Additional employee An employee who has been employed during the previous year and whose employment has the effect of increasing the total number of employees employed by the employer as on the last day of the preceding year. 79 © The Institute of Chartered Accountants of India . or (d) an employee who does not participate in the recognised provident fund. or (c) an employee employed for a period of less than 240 days during the previous year. (vi) The provisions of this section.2016-17 or earlier assessment year.

16. Working Note: Number of additional employees Particulars No. of workmen Total number of employees employed during the year 350 Less: Casual employees employed on 1.2016 Regular 26.Y.Y. 1.2016-17.000.000 = ` 64. of Date of Regular/ Total monthly emoluments employees employment Casual per employee (`) (i) 75 1.000 × 12 × 75 [See Working Note below] = ` 2.000 Regular employees employed on 1. out of 75. as his total turnover from business exceeds ` 1 crore and he has employed “additional employees” during the P. He employed 350 new employees during the P.16. if any.8. Compute the deduction.16 crores. if the profits and gains derived from manufacture of computers that year is ` 75 lakhs and his total turnover is 2.2016 and 1. A for A. Further.2016.2016 who do not 50 participate in recognized provident fund Regular employees employed on 1. 30 and 60 qualify as a “workman” under the Industrial Disputes Act. only 40.80.000 (ii) 125 1.000 (iv) 100 1.2017-18.Y. 1947.00.2016 since they have been employed for less than 240 days in the P.2016 Casual 17.4. A has commenced the business of of manufacture of computers on 1.5.000 Deduction under section 80JJAA = 30% of ` 2. Additional employee cost = ` 24.2016. available to Mr.2016.2017-18.000 (iii) 50 1.2016 Regular 24.00. Example Mr. _100 _275 Number of “additional employees” __75 80 © The Institute of Chartered Accountants of India .2016 Regular 24. A is eligible for deduction under section 80JJAA since he is subject to tax audit under section 44AB for A.2016-17. 50 and 100 regular employees employed on 1.4.9.25.Y.5.9.5.2016.000 The regular employees participate in recognized provident fund while the casual employees do not. Solution Mr.9. the details of whom are as follows - No.4. since their total 125 monthly emoluments exceed Rs.Y.2016-17.8.

201 6 do not qualify as additional employees for the P.Y. vide number F.2016-17 is deemed to be the additional employee cost. 1947 for the employer to avail benefit under section 80JJAA.2016-17. contribution to which would qualify for deduction in the hands of an individual assessee. 16/1/2015-PR dated 16th October. in exercise of the powers conferred by section 80CCD(1). it is not necessary that the employee should qualify as a “workman” under the Industrial Disputes Act.000. Extraordinary. Accordingly.Since casual employees do not participate in recognized provident fund. they do not qualify as additional employees. ‘Atal Pension Yojna’ notified under section 80CCD(1) [Notification No.2016 also do not qualify as additional employees since their monthly emoluments exceed Rs. 100 regular employees employed on 1. No. From A. 2015 as a pension scheme. since they are employed for less than 240 days in that year.Y.25. Also. contribution to which would qualify for deduction under section 80CCD in the hands of the individual. 81 © The Institute of Chartered Accountants of India . only 75 employees employed on 1. and the total emoluments paid or payable to them during the P.2017-18.Y. Therefore. Note . SIGNIFICANT NOTIFICATIONS/CIRCULARS 1. 125 regular employees employed on 1. Section 1. the Central Government has notified the ‘Atal Pension Yojana (APY)’ as published in the Gazette of India.9.5. 7/2016 dated 19-02-2016] Section 80CCD(1) empowers the Central Government to notify a pension scheme. Part I.2016 qualify as additional employees.4. Further.

(vii) The eligible assessee has to exercise the option for taxation of income by way of royalty in respect of a patent developed and registered in India in accordance with the provisions of section 115BBF in the prescribed manner. new section 115BBF has been inserted to provide that where the total income of the eligible assessee includes any income by way of royalty in respect of a patent developed and registered in India. on or before the due 82 © The Institute of Chartered Accountants of India . then such royalty shall be taxable at the rate of 10% (plus applicable surcharge and cess). 2016 has introduced a concessional taxation regime for royalty income from patents for the purpose of promoting indigenous research and development and making India a global hub for research and development. 2016 (A) Concessional Taxation Regime for royalty income in respect of patent developed and registered in India [Section 115BBF] Related amendment in section: 115JB Effective from: A. 13 ASSESSMENT OF VARIOUS ENTITIES AMENDMENTS BY THE FINANCE ACT. For this purpose. (vi) No deduction for any expenditure or allowance in respect of such royalty income shall be allowed under the Act.Y. manufacture and exploitation of patents in India. (ii) The purpose of the concessional taxation regime is for encouraging entities to retain and commercialise existing patents and for developing new innovative patented products. (v) Accordingly. (iv) The nexus approach has been recommended by the OECD under Action Plan 5 in Base Erosion and Profit Shifting (BEPS) project. this beneficial taxation regime will incentivise entities to locate the high-value jobs associated with the development. 1970. (iii) Further. developed means atleast 75% of the expenditure should be incurred in India by the eligible assessee for any invention in respect of which patent is granted under the Patents Act.2017-18 (i) The Finance Act. This approach requires attribution and taxation of income arising from exploitation of Intellectual property (IP) in the jurisdiction where substantial research and development (R & D) activities are undertaken instead of the jurisdiction of legal ownership.

and the assessee offers the income for taxation for any of the five assessment years relevant to the previous year succeeding the previous year not in accordance with section 115BBF(1). The same would be reduced while arriving at the book profit. Consequently. or (4) rendering of any services in connection with the activities referred to in (1) to (3) above. then the assessee shall not be eligible to claim the benefit of section 115BBF for five assessment years subsequent to the assessment year relevant to the previous year in which such income has not been offered to tax in accordance with section 115BBF(1). being the true and the first inventor of the invention. (xii) Meaning of lumpsum: “Lump sum” includes an advance payment on account of such royalties which is not returnable. 1970 in respect of that patent. the amount of income by way of royalty in respect of patent chargeable to tax under section 115BBF would not be subject to MAT under section 115JB . the related expenditure would be added back for arriving at the book profit. or the use of. in respect of a patent. a patent. where more than one person is registered as patentee under Patents Act. date specified under section 139(1) for furnishing the return of income for the relevant previous year. (ix) Further. Eligible assessee includes:  every such person. 83 © The Institute of Chartered Accountants of India . 1970. or (3) use of any patent. means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head “Capital gains” or consideration for sale of product manufactured with the use of patented process or the patented article for commercial use) for the— (1) transfer of all or any rights (including the granting of a licence) in respect of a patent. (xi) Meaning of royalty: “Royalty”.  who is the true and first inventor of the invention and  whose name is entered on the patent register as the patentee in accordance with Patents Act. (x) Meaning of eligible assessee: Eligible assessee means:  A person resident in India. (viii) Where an eligible assessee opts for taxation of income by way of royalty in respect of a patent developed and registered in India for any previous year in accordance with section 115BBF. or (2) imparting of any information concerning the working of.

A. s et up by the Government to look into the matter. if the tax payable on the total income as computed under the Income-tax Act.Y. suggested that section 115JB be amended to clarify the applicability of Minimum Alternate Tax (MAT) provisions to Foreign Institutional Investors/ Foreign Portfolio Investors (FIIs/FPIs) in view of the fact that FIIs and FPIs normally do not have a place of business in India.2001 to provide for non-applicability of levy of MAT under section 115JB in the following cases: Existence of DTAA with the country Additional condition to be satisfied of residence of the foreign company for non-applicability of MAT (i) The foreign company is a resident of a It should not have a permanent country or a specified territory with establishment in India in which India has a DTAA under section accordance with the provisions of 90(1) or the Central Government has such Agreement adopted any agreement between specified associations for double taxation relief under section 90A(1) (ii) The foreign company is a resident of It is not required to seek a country with which India does not registration under any law for the have an agreement of the nature time being in force relating to referred to in clause (i) above companies. and the corresponding expenditure will be added back.5% of its book profit. 84 © The Institute of Chartered Accountants of India .2016-17. any income by way of capital gains on transactions in securities or interest. (iii) However.2001-02 (i) Section 115JB(1) provides for levy of minimum alternate tax (MAT) in case of a company. Explanation 4 has been inserted in section 115JB with retrospective effect from 01.Y. is credited to profit and loss account and income-tax payable thereon is at a rate lower than the rate specified in section 115JB. (iv) A Committee on Direct Tax matters headed by Justice A. if the same is debited to profit and loss account. this amendment was prospective w. is less than 18. 1961. Therefore. (ii) In order to address the issue relating to the applicability of section 115JB(1) to Foreign Institutional Investors (FIIs) who do not have a permanent establishment (PE) in India. royalty or fees for technical services chargeable to tax at the rates specified in Chapter XII. the book profit shall be deemed to be the total income of the assessee-company and the tax payable by the assessee-company for the relevant previous year shall be 18.2016-17 remained to be addressed.5% of its book profit. 2015 amended this section to provide that in case of a foreign company. (B) Non-applicability of MAT in respect of certain foreign companies [Section 115JB] Effective retrospectively from: A. the issue related to applicability for assessment year prior to A. the Finance Act. (v) Keeping in mind the suggestions of the Committee and in order to ensure certainty in taxation of foreign companies.f. Shah. In such a case.04. the same shall be reduced from the book profits.P.e.Y.

transaction is paid or payable in foreign currency. 2013 providing for levy of 2013 provides for levy of CTT.2017-18 In order to encourage the growth of International Financial Services Centres (IFSCs) into a world class financial services hub. Act.2) (No. 85 © The Institute of Chartered Accountants of India . The provisions of Chapter The provisions of Chapter VII of the VII of the Finance Act. Levy of STT and CTT Exemption from levy of STT and CTT The provisions of Chapter Provisions of Chapter VII of the Finance VII of the Finance (No. 2016. the following incentives have been provided to units set up in the IFSC under the Income-tax Act. 111A.2) Act. 2004 providing for levy of STT. thereby exempting such transactions from STT with effect from 1st June. IFSC where the consideration for such transaction is paid or payable in foreign currency. Finance Act. (ii) 10(38) Exemption of LTCG Exemption of LTCG even if STT not only if STT is paid: paid: Exemption of income by Second proviso has been inserted in way of long term capital section 10(38) to exempt tax on long-term gains arising from transfer capital gains in respect of income arising of listed equity shares or from transaction undertaken in foreign listed units of an equity currency on a recognised stock exchange oriented fund or business located in an International Financial trust provided securities Services Centre even when securities transaction tax is paid. (C) Tax incentives to International Financial Services Centres [Sections 10(38). 115JB & 115-O] Effective from: A. not to apply to taxable commodities commodities transaction transactions entered into by any person on tax (CTT) on transactions a recognised association located in unit of in taxable commodities.Y. 2004 provides for not to apply to taxable securities levy of securities transactions entered into by any person on transaction tax (STT) on a recognised stock exchange located in transactions in taxable IFSC where the consideration for such securities. it is necessary to ensure a competitive tax regime to International Financial Services Centre. transaction tax is not paid in respect of such transaction. Accordingly. 2016. thereby exempting such transaction from CTT with effect from 1st June. 1961: Section Exemption/Levy Incentive to IFSCs (i) .

such book convertible foreign exchange.5% of its and deriving its income solely in book profit. tax is not paid in respect of such transaction. International Financial Services Centre is less than 18. 86 © The Institute of Chartered Accountants of India . the minimum profit shall be deemed to alternate tax shall be chargeable at the be the total income of the rate of 9% instead of 18. for any assessment year on any amount declared. company and the Minimum Alternate Tax (MAT) payable by the company for the relevant previous year shall be 18. distributed profits shall be chargeable in distributed or paid by a respect of the total income of a company domestic company by being a unit located in International way of dividends. distributed or paid by such company. (v) 115-O Levy of DDT@15%: Exemption from levy of DDT: Additional income.5% of such book profit. being a unit located in under the Income-tax Act.5%. 2017 out of its current income. Financial Services Centre. by way of dividends (whether interim or otherwise) on or after 1st April. if Sub-section (7) has been inserted in the tax payable on the section 115JB to provide that in case of a total income as computed company. (iv) 115JB MAT levy @18. (iii) 111A Levy of STCG@15% if Levy of STCG@15% even if STT is not STT is paid paid Short term capital gains Second proviso has been inserted in arising from transfer of section 111A(1) to provide that short term listed equity shares or capital gains arising from transaction listed units of an equity undertaken in foreign currency on a oriented fund or business recognised stock exchange located in an trust is taxable at a International Financial Services Centre concessional rate of 15% would be taxable at a concessional rate of provided securities 15% even when securities transaction transaction tax is paid. deriving income solely in convertible foreign exchange.5%: Concessional rate of MAT@9%: In case of a company. either in the hands of the company or the person receiving such dividend. Sub-section (8) has been inserted in tax@15% is attracted on section 115-O to provide that no tax on any amount declared.

(D) Dividend distributed by SPV to business trust exempt from levy of DDT [Section 115-O] Related amendment in sections: 10(23FC). The other conditions are that the SPV should hold at least 80% of the assets in properties and it should not invest in other SPVs. these business trusts can hold the income generating asset either directly or through a Special Purpose Vehicle (SPV). Consequent to the additional levy of DDT and associated tax inefficiency. it pays dividend distribution tax. the REITs and Invits are yet to take off. such large infrastructure projects are not held directly in the trust but are held through an SPV. (vii) For addressing this concern. 87 © The Institute of Chartered Accountants of India . (iii) Under this regime. SPV is defined to mean any company in which REIT holds or proposes to hold controlling interest which is not less than 50% of the shareholding. is subject to tax in the hands of the unit holder. This problem is critical since as per SEBI regulations.2) Act. (iv) In respect of assets held through an SPV. Therefore. both the SPV and business trust have to distribute 90% of their operating income to the investors. there is no multiple taxation. namely. the taxation regime for business trusts (REITs and Invits) and their investors has been further rationalised by providing for a special dispensation and exemption from levy of dividend distribution tax. being an Indian company. the income distributed is exempt both in the hands of REIT [by virtue of section 10(34)] and also its investors [by virtue of section 10(23FD)]. for example. i. capital gains on sale of developmental properti es. (ii) Under the SEBI regulation. 2014 had inserted Chapter XII-FA providing for a special taxation regime in respect of business trusts. whereas in case of normal real estate company. 10(23FD).e. there is no requirement of such annual distribution of dividends. (v) There is a similar regime in case of Invits. An income which is subject to tax in the hands of the business trust is not charged to tax once again in the hands of the unit-holder. (vi) The levy of dividend distribution tax on the SPV at the time when its distributes dividend to the business trust makes the business trust structure tax inefficient and has an adverse impact on the rate of return for the unit-holder. the company pays normal corporate tax and thereafter. 115UA& 194LBA (i) The Finance (No. when the income is distributed to the REIT being a shareholder. comprising of Real Estate Investment Trust (REITs) and Infrastructure Investment Trust (Invits) regulated by SEBI. interest income from SPV and rental income arising to REIT from real estate property directly held by it. with the only exception being that there is no pass through for Invits holding income generating assets directly as normally. (viii) The key amendments in the special taxation regime for business trusts are : (a) Dividend distributed by SPV to the business trust would be exempt from levy of DDT.. only the income in respect of which the business trust enjoys a pass through status.

this exemption would not be applicable in respect of any amount declared. (c) Exemption from levy of DDT would be applicable only in cases where the business trust either holds 100% of the share capital of the SPV or holds all of the share capital other than that which is required to be held by any other entity as part of any direction of any Government or specific requirement of any law to this effect or which is held by Government or Government bodies. The dividends paid out of accumulated and current profits upto this date shall be liable for levy of DDT as and when any dividend out of these profits is distributed by the company either to the business trust or any other shareholder.f.2016) Non-levy of DDT on distributed profits in respect of any amount declared. (b) On or after the date of acquisition of such holding referred to in (a) above by the business trust. (d) Exemption from levy of DDT would be applicable only in respect of dividends paid out of current income after the date when the business trust acquires the shareholding referred in (c) above in the SPV. 88 © The Institute of Chartered Accountants of India . the hands of the business trust.6. (b) Such dividend received by the business trust and its investor shall not be taxable in the hands of business trust or the unit holders. (2) 10(23FC) Exemption of dividend referred to in section 115-O(7) in (w.2017-18) new sub-clause (b) of section 10(23FC).f. This is provided for in A.e. However. (e) Summary of amendments: Section Provision (1) 115-O(7) Exemption from levy of DDT on distributions by a (w.Y. distributed or paid at any time by the domestic company out of its accumulated profits or current profits upto the date of acquisition by the business trust of the specified holding [as per (a) above] in the SPV. distributed or paid by way of dividends (whether interim or otherwise) out of its current income – (a) By a domestic company in which a business trust has become a holder of the whole of the nominal value of equity share capital of the company (excluding 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).e. SPV to a business trust 1.

Consequently. or any part thereof.2016-17: 89 © The Institute of Chartered Accountants of India . (5) 194LBA This section requires deduction of tax at source by the (w. registered under SEBI (Real Estate Investment Trusts) Regulations. since the same is exempt in the hands of the unit holders.Y. (3) 10(23FD) Exemption of dividend referred to in section 115-O(7) in (w. dividend income referred to in sub- clause (b) of section 10(23FC).Y. Example A business trust.e.. dividend income. is exempt in the hands of the unit holders. gives particulars of its income for the P.e. no tax is required to be deducted at source on distribution of income which is in the nature of dividend referred to in sub-clause (b) of section 10(23FC). Consequently. of income 1.2017-18) income received by the business trust from the SPV [referred to in sub-clause (a) of section 10(23FC)] or rental income from real estate assets owned directly by the REIT [referred to in section 10(23FCA)]. business trust on distribution to the unit holders. Consequently.2016) which is in the nature of interest income received by the business trust from the SPV [referred to in sub-clause (a) of section 10(23FC)] or rental income from real estate assets owned directly by the REIT [referred to in section 10(23FCA)]. 2014. received by a unit holder from the business trust.. which is exempt in the hands of the business trust would not also be taxable in the hands of the unit holders on distribution. income of a business trust by way of interest received or receivable from a SPV.e.f.f. (ii) Clause (23FCA) i. referred to in section 115UA.Y.f. rental income from real estate asset directly owned by the REIT. A.6. (4) 115UA(3) This section provides for taxability of distributed income (w. which is covered in sub-clause (b) of clause (23FC). in the hands of the unit holders.2017-18) This section exempts any distributed income.e. the hands of the unit-holders. which is in the nature of interest A. other than that proportion of the income which is of the same nature as the income referred to in – (i) Sub-clause (a) of Clause (23FC) i. by the business trust to the unit-holders.e.

: The dividend distributed by the SPV to the business trust is exempt by virtue of section 115-O(7). since the SPV is a specified domestic company in which the business trust has become the holder of whole of the nominal value of equity share capital of the company. and at normal rates of tax. 2016). and  @ 5%. – ` 4 crore. (4) Short-term capital gains on sale of developmental properties – ` 1 crore (5) Interest received from investments in unlisted debentures of real estate companies – ` 10 lakh. Discuss the tax consequences of the above income earned by the business trust in the hands of the business trust and the unit holders. (1) Interest income from Beta Ltd. in case of resident unit holders. The business trust holds 100% of the shareholding of Beta Ltd.1. is an Indian company in which the business trust holds controlling interest. due to specific exemption provided under sub-clause (b) of section 10(23FC). 90 © The Institute of Chartered Accountants of India . being non-corporate non- residents or foreign companies. (2) Dividend income of ` 2 crore from Beta Ltd. (6) Rental income from directly owned real estate assets – ` 2. is not required to deduct tax at source on interest payment to the business trust.: There would be no tax liability in the hands of business trust due to pass-through status enjoyed by it under sub-clause (a) of section 10(23FC) in respect of interest income from Beta Ltd. being the special purpose vehicle. in case of unit holders. Answer Tax consequences in the hands of the business trust and its unit holders (1) Interest income of ` 4 crore from Beta Ltd.. on interest component of income distributed to resident unit holders.5 crore.50 crore Beta Ltd. However. there would be no tax liability in the hands of the business trust. The interest component of income received from the business trust in the hands of each unit-holder would be determined in the proportion of 4/11. by virtue of section 115UA(1). on interest component of income distributed to non-corporate non- resident unit holders and foreign companies. Therefore. the business trust has to deduct tax at source under section 194LBA –  @ 10%. (2) Dividend income from Beta Ltd.Y. Beta Ltd.2016-17. Interest component of income distributed to unit holders is taxable in the hands of the unit holders – @ 5%. assuming that the business trust has distributed ` 10 crore to the unit holders in the P. (3) Short-term capital gains on sale of listed shares of Beta Ltd. – ` 1. – ` 2 crore (received on 1st October. Further.

Any distributed income referred to in section 115UA. by virtue of section 10(23FD). The rental income component received from the business trust in the hands of each unit-holder would be determined in the proportion of 2. the business trust is liable to pay tax@15% under section 111A in respect of short-term capital gains on sale of listed shares of special purpose vehicle. The distributed income or any part thereof. (6) Rental income of ` 2. by virtue of section 10(23FD). as per section 115UA(2).50 crore from directly owned real estate assets: Any income of a business trust. being a REIT. being a REIT. in the hands of the business trust. which is in the nature of income by way of renting or leasing or letting out any real estate asset owned directly by such REIT is deemed income of the unit holder as per section 115UA(3). by virtue of section 115UA(1). in respect of any real estate asset held directly by such REIT. to the extent it does not comprise of interest [referred to in sub-clause (a) of section 10(23FC)] and rental income from real estate assets owned directly by the business trust [referred to in section 10(23FCA)] received by unit holders. however. (5) Interest of ` 10 lakh received in respect of investment in unlisted debentures of real estate companies: Such interest is taxable@35. Where the income by way of rent is credited or paid to a business trust. no tax is deductible at source under section 194-I. being the maximum marginal rate.1. received by a unit holder from the REIT. (4) Short-term capital gains of ` 1 crore on sale of developmental properties: It is taxable at maximum marginal rate of 35. is exempt in their hands under section 10(23FD).535%. there would be no tax liability on the dividend component [referred to in sub-clause (b) of section 10(23FC)] of income distributed to unit holders in their hands. Therefore. there would be no tax liability in the hands of the unit holders on the interest component of income distributed to them. by virtue of the exemption contained in section 10(23FD).50 crore on sale of listed shares of Beta Ltd. (3) Short-term capital gains of ` 1. The business trust has to deduct tax at source@10% under section 194LBA in case of distribution to a resident unit holder and at rates in force in case of distribution to a non-resident unit holder. There would. by virtue of the exemption contained in section 10(23FD). be no tax liability on the capital gain component of income distributed to unit holders.535% in the hands of the business trust as per section 115UA(2).: As per section 115UA(2).5/11. However. by way of renting or leasing or letting out any real estate asset owned directly by such business trust is exempt in the hands of the trust as per section 10(23FCA). There would be no tax liability in the hands of the unit holders on the capital gain component of income distributed to them. 91 © The Institute of Chartered Accountants of India .

the total income of a business trust shall be chargeable to tax at the maximum marginal rate. Such company should hold not less than 80% of its assets directly in properties and should not invest in other SPVs and should not be engaged in any activity other than holding and developing property and any other activity incidental to such holding or development. it is a special purpose vehicle. Thus. (5) The distributed income of the business trust. Accordingly. 2014]. to the extent it does not comprise of interest referred to in sub-clause (a) of section 10(23FC) and rental income referred to in section 10(23FCA). (3) Sub-clause (b) of section 10(23FC) exempts any income of a business trust by way of dividend received from SPV. Since Beta Ltd. or accrued to the business trust. (7) Section 115UA(2) provides that subject to the provisions of sections 111A and 112. as it had been received by. as may be required by the regulations under which such trust is granted registration [not less than 50% as per the current SEBI (Real Estate Investment Trusts) Regulations. (4) SPV means an Indian company in which the business trust holds controlling interest and any specific percentage of shareholding. Notes: (1) New Chapter XII-FA contains the special provisions relating to business trusts. received by unit holders is exempt in their hands under section 10(23FD). fulfills the other conditions specified in the regulations to qualify as an SPV. (6) Any distributed income referred to in section 115UA. 92 © The Institute of Chartered Accountants of India . the business trust is required to deduct tax at source on the interest component and rental component of income distributed to its unit holders. the business trust enjoys a pass-through status in respect of interest received or receivable from a SPV. is deemed to be the income of the unit holder in the previous year of distribution and subject to tax in the hands of the unit holder in that year. It is presumed that Beta Ltd. Such dividend income is also exempt in the hands of the unit-holder. Section 115UA(1) provides that any income distributed by a business trust to its unit holders shall be deemed to be of the same nature and in the same proportion in the hands of the unit holder. being a specified domestic company in which a business trust has become the holder of the whole of the nominal value of equity share capital of the company. to the extent it comprises of interest referred to in sub-clause (a) of section 10(23FC) and rental income referred to in section 10(23FCA). is an Indian company in which the business trust holds controlling interest and 100% of shareholding. (2) Sub-clause (a) of section 10(23FC) exempts any income of a business trust by way of interest received or receivable from a Special Purpose Vehicle (SPV).

(v) Further. for the purpose of computing distributed income. Distributed The consideration paid by the The consideration paid by the income company on buy-back of company on buy-back of shares 93 © The Institute of Chartered Accountants of India . 1956. (iii) Clause (ii) of the Explanation to section 115QA defines “distributed income” to mean the consideration paid by the company on buy back of shares as reduced by the amount which was received by the company for issue of such shares. 1956. section 115QA has been amended to provide that the provisions of this section shall apply to any buy back of unlisted share undertaken by the company in accordance with the provisions of the law relating to the Companies and not necessarily restricted to section 77A of the Companies Act. 1956.6. merger or demerger. 1956. another issue relates to the lack of clarity in determination of consideration received by the company at the time of issue of shares being bought back by the company. The Rules to be framed would provide for manner of determination of the amount in various circumstances including shares being issued under tax neutral reorganisations and in different tranches. at different point of time or may have been issued in lieu of existing shares of another company under amalgamation. (viii) Definitions: Term Upto 31.2016 Buy-back Purchase by a company of its Purchase by a company of its own shares in accordance own shares in accordance with with the provisions of any law for the time being in section 77A of the force relating to companies. (E) Rationalisation of the definitions of “buyback” and “distributed income” for the purpose of levy of additional income-tax on income distributed by a company on buyback of unlisted shares from a shareholder[Section 115QA] Effective from: 1 st June.5. (iv) Since the definition of buyback makes reference to section 77A of the C ompanies Act. the effect of buybacks undertaken by the company under different provisions of the Companies Act. 2016 (i) Section 115QA provides for the levy of additional income-tax@20% of the distributed income on account of buy back of unlisted shares by a company. the amount received by the company for issue of shares being bought back shall be determined in the prescribed manner. 2013 and applicability of provisions of section 115QA to such transactions is an issue requiring clarification. (vi) For ensuring clarity and removing any ambiguity in relation to these issues.2016 With effect from 1. for different considerations. (vii) Further. (ii) Clause (i) of the Explanation to section 115QA defines “buyback” to mean the purchase of a company of its own shares in accordance with the provisions of section 77A of the Companies Act. There are situations where shares may have been issued by the company in tranches. Companies Act.

2002 (SARFAESI Act) and their activities are regulated by the RBI. (v) Also. a new taxation regime has been introduced by insertion of section 115TCA with effect from A. if the distribution is made to an individual or a Hindu undivided family (HUF) and @30%. (vii) Salient Features of the New Taxation Regime for Securitisation Trust and its investors [New Section 115TCA]: (1) Applicability of New Taxation Regime [Clause (d) of Explanation below section 115TCA]: The new regime shall apply to a securitisation trust being: 94 © The Institute of Chartered Accountants of India . (vi) In order to rationalise the tax regime for securitisation trust and its investors. the final levy in the form of distribution tax is tax inefficient for the investors. However. (F) New Taxation Regime for Securitisation Trusts [Section 115TCA] Related amendment in sections: 115TA.Y. no distribution tax is to be levied. 115TB and 115TC provides for a special taxation regime in respect of income of the securitisation trusts and the investors of such trusts. 115TC & 10(35A) (i) Chapter-XII-EA of the Income-tax Act. shares as reduced by the as reduced by the amount which amount which was received was received by the company for by the company for issue of issue of such shares. if the distribution is made to an exempt entity. Consequent to the levy of additional income-tax. such shares. the trusts set up by reconstruction companies or the securitisation companies were not covered although such trusts are also engaged in securitisation activity. determined in the manner as may be prescribed. and to provide tax pass through treatment.2017-18 and the earlier regime of distribution tax under section 115TA shall cease to apply in case of distribution made by securitisation trusts with effect from 1st June. (iv) Under this special taxation regime. (iii) The rate of additional income-tax is 25%. under this regime. Further. if the distribution is to others. 1961 comprising of sections 115TA. the non-resident and resident investors could not take benefits of their specific tax status. specially the banks and financial institutions. (ii) As per the special taxation regime. the income distributed by the securitisation trust to its investors would be subject to a levy of additional tax to be paid by the securitisation trust within 14 days of distribution of income. the income of the investor. is exempt under section 10(35A) and the income of securitisation trust itself is exempt under section 10(23DA). Disallowance of expenditure in respect of income received from securitisation trust increases the effective rate of taxation for these investors. 2016. These companies are established for the purposes of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act. received from the securitisation trust.

Thereafter (i. the securitisation trust during the previous year. during a previous year has not been paid or credited to the investor.6. on or after 1. a person. (5) Nature of income paid or credited by securitisation trust in the hands of the investor [Section 115TCA(2)]: The income paid or credited by the securitisation trust shall be deemed to be of the same nature and in the same proportion in the hands of the investor of the securitisation trust.6. out of investments made in the securitisation trust. (3) No exemption under section 10(35A) to investor: However. (2) Exemption of income of securitisation trust from the activity of securitisation: The income of securitisation trust from the activity of securitisation shall continue to be exempt under section 10(23DA). exemption in respect of income of investor from securitisation trust under section 10(35A) would not be available in respect of distributed income received by them on or after 1. or received by. the securitisation trust. 2008 (ii) A special purpose The guidelines on securitisation of standard vehicle assets issued by RBI (iii) A trust setup by a Securitisation and Reconstruction of securitisation company Financial Assets and Enforcement of or a reconstruction Security Interest Act. the same shall be deemed to have been credited to the account of the said person on the last day of 95 © The Institute of Chartered Accountants of India . Form Regulation (i) A special purpose SEBI (Public Offer and Listing of Securitised distinct entity Debt Instrument) Regulations..2016. as if it had been received by. or received by. being an investor from the securitisation trust. (4) Taxability of income from securitisation trust in the hands of the investor [Section 115TCA(1)]: New section 115TCA(1) provides that the income accruing or arising to.2016). (6) Deemed credit to investor [Section 115TCA(3)]: If the income accruing or arising to.e. any income received from securitisation trust would be taxable in the hands of investors. 2002 (SARFAESI Act) company (or) The RBI directions/guidelines. or had accrued and arisen to. shall be taxable in the hands of investor in the same manner and to the same extent as if the investor had made investment directly in the underlying assets and not through the trust.

within the prescribed period. (ii) Sections 11 and 12 provide exemption to trusts or institutions in respect of income derived from property held under trust and voluntary contributions. other than individuals and HUFs 30% (iii) Non-corporate non-residents and foreign companies Rates in force (10) The facility for the investors to obtain low or nil deduction of tax certificate would be available. the investor can make an application to the Assessing Officer. the same shall not be included in the total income of such person in the previous year in which such income is actually paid to him by the securitisation trust. "income" includes any voluntary contribution received by a charitable trust or institution or a fund. (8) Income taxed in the year of accrual not taxable again in the year of payment [Section 115TCA(5)]: Where income has been included in the total income of the investor in a previous year. on account of it having accrued or arisen in the said previous year. whichever is earlier. and he can. on an application made by the assessee in this behalf. Payee Rate of TDS (i) Resident individuals and HUFs 25% (ii) Resident payees.6. subject to the conditions stipulated thereunder. the previous year in the same proportion in which such person would have been entitled to receive the income had it been paid in the previous year.2016]: Tax deduction at source under section 194LBC shall be effected by the securitisation trust at the time of payment or credit of income to the account of the investor. (7) Statement specifying the details of nature of income to be furnished to investor and prescribed income-tax authority [Section 115TCA(4)]: The securitisation trust shall provide breakup regarding nature and proportion of its income and such other relevant details to the investors and also to the prescribed income-tax authority in the prescribed form and verified in the prescribed manner. issue a certificate under section 197 in this behalf for no deduction of income-tax or deduction of income-tax at a lower rate. (9) Deduction of tax at source in respect of income payable to investor [New Section 194LBC effective from 1. (G) Tax on accreted income of certain trusts and institutions [Chapter XII-EB] Effective from: 1st June. 2016 (i) As per section 2(24). 96 © The Institute of Chartered Accountants of India .

(vi) Under section 11. new Chapter XII-EB has been inserted for imposing additional income-tax in the nature of an exit tax when the organization is converted into a non- charitable organization or gets merged with a non-charitable organization or does not transfer the assets to another charitable organisation. it is always possible for charitable institutions to transfer assets to a non- charitable institution. continues to be utilised for charitable purposes and is not used for any other purpose. It also provides the circumstances under which the registration can be cancelled. (vii) Consequently. (iii) The exemption is subject to the condition that the income derived from property held under trust should be applied for charitable purposes. and where such income cannot be applied during the previous year. with promise of it being used for charitable purpose. certain amount of income of prior period can be brought to tax on failure of certain conditions. (viii) In order to ensure that the benefit conferred over a period of time by way of exemption is not misused and to plug the gap in law that allows the charitable trusts having built up corpus/wealth through exemptions being converted into non-charitable organisation with no tax consequences. There is. Section 13 of the Act provides for the circumstances under which exemption under section 11 or 12 in respect of whole or part of income would not be available to a trust or institution. 1961. Section 12AA provides for registration of the trust or institution which entitles them to be able to get the benefit of sections 11 and 12. which ensure that the corpus and asset base of the trust accreted over a period of time. no specific provision in the income-tax law as to how the assets of such a charitable institution should be dealt with. it has to be accumulated and invested in the modes prescribed and applied for such purposes in accordance with specified conditions. or 97 © The Institute of Chartered Accountants of India . there is no provision in the Income-tax Act. Salient Features: Section Provision (i) 115TD(1) Circumstances where levy of tax on accreted income is attracted: The accreted income of a trust or institution registered under section 12AA shall be taxable at the maximum marginal rate (@34. (iv) If the accumulated income is not applied in accordance with the conditions provided in the said section within a specified time. or (3) convert into a non-charitable organization. (v) A society or a company or a trust or an institution carrying on charitable activity may – (1) voluntarily wind up its activities and dissolve. however.608%) on – (1) conversion of the trust or institution into a form not eligible for grant of registration under section 12AA. or (2) merge with any other charitable or non-charitable institution. then such income is deemed to be taxable income of the trust or the institution. However.

1996. Thus. the registration shall be deemed to have become effective fr om the first day of the earliest previous year.Circumstances: A trust or an institution shall be deemed to have been converted into any form not eligible for registration under section 12AA in a previous year.2) Act. then. (2) merger with an entity not having similar objects and registered under section 12AA. or (3) non-distribution of assets on dissolution to any charitable institution registered under section 12AA or approved under section 10(23C) within a period of 12 months from the end of the month in which the dissolution takes place. in relation to such asset. or (b) it has filed application for fresh registration under section 12AA but the said application has been rejected.— (a) it has not applied for fresh registration under section 12AA in the said previous year. if the trust or institution has not been allowed any benefit of sections 11 and 2 Where the benefit under sections 11 and 12 have been allowed to the trust or institution in respect of any previous year or years beginning prior to the date from which the registration under section 12AA became effective. or (ii) it has adopted or undertaken modification of its objects which do not conform to the conditions of registration and. if. (2) Accreted income attributable to any asset acquired by the trust or institution during the period beginning from the date of its creation or establishment and ending on the date from which the registration under section 12AA became effective2. This levy of exit tax shall be in addition to income chargeable in the hands of the entity. Liability. also has to be ignored.— (i) the registration granted to it under section 12AA has been cancelled. registration under section 12AA shall include any registration obtained under section 12A as it stood before its amendment by the Finance (No. 98 © The Institute of Chartered Accountants of India . (iii) 115TD(2) Meaning of Accreted Income : Aggregate FMV of total assets as on the specified date Less Total liability computed in accordance with the prescribed method of valuation Notes – (1) Accreted income attributable to any asset which is established to have been directly acquired by the trust or institution out of its agricultural income exempt under section 10(1) would be ignored. (ii) 115TD(3) Deemed conversion into non-eligible form .

in relation to such asset. Liability. (3) The asset and the liability of the charitable organisation which have been transferred on dissolution to another charitable trust or institution registered under section 12AA or a fund/institution/trust/ university/educational institution/hospital/medical institution approved under section 10(23C) within specified time have to be ignored while calculating accreted income. tax on accreted income shall be payable by the trust or institution. like any other additional income-tax. also has to be ignored. 99 © The Institute of Chartered Accountants of India . Meaning of specified date [Explanation below section 115TD(7)]: Case Specified Date (i) conversion of the trust or institution The date of registered u/s 12AA into a form not conversion eligible for registration u/s 12AA (ii) merger with an entity not having The date of similar objects and registered u/s merger 12AA (iii) non-distribution of assets on The date of dissolution to any charitable dissolution institution registered u/s 12AA or approved u/s 10(23C) within a period twelve months from dissolution Date of conversion [Explanation below section 115TD(7)]: Case Specified Date (i) Where the registration The date of the order granted to it u/s 12AA has cancelling registration been cancelled u/s 12AA (ii) Where it has adopted or The date of adoption or undertaken modification of modification of any its objects which do not object. 12 during the said period. would be ignored. conform to the conditions of registration and has not made an application for fresh registration or the application made has been rejected. (iv) 115TD(4) Exit tax payable even if no income-tax is payable by the Trust/Institution: Even if no income-tax is payable by the trust or institution on its total income.

is received by the trust or the institution (2) Where the trust has the end of the previous year modified its objects and has not applied for fresh registration u/s 12AA (3) Where the trust has the date on which – modified its objects (a) the period for filing appeal and has filed under section 253 against application for fresh the order rejecting the registration u/s 12AA. confirming the cancellation of the application. is received by the trust or the institution (4) Where trust has the date of merger merged with an entity not having similar objects and registered u/s 12AA 100 © The Institute of Chartered Accountants of India . or (b) the order in any appeal. application expires an no but the same was appeal has been filed by rejected the trust or institution. (v) 115TD(5) Period within which tax on accreted income has to be paid to the credit of the Central Government: The principal officer or the trustee of the trust or the institution. and the trust or the institution shall also be liable to pay the tax on accreted income to the credit of the Central Government within fourteen days from. or (b) the order in any appeal. as the case may be. confirming the cancellation of the application.— Circumstance Relevant date (1) Where the the date on which – registration granted (a) the period for filing appeal under section 12AA under section 253 against has been cancelled the order rejecting the application expires and no appeal has been filed by the trust or the institution.

tax was payable (ix) 115TF Circumstance when trust or institution is deemed to be assessee-in-default: The principal officer or the trustee and the trust or the institution shall be deemed to be assessee-in-default for non-payment of tax and all provisions related to the recovery of taxes shall apply. (viii) 115TE Interest for non-payment of tax within prescribed time: In case of failure of payment of tax within the prescribed time. (vii) 115TD(7) Non-availability of deduction under any other provision of the Act: No deduction is allowable under any other provision of the Act to the trust or institution or any other person in respect of the income which has been charged to tax or the tax thereon. 101 © The Institute of Chartered Accountants of India . dissolution all its assets to another registered trust or institution or approved fund or institution within 12 months from the end of the month in which the dissolution takes place (vi) 115TD(6) No credit available for tax paid on accreted income: The tax on accreted income shall be final tax for which no credit can be taken by the trust or institution or any other person. which is not a charitable organisation. (5) Where the trust fails The date on which the period to transfer upon of 12 months expires. in such a case. the recipient of assets of the trust shall also be liable to be held as assessee-in-default in case of non-payment of tax and interest. in the case of transfer of assets upon dissolution of the trust or institution to a recipient. However. a simple interest @ 1% per month or part of it shall be applicable for the period of non-payment. Further. Period of non-payment: Beginning from Ending with The date immediately after The date on which the tax is the last date on which such actually paid. the recipient's liability shall be limited to the extent to which the assets received by him is capable of meeting the liability.

dated 07-03-2016] A consortium of contractors is often formed to implement large infrastructure projects. responsibilities and liabilities of the consortium members. based on performance of the contract falling strictly within its scope of work. 07/2016. (b) each member earns profit or incurs losses. is contrary to this view. has a clear distinction and role in scope of work. There may be other additional factors also which may justify that consortium is not an 102 © The Institute of Chartered Accountants of India . there are several contrary ruling of various Courts on what constitutes an AOP. particularly in Engineering Procurement and Construction ('EPC') contracts and Turnkey Projects. Existence of AOP: Determined by facts and circumstances of a case and no formula for universal application exists The term AOP has not been specifically defined in the Income-tax Act. Does a consortium of contractors formed to implement large infra projects necessarily constitute an AOP? [Circular No. SIGNIFICANT NOTIFICATIONS/CIRCULARS 1. there is a clear demarcation in the work and costs between the consortium members and each member incurs expenditure only in its specified area of work. consortium members may share contract price at gross level only to facilitate convenience in billing. However. a separate entity for charging tax... The issue as to what would constitute an AOP was considered by the Apex Court in some cases. The tax authorities. in many cases have taken a position that such a consortium constitutes an Association of Persons ('AOP') i. Consortium arrangement for executing EPC/Turnkey contracts – Necessary attributes for not being treated as an AOP With a view to avoid tax-disputes and to have consistency in approach while handling these cases. The claim of taxpayers. 1961. although jointly and severally liable to the contractee. (d) the control and management of the consortium it not unified and common management is only for the inter-se co-ordination between the consortium members for administrative convenience.e. In the specific context of the EPC contracts/Turnkey projects. the CBDT has decided that a consortium arrangement for executing EPC/Turnkey contracts which has the following attributes may not be treated as an AOP: (a) each member is independently responsible for executing its part of work through its own resources and also bears the risk of its scope of work i.e. (c) the men and materials used for any area of work are under the risk and control of respective consortium members. Although certain guidelines were prescribed in this regard. on the other hand. This has led to tax disputes particularly in those cases where each member of the consortium. the Court opined that there is no formula of universal application so as to conclusively decide the existence of an AOP and it would rather depend upon the particular facts and circumstances of a case.

AOP and the same shall depend upon the specific facts and circumstances of a particular case. the Assessing Officer will decide whether an AOP is formed or not keeping in view the relevant provisions of the Act and judicial jurisprudence on this issue. In such cases. 103 © The Institute of Chartered Accountants of India . which need to be taken into consideration while taking a view in the matter. Non-applicability of Circular where consortium members are Associated Enterprises This Circular shall not be applicable in cases where all or some of the members of the consortium are Associated Enterprises within the meaning of section 92A of the Act.

Country-By-Country Report and Master file [New Section 286] Related amendment in sections: 92D. 2016 (i) As per section 92CA(3A). is less than 60 days. as the case may be. the time available to the Transfer Pricing Officer for making an order after excluding the time for which assessment proceedings were stayed or the time taken for receipt of information. 1961: Chapter X of the Income-tax Act. 104 © The Institute of Chartered Accountants of India .2017-18 (i) Transfer Pricing provisions under the Income-tax Act. then such remaining period shall be extended to 60 days. 16 TRANSFER PRICING AND OTHER PROVISIONS TO CHECK AVOIDANCE OF TAX AMENDMENT BY THE FINANCE ACT. a proviso has been inserted in section 92CA(3A) to provide that where assessment proceedings are stayed by any court or where a reference for exchange of information has been made by the competent authority under an agreement referred to in section 90 or 90A. At times. (iii) Taking into consideration such cases. it becomes necessary to seek information from foreign jurisdictions for the purpose of determining the arm's length price by the TPO. 2016 (1) Extension of time limit available to TPO for making an order [Section 92CA(3A)] Effective from: 1st June. the Transfer Pricing Officer (TPO) has to pass his order 60 days prior to the date on which the limitation for making assessment expires. Section 92D requires maintenance of prescribed information and document relating to the international transaction and specified domestic transaction. (2) Furnishing of report in respect of international group in line with BEPS action plan .Y. proceedings before the TPO may also be stayed by a court order. 271AA. 1961 comprising sections 92 to 92F contain provisions relating to transfer pricing regime. 271GB & 273B Effective from: A. (ii) In many cases.

it mandates the following three-tier structure:- Document Information (1) Master File Standardised information relevant for all multinational enterprises (MNE) group members (2) Local file Specific reference to material transactions of the local taxpayer (3) Country-by. and Indicators of the location of economic activity within the MNE group. and. (b) profit before income tax. (iii) Three-tier structure mandated by BEPS: The BEPS report recommends that countries adopt a standardised approach to transfer pricing documentation. and (2) a template for country-by-country reporting of income. (iv) Advantages of the three tier structure [as per BEPS Report]: (1) Taxpayers will be required to articulate consistent transfer pricing positions. (2) Tax administrations would get useful information to assess transfer pricing risks. provide information to commence and target audit enquiries. Information relating to the global allocation of the MNE's country report income and taxes paid. earnings. and (c) income tax paid and accrued. in the event audits are called for. 105 © The Institute of Chartered Accountants of India . (3) Tax administrations would be able to make determinations about where their resources can most effectively be deployed. (ii) Requirements as per OECD report on Action 13 of BEPS Action Plan: The report provides for: (1) revised standards for transfer pricing documentation. (v) Country-by-country Report : Reporting Requirements of MNEs The Country-by-Country (CbC) report has to be submitted by parent entity of an international group to the prescribed authority in its country of residence. (1) MNEs have to report annually and for each tax jurisdiction in which they do business: (a) the amount of revenue. taxes paid and certain measure of economic activity. This report is to be based on consolidated financial statement of the group.

(vi) Master File: Objective & Features (1) The master file would provide an overview of the MNE groups business. For the purpose of implementing the international consensus. (2) The master file is intended to provide a high-level overview in order to place the MNE group's transfer pricing practices in their global economic. if the total consolidated group revenue as reflected in the consolidated financial statement (CFS) for the accounting year preceding such accounting year is above a threshold to be prescribed [Sub-section (7)]. 1961 [New Section 286]:— (1) the reporting provision shall apply in respect of an international group for an accounting year. and (c) its global allocation of income and economic activity in order to assist tax administrations in evaluating the presence of significant transfer pricing risk. (3) The master file shall contain information which may not be restricted to transaction undertaken by a particular entity situated in particular country. (4) Thus. including: (a) the nature of its global business operations. information in master file would be more comprehensive than the existing regular transfer pricing documentation. legal. The essential elements have been incorporated in the Income-tax Act. (vii) Implementation of international consensus in India : India is one of the active members of BEPS initiative and part of international consensus. 1961. a specific reporting regime in respect of CbC reporting and also the master file has been incorporated in the Income-tax Act. 1962. financial and tax context. capital. 1961 while remaining aspects would be dealt with in detail in the Income-tax Rules. (b) its overall transfer pricing policies. 106 © The Institute of Chartered Accountants of India . (5) The master file shall be furnished by each entity to the tax authority of the country in which it operates. (3) MNEs have to identify each entity within the group doing business in a particular tax jurisdiction and provide an indication of the business activities each entity engages in. (viii) Elements relating to CbC reporting requirement and related matters which have been incorporated in the Income-tax Act. accumulated earnings and tangible assets in each tax jurisdiction. (2) MNEs have to report their total employment.

tangible assets other than cash or cash equivalent in respect of each country or territory along with details of each constituent's residential status. and the country of territory of which the said entities are resident [Sub-section (1)]. (3) the parent entity shall be an entity which is required to prepare consolidated financial statement under the applicable laws or would have been required to prepare such a statement. or (b) there has been a systemic failure of the country or territory i. shall be required to furnish CbC report to the prescribed authority if the parent entity of the group is resident . or (ii) the details of the parent entity or the alternate reporting entity. (4) every constituent entity resident in India. (6) It should contain aggregate information in respect of: (i) the amount of revenue. nature and detail of main business activity and any other information as may be prescribed. (7) A constituent entity of an international group resident in India. number of employees. if it is resident in India shall be required to furnish the report in respect of the group to the prescribed authority for every reporting accounting year. in the prescribed form and manner [Sub-section (2)]. (5) the report shall be furnished in prescribed manner and in the prescribed form .e. if any of the international group. of an international group having parent entity that is not resident in India. had equity share of any entity of the group been listed on a recognized stock exchange in India. shall notify the prescribed income-tax authority on or before the prescribed date – (i) whether it is the alternate reporting entity of the international group. on or before the due date of furnishing of return of income under section 139(1) for the relevant accounting year for which the report is being furnished. This shall be based on the template provided in the OECD BEPS report on Action Plan 13 [Sub-section (3)].- (a) in a country with which India does not have an arrangement for exchange of the CbC report. and 107 © The Institute of Chartered Accountants of India . accumulated earnings.. (iv) details of stated capital. (iii) amount of income-tax paid and accrued. (ii) profit and loss before income-tax. such country is not exchanging information with India even though there is an agreement. (2) the parent entity of an international group or the alternate reporting entity.

but extension shall not be beyond a further period of 30 days [Sub- section (6)]. This entity would then furnish the report [Proviso to sub-section (4)]. having parent entity which is not resident in India. before prescribed authority from the day immediately following the within the period allowed u/s day on which the period for furnishing 286(6) the information and document expires. then the entities of such group operating in India would not be obliged to furnish report if the report can be obtained under the agreement of exchange of such reports by Indian tax authorities [Sub-section (5)]. (10) The prescribed authority may call for such document and information from the entity furnishing the report as it may specify in notice for the purpose of verifying the accuracy. had designated an alternate entity for filing its report with the tax jurisdiction in which the alternate entity is resident.000 per day of continuing order levying penalty either under (a) failure beginning from the date or under (b) of service of order (x) Penalty for failure to produce information and documents within prescribed time [Section 271GB(2) & (3)]:- Default Penalty (a) Failure to produce information ` 5. (9) If an international group. then. then the group can nominate (under intimation in writing on behalf of the group to the prescribed authority). one constituent entity that shall furnish the report on behalf of the group.000 per day for the period exceeding one month (c) Continuing default even after service of ` 50.000 per day (b) beyond one month ` 15.000 per day for the period of service of penalty order default beyond the date of service of penalty order. (ix) Penalty for non-furnishing of the report by any reporting entity which is obligated to furnish such report [Section 271GB(1) & (3)]:- Period of delay/default Penalty (a) Not more than a month ` 5. 108 © The Institute of Chartered Accountants of India .000 per day of continuing failure. (b) Continuing default even after ` 50. The entity shall be required to make submission within thirty days of receipt of notice or further period if extended by the prescribed authority. (c) this fact has been intimated to the entity by the prescribed authority [Sub- section (4)]. (8) If there are more than one such constituent entity of the same group in India.

also keep and maintain such information and document in respect of the international group to be prescribed by way of rules.- (a) the entity has knowledge of the inaccuracy at the time of furnishing the report but does not inform the prescribed authority. or (c) the entity furnishes inaccurate information or document in response to notice of the prescribed authority under section 286(6). the penalty would be ` 5.00. Section 271GB has been included within the scope of section 273B. or (b) the entity discovers the inaccuracy after the report is furnished and fails to inform the prescribed authority and furnish correct report within a period of fifteen days of such discovery. (2) 92D(4) The information and document shall also be furnished to the prescribed authority u/s 286(1) within such period as may be prescribed and the manner of furnishing may also be provided for in the rules (3) 271AA(2) For non-furnishing of the information and document to the prescribed authority. (xiii) Maintenance and furnishing of Master file: Consequent amendments in the Income-tax Act. Therefore. thereafter.000 if . (xii) Non-levy of penalty if reasonable cause for failure is proved [Section 273B]: Section 273B provides for non-levy of penalty under various sections if the assessee proves that there was reasonable cause for such failure. t he entity can offer reasonable cause defence for non-levy of penalties mentioned above. (4) 273B Reasonable cause defence against levy of penalty shall be available to the entity. 1961: Section Provision (1) Proviso to A person being constituent of an international group shall. prescribe the information and document as mandated for master file under OECD BEPS Action 13 report. (xi) Penalty for submission of inaccurate information in the CBC report [Section 271GB(4)]: If the reporting entity has provided any inaccurate information in the report. the CbC reporting requirement for a reporting year does not apply unless the consolidated revenues of the preceding accounting year of the 109 © The Institute of Chartered Accountants of India . (xiv) Threshold limit of consolidated group revenue for applicability of CbC reporting requirement: As indicated above. The rules shall. a penalty of ` 5 lakh shall be leviable. in section addition to the information related to the international 92D(1) transaction required under section 92D(1).

The current international consensus is for a threshold of € 750 million equivalent in local currency. or In any other case An annual accounting period. in the place of the parent entity entity. group. Therefore. (xv) Meaning of certain terms [Section 286(9)]: Term Meaning (1) Accounting Case Accounting year year In a case where the A previous year parent entity or alternate reporting entity is resident in India. 110 © The Institute of Chartered Accountants of India . or (ii) any agreement as may be notified by the Central Government in this behalf. shall apply only if the consolidated revenue of the international group in previous year 2015 -16 exceeds ` 5395 crore (the equivalent would be determinable based on exchange rate as on the last day of previous year 2015-16). or may be so included for the said purpose. based on consolidated financial statement. (d) Constituent (i) any separate entity of an international group that is entity included in the consolidated financial statement of the said group for financial reporting purposes. if the equity share of any entity of the international group were to be listed on a stock exchange. (c) Alternate Any constituent entity of the international group that has reporting been designated by such group. with respect to which the parent entity of the international group prepares its financial statements under any law for the time being in force or the applicable accounting standards of the country or territory of which such entity is resident (b) Agreement (i) an agreement referred to in section 90(1) or section 90A(1). CbC reporting for an international group having Indian parent. exceeds a threshold to be prescribed. for the previous year 2016-17. This threshold in Indian currency would be equivalent to ` 5395 crores (at current rates). to furnish the CbC report in the country or territory in which the said constituent entity is resident on behalf of such group.

income. or (iii) any permanent establishment of any separate business entity of the international group included in clause (i) or clause (ii).— group (i) two or more enterprises which are resident of different countries or territories. or (ii) an enterprise. liabilities. an interest in one or more of the other constituent entities of the international group. directly or indirectly. (ii) any such entity that is excluded from the consolidated financial statement of the international group solely on the basis of size or materiality. (f) Consolidated The financial statement of an international group in which the financial assets. (h) Parent entity A constituent entity. expenses and cash flows of the statement parent entity and the constituent entities are presented as those of a single economic entity (g) International Any group that includes.— (i) is required to be prepared under any law for the time being in force or the accounting standards of the country or territory of which the parent entity is resident. or (ii) would have been required to be prepared had the equity shares of any of the enterprises were listed on a stock exchange in the country or territory of which the parent entity is resident. a consolidated financial statement for financial reporting purposes. which carries on any business through a permanent establishment in other countries or territories. for the reason of ownership or control. if such business unit prepares a separate financial statement for such permanent establishment for financial reporting. regulatory. of an international group holding. such that. being a resident of one country or territory.— (i) it is required to prepare a consolidated financial statement under any law for the time being in force or the accounting standards of the country or territory of which the entity is resident. tax reporting or internal management control purposes (e) Group This includes a parent entity and all the entities in respect of which. or (ii) it would have been required to prepare a consolidated financial statement had the equity shares of any of the 111 © The Institute of Chartered Accountants of India .

. is required to prepare a consolidated financial statement. there is no other constituent entity of such group which. it has suspended automatic exchange. or (ii) has persistently failed to automatically provide to India the report in its possession in respect of any international group having a constituent entity resident in India 112 © The Institute of Chartered Accountants of India . (i) Permanent Meaning assigned to it in clause (iiia) of section 92F i. for every reporting accounting year on or before the due date mentioned under section 139(1). every year. (l) Systemic Systemic failure. and. with respect to a country or territory. directly or indirectly. means failure that the country or territory has an agreement with India providing for exchange of report of the nature referred to in section 286(2).e. enterprises were listed on a stock exchange. under the circumstances referred to in clause (i) or clause (ii). on or before the due date specified under section 139(1). that is required to furnish a report in respect of the international group of which it is a constituent. establishment includes a fixed place of business through which the business of the enterprise is wholly or partly carried on. (j) Reporting The accounting year in respect of which the financial and accounting operational results are required to be reflected in the report year to be furnished by the parent entity or the alternate reporting entity in respect of the international group of which it is a constituent. but— (i) in violation of the said agreement. in the first mentioned constituent entity. (k) Reporting The constituent entity including the parent entity or the entity alternate reporting entity. due to ownership of any interest. that includes the separate financial statement of the first mentioned constituent entity.

However. in exercise of the powers conferred by section 92C read with section 295 prescribed the manner of computation of arm’s length price applicable for international transactions and specified domestic transactions undertaken on or after 1. 83/2015.2015] Section 92C(2) provides that the arm’s length price (ALP) in relation to an international transaction or specified domestic transaction has to be determined by applying the most appropriate method. if the variation between the ALP so determined and the price at w hich the international transaction or specified domestic transaction has actually been undertaken does not exceed such percentage. where the most appropriate method is the resale price method or cost plus method or transactional net margin method and the comparable uncontrolled transaction has been identified on the basis of data relating to the current year and the enterprise undertaking the said uncontrolled transaction.2014. the ALP shall be taken to be the arithmetical mean of such prices.4. Accordingly. The CBDT has. a third proviso was inserted in section 92C(2) to provide that in case of an international transaction or specified domestic transaction undertaken on or after 1. [not being the enterprise undertaking the 113 © The Institute of Chartered Accountants of India . As per the first proviso to section 92C(2). the arm’s length price shall be computed in the prescribed manner specified in Rule 10CA. for aligning Transfer Pricing Regulations in India with the best practices. had proposed to introduce the “range concept” for determination of ALP. in his budget speech. where more than one price is determined by the most appropriate method. Transfer Pricing Rules amended to incorporate “range concept” and “use of multi- year data” [Notification No. the price at which the transaction has actually been undertak en would be deemed to be the ALP. then. Rule 10CA(1) provides that where in respect of an international transaction or a specified domestic transaction. However. the arm’s length price in respect of such international transaction or specified domestic transaction has to be computed on the basis of the dataset constructed by placing such prices in an ascending order as provided in Rule 10CA(2). shall be ignored.4. not exceeding 3%. as may be notified by the Central Government. SIGNIFICANT NOTIFICATIONS/CIRCULARS 1.10. where more than one price is determined by the most appropriate method. dated 19. based on arithmetic mean.2014. the Finance Minister. the application of the most appropriate method referred to in section 92C(1) results in determination of more than one price. the ALP shall be computed in the prescribed manner (based on “range concept” to be specified by way of Rules) and the computation methodology given in the first and second proviso. Incorporation of “Range Concept” in Transfer Pricing Rules In case of an international transaction or specified domestic transaction undertaken on or after 1.2014.4. In the year 2014. where more than one price is determined by applying the most appropriate method.

as the case may be. irrespective of the fact that such an enterprise had undertaken comparable uncontrolled transaction in the financial year immediately preceding the current year or the financial year immediately preceding such financial year. undertaken by such enterprise shall not be included in the dataset. or (ii) the uncontrolled transaction undertaken by an enterprise in the current year is not a comparable uncontrolled transaction. of the comparable uncontrolled transactions undertaken in the aforesaid period of two years shall be included in the dataset instead of the price referred to in sub-rule (1). - (i) the price in respect of such uncontrolled transaction shall be determined by applying the most appropriate method in a similar manner as it was applied to determi ne the price of the comparable uncontrolled transaction undertaken in the financial year immediately preceding the current year. Further. has in the financial year immediately preceding the said financial year undertaken the same or similar comparable uncontrolled transaction then. in such cases. international transaction or the specified domestic transaction referred to in sub -rule (1)].- (i) the enterprise has not undertaken same or similar uncontrolled transaction during the current year. then. of the comparable uncontrolled transactions undertaken in the current year and in the aforesaid period preceding it shall be included in the dataset instead of the price referred to in sub-rule (1). and (ii) the weighted average of the prices. Rule 10CA(3) provides that where an enterprise has undertaken comparable uncontrolled 114 © The Institute of Chartered Accountants of India . where the most appropriate method is the resale price method or cost plus method or transactional net margin method where the comparable uncontrolled transaction has been identified on the basis of the data relating to the financial year immediately preceding the current year and the enterprise undertaking the said uncontrolled transaction.- (i) the most appropriate method used to determine the price of the comparable uncontrolled transaction undertaken in the current year shall be applied in similar manner to the comparable uncontrolled transaction or transactions undertaken in the aforesaid period and the price in respect of such uncontrolled transactions shall be determined. has in either or both of the two financial years immediately preceding the current yea r undertaken the same or similar comparable uncontrolled transaction then. Also. computed in accordance with the manner provided in sub-rule (3). where the use of data relating to the current year for determination of ALP subsequently at the time of assessment establishes that. computed in accordance with the manner provided in sub-rule (3). [not being the enterprise undertaking the international transaction or the specified domestic transaction referred to in sub-rule (1)]. the price of comparable uncontrolled transaction or the weighted average of the prices of the uncontrolled transactions. and (ii) the weighted average of the prices.

if the variation between the arm's length price so determined and price at which the international transaction or specified domestic transaction has ac tually been undertaken does not exceed such percentage not exceeding three percent.2015-16) [Notification No.2015]. Rule 10CA(4) provides that where the most appropriate method applied is – (i) a method other than the profit split method or a method prescribed by the CBDT under section 92C(1)(f). the arm's length price shall be the arithmetical mean of all the values included in the dataset. the arm’s length price shall be taken to be the median of the dataset [Rule 10CA(6)]. However. then. Wholesale trading. for this purpose. which fulfils the following conditions .10. the price at 3 1% in respect of wholesale trading and 3% in respect of all other cases (for A. namely:- Method used to Manner of computation of weighted average of determine the prices the prices (i) The resale price By assigning weights to the quantum of sales which has method been considered for arriving at the respective prices (ii) The cost plus method By assigning weights to the quantum of costs which has been considered for arriving at the respective prices (iii) The transactional net By assigning weights to the quantum of costs margin method incurred or sales effected or assets employed or to be employed. the price at which such international transaction or the specified domestic transaction has actually been undertaken shall be deemed to be the arm’s length price [Rule 10CA(5)]. If the price at which the international transaction or the specified domestic transaction has actually been undertaken is outside the said arm's length range.86/2015 dated 29. an arm’s length range beginning from the thirty-fifth percentile of the dataset and ending on the sixty-fifth percentile of the dataset shall be constructed. of the latter. as may be notified3 by the Central Government in the Official Gazette in this behalf. then for the purposes of sub-rule (2) the weighted average of the prices of such transactions shall be computed in the following manner. or as the case may be.Y. transactions in more than one financial year. namely:- (i) purchase cost of finished goods is 80% or more of the total cost pertaining to such trading activities. means an international transaction or specified domestic transaction of trading in goods. If the price at which the international transaction or the specified domestic transaction has actually been undertaken is within the said range. 115 © The Institute of Chartered Accountants of India . In a case where the provisions of Rule 10CA(4) are not applicable. and (ii) the dataset constructed in accordance with sub-rule (2) consists of six or more entries. and (ii) average monthly closing inventory of such goods is 10% or less of sales pertaining to such trading activities. any other base which has been considered for arriving at the respective prices.

then. if the number of values that are equal to or less than the aforesaid value is a whole number. the median shall be the arithmetic mean of such value and the value immediately succeeding it in the dataset. order) However. (c) the median of the dataset The lowest value in the dataset such that at (having values arranged in least 50% of the values included in the dataset an ascending order) are equal to or less than such value. However. However. (b) the sixth-fifth percentile of a The lowest value in the dataset such that at dataset (having values least 65% of the values included in the dataset arranged in an ascending are equal to or less than such value. if the data relating to the current year is not available at the time of furnishing the return of income by the assessee. for the assessment year relevant to the current year. if the number of values that are equal to or less than the aforesaid value is a whole number. order) However. then. the sixty-fifth percentile shall be the arithmetic mean of such value and the value immediately succeeding it in the dataset. where the data relating to the current year is subsequently available at the time of determination of arm’s length price of an international transaction or a specified 116 © The Institute of Chartered Accountants of India . then the thirty-fifth percentile shall be the arithmetic mean of such value and the value immediately succeeding it in the dataset. then. Use of multiple year data: Sub-rule (5) has been inserted in Rule 10B to provide that in case the most appropriate method for determination of ALP of a transaction entered into on or after 1. if the number of values that are equal to or less than the aforesaid value is a whole number.2014 is the resale price method or cost plus method or the transactional net margin method . the data to be used for analyzing the comparability of an uncontrolled transaction with an international transaction shall be – (a) the data relating to the current year. or (b) the data relating to the financial year immediately preceding the curr ent year. which the international transaction or specified domestic transaction has actually been undertaken shall be deemed to be the arm's length price [Rule 10CA(7)]. Meaning of certain terms [Rule 10CA(8)] Term Meaning (a) the thirty-fifth percentile of a The lowest value in the dataset such that at dataset (having values least 35% of the values included in the dataset arranged in an ascending are equal to or less than such value.4.

Co-operative Societies procuring and marketing milk eligible to opt for Safe Harbour Rules [Notification No 90/2015. (ii) the percentage of shares held by the members in the co-operative society. namely. in exercise of the powers conferred under such sections. dated 8-12-2015] Under section 92CB(2).- (i) the quantity of milk procured. Accordingly. Further. the CBDT is empowered to make rules for safe harbour. if it is in accordance with the specified circumstance [as per Rule 10THC] given below: The price of milk or milk products is determined at a rate which is fixed on the basis of the quality of milk. and - (a) the said rate is irrespective of. 2. the CBDT has amended Rules 10D. fat content and Solid Not Fat (SNF) content of milk. where a co-operative society engaged in the business of procuring and marketing milk and milk products has entered into an eligible transaction of purchase of milk or milk products from its members in any previous year relevant to an assessment year and the option exercised by the co-operative society is treated to be validly exercised under Rule 10THD. (iii) the voting power held by the members in the society. domestic transaction during the course of any assessment proceeding for the assessment year relevant to the current year. 10THB. Rule 10THB now includes purchase of milk or milk products by a co - operative society from its members as an eligible specified domestic transaction. (3) Specified circumstance in which transfer price declared by the co-operative society can be accepted by the income-tax authorities [Rule 10THC]: In effect. the transfer price declared by the co-operative society will be accepted by the income-tax authorities. such data shall be u sed for such determination irrespective of the fact that the data was not available at the time of furnishing the return of income of the relevant assessment year. 10THA. (1) Eligible assessee to include a co-operative society engaged in the business of procuring and marketing milk and milk products [Rule 10THA]: The scope of eligible assessee under Rule 10THA has been extended and it now also includes a person who has exercised a valid option for application of safe harbor rules in accordance with the provisions of Rule 10THC and is a co-operative society engaged in the business of procuring and marketing milk and milk products. and 117 © The Institute of Chartered Accountants of India . section 92D empowers the CBDT to make rules regarding keeping and maintenance of specified information and document for assessees entering into an international transaction or specified domestic transaction as well as to prescribe the period for which information and documents shall be kept and maintained. 10THC and 10THD. then. (2) Eligible specified domestic transaction to include purchase of milk or milk products by a co-operative society from its members [Rule 10THB]: Accordingly.

supply. (iii) the nature and terms (including prices) of specified domestic transactions entered into with each associated enterprise and the quantum and value of each such transaction or class of such transaction. (v) a record of the actual working carried out for determining the transfer price of the specified domestic transaction. (vi) the assumptions. including information or data relating to the associated enterprise. marketing milk and (ii) description of members including their 118 © The Institute of Chartered Accountants of India .” (4) Information and documents to be kept and maintained under section 92D in case of an eligible assessee referred to in Rule 10THA [Rule 10D(2A)]: Rule Eligible Assessee Information and documents to be kept and maintained 10THA(i) A government (i) a description of the ownership structure company engaged of the assessee enterprise with details of in the business of shares or other ownership interest held generation. and of the business of the associated enterprises with whom the assessee has transacted. transmission or (ii) a broad description of the business of distribution of the assessee and the industry in which electricity the assessee operates. (b) such prices are routinely declared by the co-operative society in a transparent manner and are available in public domain. before the regulatory commission and orders of such commission relating to the specified domestic transaction. if any. therein by other enterprises. (iv) a record of proceedings. if any. data or document. policies and price negotiations. and (vii) any other information. which have critically affected the determination of the transfer price. which may be relevant for determination of the transfer price. 10THA(ii) A co-operative (i) a description of the ownership structure society engaged in of the assessee co-operative society with the business of details of shares or other ownership procuring and interest held therein by the members.

which have critically affected the determination of the transfer price. supply of specified domestic transaction 119 © The Institute of Chartered Accountants of India . milk products addresses and period of membership. 10THB and 10THC: Rule Particulars Existing Provision Amendment 10THA Meaning of A person who has The scope of eligible “Eligible assessee” exercised a valid option assessee under Rule 10THA for application of safe has been expanded to include harbor rules and is a a person who has exercised a Government company valid option for application of engaged in the safe harbor rules in business of generation. 10THB Eligible specified A specified domestic Rule 10THB has been domestic transaction undertaken amended to provide that an transaction by an eligible assessee eligible specified domestic and which comprises transaction would include a of. 3.5/2016 dated 17-2-2016] Under section 92CB(2). (iv) a record of the actual working carried out for determining the transfer price of the specified domestic transaction. and (vii) any other information. Scope of Safe Harbour Rules expanded [Notification No. inter alia. Accordingly. accordance with the transmission or provisions of Rule 10THC and distribution of is Government company electricity. data or document which may be relevant for determination of the transfer price. (v) the assumptions. policies and price negotiations. engaged in the business of supply of electricity. the CBDT has amended Rules 10THA. (vi) the documentation regarding price being routinely declared in transparent manner and being available in public domain. if any. in exercise of the powers conferred under the said section read with section 295. (iii) the nature and terms (including prices) of specified domestic transactions entered into with each member and the quantum and value of each such transaction or class of such transaction. the CBDT is empowered to make rules for safe harbour.

In order to reduce current pending as well as future litigation in respect of the transfer pricing matters. 2014 has inserted sub-section (9A) in section 92CC to provide for a roll back mechanism in the APA scheme. Accordingly. subject to such prescribed conditions. Subsequent to this notification of the rules.6. Subsequently. 2) Act. procedure and manner. inter alia. vide Notification No. The CBDT has. They offer better assurance on transfer pricing methods and provide certainty and unanimity of approach. 10/2015. Keeping in mind the benefits offered by the APAs. in exercise of the powers conferred by section 92CC(9) and 92CC(9A) read with section 295. prescribed the conditions.2015. 1962. 36/2012. the CBDT has issued Circular No. The questions raised and answers to such questions as per the said Circular are given hereunder: 120 © The Institute of Chartered Accountants of India .10/2015 dated 10. 4. the Advance Pricing Agreement Scheme was notified vide Notification No.2015 adopting a Question and Answer format to clarify certain issues arising out of the said Rules. sections 92CC and section 92CD were introduced in the transfer pricing regime by the Finance Act. Clarifications on Rollback Provisions of Advance Pricing Agreement Scheme [Circular No. assessee and which comprises of. the APA may.23/2015 dated 14. electricity by a undertaken by an eligible generating company. procedure and manner for determining the arm’s length price or for specifying the manner in which arm’s length price is to be determined in relation to an international transaction in which the roll back provisions have to be given effect to. supply of electricity. the Finance (No. 2012 to provide a framework for formulation of APAs between the tax payer and the income-tax authorities. provide for determining the ALP or for specifying the manner in which ALP is to be determined in relation to an international transaction entered into by a person during any period not exceeding four previous years preceding the first of the previous years for which the APA applies in respect of the international transaction to be undertaken. dated 30/8/2012. The requirement that supply of electricity should be by a generating company has been removed. thereby inserting Rules 10F to 10T and Rule 44GA in the Income-tax Rules. dated 10-06-2015] An Advance Pricing Agreement (APA) is an agreement between a taxpayer and a taxing authority on an appropriate transfer pricing methodology for a set of transactions over a fixed period of time in future.3.

if there is a return which is filed under section 139(5) to revise the original return filed before the due date specified in Explanation 2 to sub-section (1) of section 139. replaces the original return of income filed under section 139(1). Answer The return of income under section 139(5) can be filed only when a return under section 139(1) has already been filed. The term same international transaction implies that the transaction in the rollback year has to be of same nature and undertaken with the same associated enterprise(s). There cannot be a situation where rollback is finalised for a transaction which is not covered in the agreement for future years. Risks (FAR) analysis. has to be made by the applicant for all the rollback years in 121 © The Institute of Chartered Accountants of India . as proposed to be undertaken in the future years and in respect of which agreement has been reached. Question 2 Rule 10MA(2)(i) mandates that the rollback provision shall apply in respect of an international transaction that is same as the international transaction to which the agreement (other than the rollback provision) applies. Therefore. the return of income filed under section 139(5) of the Act. Question 3 Rule 10MA(2)(iv) requires that the application for rollback provision. the applicant would be entitled for rollback on this revised return of income. It is not clear what is the meaning of the word “same”. The word “materially” is generally being defined in the Advance Pricing Agreements being entered into by CBDT. the restriction would operate to ensure that rollback provisions would apply only if the FAR analysis of the rollback year does not differ materially from the FAR validated for the purpose of reaching an agreement in respect of international transactions to be undertaken in the future years for which the agreement applies. rollback provisions will not be available in case of a return of income filed under section 139(4) because it is a return which is not filed before the due date. According to this definition. However. Question 1 Under rule 10MA(2)(ii) there is a condition that the return of income for the relevant roll back year has been or is furnished by the applicant before the due date specified in Explanation 2 to section 139(1). in respect of an international transaction. the word “materially” will be interpreted consistently with its ordinary definition and in a manner that a material change of facts and circumstances would be understood as a change which could reasonably have resulted in an agreement with significantly different terms and conditions. Answer The international transaction for which a rollback provision is to be allowed should be the same as the one proposed to be undertaken in the future years and in respect of which the agreement has been reached. In the context of FAR analysis. Assets. It is not clear as to whether applicants who have filed returns under section 139(4) or 139(5) of the Act would be eligible for roll back. Further. Hence. it is not clear whether this restriction also applies to the Functions.

between Rule 10MA(3) and Rule 10RA(4). the matter has already reached finality in that year. the applicant can apply for rollback for the remaining years. Appellate Tribunal or the High Court for a rollback year. then the applicant can apply for rollback for less than four years. benefit of rollback can still be given. which the said international transaction has been undertaken by the applicant. However. Answer The applicant does not have the option to choose the years for which it wants to apply for rollback. it can still apply for rollback. However. if any. for other rollback years. It may be clarified whether 122 © The Institute of Chartered Accountants of India . Similarly. Further. on the issue which is subject matter of the rollback provision for that year. Answer The reason for not allowing rollback for the international transaction for which Appellate Tribunal has passed an order disposing of an appeal is that the ITAT is the final fact finding authority and hence. the matter shall not be treated as one having reached finality and hence. Clarification is required as to whether rollback has to be requested for all four years or applicant can choose the years out of the block of four years. There is a need to clarify the phrase “Tribunal has passed an order disposing of such appeal” and on the mismatch. Accordingly. Question 5 Rule 10MA(3)(ii) provides that rollback provision shall not be provided in respect of an international transaction for a rollback year if the application of rollback provision has the effect of reducing the total income or increasing the loss. The applicant has to either apply for all the four years or not apply at all. if the ITAT has not decided the matter and has only set aside the order for fresh consideration of the matter by the lower authorities with full discretion at their disposal. as the case may be. if the covered international transaction(s) were not in existence during any of the rollback years. if in any of the rollback years for the covered international transaction(s). if the covered international transaction(s) did not exist in a rollback year or there is some disqualification in a rollback year. Question 4 Rule 10MA(3) states that the rollback provision shall not be provided in respect of an international transaction for a rollback year if the determination of arm’s length price of the said international transaction for the said year has been the subject matter of an appeal before the Appellate Tribunal and the Appellate Tribunal has passed an order disposing of such appeal at any time before signing of the agreement. of the applicant as declared in the return of income of the said year. then it would be denied the benefit of rollback for that rollback year. on factual issues. There is no mismatch between Rule 10MA(3) and Rule 10RA(4). However. the said appeal to the extent of the subject covered under the agreement shall be withdrawn by the applicant. the applicant fails the test of the rollback conditions contained in various provisions. Rule 10 RA(4) provides that if any appeal filed by the applicant is pending before the Commissioner (Appeals).

(4) or (6). on account of failure on the part of applicant. as the case may be. However. the entire agreement shall be cancelled. for any rollback year to which it applies. Question 7 If there is a Mutual Agreement Procedure (MAP) application already pending for a rollback year. (4) and (6) of the Rule specify the actions to be taken by the applicant in order that effect may be given to the rollback provision. Answer It is clarified that in case the terms of rollback provisions contain specific agreement between the Board and the applicant that the agreed determination of ALP or the agreed manner of determination of ALP is subject to the condition that the ALP would get modified to the extent that it does not result in reducing the total income or increasing the total loss. Question 6 Rule 10RA(7) states that in case effect cannot be given to the rollback provision of an agreement in accordance with this rule. (3). if MAP request is pending for any of the rollback year under APA. It is to be clarified as to whether the entire agreement is to be cancelled or only that year for which roll back fails. Accordingly. if the rollback provision cannot be given effect to for any of the rollback years on account of the applicant not taking the actions specified in sub-rules (2). the rollback provisions in such situations can be applied in a manner so as to ensure that the returned income or loss is accepted as the final income or loss after applying the rollback provisions. of the applicant as declared in the return of income of the said year. what would be the stand of the APA authorities? Further. then the rollback for that year would be determined in a manner that the declared income ` 100 would be treated as the final income for that year. if the declared income is ` 100. This is because the rollback provision has been introduced for the benefit of the applicant and is applicable at its option. upon 123 © The Institute of Chartered Accountants of India . Answer The procedure for giving effect to a rollback provision is laid down in Rule 10RA. what would be the view of the APA Authorities. the rollback provisions could be applied. if MAP has already been concluded for a rollback year? Answer If MAP has been already concluded for any of the international transactions in any of the rollback year under APA. Sub - rules (2). the income as adjusted by the TPO is ` 120. If the applicant does not ca rry out such actions for any of the rollback years. the agreement shall be cancelled. rollback provisions would not be allowed for those international transactions for that year but could be allowed for other years or for other international transactions for that year. subject to fulfilment of specified conditions in Rules 10MA and 10RA. For example. the entire agreement gets vitiated and will have to be cancelled. and the application of the rollback provisions results in reducing the income to ` 90. (3).

However. However. ALP for the rollback years would be agreed after full examination of all the facts. how will the time-limit for filing modified return for rollback years be determined? 124 © The Institute of Chartered Accountants of India . Hence. where the modified return has already been filed for the first year of the APA term. compliance audit for the rollback years would primarily be to check if the agreed price or methodology has been applied in the modified return. Question 9 Will there be compliance audit for roll back? Would critical assumptions have to be validated during compliance audit? Answer Since rollback provisions are for past years. including validation of critical assumptions. Rule 10MA(4) only specifies that the manner of determination of ALP should be the same as in the APA term. either MAP or application for roll back sha ll be proceeded with for such year. comparability analysis and Tested Party) would be same. Question 8 Rule 10MA(1) provides that the agreement may provide for determining ALP or manner of determination of ALP. However. Question 11 For already concluded APAs. Does that mean the ALP could be different? Answer Yes. It may also be noted that the fee specified in Rule 10MA(5) shall not be refunded even where a rollback application is withdrawn. it is not possible to accept the rollback results without accepting the APA for the future years. Question 12 For already concluded APAs. will new APAs be signed for rollback or earlier APAs could be revised? Answer The second proviso to Rule 10MA(5) provides for revision of APAs already concluded to include rollback provisions. Question 10 Whether applicant has an option to withdraw its rollback application? Can the applicant accept the rollback results without accepting the APA for the future years? Answer The applicant has an option to withdraw its roll back application even while maintaining the APA application for the future years. the manner of determination of ALP (including choice of Method. the option exercised by the applicant. the ALP could be different for different years.

As B was not in existence in rollback years. Question 13 In case of merger of companies. The principle to be followed in case of merger is that the person (company) who makes the APA application would only be entitled to enter into the agreement and be entitled for the rollback provisions in respect of international transactions undertaken by it in rollback years.. To illustrate further. demerges into A and B. then nobody would be eligible for rollback provisions. the person (company) who makes an APA application or enters into an APA would only be entitled for the rollback provisions. where one or more of those companies are APA applicants. who would be eligible for the rollback provisions? Answer The same principle as mentioned in the previous answer. would continue to apply. Answer The time to file modified return for rollback years will start from the date of signing the revised APA incorporating the rollback provisions. if A and B merge to form a new company C and C is the APA applicant. Other persons (companies) who have merged with this person (company) would not be eligible for the rollback provisions. then the agreement can only be entered into with C and only C would be eligible for the rollback provisions. To illustrate. then only A will be eligible for rollback for international transactions covered under the APA. A and B would not be eligible for the rollback provisions. i. Question 14 In case of a demerger of an APA applicant or signatory into two or more companies (persons). B and C merge to form C and C is the APA applicant. To illustrate. how would the rollback provisions be allowed and to which company or companies would it be allowed? Answer The agreement is between the Board and a person. if A has applied for or entered into an APA and. subsequently. 125 © The Institute of Chartered Accountants of India .e. if A. availing or grant of rollback to B does not arise.

business may be conducted without regard to national boundaries and may dissolve the link between an income-producing activity and a specific location. 19 TAXATION OF E-COMMERCE TRANSACTIONS (A) Equalisation levy [Chapter VIII of the Finance Act. the fundamental PE components developed for the old economy i. (2) the difficulty of locating the transaction. (ii) Taxation issues relating to e-commerce: These new business models have created new tax challenges. and given rise to new business models that rely more on digital and telecommunication network. The digital economy is growing at 10% per year. location. Hence. (2) At present. 126 © The Institute of Chartered Accountants of India . The digital business." Persons carrying business in digital domain could be located anywhere in the world. 2016] Related amendment in sections: 10 & 40(a) (i) Growth of e-commerce and concerns emerging therefrom: (1) The rapid growth of information and communication technology has resulted in substantial expansion of the supply and procurement of digital goods and services everywhere.e. activity and identifying the taxpayer for income tax purposes. If permanent establishment (PE) principles are to remain effective in the new economy. including India. and permanency must be reconciled with the new digital reality. Entrepreneurs across the world have been quick to evolve their business to take advantage of these changes. challenges physical presence-based permanent establishment rules. significantly faster than the global economy as a whole. thus. place of business. The typical taxation issues relating to e-commerce are: (1) the difficulty in characterizing the nature of payment and establishing a nexus or link between a taxable transaction. in the digital domain. activity and a taxing jurisdiction. and derives substantial value from data collected and transmitted from such networks. do not require physical presence. It has also made it possible for the businesses to conduct themselves in ways that did not exist earlier. business in digital domain doesn’t actually occur in any physical location but instead takes place in "cyberspace.

if it maintained a significant digital presence in another country's economy. (v) Meaning of “Specified Service”: (1) Online advertisement. in order to reduce burden of small players in the digital domain. (2) A virtual fixed place of business PE in the concept of PE i. provides for an equalisation levy of 6% of the amount of consideration for specified services received or receivable by a non-resident not having permanent establishment in India. it becomes necessary to address the challenges in terms of taxation of such digital transactions. Chapter VIII of the Finance Act.Specified Service also includes any other service as may be notified by the Central Government. Note .Insertion of Chapter VIII in the Finance Act. 127 © The Institute of Chartered Accountants of India .e. titled "Equalisation Levy". 2016: In order to address these challenges. creation of a PE when the enterprise maintains a website on a server of another enterprise located in a jurisdiction and carries on business through that website.. (iv) Equalisation Levy . 2016. or from a non-resident having permanent establishment in India. (iii) OECD Recommendations under Action Plan 1 of the BEPS project: The OECD has recommended several options to tackle the direct tax challenges which include: (1) Modifying the existing Permanent Establishment (PE) rule to provide that whether an enterprise engaged in fully de-materialized digital activities would constitute a PE. from a resident in India who carries out business or profession. (3) Imposition of a final withholding tax on certain payments for digital goods or services provided by a foreign e-commerce provider or imposition of a equalisation levy on consideration for certain digital transactions received by a non-resident from a resident or from a non-resident having permanent establishment in other contracting state. (vi) Relief to small players in the digital domain: Further. Taking into consideration the potential of new digital economy and the rapidly evolving nature of business operations. (2) Any provision for digital advertising space or any other facility or service for the purpose of online advertisement. it is also provided that no such levy shall be made if the aggregate amount of consideration for specified services received or receivable by a non-resident from a person resident in India or from a non-resident having a permanent establishment in India does not exceed ` 1 lakh in any previous year.

every Rule made under this Chapter shall be laid before each House of Parliament. then. Further. 2016 comes into force.5. penalty and prosecution in case of defaults have been included with sufficient safeguards. In order to provide for the administrative mechanism of the equalisation levy. Also. Equalisation Levy Rules. the new Chapter provides for statutory authorities and also prescribes the duties and powers of the authorities to administer the equalisation levy. 128 © The Institute of Chartered Accountants of India . 2016. (2) 40(a)(ib) In order to ensure compliance with the provisions this Chapter. 2016 were notified. which come into force on 1 st June. the Central Government is empowered to make rules for the purposes of carrying out the provisions of this Chapter. where in respect of such consideration. In order to ensure effective compliance. interest. new clause (50) has been inserted in section 10 to exempt any income arising from providing any specified service on or after the date on which the provisions of Chapter VIII of the Finance Act. (ix) Consequential amendments in the Income-tax Act. if 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 under section 139(1). Accordingly. certain terms and expressions used therein have been defined. However. 1961: Section Provision (1) 10(50) In order to avoid double taxation. clause (ib) has been inserted in section 40(a) to provide that if any consideration is paid or payable to a non-resident for a specified service on which equalisation levy is deductible. such expenses incurred by the assessee towards consideration for specified service shall not be allowed as deduction. and chargeable to equalisation levy under that Chapter. vide Notification No.38/2016 dated 27. the procedure to be adopted for collection and recovery of equalisation levy has been provided. (vii) Provisions of new Chapter on Equalisation Levy: To provide certainty and to avoid interpretational issues.2016. (viii) Central Government empowered to make rules: Further. such sum shall be allowed as deduction in computing the income of the previous year in which such levy has been paid. and such levy has not been deducted or after deduction. has not been paid on or before the due date under section 139(1).

however. (ii) This provision does not. (iii) Consequently. clause(c) has been inserted in section 124(3) to specifically provide that in cases where search is initiated under section 132 or books of accounts. after the expiry of one month from the date on which he was served with a notice issued under section 142(1) or section 143(2) or after the completion of the assessment. specifically refer to notices issued under section 153A or section 153C which relate to assessment in cases where a search and seizure action has been taken or cases connected to such cases. 2016 (i) Section 124(3)(a) provides that no person shall be entitled to call in question the jurisdiction of an Assessing Officer in a case where return is filed under section 139(1). at the appellate stages. no person shall be entitled to call into question the jurisdiction of an Assessing Officer after the expiry of one month from the date on which he was served with a notice under section 153A(1) or section 153C(2) or after the completion of the assessment. whichever is earlier. 129 © The Institute of Chartered Accountants of India . 20 INCOME TAX AUTHORITIES (A) Time limit for calling in question jurisdiction of Assessing Officer where notice is served under section 153A(1) or 153C(2) [Section 124(3)] Effective from: 1 st June. other documents or any assets are requisitioned under section 132A. whichever is earlier. (iv) For the purpose of conveying the real intent of law in such cases. the jurisdiction of an Assessing Officer in such cases have been called into question. inspite of the fact that order passed under section 153A or 153C has to be read with section 143(3).

(ii) 139(4) Time limit for filing belated Reduction of time limit for filing return: belated return: A person who has not furnished a Any person who has not furnished return within the time allowed to a return within the time allowed to him under section 139(1).2017-18 For the purposes of rationalising the time allowed for filing of returns. being an individual If such a person earns income by or HUF or an AOP or a BOI. 2016 (i) 139(1) Mandatory filing of return if Mandatory filing of return if total [Sixth total income before giving income before giving effect to proviso] effect to deductions under exemption u/s 10(38) in respect Chapter VIA exceed basic of long-term capital gains exceed exemption limit basic exemption limit Every person. liable to furnish return on or before the due date. the following amendments have been effected in section 139: Section Provision Amendment by the Finance Act. exceeds the the previous year on or before the basic exemption limit shall be due date. may 130 © The Institute of Chartered Accountants of India . and realization of revenue without undue compliance burden on the taxpayer. which is exempt any artificial juridical person.Y. person shall be liable to without giving effect to provisions mandatorily file return of income for of Chapter VI-A. or him under section 139(1). then also such Act during the previous year. and income total income or the total income of such person without giving effect of any other person in respect of to section 10(38) exceeds the basic which he is assessable under this exemption limit. 2016 (A) Rationalisation of provisions relating to filing of return of income [Section 139] Effective from: A. and to encourage due compliance. if his under section 10(38). way of long-term capital gains in whether incorporated or not or the previous year. 21 ASSESSMENT PROCEDURE AMENDMENTS BY THE FINANCE ACT. completion of proceedings.

within the time allowed under a furnish the return for any previous
notice issued under section year at any time before the end of
section 142(1), may furnish the the relevant assessment year or
return for any previous year at any before the completion of the
time before the expiry of one year assessment, whichever is earlier.
from the end of the relevant Thus, belated return can be filed
assessment year or before the only in case a person has not
completion of the assessment, furnished his return within the
whichever is earlier. time allowed under section
139(1). Also, the belated return
cannot be furnished after the end
of the relevant assessment year.
(iii) 139(5) Belated return cannot be Belated return can be revised:
revised:
If any person, having furnished If any person, having furnished a
the return under section 139(1), return under section 139(1) or
or in pursuance of a notice belated return under section
issued under section 142(1), 139(4), discovers any omission or
discovers any omission or any any wrong statement therein, he
wrong statement therein, he may may furnish a revised return at any
furnish a revised return at any time before the expiry of one year
time before one year from the from the end of the relevant
end of the relevant assessment assessment year or before the
year or completion of completion of the assessment,
assessment, whichever is earlier. whichever is earlier.
An enabling provision for
revision of belated return has
been introduced. However, a
return furnished in pursuance of
a notice issued under section
142(1) cannot be revised.
(iv) Clause Return deemed to be defective Return not deemed to be
(aa) – if self-assessment tax is not defective if self-assessment tax
Expln paid before furnishing the is not paid before furnishing the
to return return
139(9) A return of income shall be A return which is otherwise valid
regarded as defective unless the would not be treated defective
self-assessment tax together with merely because self-assessment
interest, if any, payable in tax and interest payable in
accordance with the provisions of accordance with the provisions of
section 140A, has been paid on section 140A has not been paid on
or before the date of furnishing of or before the date of furnishing of
return. the return.

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(B) Scope of permissible adjustments while processing a return under section 143(1)(a)
expanded
Effective from: A.Y.2017-18
(i) As per section 143(1)(a), a return filed is to be processed and total income or loss is to
be computed after making the adjustments on account of any arithmetical error in the
return or on account of an incorrect claim, if such incorrect claim is apparent from any
information in the return.
(ii) For the purpose of facilitating removal of mismatch between the return of income and
the information available with the Department, the scope of adjustments that can be
made at the time of processing of returns under section 143(1) has been expanded.
(iii) Accordingly, with effect from 1st April, 2017, the following adjustments can also be made
at the time of processing of returns u/s 143(1):

Disallowance of loss claimed, if return is filed
beyond due date u/s 139(1)

Disallowance of expenditure indicated in the
audit report but not taken into account in
computing the total income in the return

Disallowance of deduction u/s 10AA, 80-IA,
80-IAB, 80-IB, 80-IC, 80-ID or 80-IE, if return
is filed beyond due date u/s 139(1)

addition of income appearing in Form 26AS or
Form 16A/16 which has not been included in
computing the total income in the return

(iv) Thus, adjustments can be made on the basis of data available with the Department in
the form of audit report filed by the assessee, returns of earlier years of the assessee,
Form 26AS, Form 16, and Form 16A.
(v) However, before making any such adjustments, in the interest of natural justice, an
intimation has to be given to the assessee requiring him to respond to such
adjustments. Such intimation may be in writing or through electronic mode. The
response received, if any, has to be duly considered before effecting any adjustment.
However, if no response is received within 30 days of issue of such intimation, the
processing shall be carried out incorporating the adjustments.

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(C) Mandatory processing of return of income before issuance of assessment order
[Section 143(1D)]
Effective from: A.Y.2017-18
(i) Section 143(1) requires processing of return of income filed under section 139(1) or
in response to a notice issued under section 142(1).
(ii) An intimation has to be prepared or generated and sent to the assessee specifying
the sum payable or the refund due, to the assessee.
(iii) No intimation can be sent after the expiry of one year from the end of the financial
year in which the return is made. This is provided in the second proviso to section
143(1).
(iv) Section 143(1D) provides that processing of a return is not necessary where a
notice has been issued to the assessee under section 143(2).
(v) Section 143(1D) has now been substituted to provide that the processing of a return
is not necessary before the expiry of the one year from the end of the financial year
in which the return is made, where notice has been issued to the assessee under
section 143(2).
(vi) However, the return has to be processed before the issuance of an order under
section 143(3).
(D) Time limits for completion of assessment, reassessment and recomp utation
[Section 153]
Effective from: 1 st June, 2016
(i) The time limit for completion of assessment proceedings is 2 years from the end of
the assessment year in which the income was first assessable. Further, no order of
assessment, reassessment or recomputation could be made under section 147 after
the expiry of one year from the end of the financial year in which notice under
section 148 was served.
Since digitisation of processes within the Department has enhanced its efficiency in
handling workload, the time limit has been accordingly reduced, so that the
assessment proceedings are finalised more expeditiously.
(ii) In order to simplify the provisions of section 153 by retaining only those provisions
that are relevant to the current provisions of the Act, section 153 has been
substituted with effect from 1 st June, 2016 to provide for the new time limits for
completion of assessment in the following cases:
Section Proceeding New Time limit for completion of
assessment or reassessment
153(1) Order of assessment u/s 143 21 months from the end of the
or 144 assessment year in which the
income was first assessable

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© The Institute of Chartered Accountants of India

to give effect to order if the PC/CIT is satisfied. that the order could not be given effect to within 3 months due to reasons beyond the control of the 4 Principal Chief Commissioner (PCC) / Chief Commissioner (CC) / Principal Commissioner (PC) / Commissioner of Income-tax (CIT). cancelled PCC/CC/PC/CIT4 or the order u/s and referred back to the 263 or u/s 264 is passed by the Assessing Officer by an order PC/CIT u/s 254/263/264 153(4) Where a reference is made to An additional time period of 12 the TPO u/s 92CA(1) during months is available for completion the course of proceeding for of assessment/reassessment in assessment or such cases: reassessment: Completion of assessment 33 months from the end of the u/s 143 or u/s 144. 9 months from the end of the reassessment or financial year in which the notice recomputation u/s 147 u/s 148 was served 153(3) Fresh assessment u/s 9 months from the end of the 143/144/147 where the financial year in which the said original assessment has order u/s 254 is received by the been set aside. 250/254/260/262 is received by the wholly or partly. Completion of assessment/ 21 months from the end of the reassessment/re-computation financial year in which notice u/s u/s 147 148 is served. 153(5) Effect to be given by the 3 months from the end of the month Assessing Officer. to an order in which the order u/s u/s 250/254/260/262/263/264. otherwise PCC/CC/PC/CIT or the order u/s than by making a fresh 263/264 is passed by the PC/CIT. assessment or reassessment Note – Additional period of 6 months may be allowed to the A. as the case may be.. on an application from the A. assessment year in which the income was first assessable. 134 © The Institute of Chartered Accountants of India .O.O. Completion of fresh 21 months from the end of the assessment in pursuance of financial year in which such order an order u/s 254 (received by u/s 254 is received by the PCC or the PCC or CC/PC or CIT) or CC/PC or CIT or such order u/s 263 an order passed by the PC or or 264 is passed by the PC or CIT. 153(2) Order of assessment. CIT u/s 263 or u/s 264.

2016.3. This is provided under section 153(7). 153(6)(i) Where the assessment.6. This is provided under or in an order of any court in a section 153(7).2016. reassessment or recomputation made before 1st June.O.2016. However. the time limit for passing such order is extended to 31.3. Note . 12 months from the end of the reassessment or month in which the order is received recomputation is made on the or passed by the PC or CIT.3.The provisions of section 153. A. proceeding otherwise than by way of appeal or reference. 153(6)(ii) Where.6. 153A(2) Note . in respect of cases pending as on 1st June 2016. (iii) Exclusion of period [Explanation 1 to section 153] . section 153A(2) or section 153B(1). 153(8) The order of assessment or 1 year from the end of the month of reassessment.2017.This is notwithstanding anything contained in the foregoing provisions of section 153. in the case of a firm.In computing the period of limitation for the purposes of section 153 the following time periods shall be excluded : 135 © The Institute of Chartered Accountants of India . which specified in section 153 or section stands revived under section 153B(1). This is provided under section 153(7). the time limit for effect to any finding or taking requisite action by the AO in direction contained in an order respect of the assessee would be u/s 250/254/260/262/263/264 31. assessee or any person in Note – However. whichever is later. the time limit for taking requisite action would be 31. as they stood immediately before their amendment by the Finance Act. for cases pending consequence of or to give as on 1. assessment made on the firm Note – However. shall apply to and in relation to any order of assessment. for cases pending under section 147 as on 1. relating to any such revival or within the period assessment year. 2016.2017. 12 months from the end of the an assessment is made on a month in which the assessment partner of the firm in order in the case of the firm is consequence of an passed.2017.

(3) Reference to the the date on which the date on which the report of Valuation Officer the Assessing the Valuation Officer is received under section Officer makes a by the Assessing Officer. as the case may be.O.O.O. 142A(1) reference to the Valuation Officer (4) Where the the date on which the date on which the order assessee furnishes the Assessing under section 158A(3) is made declaration claiming Officer received the by him that any question of declaration under Note – However.Y. if such direction is challenged before a Court. or any appellate authority is identical with a question of law arising in his case for another A. which is pending before the 136 © The Institute of Chartered Accountants of India . directs the assessee is required to furnish a under section assessee to get his report of such audit 142(2A) accounts audited (or) under section the date on which the order 142(2A) setting aside such direction is received by the PC/CIT. case for an assessment year which is pending before the A. such period law arising in his section 158A(1) cannot exceed 60 days. intimates the order withdrawing the section the Central approval or rescinding the 10(21)/(22B)/(23A)/ Government or the notification. (vi)/(via) the said contravention as required under clause (i) of the proviso to section 143(3) (2) Direction to get the date on which the last date on which the accounts audited the A. (23B)/(23C)(iv)/(v)/ prescribed authority. Case Exclusion of Period Commencing from Ending with (1) Contravention of the date on which the date on which the copy of the provisions of the A. is received by the A.O.

(5) Where an the date on which an the date on which the order u/s application made application is made 245D(1) is received by the PC or before the Income. (iv) However. such remaining period shall be extended to 60 days and the aforesaid period of limitation shall be deemed to be extended accordingly. where immediately after the exclusion of the aforesaid period. (v) Further. High Court or Supreme Court. reassessment or 137 © The Institute of Chartered Accountants of India . or (9) the period during which the assessment proceeding is stayed by an order or injunction of any court. authority by an authority whichever is less competent under an agreement referred to in section 90 or section 90A (8) the time taken in reopening the whole or any part of the proceeding or in giving an opportunity to the assessee to be re-heard under the proviso to section 129. where the period available to the Transfer Pricing Officer is extended to 60 days in accordance with the proviso to section 92CA(3A) and the period of limitation available to the Assessing Officer for making an order of assessment. before the CIT u/s 245D(2) tax Settlement Settlement Commission is Commission under rejected by it or is section 245C not allowed to be proceeded with by it (6) Where an the date on which an the date on which the order application is made application is made rejecting the application is before the AAR u/s before the AAR u/s received by the PC/CIT u/s 245Q(1) 245Q(1) 245R(3) (or) the date on which the advance ruling pronounced by it is received by the PC/CIT u/s 245R(7) (7) Where reference(s) the date on which a the date on which the for exchange of reference or first of information requested is last information is the references for received by the PC/CIT made by a exchange of (or) competent information is made a period of one year. is less than 60 days. reassessment or recomputation. the period of limitation referred to in section 153(1)/(2)/(3)/(8) available to the Assessing Officer for making an order of assessment. as the case may be.

as the case may be. section 153B has been substituted. be deemed to be one made in another person consequence of or to give effect to any finding or direction contained in the said order. and (b) where such period of limitation is less than 1 year. for excluded from the total income of the the purposes of sections 150 and assessee for an assessment year 153. provided such other person was given an opportunity of being heard before the said order was passed. (vi) (a) Where a proceeding before the Settlement Commission abates under section 245HA. as the case may be. would be not less than one year. (c) This would apply for the purposes of determining the period of limitation under sections 149. be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order (b) Where. after the exclusion of the period under section 245HA(4). such remaining period shall be extended to 60 days and the aforesaid period of limitation shall be deemed to be accordingly extended. it shall be deemed to have been extended to 1 year. the period of limitation available under this section to the Assessing Officer for making an order of assessment. for the excluded from the total income of one purposes of section 150 and section person and held to be the income of 153.— Case Consequence (a) Where. (vii) For the purposes of this section. in order to simplify the provisions of section 153B by retaining only those provisions that are relevant to the current provisions of the Act. Further. recomputation. 138 © The Institute of Chartered Accountants of India . 2016 (i) The time limit for completion of assessments made under section 153A or section 153C cases have been amended to align the same with the new time limits provided under new section 153. by an order referred to in An assessment of such income for section 153(6)(i). is less than 60 days. (E) Time limit for completion of assessment under section 153A [New Section 153B] Effective from: 1 st June. 154. any income is such other person shall. 153B. by an order referred to in An assessment of such income on section 153(6)(i). 155 and 158BE and for the purposes of payment of interest under section 244A. reassessment or recomputation. any income is another assessment year shall. .

139 © The Institute of Chartered Accountants of India . 2016 is as follows - Section Proceeding under section Time limit for completion of assessment or reassessment 153B(1) 153A – for the assessment year 21 months from the end of the relevant to the previous year in financial year in which the last of which search is conducted u/s the authorizations for search 132 or requisition is made u/s under section 132 or for 132A and for each of the 6 requisition under section 132A assessment years immediately was executed preceding the assessment year relevant to the previous year in which search was conducted 153B(1) In case of a person assessed 21 months from the end of the – First under section 153C – for the financial year in which last of the Proviso assessment year relevant to the authorizations for search under previous year in which search is section 132 or for requisition conducted and for each of the 6 under section 132A was executed assessment years immediately (or) preceding the assessment year 9 months from the end of the relevant to the previous year in financial year in which books of which search was conducted account or documents or assets seized or requisitioned are handed over to the jurisdictional Assessing Officer under section 153C. reference u/s 92CA(1) is made. whichever is later 153B(1) Completion of assessment in 33 months from the end of the – cases where the last of the financial year in which the last of Second authorizations for search under the authorizations for search Proviso section 132 or for requisition under section 132 or requisition under section 132A was under section 132A was executed. executed and during the course of assessment or reassessment proceedings. (ii) The time limit for assessment or reassessment under section 153B with effect from 1st June.

reassessment or recomputation made before 1st June.O. (v) Exclusion of period [Explanation to section 153B] . (iii) Time of deemed execution of authorization in case of search and requisition : Case Time when authorization is deemed to have been executed (a) Search u/s 132 On the conclusion of search as recorded in the last panchnama drawn in relation to any person in whose case the warrant of authorisation has been issued (b) Requisition u/s On the actual receipt of books of account or other 132A documents or assets by the Authorised Officer. the following time periods shall be excluded: Exclusion of Period Case Commencing from Ending with (1) Direction to get the date on which the the last date on accounts audited under A. 2016. Completion of assessment/ 33 months from the end of the reassessment in case of other financial year in which the last of person referred to in section the authorizations for search 153C in cases where the last of under section 132 or for the authorizations for search requisition under section 132A under section 132 or for was executed requisition under section 132A (or) was executed and during the 21 months from the end of the course of assessment or financial year in which the books reassessment proceedings. shall apply to and in relation to any order of assessment. directs the which the section 142(2A) assessee to get his assessee is accounts audited under required to furnish section 142(2A) a report of such audit (or) the date on which 140 © The Institute of Chartered Accountants of India .In computing the period of limitation for the purposes of section 153B. of account or documents or reference u/s 92CA(1) is made. 2016. (iv) The provisions of section 153B as they stood immediately before their amendment by the Finance Act. whichever is later. assets seized or requisitioned are handed over under section 153C to the Assessing Officer having jurisdiction over such other person.

as the case may be. the order setting aside such direction is received by the PC/CIT. (6) Where reference(s) for the date on which a the date on which exchange of information reference or first of the the information is made by a competent references for exchange requested is last authority of information is made by received by the 141 © The Institute of Chartered Accountants of India . if such direction is challenged before a Court. 153A(2) is annulled by the PC/CIT. (2) Reference to the the date on which the the date on which Valuation Officer under Assessing Officer makes the report of the section 142A(1) a reference to the Valuation Officer Valuation Officer is received by the Assessing Officer (3) Where an application the date on which an the date on which made before the application is made the order u/s Income-tax Settlement before the Settlement 245D(1) is Commission is rejected Commission under received by the by it or is not allowed to section 245C PC/CIT u/s be proceeded with by it 245D(2) (4) Where an application is the date on which an the date on which made before the AAR application is made the order rejecting u/s 245Q(1) before the AAR u/s the application is 245Q(1) received by the PC/CIT u/s 245R(3) (or) the date on which the advance ruling pronounced by it is received by the PC/CIT u/s 245R(7). (5) Where a proceeding or The date of annulment of The date of receipt assessment order or the proceeding or of order setting reassessment order assessment order or aside the order of referred to in section reassessment order such annulment.

if any. (vi) However. Consequently. 2016 (i) Section 133C empowers the prescribed income-tax authority to issue notice calling for information and documents for the purpose of verification of information in its possession. sub-section (2) has been inserted in section 133C to provide that where any information or document has been received in response to a notice issued under section 133C(1). as the case may be. for necessary action. the aforesaid period of limitation shall be deemed to be extended accordingly. the prescribed income-tax authority may process such information or document so obtained and make the outcome thereof available to the Assessing Officer. is less than 60 days. the aforesaid period of limitation shall be deemed to be accordingly extended. such remaining period shall be extended to 60 days. if any. the period of limitation referred to in section 153B(1)(a) and (b) available to the Assessing Officer for making an order of assessment or reassessment. Consequently. reassessment or recomputation. (vii) Further. (ii) For the purpose of expediting verification and analysis of the information and documents so received. (iii) Thus. (F) Deemed escapement of income on the basis information obtained by the Income-tax authorities [Section 147] Related amendment is section: 133C Effective from: 1st June. this amendment provides sufficient legislative backing for processing of information and documents so obtained and making the outcome thereof available to the Assessing Officer for necessary action. as the case may be. an authority competent PC/CIT under an agreement (or) referred to in section 90 a period of one or section 90A year. whichever is less (7) the time taken in reopening the whole or any part of the proceeding or in giving an opportunity to the assessee to be re-heard under the proviso to section 129. or (8) the period during which the assessment proceeding is stayed by an order or injunction of any court. where immediately after the exclusion of the aforesaid period. 142 © The Institute of Chartered Accountants of India . such remaining period shall be extended to 60 days. is less than 60 days. where the period available to the Transfer Pricing Officer is extended to 60 days in accordance with the proviso to section 92CA(3A) and the period of limitation available to the Assessing Officer for making an order of assessment.

Clause (ca) has been inserted in Explanation 2 to provide the circumstances where income shall be deemed to have escaped assessment in the cases mentioned in (1) and (2) hereunder: Case Deemed escapement of income (1) Where a return of On the basis of information or document received from income has not the prescribed income-tax authority. dated 30-12-2015] The Government is committed to curbing the circulation of black money and widening of tax base. allowance or relief in the return Since income is deemed to have escaped assessment in such cases. No. 1962 to quote PAN where the transactions exceed a specified limit. it is noticed by the Assessing Officer that the the assessee income of the assessee exceeds the basic exemption limit (2) Where a return of On the basis of information or document received from income has been the prescribed income-tax authority. Nature of transaction Value of transaction No. Sale or purchase of a motor vehicle or vehicle. under section furnished by the 133C(2). 95/2015. it is mandatory under Rule 114B of the Income-tax Rules. other than two wheeled vehicles. Monetary limits of specified transactions which require quoting of PAN enhanced with effect from 1stJanuary. SIGNIFICANT NOTIFICATIONS/CIRCULARS 1. To collect information of certain types of transactions from third parties in a non-intrusive manner. (iv) Explanation 2 to section 147 specifies certain cases where income chargeable to tax is deemed to have escaped assessment. 1. 2016 [Notification No. 2. To bring a balance between burden of compliance on legitimate transactions and the need to capture information relating to transactions of higher value.12 and a Basic Savings Bank Deposit Account] with a banking company or a co-operative bank to which the Banking 143 © The Institute of Chartered Accountants of India . the Assessing Officer can reopen the assessment on the basis of the information so received. 1988 which requires registration by a registering authority under that Act. deduction. as All such transactions defined in the Motor Vehicles Act. Rule 114B has been substituted to enhance the monetary limits of certain transactions which require quoting of PAN. Opening an account [other than a time-deposit All such transactions referred to at Sl. it is noticed by the Assessing Officer that the assessee assessee has understated the income or has claimed excessive loss. S. under section been furnished by 133C(2).

11. 7.000. 1949 applies more than ` 5 lakh during (including any bank or banking institution referred to a financial year. for issue of a credit or debit card. 4.000. Making an application to any banking company or All such transactions a co-operative bank to which the Banking Regulation Act. 10. (iii) a Nidhi referred to in section 406 of the Companies Act. 6. Opening of a demat account with a depository. Payment to the Reserve Bank of India for acquiring Amount exceeding bonds issued by it. Amount exceeding (i) a banking company or a co-operative bank to ` 50. Deposits in cash exceeding operative bank to which the Banking Regulation ` 50. Payment to a hotel or restaurant against a bill or Payment in cash of an bills at any one time. Purchase of bank drafts or pay orders or banker’s Payment in cash of an cheques from a banking company or a co. A time deposit with. Payment to a company or an institution for Amount exceeding acquiring debentures or bonds issued by it. ` 50. institution referred to in section 51 of that Act). 8. ` 50. custodian of securities or any other person registered under section 12(1A) of the Securities and Exchange Board of India Act. (ii) a Post Office. Payment in connection with travel to any foreign Payment in cash of an country or payment for purchase of any foreign amount exceeding currency at any one time. Deposit with a banking company or a co. 1949. in section 51 of that Act). 9. . ` 50. Regulation Act.000 during any one Act. All such transactions participant. amount exceeding operative bank to which the Banking Regulation ` 50. Payment to a Mutual Fund for purchase of its Amount exceeding units ` 50. 1949 applies (including any bank or banking institution referred to in section 51 of that Act). 3.000 or aggregating to which the Banking Regulation Act. 1949 applies (including any bank or banking day. institution referred to in section 51 of that Act). 12. 5. applies (including any bank or banking institution referred to in section 51 of that Act) or to any other company or institution. amount exceeding ` 50.000. 1949. 2013. or 144 © The Institute of Chartered Accountants of India . 1992.000.000.000 during any one Act. applies (including any bank or banking day.

of goods or Amount exceeding ` 2 lakh services of any nature other than those specified per transaction: at Sl. 16. Amount exceeding ` 10 lakh or valued by stamp valuation authority referred to in section 50C at an amount exceeding ` 10 lakh 18. (iv) a non-banking financial company which holds a certificate of registration under section 45-IA of the Reserve Bank of India Act. per transaction.000 in a financial year. Payment for one or more pre-paid payment Payment in cash or by way instruments. any person who does not have a PAN and who enters into any transaction specified in this rule. as the case may be. Sale or purchase of any immovable property. 13. shall make a declaration in Form No. 1938.60 giving therein the particulars of such transaction. Sale or purchase. to a banking company or a co-operative financial year. Sale or purchase. No.000 in a 2007. is a minor and who does not have any income chargeable to income-tax. 15. 1934. 1949. A contract for sale or purchase of securities Amount exceeding ` 1 lakh (other than shares) as defined in section 2(h) of per transaction the Securities Contracts (Regulation) Act. as defined in the policy guidelines of a bank draft or pay order for issuance and operation of pre-paid payment or banker’s cheque of an instruments issued by Reserve Bank of India amount aggregating to under the Payment and Settlement Systems Act. Non-applicability of Rule 114B Also. to hold or accept deposit from public. Minor to quote PAN of parent or guardian Where a person. more than ` 50. of shares of a Amount exceeding ` 1 lakh company not listed in a recognised stock exchange. 1956. entering into any transaction referred to in this rule. 1 to 17 of this Table. applies (including any bank or banking institution referred to in section 51 of that Act) or to any other company or institution. by any person. by any person. bank to which the Banking Regulation Act. he shall quote the PAN of his father or mother or guardian. in the document pertaining to the said transaction. more than ` 50. if any. Declaration by a person not having PAN Further. 14. 17. the provisions of this rule shall not apply to the following class or classes of 145 © The Institute of Chartered Accountants of India . Payment as life insurance premium to an insurer Amount aggregating to as defined in the Insurance Act.

(ii) the non-residents referred to in section 2(30) in respect of the transactions other than a transaction referred to at Sl. passport. foreign exchange. recording of a satisfaction note is a pre-requisite and the satisfaction note must be prepared by the Assessing Officer before he transmits the record to the other Assessing Officer who has jurisdiction over such other person under section 158BD 5. 1961. 3958 of 2014 dated 12-3-2014 (available in NJRS at 2014- LL-0312-51) has laid down that for the purpose of section 158BD of the Act. 146 © The Institute of Chartered Accountants of India . Meaning of certain phrases: Phrase Inclusion (1) Payment in Payment towards fare. dated 31-12-2015] The issue of recording of satisfaction for the purposes of section 158BD/153C has been subject matter of litigation. travel related insurance or other travel related services either severally or in package (3) Time deposit Any deposit which is repayable on the expiry of a fixed period. surface or tour operator maritime travel or provides services relating to accommodation.2003. namely:- (i) the Central Government. visa. The Hon'ble Supreme Court in the case of M/s Calcutta Knitwears in its detailed judgment in Civil Appeal No. the State Governments and the Consular Offices. Applicability of Supreme Court Guidelines on recording of satisfaction note under section 158BD to apply to proceedings under section 153C for the purposes of assessment of income of a person other than the person in respect of whom search is initiated under section 132 or books of account are requisitioned under section 132A [Circular No. persons. or to an authorized person as defined in section travel 2(c) of the Foreign Exchange Management Act. or to a travel agent or a tour connection with operator. No. the books of account. tours.24/2015. Section 158BD provides that where the Assessing Officer is satisfied that any undisclosed income belongs to any person. entertainment. other than the person wi th respect to whom search is made under section 132 or books of account are requisitioned under section 132A. The Supreme Court held that "the satisfaction note could be prepared at any of the following stages: 5 Section 158BC lays down the procedure for block assessment dealt with in Chapter XIV -B of the Income-tax Act. then. 2.5. 1 or 2 or 4 or 7 or 8 or 10 or 12 or 14 or 15 or 16 or 17 of the Table. which applies where search is initiated under section 132 or books of account are requisitioned under section 132A on or before 31. other documents seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed under section 158BC against such other person and the provisions of Chapter XIV-B shall apply accordingly. 1999 (2) Travel agent or A person who makes arrangements for air.

the above guidelines of the Supreme Court. for the purposes of assessment of income of other than the searched person. or b. This view has been accepted by CBDT. immediately after the assessment proceedings are completed under section 158BC of the searched person. apply to proceedings under section 153C. in the course of the assessment proceedings under section 158BC. or c. It is further clarified that even if the Assessing Officer of the searched person and the "other person" is one and the same. at the time of or along with the initiation of proceedings against the searched person under section 158BC. a. 147 © The Institute of Chartered Accountants of India . then also he is required to record his satisfaction as has been held by the Courts. Several High Courts have held that the provisions of section 153C are substantially similar/ pari-materia to the provisions of section 158BD and therefore.

the other party can file memorandum of cross objections within 30 days of 148 © The Institute of Chartered Accountants of India . This amendment will take effect retrospectively from 1st July. (iv) In cases where Department is already in appeal against the directions of DRP un der section 253(2A). (v) Further. (B) Provision for filing of appeal by the Assessing Officer against the order of DRP done away with [Section 253] Effective from: 1 st June. 24 APPEALS & REVISION AMENDMENTS BY THE FINANCE ACT. on receipt of notice that appeal against order of Commissioner (Appeals) has been preferred by the Assessing Officer or the assessee. 2016 (A) Removal of reference to “Senior Vice President”[Section 252] Effective from: 1 st June. sub-sections (2A) and (3A) of section 253 have been omitted. the reference of "Senior Vice-President" in this section has been omitted. as the case may be. (iii) In order to minimise litigation. no fee shall be payable. direct the Assessing Officer to appeal to the Appellate Tribunal against such order. Thus. Accordingly. (ii) Considering the fact that there are no extra-judicial or administrative duties or difference in the pay scale attached with the post of Senior Vice-President in the Tribunal. the provision for filing of appeal by the Assessing Officer against the order of the DRP has been done away with. the existing sub-section (4) has been substituted with new sub-section (4). the Principal Commissioner or Commissioner may. if he objects to any direction issued by the Dispute Resolution Panel (DRP) under section 144C(5) in pursuance of which the Assessing Officer has passed an order completing the assessment or reassessment. 252(4A) and 252(5) provide for the appointment and powers of Senior Vice-President of the Appellate Tribunal. 2016 (i) Under section 253(2A). 2016 (i) Section 252(3)(b). (ii) Further. section 253(3A) provides that every appeal under section 253(2A) shall be filed within 60 days of the date on which the order sought to be appealed against is passed by the Assessing Officer in pursuance of the directions of the DRP under section 144C(5). 2012.

(ii) For bringing in certainty to the order of Appellate Tribunal. revised the monetary limits for filing of appeals by the Department with the objective of reducing litigation as a part of its initiatives to reduce grievances of the tax payers. section 254(2) has been amended to provide that the Appellate Tribunal may rectify any mistake apparent from the record in its order at any time within six months from the end of the month in which the order was passed. 2016 (i) Section 255(1) provides that the powers and functions of the Appellate Tribunal may be exercised and discharged by Benches constituted by the President of the Appellate Tribunal among the members thereof. a Bench should normally consist of one judicial member and one accountant member. section 255(3) provides for constitution of a single member bench and a Special Bench. (iv) Section 255(3) provides that a single member bench may dispose of any case which pertains to an assessee whose total income as computed by the Assessing Officer in the said case does not exceed ` 15 lakh. dated 10‐12‐2015] The CBDT has. through this circular. 149 © The Institute of Chartered Accountants of India . section 255(3) has been amended to provide that a bench comprising of a single member may dispose of a case where the total income as computed by the Assessing Officer in the said case does not exceed ` 50 lakh. receipt of notice against any part of the order of Commissioner (Appeals). Revision of monetary limits for filing of appeals by the Department before Income Tax Appellate Tribunal and High Courts and SLP before Supreme Court – A significant measure for reducing litigation [Circular No. SIGNIFICANT NOTIFICATIONS/CIRCULARS 1. 21/2015. The Appellate Tribunal has to dispose of the memorandum of cross objections as if it were an appeal filed within the given time limit. (C) Reduction in time limit for rectification of mistake apparent from the record by the Appellate Tribunal [Section 254(2)] (i) Section 254(2) provides that the Appellate Tribunal may rectify any mistake apparent from the record in its order at any time within four years from the date of the order. (ii) As per section 255(2). (iii) However. (v) The limit for a single member bench was revised last year from ` 5 lakh to ` 15 lakh. (vi) In order to further expedite the process of dispute resolution at the appellate tribunal level. (D) Raising the total income limit of the cases that may be decided by single member bench of Appellate Tribunal [Section 255(3)] Effective from: 1 st June.

in case of a composite order of an y 150 © The Institute of Chartered Accountants of India . If. Note .00. Before Supreme Court 25. Meaning of Tax Effect: Case Tax effect (i) In cases not covered The tax on the total income assessed in (ii). the disputed issues arise in more than one assessment year. (iii) and (iv) (-) below The tax that would have been chargeable had such total income been reduced by the amount of income in respect of the issues against which appeal is intended to be filed ("disputed issues"). appeals/ SLPs shall not be filed in cases where the tax effect does not exceed the monetary limits given hereunder - S. appeal can be filed in respect of such assessment year or years in which the tax effect in respect of the disputed issues exceeds the specified monetary limit. No appeal shall be filed in respect of an assessment year or years in which the·tax effect is less than the monetary limit specified. Accordingly. (ii) In case the The amount of interest chargeability of interest is the issue under dispute (iii) In cases where The tax effect would include notional tax on disputed returned loss is additions reduced or assessed as income (iv) In case of penalty Quantum of penalty deleted or reduced in the order orders to be appealed against Manner of calculation of tax effect of different assessment years: The Assessing Officer has to calculate the tax effect separately for every· assessment year in respect of the disputed issues in the case of every assessee. No. However.000 It is also clarified that an appeal should not be filed merely because the tax effect in a case exceeds the monetary limits prescribed above. Filing of appeal in such cases is to be decided on merits of the case. in the case of an assessee. henceforth.000 2. Before High Court 20.00.However. except where chargeability of interest itself is in dispute. Before Appellate Tribunal 10. In other words. appeals can be filed only with reference to the tax effect in the relevant assessment year.00.000 3. Appeals in income-tax matters Monetary limit (` ) 1. the tax will not include any interest thereon. henceforth.

or 151 © The Institute of Chartered Accountants of India . Accordingly. therefore. they should impress upon the Tribunal or the Court that such cases do not have any precedent value. a number of instances have come to the notice of the Board. the Commissioner of Income - tax shall specifically record that "even though the decision is not acceptable. appeal shall be filed in respect of all such assessment years even if the 'tax effect' is less than the prescribed monetar y limits in any of the year(s). by not filing an appeal on the same disputed issues. whereby an assessee has claimed relief from the Tribunal or the Court only on the ground that the Department has implicitly accepted the decision of the Tribunal or Court in the case of the assessee for any other assessment year or in the case of any other assessee for the same or any other assessment year. Instruction or Circular has been held to be illegal or ultra vires. Further. The Income-tax Department shall not be precluded from filing an appeal against the disputed issues in the case of the same assessee for any other assessment year. no inference should be drawn that the decisions rendered therein were acceptable to the Department. there will be no presumption that the Income-tax Department has acquiesced in the decision on the disputed issues. or (b) Where Board's order. Circumstances when appeal can be filed even if tax effect is less than the specified monetary limit Adverse judgments relating to the following issues should be contested on merits notwithstanding that the tax effect entailed is less than the specified monetary limits or there is no tax effect: (a) Where the Constitutional validity of the provisions of an Act or Rule are under challenge. Notification. As the evidence of not filing appeal due to this instruction may have to be produced in courts. Cases in respect of which appeal is not filed due to tax effect being less than specified monetary limit not to have any precedent value In the past. which involves more than one assessment year and common issues in more than one assessment year. High Court or appellate authority. or in the case of any other assessee for the same or any other assessment year. in such cases. each assessee shall be dealt with separately. Department not precluded from filing an appeal against disputed issues for subsequent assessment years if the tax effect exceeds the specified monetary limits in those years In a case where appeal before a Tribunal or a Court is not filed only on account of the tax effect being less than the monetary limit specified above. the judicial folders in the office of Cs IT must be maintained in a systemic manner for easy retrieval. appeal is not being filed only on the consideration that the tax effect is less than the monetary limit specified in this instruction". The Departmental representatives/counsels must make every effort to bring to the notice of the Tribunal or the Court that the appeal in such cases was not filed or not admitted only for the reason of the tax effect being less than the specified monetary limit and. if the tax effect exceeds the specified monetary limits. if it is decided to file appeal in respect of the year(s) in which ‘tax effect’ exceeds·the monetary limit· prescribed. In case where a composite order/judgement involves more than one assessee.

shall not be governed by the specified monetary limits and decision to file appeal in such cases may be taken on merits of a particular case. The issue under consideration is whether such circular would be applicable to cross objections filed by the Department before the Income-tax Appellate Tribunal under section 253(4) and to references to the High Court under sections 256(1) and 256(2) . by Circular 21/2015 dated 10. or (d) Where the addition relates to undisclosed foreign assets/bank accounts. dated 10-12-2105 [Letter F.12. Further. 152 © The Institute of Chartered Accountants of India . Filing of cross objections below the monetary limit may not be considered henceforth. already filed. where the tax effect is not quantifiable or not involved./M-142/2007 . References below this limit may not be considered henceforth. references to High Courts below the monetary limit of ` 20 lakhs should be pursued for dismissal as withdrawn/not pressed. Similarly. such as the case of registration of trusts or institutions under section 12A. Cross objections below this monetary limit. No. should be pur sued for dismissal as withdrawn/not pressed. Specified monetary limit not to apply to writ matters and direct tax matters other than income-tax Filing of appeals in other direct tax matters shall continue to be governed by the relevant provisions of statute and rules. (c) Where Revenue Audit objection in the case has been accepted by the Department. filing of appeal in cases of income-tax. respectively. Clarification on applicability of Circular No 21/2015. The CBDT has examined the matter and clarified that the monetary limit of ` 10 lakhs for filing appeals before the ITAT would apply equally to cross objections under section 253(4).ITJ (Part). dated 08-03-2016] The monetary limits for filing appeals before the Income Tax Appellate Tribunals and High Courts were raised to ` 10 lakhs and ` 20 lakhs.2015. 279/Misc.

(ii) For the purpose of ensuring objectivity. 271AA. (iii) Section 270A(1) empowers the Assessing Officer. the penal provisions under section 271 shall not apply in relation to A. 271A. certainty and clarity in the penalty provisions. A>B in the cases given hereunder – is greater than Case (A) (B) (1) Return of income Income assessed Income determined in the has been filed return processed under section 143(1)(a). 1961.Y. 273A and 279 Effective from: A. if a person has under reported his income. during the course of proceedings under the Income-tax Act. Such penalty shall be imposed by an order in writing by such authority. 253. 2016 (A) Penalty leviable for under-reporting of income and mis-reporting of income [New section 270A] Related amendment in sections: 119. Commissioner (Appeals) or the Principal Commissioner or Commissioner to direct levy of penalty.Y. 271AAB. 271.2017-18 and onwards.2017-18 providing for levy of penalty in cases of under reporting and misreporting of income.2017-18 (i) Section 271(1)(c) provides for penalty on account of concealment of particulars of income or furnishing inaccurate particulars of income. (2) No return of income Income assessed Basic exemption limit has been filed (3) Reassessment Income reassessed Income assessed or reassessed immediately before such re-assessment 153 © The Institute of Chartered Accountants of India . (iv) Cases of under-reporting of income [Section 270A(2)]: A person shall be considered to have under reported his income if.Y. 25 PENALTIES AMENDMENTS BY THE FINANCE ACT. new section 270A has been inserted with effect from A. Consequently.

is filed and total income assessed in case of an assessee assessment/ as per the provisions being an individual. 154 © The Institute of Chartered Accountants of India . provisions (6) Reassessment as The amount of The deemed total income per the provisions deemed total income assessed or reassessed of sections 115JB reassessed as per the immediately before such or 115JC provisions of sections reassessment. in respect of made on the basis 115JC whom the provisions of of MAT/AMT AMT are applicable. a person would be considered to have under-reported his income if the income assessed or reassessed has the effect of reducing the loss or converting such loss into income (v) Calculation of under-reported income in different scenarios [Section 270A(3)]: Case Manner of computation of under-reported income (1) Where return is Assessed income furnished and (-) assessment is Income determined under section 143(1)(a) made for the first [in case of all persons] time. reassessment is of section 115JB or AOP. HUF. BOI. firm or Assessed income furnished and local authority the assessment Other persons Assessed income is made for the first time (-) Basic exemption limit (3) Where income is Income reassessed or recomputed not assessed for (-) the first time Income assessed or reassessed or recomputed in the order immediately preceding the order during the course of which penalty u/s 270A(1) has been initiated. (2) Where no return Person Under-reported income has been Company. (4) Return of income The amount of The deemed total income has been filed and deemed total income determined in the return assessment/ assessed or processed u/s 143(1)(a) reassessment is reassessed as per the made on the basis provisions of section of MAT/AMT 115JB or 115JC provisions (5) No return of income the amount of deemed The basic exemption limit. 115JB or 115JC Further.

as the case may be.. D = the total income that would have been chargeable had the total income assessed as per the provisions contained in section 115JB or section 115JC been reduced by the amount of under reported income. assessed or has the effect of reassessed. provisions other than the deemed total provisions contained in section 115JB or section income in 115JC. deposit or investment appearing in the current assessment year is claimed to be an amount added to income or deducted while computing loss. However. as the case may be. accordance with B = the total income that would have been chargeable the provisions of had the total income assessed as per the section 115JB or general provisions been reduced by the amount section 115JC of under reported income. C = the total income assessed as per the provisions contained in section 115JB or section 115JC.D) reported income where. deposit or investment is linked to an earlier year [Section 270A(4) & (5)] : In a case where the source of any receipt. Note – Such amount shall be deemed to be the amount of income under-reported for the preceding year in the following order – 155 © The Institute of Chartered Accountants of India . (5) Where an The loss claimed assessment or (-) reassessment The income or loss. arises out of A = Total income assessed as per the general determination of provisions i.B) + (C .e. reducing the loss declared in the return or converting that loss into income (vi) Meaning of Under-reported income in a case where the source of any receipt. where the amount of under reported income on any issue is considered both under the provisions contained in section 115JB or section 115JC and under general provisions. deposit or investment. such amount shall not be reduced from total income assessed while determining the amount under item D. under - reported income shall include such amount as is sufficient to cover such receipt. in the assessment of such person in any earlier assessment year and no penalty was levied for such preceding year. (4) Where under (A .

(3) claim of expenditure not substantiated by any evidence. (2) failure to record investments in books of account. declared with the arm’s length price the international transaction under determined by the Transfer Chapter X and disclosed all the material Pricing Officer facts relating to the transaction (5) The amount of undisclosed Where penalty is leviable under section income on account of a search 271AAB in respect of such undisclosed operation income. and (ii) Where the amount added or deducted in the first preceding year is not sufficient to cover the receipt. being the first preceding year. income determined on the estimated a lower amount of addition or basis of an estimate disallowance on the same issue and has included such amount in the computation of his income and disclosed all the facts material to the addition or disallowance (4) The amount of under-reported Where the assessee had maintained income represented by any information and documents as addition made in conformity prescribed under section 92D. (i) The preceding year immediately before the year in which the receipt. the year immediately preceding the first preceding year and so on. (vii) Cases not included within the scope of under-reported income under section 270A [Section 270A(6)]: Case Condition (1) The amount of income in The Assessing Officer/CIT/PC/ respect of which the assessee Commissioner (Appeals) is satisfied that offers an explanation the explanation is bona fide and all the material facts have been disclosed to substantiate the explanation. on his own. (2) The amount of under-reported If the accounts are correct and complete income determined on the to the satisfaction of the income-tax basis of an estimate authority but the method employed is such that the income cannot properly be deduced therefrom (3) The amount of under-reported If the assessee has. (viii) Cases of misreporting of income [Section 270A(9)]: (1) misrepresentation or suppression of facts. 156 © The Institute of Chartered Accountants of India . deposit or investment appears. deposit or investment.

and (6) failure to report any international transaction or deemed international transaction or specified domestic transaction under Chapter X. reassessed or recomputed in a preceding order as if it were the total income Minus The amount of tax calculated on the total 157 © The Institute of Chartered Accountants of India . (ix) Quantum of penalty leviable Section Case Penalty (1) 270A(7) Under reporting of income 50% of tax payable on under-reported income (2) 270A(8) Where under reporting of income 200% of tax payable on results from misreporting of such under-reported income by any person. income (x) Manner of computation of tax payable on under-reported income [Section 270A(10)]: Case Manner of computation of tax payable on under-reported income (1) Where no return of The tax payable on under-reported income income has been shall be the amount of tax calculated on the furnished and the income under-reported income as increased by the has been assessed for basic exemption limit as if it were the total the first time income. (5) failure to record any receipt in books of account having a bearing on tot al income. recomputed in a preceding order is a loss (3) In any other case The amount of tax calculated on the under- reported income as increased by the total income determined under section 143(1)(a) or total income assessed. (4) recording of any false entry in books of account. (2) Where the total income The tax payable in respect of the under- determined u/s 143(1)(a) reported income shall be the amount of tax or assessed or calculated on the under-reported income as reassessed or if it were the total income.

management of the work of assessment and collection of revenue. where of new section 270A.000 The penalty under this for failure to keep. for the provisions for levy of penalty purpose of proper and efficient section 270A also. Commissioner (Appeals). the person fails to maintain information and documents required u/s 92D or report such transaction or maintains or furnishes an incorrect information or document. 253. Principal Commissioner or Commissioner under section 270A would also be appealable to the Appellate Tribunal. if such addition or disallowance has formed the basis of imposition of penalty in the case of the person for the same or any other assessment year [Section 270A(11)]. maintain section would be without or retain books of account as prejudice to the provisions required under section 44AA. 271A. income determined under section 143(1)(a) or total income assessed. (4) 271AA Levy of penalty of 2% of The penalty under this value of international section would be without transaction or specified prejudice to the provisions domestic transaction. reassessed or recomputed in a preceding order. 273A and 279 to provide reference to new section 270A. 271AAB. (3) 271A Levy of penalty of ` 25. 271AA. Section Provision Amendment (1) 119(2)(a) Power of CBDT to relax certain The CBDT has now been provisions. 158 © The Institute of Chartered Accountants of India . of new section 270A. (2) 253(1) Enlists the orders appealable The order passed by the to the Appellate Tribunal. (xii) Consequential amendments in other provisions: Consequential amendments have been made in sections 119. (xi) No addition or disallowance of an amount shall form the basis for imposition of penalty. by way of a general empowered to relax the or special order.

the person has voluntarily and in good faith made full and true disclosure of particulars of income i.2012.e. or where such disclosure relates to more than one A. Officer. the aggregate amount of such income for those years exceed ` 5 lakh. PC/CIT only with the previous the amount of income in approval of the respect of which the penalty PCC/CC/PDG/DG. if prior to waive penalty in certain detection by the Assessing cases..Y.Y. respect of undisclosed income on which penalty has been levied under section 271AAB(1). Rigorous imprisonment for a Rigorous imprisonment for a period of 6 months to 7 years period of 6 months to 7 and fine would be attracted in years and fine would also be a case where the amount attracted in a case where 159 © The Institute of Chartered Accountants of India . 1961. 273A(1) to be made by the in a case falling u/s 270A... as the is imposed or imposable for case may be. reports his income under the penalty or interest chargeable Income-tax Act. (8) 276C Prosecution to be instituted if Prosecution to also be a person willfully attempts in instituted if a person under- any manner to evade any tax.7. where the excess of income assessed over the income returned is of such a nature as not to attract the penal provisions u/s 270A. (6) 273A(1) Power of Principal Reduction or waiver of Commissioner or penalty imposable on a Commissioner to reduce or person u/s 270A. (7) 273A(2) Order reducing or waiving Previous approval of higher penalty under section authorities also required if. (5) 271AAB Levy of penalty where search No penalty under section is initiated under section 132 270A would be imposable in on or after 1. 1961 or imposable under the Income-tax Act. the relevant A.

00. compute the penalty leviable under section 270A.00.000 (2) Determined under section 143(1)(a) 60. (xiv) Examples: (1) M/s. penalty is leviable under section 270A for under-reporting of income.00.2017-18: Particulars of total income ` (1) As per the return of income furnished u/s 139(1) 50. income exceeds ` 25 lakhs. an order u/s 273A. The following are the particulars furnished by the firm for A. XYZ is a firm liable to tax@30%. XYZ is deemed to have under-reported its income since: (1) its income assessed under 143(3) exceeds its income determined in a return processed under section 143(1)(a).00.000 (4) Reassessed under section 147 95.00.00. and (2) the income reassessed under section 147 exceeds the income assessed under section 143(3).Y.000 Can penalty be levied under section 270A on M/s. Computation of penalty leviable under section 270A Particulars ` ` Assessment under section 143(3) Under-reported income: Total income assessed under section 143(3) 75. sought to be evaded exceeds the tax on under-reported ` 25 lakhs. (9) 279(1A) Prosecution not to be Prosecution not to be instituted against a person instituted against a person u/s u/s 276C or 277 in relation to 276C or 277 in relation to the the assessment for an assessment for an AY in assessment year in respect respect of which penalty of which penalty imposed or imposed or imposable u/s imposable u/s 271(1)(iii) has 270A or u/s 271(1)(iii) has been reduced or waived by been reduced or waived by an order u/s 273A.000 15.000 160 © The Institute of Chartered Accountants of India .00. Therefore.000 (-) Total income determined u/s 143(1)(a) 60. XYZ? If the answer is in the affirmative.000 (3) Assessed under section 143(3) 75. Solution M/s.

has not furnished his return of income for A. 161 © The Institute of Chartered Accountants of India .35.000 143(3) 20.17.Y.17.500 Penalty leviable@50% of tax payable 2.500 143(1)(a) [30% of ` 75 lakh + EC & SHEC@3%] Less: Tax on total income determined u/s 18. Is penalty under section 270A attracted in this case. and if so.000.00.500 SHEC@3%] 6.750 Reassessment under section 147 Under-reported income: Total income reassessed under section 147 95. and (2) The under-reported income is not on account of misreporting.00.31.000 (-) Total income assessed under section 75.500 143(3) [30% of ` 95 lakh + EC & SHEC@3%] Less: Tax on total income assessed u/s 143(3) [30% of ` 75 lakh + EC & 23. (2) Mr. Ram is deemed to have under-reported his income since he has not filed his return of income and his assessed income exceeds the basic exemption limit of ` 2. Hence.2017-18.50.18.000 Penalty leviable@50% of tax payable 3.00.000 Note – The following assumptions have been made - (1) None of the additions or disallowances made in assessment or reassessment qualifies under section 270A(6). the total income assessed in respect of such year under section 143(3) is ` 12 lakh.000 Tax payable on under-reported income: Tax on under-reported income of ` 20 lakhs plus tax on total income of ` 75 lakhs assessed u/s 29.09. However.54.000 143(1)(a) [30% of ` 60 lakh + EC & SHEC@3%] _4. Tax payable on under-reported income: Tax on under-reported income of ` 15 lakhs plus tax on total income of ` 60 lakhs determined u/s 23. a resident individual of the age of 55 years.63. what is the quantum of penalty leviable? Solution Mr. Ram. penalty under section 270A is leviable in his case.

Computation of penalty leviable under section 270A Particulars ` ` Assessment under section 143(3) Under-reported income: Loss assessed u/s 143(3) (5. is a domestic company liable to tax@30%.00. and if so.00.00.90.00.50.000] Add: EC & SHEC@3% __5.000) (4) Reassessed under section 147 4. is deemed to have under-reported its income since: (1) the assessment under 143(3) has the effect of reducing the loss determined in a return processed under section 143(1)(a).25.000) (2) Determined under section 143(1)(a) (8. The following are the particulars furnished by the company for A.Y.000) (3) Assessed under section 143(3) (5.000 the basic exemption limit [30% of ` 2 lakhs + ` 1. what is the quantum of penalty? Solution ABC Ltd.85.275 Note – It is assumed that the under-reported income is not on account of misreporting.00.000 (-) Basic exemption limit 2.550 Penalty leviable@50% of tax payable 95. Therefore.2017-18: Particulars of total income ` (1) As per the return of income furnished u/s 139(1) (15.50.000 Is penalty leviable under section 270A on ABC Ltd.000) 162 © The Institute of Chartered Accountants of India . (3) ABC Ltd. Computation of penalty leviable under section 270A Particulars ` ` Assessment under section 143(3) Under-reported income: Total income assessed under section 143(3) 12..000 9.550 1.00. and (2) the reassessment under section 147 has the effect of converting the loss assessed under section 143(3) into income.000 Tax payable on under-reported income as increased by 1. penalty is leviable under section 270A for under-reporting of income.

700 Penalty leviable@50% of tax payable 46.700 92.050 Note – The following assumptions have been made - (1) None of the additions or disallowances made in assessment or reassessment qualifies under section 270A(6). (-) Loss determined under section 143(1)(a) (8.39.78. if he - (1) pays the tax and interest payable as per the order of assessment under section 143(3) or reassessment under section 147.00.00.2017-18 (i) Application to be made by the assessee to Assessing Officer for grant of immunity from penalty and prosecution [Section 270AA(1)] An assessee may make an application to the Assessing Officer for grant of immunity from imposition of penalty under section 270A and initiation of proceedings under section 276C or section 276CC.000 Add: EC & SHEC@3% 8. (ii) Time limit for making application [Section 270AA(2)] The assessee can make such application in the prescribed form and verified in the prescribed manner within one month from the end of the month in which the order of assessment or reassessment is received 163 © The Institute of Chartered Accountants of India .100 Penalty leviable@50% of tax payable 1. (B) Immunity from imposition of penalty and prosecution [New section 270AA] Related amendment in section: 249 Effective from: A.000) 3. and (2) The under-reported income is not on account of misreporting.000 Add: EC & SHEC@3% 2.00.Y.350 Reassessment under section 147 Under-reported income: Total income reassessed under section 147 4.00.000 (-) Loss assessed under section 143(3) (5.100 2.00.000 Tax payable on under-reported income@30% 90. and (2) does not prefer an appeal against such assessment/reassessment order.70. within the period specified in such notice of demand.000 Tax payable on under-reported income@30% 2.000) 9.

and after the expiry of period of filing appeal as specified in section 249(2). (iv) Time limit for passing order accepting or rejecting application for immunity from penalty and prosecution [Section 270AA(4)] The Assessing Officer shall pass an order accepting or rejecting the application for immunity from penalty under section 270A or prosecution under section 276C or section 276CC within a period of one month from the end of the month in which such application is received. However. (b) failure to record investments in the books of account. However. (d) recording of any false entry in the books of account. is neither appealable before Commissioner (Appeals) nor can the same be admitted by Commissioner for revision under section 264 [Section 270AA(6)] No appeal under section 246A or an application for revision under section 264 shall be admissible against the order of assessment or reassessment referred to in section 270A(1)(a). (iii) Circumstances in which the Assessing Officer cannot grant immunity from penalty and prosecution [Section 270AA(3)] The Assessing Officer shall grant immunity from initiation of penalty under section 270A and prosecution under section 276C or section 276CC. on fulfilment of the conditions specified in (1) and (2) of (i) above. immunity shall be granted by the Assessing Officer only if the penalty proceedings under section 270A have not been initiated on account of the following. (vi) Order of assessment/reassessment. 164 © The Institute of Chartered Accountants of India . or (f) failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction to which the provisions of Chapter X apply. (e) failure to record any receipt in books of account having a bearing on total income. namely:— (a) misrepresentation or suppression of facts. in the interest of natural justice. (c) claim of expenditure not substantiated by any evidence. (v) Finality of order passed by the Assessing Officer under section 270AA(4) [Section 270AA(5)] The order of the Assessing Officer passed under section 270AA(4) accepting or rejecting the application made by the assessee for immunity from penalty under section 270A or prosecution under section 276C or section 276CC shall be final. in respect of which application for immunity is accepted. in a case where an order under section 270AA(4) has been made accepting the application. no order rejecting the application shall be passed by the Assessing Officer unless the assessee has been given an opportunity of being heard.

no order rejecting the application of the assessee. or rejecting Note – Section 220(1) requires application of an payment of amount specified in the assessee in full or notice of demand under section 156 part has to be within 30 days of service of notice. 273AA] Effective from: 1 st June. then. under section 220 or 273A. 273AA shall be passed without giving the assessee an opportunity of being heard. an appeal before the Commissioner (Appeals) is to be made within 30 days of the receipt of the notice of demand relating to an assessment or penalty. there is no requirement under these provisions that the assessee be given an opportunity of being heard in case such application is rejected by an authority. Section Powers of Principal Time limit Commissioner/CIT (1) 220(2A) To reduce or waive the amount of interest paid or payable section An order accepting 220(2). passed within a 165 © The Institute of Chartered Accountants of India . 2016 (i) No time limit has been provided within which orders under section 220 or sections 273A or 273AA have to be passed. where the appeal relates to such assessment or penalty. 273A. as the case may be. (C) Time limit for passing an order for waiver of interest and penalty [Sections 220(2A). (ii) Accordingly. the Finance Act. either in full or in part. (vii) Exclusion of period when application for immunity is pending before Assessing Officer from the time limit for filing of appeal before Commissioner (Appeals). the following period has to be excluded for calculation of the aforesaid thirty days period – Exclusion of period beginning from ending with the date on which application under the date on which the order rejecting section 270AA for immunity from the application is served on the penalty under section 270A is made assessee. Further. 2016 has amended these provisions to provide for a time limit within which the order for waiver of interest and penalty have to be passed by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner of Income-tax. In a case where the assessee makes an application under section 270AA seeking immunity from penalty. in a case where such application is rejected [Second Proviso to section 249(2)(b)] As per section 249(2)(b). Further.

Y. interest is leviable period of 12 @1% per month or part of the month months from the under section 220(2) for the period end of the month during which the default continues. June. In case of default. in search cases where assessee does not admit such income in the course of search nor discloses the same in the return of income for the specified previous year filed on or before the specified date [Section 271AAB(1)(c)] Relevant from: A. (D) Levy of penalty at a flat rate of 60% on undisclosed income. and the proceedings for settlement had abated under the circumstances contained in section 245HA. and the assessee neither admits. undisclosed income in the course of search nor declares such income in the return of income furnished for the specified previous year and pays tax and interest on such undisclosed income. (ii) For the purpose of reducing discretionary powers in levy of penalty and rationalizing the rate of penalty. on an applications application made by the assessee in pending as on 1st this behalf. if order under said penalty proceedings have been sections has to be initiated in case of a person who has passed on or made application for settlement before 31 st May.2017-18 (i) Section 271AAB(1)(c) provides for levy of penalty ranging between 30% to 90% of the undisclosed income. before the Settlement Commission 2017. the (3) 273AA To grant immunity from penalty. 166 © The Institute of Chartered Accountants of India . 2016. for recovery of the penalty amount in In respect of certain circumstances. in which such (2) 273A(4A) To reduce or waive the amount of application is any penalty payable by an assessee received by the or stay or compound any proceeding PC or CIT. section 271AAB(1)(c) has been amended to provide for levy of penalty on such undisclosed income at a flat rate of 60% of such undisclosed income. in a case where search has been initiated under section 132 on or after 1st July. in a statement under section 132(4). 2012.

(b) for refusal to sign any statement legally required during the proceedings under the Income-tax Act. section 272A(3) has been amended to provide that penalty in case of failure referred to above shall be levied by the income tax authority issuing such notice or direction. on whom penalty has been imposed under this Act [other than penalty imposed under section 272A(1)(d)] shall be qualified to represent an assessee before any income-tax authority or the Appellate Tribunal in connection with any proceeding under the Income-tax Act.Y. 1961. 1961. (ii) New clause (d) has been included in section 272A(1) to levy penalty of ` 10. 1961.2016-17 From A. inter alia.000 for each default or failure to comply with a notice issued under section 142(1) or section 143(2) or failure to comply with a direction issued under section 142(2A). (iv) Section 288(4) has been consequentially amended to provide that no person. penalty of ` 10.2017-18 (i) Under section 272A(1). or (c) failure to attend to give evidence or produce books or documents as required under section 131(1).Y.2017-18 30% to 90% 60% of of undisclosed income undisclosed income (e) Penalty for failure to comply with notice under section 142(1) or 143(2) of failure to comply with a direction u/s 142(2A) [Section 272A] Related amendment in section: 288 Effective from: A. (iii) Accordingly. 167 © The Institute of Chartered Accountants of India . Penalty u/s 271AAB(1)(c) Upto A. for such time as the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner may by order determine.000 is leviable in each of the following cases: (a) for failure or default to answer the questions raised by an income-tax authority under the Income-tax Act.Y.

the Assessing Officers (below the rank of Joint Commissioner of income - tax) have to make a reference to the Range Head. The statement in the assessment order that the proceedings under Section 271D and 271E are initiated is inconsequential. Range Head. where the Assessing Officer has issued show cause notice or referred to the initiation of proceedings in assessment order. From the statutory provisions. while others have held that even though the Assessing Officer is not competent to impose the penalty. On the other hand. such initiation is by an authority who is incompetent and the proceedings thereafter would be proceedings without jurisdiction.e. If that be so.2016] There are conflicting interpretations of various High Courts on the issue whether the limitation for imposition of penalty under sections 271D and 271E commences at the level of the Assessing Officer (below the rank of Joint Commissioner of lncome -tax) or at level of the Range authority i. In effect. Addl. a person on whom penalty has been imposed under section 272A(1)(d) is not disqualified from representing an assessee before any income-tax authority or the Appellate Tribunal. in the course of the assessment proceedings (or any other proceedings under the Act). The Assessing Officer (below the rank of Joint Commissioner of lncome-tax) shall not issue the notice in this regard. Some High Courts have held that the limitation commences at the level of the authority competent to impose the penalty i.4. the Joint Commissioner of Income -tax/Additional Commissioner of lncome-tax. regarding any violation of the provisions of section 269SS and section 269T. it is clear that the competent authority to levy penalty is the Joint Commissioner. The Kerala High Court..e. The CBDT is of the view that for the sake of clarity and uniformity. CIT. the conflict needs to be resolved by way of a "Departmental View". if the assessment order is taken as the initiation of penalty proceedings. only the Joint Commissioner can initiate proceedings for levy of penalty. Commencement of limitation for penalty proceedings under sections 271D and 271E [Circular No. SIGNIFICANT NOTIFICATIONS/CIRCULARS 1. the initiation of the penalty proceedings is only with the issuance of the notice by the Joint Commissioner to the assessee to which he has filed his reply. Accordingly. in Grihalaxmi Vision v. Such initiation of proceedings could not have been done by the Assessing Officer. observed that the question to be considered is whether proceedings for levy of penalty are initiated with the passing of the order of assessment by the Assessing Officer or whether such proceedings have commenced with the issuance of the notice by the Joint Commissioner.9/2016 dated 26. Therefore. The CBDT Circular clarifies that the above judgement reflects the "Departmental View". 168 © The Institute of Chartered Accountants of India .. The Range Head will issue the penalty notice and shall dispose/complete the proceedings within the limitation prescribed under section 275(1)(c). as the case may be. the limitation commences at the level of the Assessing Officer.

the "Departmental View" thereon shall not be operative in the area falling in the jurisdiction of the relevant High Court. is determined under section 275(1)(a) or section 275(1)(c). Worldwide Township Projects Ltd. Limitation for penalty proceedings under section 271D and 271E – whether to be determined u/s 275(1)(a) or u/s 275(1)(c) [Circular No. In this view. The action inviting imposition of penalty is granting of loans above the prescribed limit otherwise than through banking channels and as such infringement of section 269SS is not related to the income that may be assessed or finally adjudicated.. 169 © The Institute of Chartered Accountants of India . The Delhi High Court. the limitation period for the imposition of penalty under these provisions would be the expiry of the financial yea r in which the proceedings. has given rise to considerable litigation.2016] The issue whether the limitation for imposition of penalty under sections 271D and 271E. whichever period expires later. in the course of which action for the imposition of penalty has been initiated. The limitation period is not dependent on the pendency of appeal against the assessment or other order referred to in section 275(1)(a). it is a settled position that the period of lim itation of penalty proceedings under section 271D and section 271E of the Act is governed by the provisions of section 275(1)(c). the CCIT concerned should immediately bring the judgment to the notice of the Central Technical Committee (CTC). 2. has considered this issue and observed that is well settled that a penalty under this provisio n is independent of the assessment. Therefore. The Circular further clarifies that where any High Court decides this issue contrary to the "Departmental View". in CIT v. The judgment has been accepted by the CBDT. are completed. However. The CTC shall examine the said judgment on priority to decide as to whether filing of SLP to the Supreme Court will be adequate response for the time being or some legislative amendment is called for. or six months from the end of the month in which action for imposition of penalty is initiated.10/2016 dated 26.4. section 275(1)(a) would not be applicable and the provisions of section 275(1)(c) would be attracted. In view of the above.

whichever is later. 27 MISCELLANEOUS PROVISIONS AMENDMENTS BY THE FINANCE ACT.) has recommended that provisional attachment of property could be substituted by a bank guarantee subject to fulfilment of certain conditions. with the prior approval of the income-tax authorities specified therein. 2016 (A) Provision for bank guarantee under section 281B Effective from: 1st June. sub-sections (3) to (9) have been inserted in section 281B providing for furnishing of bank guarantee in lieu of provisional attachment of property. during the pendency of assessment or reassessment proceedings. Easwar (Retd. 170 © The Institute of Chartered Accountants of India . Further Explanation to section 281B(1). However. has been consequently omitted.V. the Assessing Officer is empowered to provisionally attach any property of the assessee. 2016 (i) Assessing Officer’s power to provisionally attach property for protecting interests of the revenue : Under section 281B. Such provisional attachment has to be made in the manner provided in the Second Schedule. by an order in writing. (iii) Recommendation of Income Tax Simplification Committee: The Income Tax Simplification Committee under the chairmanship of Justice R. if he is of the opinion that it is necessary to do so for the purpose of protecting the interests of the revenue. such attachment of property is extendable to a maximum period of two years or sixty days after the date of order of assessment or reassessment. (ii) Validity of provisional attachment : The provisional attachment shall be valid for a period of 6 months from the date of the order. providing that proceedings under section 132(5) would be deemed to be proceedings for the assessment of any income or for the assessment or reassessment of any income which has escaped assessment. (iv) Furnishing bank guarantee in lieu of provisional attachment of property - Enabling provisions inserted: Accordingly.

(x) Manner of adjustment of amount realized by invoking bank guarantee [Section 281B(8)] (1) The amount realised by invoking the bank guarantee shall be adjusted against the existing demand which is payable by the assessee. in the interests of the revenue. to recover the said amount. the Assessing Officer may. has to be deposited in the Personal Deposit Account of the Principal Commissioner or Commissioner in the branch of 171 © The Institute of Chartered Accountants of India . the Assessing Officer shall. (vii) Time limit for passing order revoking the attachment of property [Section 281B(5)] For ensuring revocation of attachment of property in lieu of bank guarantee in a time bound manner. (vi) Reference to Valuation Officer [Section 281B(4)] For enabling determination of the fair market value of the property provisionally attached. if any. (2) The balance amount. wholly or partly. make a reference to the Valuation Officer. (v) Furnishing of bank guarantee in lieu of provisional attachment [Section 281B(3)] The Assessing Officer shall. by an order in writing. the Assessing Officer may invoke the bank guarantee. invoke the bank guarantee. who is required to estimate of the fair market value of the property and submit the report of such estimation to the Assessing Officer within a period of 30 days from the date of receipt of such reference. for an amount not less than the fair market value of such provisionally attached property or for an amount which is sufficient to protect the interests of the revenue. an order revoking the attachment has to be made by the Assessing Officer within the following time period: Case Time period for revoking attachment (i) in a case where a reference is within 45 days from the date of receipt made to the Valuation Officer of such guarantee (ii) in any other case within 15 days from the date of receipt of such guarantee (viii) Assessing Officer empowered to invoke bank guarantee for failure to pay sum specified in notice of demand [Section 281B(6)] Where a notice of demand specifying a sum payable is served upon the assessee and the assessee fails to pay such sum within the time specified in the notice of demand. (ix) Power to invoke bank guarantee on assessee’s failure to renew or furnish new guarantee [Section 281B(7)] In a case where the assessee fails to renew the bank guarantee or fails to furnish a new guarantee from a scheduled bank for an equal amount fifteen days before the expiry of such guarantee. revoke provisional attachment of property made under section 281B(1) in a case where the assessee furnishes a guarantee from a scheduled bank.

serve such notice. (xi) Release of bank guarantee [Section 281B(9)] In a case where the Assessing Officer is satisfied that the bank guarantee is not required anymore to protect the interests of the revenue. For the expedient to ensure Assessing Officer on the purpose of ensuring that the assessee has specified date or to timely service of such not understated the produce. of the F. 143(2) Where an assessee Such notice may be Such notice has to be has furnished his return served on the assessee served on the u/s 139 or in response by the Assessing Officer assessee within 6 to a notice u/s 142(1) or the prescribed months from the end and the Assessing income-tax authority. he shall release that guarantee forthwith. or cause to be notice to the income or has not produced before the assessee. on the assessee a notice requiring him to 172 © The Institute of Chartered Accountants of India .Y. in which Officer considers it requiring the assessee to the return is necessary and attend the office of the furnished. evidence on which the authority has also paid the tax in any assessee may rely in been empowered to manner. 2016 Requirement Amendment Purpose of amendment 282A(1) Where a notice or other Notices and documents In order to provide document is required to required to be issued by adequate legal be issued by any any income-tax authority framework for income-tax authority under the Act shall be paperless under the Act. he shall serve support of the return. such signed and issued by such assessment for notice or document authority in paper form or improving efficiency should be signed by communicated in and reducing the that authority in electronic form in compliance burden manuscript accordance with such procedure as may be prescribed. the computed excessive Assessing Officer any prescribed income-tax loss or has not under. (B) Provision of legal framework for automated processing and paperless assessment [Section 282A] Related amendment in sections: 143(2) & 2(23C) Effective from: 1st June. Reserve Bank of India or the State Bank of India or of its subsidiaries or any bank as may be appointed by the Reserve Bank of India as its agent at the place where the office of the Principal Commissioner or Commissioner is situated.

Consequently.like sale of products or services to the auditor. prescribed [Notification No. 1949. 2013 is not included in the definition of “accountant” [except for appearing as an authorised representative under section 288(1)] 173 © The Institute of Chartered Accountants of India . It may be noted that in case of a company. 2013 contains a similar disqualification in case of a company. the term "business relationship" shall be construed as any transaction entered into for a commercial purpose. produce. other than. Accordingly. for which purpose “business relationship” has been defined in the like manner in Rule 10(4) of the Companies (Audit & Auditors) Rules. holding a valid certificate of practice under section 6(1) of the said Act. hospitals. in the ordinary course of business." 6 6Section 141(3) of the Companies Act. inserted Rule 51A prescribing the nature of business relationship. by entities engaged in the business of telecommunications. but does not include [except for appearing as an authorized representative under section 288(1)] in case of a non-corporate assessee. as customer. dated 24.2015] Explanation below section 288(2) defines an “accountant” to mean a “Chartered Accountant” as defined in section 2(1)(b) of the Chartered Accountants Act. whether directly or indirectly. airlines.6. clarify that the same can be through electronic mode also. 2014. Nature of Business Relationship. a person who is not eligible for appointment as an auditor of the said company in accordance with section 141(3) of the Companies Act. 2(23C) . or cause to be produced on a specified date. 1949 and the rules or the regulations made under those Acts. any evidence on which the assessee may rely in support of the return. inter alia a person who. has business relationship with the assessee of such nature as may be prescribed. in exercise of the powers conferred by section 295 read with sub-clause (b) (viii) of Explanation below section 288(2). The term “hearing” has New clause (23C) has been defined to include been inserted in communication of data section 2 to define the and documents through term "hearing" to electronic mode.— (i) commercial transactions which are in the nature of professional services permitted to be rendered by an auditor or audit firm under the Act and the Chartered Accountants Act. (ii) commercial transactions which are in the ordinary course of business of the entity at arm's length price . hotels and such other similar businesses. for the purpose of clause (b)(viii) of Explanation below section 288(2). SIGNIFICANT NOTIFICATIONS/CIRCULARS 1. the CBDT has. 50/2015.

1961 shall be furnished by every person mentioned in column (3) of the Table below in respect of all the transactions of the nature and value specified in the corresponding entry in column (2) of the said Table. 2016. in one or operative bank to which the more accounts (other than a current Banking Regulation Act. in or from one or more current account of a person. which are registered and recorded by him on or after 1 st April. One or more time deposits (other than a (i) A banking company or a co- time deposit made through renewal of operative bank to which the another time deposit) of a person Banking Regulation Act. (c) Cash deposits or cash withdrawals (including through bearer’s cheque) aggregating to ` 50 lakhs or more in a financial year. (a) Payment made in cash for A banking company or a co- purchase of bank drafts or pay operative bank to which the orders or banker’s cheque of an Banking Regulation Act. banking institution referred to in (b) Payments made in cash section 51 of that Act) aggregating to ` 10 lakh or more during the financial year for purchase of pre-paid instruments issued by Reserve Bank of India under the Payment and Settlement Systems Act. Furnishing of statement of financial transaction [Rule 114E] [Notification No. 1949 amount aggregating to ` 10 lakh or applies (including any bank or more in a financial year. Cash deposits aggregating to ` 10 lakhs (i) A banking company or a co- or more in a financial year. (ii) Post Master General as referred to in the Indian Post Office Act. bank or banking institution referred to in section 51 of 174 © The Institute of Chartered Accountants of India . S. person) 1. 3. 95/2015. 1949 applies (including any bank or banking institution referred to in section 51 of that Act). aggregating to ` 10 lakhs or more in a 1949 applies (including any financial year of a person. account and time deposit) of a person. 2. 2007. 2. Nature and value of transaction Class of person (reporting No. 1898. dated 30-12-2015] The statement of financial transaction required to be furnished under section 285BA(1) of the Income-tax Act.

2013. 1949 (ii) ` 10 lakh or more by any other applies (including any bank or mode. Buy back of shares from any person A company listed on a recognised (other than the shares bought in the stock exchange purchasing its open market) for an amount or value own securities under section 68 of aggregating to ` 10 lakh or more in a the Companies Act. 1898. Receipt from any person of an amount A company issuing shares aggregating to ` 10 lakh or more in a financial year for acquiring shares (including share application money) issued by the company. (ii) Post Master General as referred to in the Indian Post Office Act. Receipt from any person of an amount A trustee of a Mutual Fund or such aggregating to ` 10 lakh or more in a other person managing the affairs financial year for acquiring units of one of the Mutual Fund as may be duly 175 © The Institute of Chartered Accountants of India . financial year. to hold or accept deposit from public. 8. 4. or Banking Regulation Act. 5. 2013. in a financial year. operative bank to which the (i) ` 1 lakh or more in cash. (iii) Nidhi referred to in section 406 of the Companies Act. financial year for acquiring bonds or debentures issued by the company or institution (other than the amount received on account of renewal of the bond or debenture issued by that company). Receipt from any person of an amount A company or institution issuing aggregating to ` 10 lakh or more in a bonds or debentures. banking institution referred to in section 51 of that Act) or any other against bills raised in respect of one or company or institution issuing more credit cards issued to that person. Payments made by any person of an A banking company or a co- amount aggregating to. that Act). 1934. credit card. (iv) NBFC which holds a certificate of registration under section 45-IA of the Reserve Bank of India Act. 6. 7.

1908 ` 30 lakhs or more or valued by the or Registrar or Sub-Registrar stamp valuation authority referred to in appointed under that Act section 50C at ` 30 lakhs or more 11. while aggregating the amounts for determining the threshold amount for reporting in respect of any person as specified in column (2) of the said Table. 176 © The Institute of Chartered Accountants of India . if any). 1 of the said Table. against Sl. (b) aggregate all the transactions of the same nature as specified in column (2) of the said Table recorded in respect of that person during the financial year.- (a) take into account all the accounts of the same nature as specified in column (2) of the said Table maintained in respect of that person during the financial year. account of transfer from one scheme to another scheme of that Mutual Fund). No. or more schemes of a Mutual Fund authorised by the trustee in this (other than the amount received on behalf. Nos. Receipt from any person for sale of Authorised person as referred to foreign currency including any credit of in section 2(c) of the Foreign such currency to foreign exchange card Exchange Management Act. 1999. Purchase or sale by any person of Inspector-General appointed immovable property for an amount of under the Registration Act. of under section 44AB of the Act. by any person. (d) apply the threshold limit separately to deposits and withdrawals in respect of transaction specified in item (c) under column (2).9] shall. 1 to 10 of this rule. Receipt of cash payment exceeding Any person who is liable for audit ` 2 lakh for sale. goods or services of any nature (other than those specified at Sl. Manner of application of threshold limit: The reporting person mentioned in column (3) of the Table under sub-rule (2) [other than the person at Sl. (c) attribute the entire value of the transaction or the aggregated value of all the transactions to all the persons. 9. or expense in such currency through a debit or credit card or through issue of travellers cheque or draft or any other instrument of an amount aggregating to ` 10 lakh or more during a financial year 10.No. in a case where the account is maintained or transaction is recorded in the name of more than one person.

Such income received by the unit-holder from the investment fund (other than business income which is taxed at the level of investment fund) is taxable in the hands of unit-holder. (3) The taxation in the hands of unit-holders is in the same manner and in the same proportion as it would have been. tax is deductible@10% in respect of any income credited or paid by the investment fund to its unit-holder. If the Assessing Officer is satisfied that total income of the recipient justifies issue of such certificate. 2016 (A) Deduction of tax at source under section 194LBB at ‘rates in force’ on income distributed by an Investment Fund to its non-resident unit-holders and enabling provision for obtaining certificate of nil deduction or lower deduction of tax at source under section 197 Related amendment in section: 2(37) & 197 Effective from: 1st June. contained in sections 10(23FBA). Section 197 enables an assessee to file an application to the Assessing Officer for issue of certificate of deduction of tax at lower rate or no deduction of tax under certain sections specified thereunder. 2016 (i) Special taxation regime for Investment Funds: (1) A special taxation regime. (2) Under this regime. the income of the investment fund (other than business income) is exempt in the hands of investment fund. had the unit-holder received such income directly and not through the investment fund. 2015 for Category-I and II Alternative Investment Funds registered with SEBI. 10(23FBB). (ii) Deduction of tax under section 194LBB@10% without facility for application of relief under section 197 – Resultant hardship to non-resident investors eligible for concessional rate of tax/exemption under the DTAA : (1) Under section 194LBB. was introduced by the Finance Act. 177 © The Institute of Chartered Accountants of India . 28 DEDUCTION. COLLECTION & RECOVERY OF TAX AMENDMENTS BY THE FINANCE ACT. in order to ensure tax pass through status for these investment funds which are collective investment vehicles. he may give to him such certificate for non-deduction of tax or deduction of tax at a lower rate. 115UB and 194LBB.

1961. in respect of which an application can be filed for issue of certificate for deduction of tax at a lower rate or for non-deduction of tax. inter alia. whichever is applicable by virtue of the provisions of section 90. if the Assessing Officer is satisfied on an application made in this behalf that the total income of the recipient justifies deduction of income-tax at lower rates or no deduction of income-tax. (2) 2(37A)(iii) ‘Rate or rates in force’. tax deduction under sections 194LBA. In such a case also. 178 © The Institute of Chartered Accountants of India . tax would be deducted at source@10%under section 194LBB. (2) However. section 194LBB is not included in the sections specified under section 197. 194LBC or 195 – (i) the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year. as the case may be. or (b) notified by the Central Government u/s 90A. in relation to an assessment year or financial year. since there is no provision under section 197 for such unit-holder to approach the Assessing Officer for seeking certificate of tax deduction at a lower or Nil rate under section 194LBB. in case of a payee being a non-corporate non-resident or a foreign company. This has created genuine hardship for a non-resident unit-holder entitled to exemption of such income under the relevant Double Taxation Avoidance Agreement (DTAA). for the purpose of. (iv) Consequential amendments: Section Amendment (1) 197 Inclusion of section 194LBB in the list of sections u/s 197(1) for which a certificate for deduction of tax at lower rate or no deduction of tax can be obtained. no deduction of tax at source shall be made in respect of any income that is not chargeable to tax under the provisions of the Income-tax Act. 2016 to provide that the person responsible for making the payment to the unit-holder shall deduct income- tax under section 194LBB as given hereunder - Category of Payee Rate of tax deduction at source (1) Residents 10% (2) Non-corporate non-residents or foreign Rates in force companies However. 194LBB. or (ii) the rate or rates of income-tax specified in an agreement – (a) entered into by the Central Government u/s 90. (iii) Rationalisation of TDS Regime in respect of payments made by the investment funds to its investors: Section 194LBB has been amended by the Finance Act. means. or section 90A.

80. If declaration is so furnished to the person responsible for paying tax. tax is deductible at source for payments in the nature of rent exceeding the specified threshold of ` 1. on which tax is deductible under section 194-I.15G in case of a person. no deduction is required to be made if the payments do not exceed prescribed threshold limit specified under the relevant section. other than companies and firms. to file self-declaration in Form No. However. there still may be cases where the tax payable on recipient's total income. in case of a resident individual of the age of 60 years or more at any time during the previous year. resident senior citizens in receipt of rent can file declaration in Form No. 15G for non-deduction of tax at source to the person responsible for paying rent. Likewise. (iii) Enabling provision introduced for furnishing self-declaration by recipient of rent for non-deduction of tax at source under section 194-I: In order to reduce compliance burden in such cases. and Form No. in receipt of rent. (B) Enabling provision for filing of self-declaration in Form 15G/15H by recipient of rental income. no deduction of tax shall be made by such person. (C) Increase in threshold limits and reduction of rates for deduction of tax at source in respect of certain payments [Chapter XVII-B] Effective from: 1 st June.000 in a financial year. The prescribed form is Form No. In spite of the threshold for deduction tax under this section. 179 © The Institute of Chartered Accountants of India .000: Under 194-I. for non-deduction of tax at source under section 194-I [Section 197A] (i) Tax deductible under section 194-I on rental payments exceeding ` 1.80. 15H. 2016 (i) Requirement of deduction of tax at source under Chapter XVII-B if payments exceed the specified threshold: Every person responsible for payment of any specified sum on which tax is deductible at source under Chapter XVII-B to any person is required to deduct tax at source at the prescribed rate and remit the same to the Central Government within specified time. However. section 197A has been amended for enabling persons. will be nil. including rental payments. (ii) Enabling provisions contained in the Act for furnishing self-declaration by recipients of income referred to in section 192A/193/194/194A/194DA : Section 197A provides for furnishing of self-declaration in writing in duplicate in the prescribed form. 15H for non-deduction of tax at source to the person responsible for paying rent. declaring that the tax on his estimated total income of the relevant previous year would be nil. there was no such enabling provision for furnishing self-declaration by the recipient of rent. which is subject to tax deduction under section 194-I. other than a company or firm.

0007 (5) 194G Commission on sale of lottery tickets 1. (ii) In order to rationalise the rates and base for TDS provisions. 7 In this case. the rate of TDS under section 194D in respect of insurance commission has been reduced from 10% to 5% 8. the existing threshold limits for deduction of tax at source and the rates of deduction of tax at source have been revised with effect from 1 st June.00.000 10.000 15.000 50.000 (3) 194C Payment to contractors (revision of 75.00.000 (6) 194H Commission or brokerage 5.2016 1. there is a decrease in threshold limit.2016 (1) 192A Payment of accumulated balance due to an employee participating in 30.000 15.000 15. 2016 providing for the rates in force 180 © The Institute of Chartered Accountants of India .2016 1. 2016.6.000 2.000 recognized provident fund (2) 194BB Winnings from horse race 5. Revision in threshold limits for deduction of tax at source from certain payments: Section Nature of payment Threshold limit (` ) Upto From 31.5.6.000 (7) 194LA Payment of compensation or enhanced compensation on 2.2016 (1) 194DA Payment in respect of life insurance policy 2% 1% (2) 194EE Payments in respect of deposits under 20% 10% National Savings Scheme (3) 194G Commission on sale of lottery tickets 10% 5% (4) 194H Commission or brokerage 10% 5% In addition.5. 8 Refer Part II of the First Schedule to the Finance Act.000 1.000 threshold of aggregate payment in a year) (4) 194D Insurance commission 20.000 compulsory acquisition of immovable property Reduction in rate of tax to be deducted at source in respect of certain payments: Rate of TDS Section Nature of payment Upto From 31.50.

(iii) Omission of non-operational provisions for TDS u/s 194K and 194L: Further. the non-operational provisions for deduction of tax at source under section 194K in respect of income from units of a mutual fund or UTI (which ceased to be in force since 1 st April. 181 © The Institute of Chartered Accountants of India . 2016. paid in the earlier installment. (D) Advance tax payment scheme to be the same for companies and other assessees [Section 211] Related amendment in section: 234C Effective from: 1 st June.2016] Advance tax payment schedule for companies (4 installments): Due date of installment Amount payable On or before 15th June Not less than 15% of advance tax liability On or before 15th Not less than 45% of advance tax liability. if any. 2000) have been omitted with effect from 1 st June. Advance tax payment schedule for non-corporate assessees (3 installments) : Due date of installment Amount payable On or before 15th Not less than 30% of advance tax liability September On or before 15th December Not less than 60% of advance tax liability. if any.5. paid in the earlier installment. 2003) and section 194L in respect of payment of compensation on compulsory acquisition of a capital asset (which ceased to be in force since 1 st June. On or before 15th March The whole amount of advance tax liability as reduced by the amount or amounts. as reduced by the amount. paid in the earlier installment or installments. On or before 15th December Not less than 75% of advance tax liability. paid in the earlier installment or installments. if any. On or before 15th March The whole amount of advance tax liability as reduced by the amount or amounts. if any. paid in the earlier installment or installments. as September reduced by the amount. 2016 (i) Differential advance tax payment schedule for companies and other assessees under section 211(1) [upto 31. if any. as reduced by the amount or amounts.

Note . as reduced by the amount or amounts. if any. (iii) Eligible assessee computing profits on presumptive basis under section 44AD to pay advance tax by 15th March An eligible assessee. who is liable to pay advance tax under section 208 has failed to pay such tax or the advance tax paid by such assessee on its current income on or before the dates specified in column (1) is less than the specified percentage [given in column (2)] of tax due on returned income. On or before 15th March The whole amount of advance tax liability as reduced by the amount or amounts. other than an eligible assessee in respect of the eligible business referred to in section 44AD. paid in the earlier installment. paid in the earlier installment or installments. However.Any amount paid by way of advance tax on or before 31 st March shall also be treated as advance tax paid during each financial year on or before 15 th March. (ii) Common advance tax payment schedule for both corporates and non- corporates (other than an eligible assessee in respect of eligible business referred to in section 44AD) from 1st June 2016: Due date of installment Amount payable On or before 15th June Not less than 15% of advance tax liability On or before 15th Not less than 45% of advance tax liability. if any. On or before 15th December Not less than 75% of advance tax liability. then simple interest@1% per month for the period specified in column (4) on the amount of shortfall. shall be required to pay advance tax of the whole amount in one instalment on or before the 15th March of the financial year. if any. Specified Specified Shortfall in advance tax Period date % (1) (2) (3) (4) 15th June 15% 15% of tax due on returned income (-) 3 months advance tax paid up to 15th June 182 © The Institute of Chartered Accountants of India . (iv) Consequential amendments in section 234C (a) Manner of computation of interest under section 234C for deferment of advance tax by corporate and non-corporate assessees: In case an assessee. as September reduced by the amount. any amount paid by way of advance tax on or before 31st March shall also be treated as advance tax paid during each financial year on or before 15 th March. opting for computation of profits or gains of business on presumptive basis in respect of eligible business referred to in section 44AD. as per column (3) is leviable under section 234C. paid in the earlier installment or installments.

on or before 15th June or 15th September. for the period beginning from 183 © The Institute of Chartered Accountants of India . where such shortfall is on account of under-estimate or failure to estimate – (i) the amount of capital gains. then. if the advance tax paid by the assessee on the current income.. (b) Computation of interest under section 234C in case of an eligible assessee in respect of eligible business referred to in section 44AD: In case an eligible assessee in respect of the eligible business referred to in section 44AD. However. the assessee shall not be liable to pay any interest on the amount of the shortfall on those dates. as part of the remaining instalments of advance tax which are due or where no such instalments are due.e. by 31 st March of the financial year. (c) Non-applicability of interest under section 234C in certain cases: Interest under section 234C shall not be leviable in respect of any shortfall in payment of tax due on returned income. (iii) income under the head “Profits and gains of business or profession” in cases where the income accrues or arises under the said head for the first time. had such income been a part of the total income. winnings from lotteries. is not less than 12% or. (e) Interest on refunds [Section 244A] Effective from: 1 st June. (ii) income of nature referred to in section 2(24)(ix) i. 36% of the tax due on the returned income. as the case may be. crossword puzzles etc. the assessee shall be liable to pay simple interest at the rate of 1% on the amount of the shortfall from the tax due on the returned income. 2016 (i) Period for which interest on refund is payable: An assessee is entitled to interest on refund arising out of excess payment of advance tax. the assessee should have paid the whole of the amount of tax payable in respect of such income referred to in (i). who is liable to pay advance tax under section 208 has failed to pay such tax or the advance tax paid by the assessee on its current income on or before 15th March is less than the tax due on the returned income. 15th 45% 45% of tax due on returned income (-) 3 months September advance tax paid up to 15th September 15th 75% 75% of tax due on returned income 3 months December (-) advance tax paid up to 15 th December 15th March 100% 100% of tax due on returned income 1 month (-) advance tax paid up to 15th March Note – However. as the case may be. then. tax deducted or collected at source.. (ii) and (iii).

during the financial year immediately preceding the assessment year: (1) Where the return is filed on or 1st April of the Date of before the due date u/s 139(1) assessment year grant (2) Where the return is filed after the date of filing of of the due date return refund (b) Where the refund is out of self. (ii) Differential period for interest on refund in cases where return is filed beyond the due date under section 139(1) For ensuring filing of return on or before the due date under section 139(1). refund whichever is later Note – However. in addition to the interest payable under section 244A(1). Further.a. otherwise than by making a fresh assessment or reassessment. in cases where extension is granted by the Principal Commissioner or Commissioner by 184 © The Institute of Chartered Accountants of India . 1st April of the assessment year and ending on the date on which refund is granted. section 244A has been amended to provide for interest@0. no interest is payable under either of the cases [(a) or (b)] mentioned above. an additional interest on such refund amount calculated at the rate of 3% p. wholly or partly..Date of furnishing Date of assessment tax paid u/s 140A return of income or grant of payment of tax. (iii) Additional interest on refund arising out of appeal effect being delayed beyond the time prescribed under section 153(5): Where a refund arises as a result of giving effect to an order under section 250/254/260/262/264. for the period beginning from the date following the date of expiry of the time allowed under section 153(5) to the date on which the refund is granted. if the amount of refund is less than 10% of tax determined under section 143(1) or on regular assessment.5% for every month or part of a month for the period specified in the following table for each of the cases mentioned in column (2) hereunder – Period for grant of interest Case on refund Beginning from Ending with (1) (2) (3) (4) (a) Where the refund is out of TCS u/s 206C or paid by way of advance tax or treated as paid u/s 199. the assessee shall be entitled to receive.

reassessment Where extension is granted by the From the expiry of 9 months from Principal Commissioner or the end of the month in which the Commissioner by invoking proviso order u/s 250/254/260/262 is to section 153(5) received. otherwise than by received. or providing of any services (other than amounts on which tax is deducted at source by the payer under Chapter XVII-B). (f) Expansion of scope of TCS under section 206C Effective from: 1 st June. 206C(1F) Sale of motor vehicle ` 10 lakhs 9 Period for which assessee would be entitled to receive additional interest on refund 185 © The Institute of Chartered Accountants of India . if such consideration exceeds ` 2 lakh for bullion and ` 5 lakh for jewellery. order u/s 250/254/260/262 is wholly or partly. 2016 (i) Expansion of scope of TCS under section 206C: Section 206C(1D) requires collection of tax at source. The scope of tax collection at source under section 206C has been expanded to provide that every person. the period of additional interest. Tax has to be collected@1% of sale consideration. at the time of receipt of consideration. by the PCC/CC/PC/CIT. if any. at the time of receipt of consideration. consideration for which is received in cash. being the seller shall. Circumstance Period9 Where a refund arises as a result From the expiry of 3 months from of giving effect to an order under the end of the month in which the section 250/254/260/262/264. on cash sale of bullion or jewellery. collect tax at the rate of 1% from the purchaser on sale of goods or provision of services specified in column (2) exceeding the corresponding value specified in column (3) : (1) (2) (3) Section Sale / Service Transaction Threshold limit 206C(1D) Sale in cash of any goods (other than ` 2 lakhs bullion and jewellery). by the PCC/CC/PC/CIT. or order u/s 263 or 264 is passed. or order u/s 263 or 264 is making a fresh assessment or passed. shall begin from the expiry of such extended period. invoking proviso to section 153(5).

Note . (2) To curb the flow of unaccounted money in the trading system. This is brought to cover all transactions of retail sales and accordingly.2 Whether TCS@1% on sale of motor vehicle is applicable only to luxury cars? 186 © The Institute of Chartered Accountants of India . the CBDT has. consideration for which is received in cash. clarified the following issues in “Question & Answer (Q&A)” format. shall not apply to certain class of buyers who fulfil the prescribed conditions.1 Whether TCS@1% is on sale of motor vehicle at retail level or also on sale of motor vehicles by manufacturers to dealers/ distributors? A. (ii) Reasons for expansion of scope of section 206C: (1) To reduce the quantum of cash transaction in sale of any goods and services.6. the definition of buyer with respect to section 206C(1D) and 206C(1F) would mean a person who obtains in any sale. To bring high value transactions within the tax net. (iv) Definition of buyer with respect to sections 206C(1D) and 206C(1F): Consequent to insertion of sub-section (1F) in section 206C. section 206C has been amended to provide that the seller shall collect the tax @ 1% from the purchaser on sale of motor vehicle of the value exceeding ` 10 lakhs.23/2016 dated 24. Q.These amendments in section 206C have given rise to certain issues relating to the scope and applicability of the provisions.2016 and Circular No. 22/2016 dated 8. (v) Definition of seller expanded: Consequent to expansion of scope of TCS to include transaction of provision of services. (iii) Requirement to collect tax at source under section 206C(1D) on sale of goods (other than bullion and jewellery) and provision of services not to apply to certain class of buyers fulfilling prescribed conditions: New sub-section (1E) has been inserted in section 206C to provide that the requirement to collect tax at source under section 206C(1D) in relation to sale of any goods (other than bullion and jewellery) or provision of any service. the definition of seller under clause (c) of Explanation to section 206C has been amended to include individuals/HUFs whose gross receipts from business or profession exceed the monetary limits specified in section 44AB during the financial year immediately preceding the financial year in which such services are provided. it will not apply on sale of motor vehicles by manufacturers to dealers/distributors. Q.2016. vide Circular No. Accordingly. and (3) To bring high value transactions within the tax net.6. good of the nature specified under thereunder.

4 Whether TCS is applicable on each sale of motor vehicle or on aggregate value of sale during the year? A. Q.7 As per section 206C(1D). Tax is to be collected at source@1% on sale consideration of a motor vehicle exceeding ` 10 lakhs. of motor vehicle or any other goods or provision of services? A. tax is to be collected at source@1% of the sale consideration of a motor vehicle exceeding 10 lakh rupees. The definition of "Seller" as given in clause (c) of the Explanation below sub- section (11) of section 206C shall be applicable in the case of sale of motor vehicles also. Accordingly. an individual who is liable to audit as per the provisions of section 44AB during the financial year immediately preceding the financial year in which the motor vehicle is sold shall be liable for collection of tax at source on sale of motor vehicle by him. and Embassies. No. Q. institutions notified under United Nations (Privileges and Immunities) Act 1947. This is irrespective of the mode of payment. Q. Q. A. if the value of motor vehicle is ` 20 lakhs.5 Whether TCS@1% on sale of motor vehicle is applicable in case of an individual? A. tax is to be collected at source@1% if sale consideration received in cash exceeds ` 2 lakhs whereas as per section 206C(1F). Q. Any sale of motor vehicle exceeding ` 10 lakhs would attract TCS@1%. Consulates. as per section 206C(1F).3 Whether TCS@1% is applicable in the case of sale to Government Departments. High Commission. Embassies. The provisions of TCS on sale of motor vehicle exceeding ` 10 lakhs is not dependent on mode of payment. Government. Sub-section (1F) section 206C provides for TCS at the rate of 1% on sale of motor vehicle of value exceeding ` 10 lakhs. It is applicable to each sale and not to aggregate value of sale made during the year.6 How would the provisions of TCS on sale of motor vehicle be applicable in a case where part of the payment is made in cash and part is made by cheque? A. the seller shall collect tax@1% from the purchaser on sale of any motor vehicle of the value exceeding ` 10 lakhs. the tax 187 © The Institute of Chartered Accountants of India . out of which ` 5 lakhs has been paid in cash and balance amount by way of cheque. Whether TCS will be made under both sub-section (lD) and (IF) of section 206C@2%. Thus. where part of the payment for purchase of motor vehicle exceeds ` 2 lakhs in cash? A. Consulates and United Nation Institutions. Commission and trade representation of a foreign State shall not be liable to levy of TCS@1% under sub-section (1D) and (IF) of section 206C. Legation.

tax shall be collected at source@1% on ` 8 lakhs as per sub-section (1D) of section 206C.9 Whether tax collection at source under section 206C(1D) will apply only to cash component or in respect of whole of sales consideration? A. The benefit of non-applicability of the provisions of section 206AA is currently available only in respect of payment of interest on long-term bonds by an Indian company or a business trust as referred to in section 194LC to non- corporate non-residents or foreign companies. (ii) Applicability of section 206AA to non-residents and consequent compliance burden: The provisions of section 206AA also apply to non-residents. 188 © The Institute of Chartered Accountants of India . (g) Requirement to furnish PAN for avoiding higher tax deduction not to apply to non-corporate non-residents and foreign companies subject to certain conditions [Section 206AA] Effective from: 1 st June. TCS will not be levied if the cash receipt does not exceed ` 2 lakhs. Under section 206C(1D). failing which tax shall be deducted at – (1) the rate mentioned in the relevant provisions of the Act or (2) the rate or rates in force or (3) the rate of 20% whichever is higher. if a vehicle is sold for ` 8 lakhs and the consideration is paid in cash. Q. However. any person who is entitled to receive any sum or income or amount on which tax is deductible under Chapter XVIIB shall furni sh his Permanent Account Number (PAN) to the person responsible for deducting such tax. shall be collected at source@1% on total sale consideration of ` 20 lakhs only under sub-section (1F) of section 206C.8 Whether tax collection at source@1% under section 206C(1D) will apply in cases where the sale consideration received is partly in cash and partly by cheque and the cash receipt is less than ` 2 lakh? A. Q. even if the sale consideration exceeds ` 2 lakhs. on account of which they have to obtain and furnish PAN. No. Otherwise. 2016 (i) Higher rate of tax deduction in respect of persons who fail to furnish PAN to the person responsible for deducting tax at source: Under section 206AA. higher rate of tax deduction is attracted even if tax on such income is payable at a lower rate on account of applicability special provisions of the Act or the relevant double taxation avoidance agreement. tax is required to be collected at source on the cash component of the sale consideration and not on the whole of the sales consideration.

In order to reduce the cost of compliance and ease the compliance burden for both the tax payer and the tax deductor.15G and 15H for seven years. Accordingly.6. 15G or Form No. The revised procedure shall be effective from 1st October.. (iii) Non-applicability of section 206AA to non-residents subject to fulfilment of certain conditions: For the purpose of reducing the compliance burden. dated 29. 51/2015. notified that no tax has to be deducted in respect of payments of the nature specified in section 10(23FBA) [i.e. 1992.15H as per section 197A. 189 © The Institute of Chartered Accountants of India . the CBDT has simplified the format and procedure for self-declaration of Form No. a payee can submit the self- declaration either in paper form or electronically.09. any income other than the income chargeable under the head “Profits and gains of business or profession”] received by any investment fund. however be required to retain Form No. Under the simplified procedure contained in new Rule 29C.2015] Section 197A(1F) provides that no deduction of tax shall be made from such specified payment to such institution. 2012. The deductor will. 10 “Investment Fund” means any fund established or incorporated in India in the form of a trust or a company or a LLP or a body corporate which has been granted a certificate of registration as a Category I or a Category II Alternative Investment Fund and is regulated under the SEBI (AIF) Regulations.15G & 15H [Notification No. dated 24. also in respect of any other payment subject to such conditions as may be prescribed. The particulars of self-declarations will have to be furnished by the deductor along with UIN in the quarterly TDS statements. section 206AA has been amended to provide for non-applicability of the requirements contained therein to a non-corporate non-resident or to a foreign company. association or body or class of institutions. The requirement of submitting physical copy of Form 15G and 15H by the deductor to the income-tax authorities has been dispensed with. made under the SEBI Act. vide this notification.2015] Tax payers seeking non-deduction of tax from certain incomes are required to file a self- declaration in Form No. Simplification of format and procedure for self-declaration in Form No. The procedure for submission of the forms by the deductor has also been simplified. No tax to be deducted in respect of the income specified under section 10(23FBA) received by an Investment Fund [Notification No. 2015. The deductor will not deduct tax and will allot a Unique Identification Number (UIN) to all self-declarations in accordance with the procedure as specified by the Principal Director General of Income-tax (Systems) under sub-rule (7) of new Rule 29C. SIGNIFICANT NOTIFICATIONS/CIRCULARS 1. the Central Government has. associations or bodies as may be notified by the Central Government.15G or 15H.10 2. 76/2015.

2016] (i) Increase in time limit for payment of TDS under section 194-IA to Government Account [Rule 30(2A)]: Rule 30(2A) has been amended to increase the time limit for payment of tax deduction under section 194-IA to Government account from 7 days to 30 days from the end of the month in which deduction is made.4. Rule 31A(2) prescribed differential due dates for Government deductors and other deductors.No. House Rent Allowance Name.30/2016 dated 29. Nature of Claim Evidence or particulars 1. 2. quarterly 190 © The Institute of Chartered Accountants of India .30/2016 dated 29. or cause to be delivered. common due dates are now prescribed thereunder for Government deductors and other deductors. Furnishing of evidence of claims by employee for deduction of tax under section 192 [Notification No.2016] New Rule 26C has been inserted in the Income-tax Rules. address and PAN of the landlord(s) where the aggregate rent paid during the previous year exceeds ` 1 lakh. to require furnishing of evidence of the following claims by an employee to the person responsible for making payment under section 192(1) in Form No. Accordingly. 3. with effect from 1st June. Time and mode of payment of TDS and TCS to Government account – Amendments in Rule 30. quarterly statements to the Director General of Income-tax (Systems) or the person authorised by him within the due date for each quarter specified in Rule 31A(2). In order to ensure equity and give more time for other deductors.12BB for the purpose of estimating his income or computing the tax deduction of tax at source: S. 1962. Leave Travel Concession or Evidence of expenditure Assistance 3. Deduction of interest under the Name. 31 & 37A [Notification No. address and PAN of the head “Income from house lender property” 4. Deduction under Chapter VI-A Evidence of investment or expenditure. 4. (ii) Common due date for filing of statement of TDS under section 200(3) in case of Government deductors and other deductors [Rule 31A(2)]: Rule 31A requires every person responsible for deduction of tax under Chapter XVII-B to deliver. 2016.4.

30th June 31st July of the financial year 2. Date of ending of the Due date quarter of the financial year 1. (iii) Mode of payment in the case of an office of the Government. or (ii) Electronically along with the verification of the statement in Form 27A or verified though an electronic process 191 © The Institute of Chartered Accountants of India . 30th September 31st October of the financial year 3.No. where tax has been paid to the credit of the Central Government without the production of a challan) and reported to the agency authorised by the Director General of Income-tax (Systems). statements of TDS have to be furnished by the due dates specified in column (3) against the corresponding quarter - Sl. In effect. 31st March 31st May of the financial year immediately following the financial year in which the deduction is made. Rule 30(4) and 37CA(3) now simply require submission of statement in Form 24G to the agency authorised by the Principal Director General of Income-tax (Systems) in respect of tax deducted/collected by the deductors/collectors and reported to him Time limit for submission of statement in Form 24G in such cases [New sub - rule (4A) of Rule 30 & Sub-rule (3A) of Rule 37CA]: Month to which the statement relates Time limit (i) In a case where the statement relates to On or before 30 th April the month of March (ii) In any other case On or before 15 days from the end of the relevant month Manner of submission of statement in Form 24G [New sub-rule (4B) of Rule 30 & sub-rule (3B) of Rule 37CA]: (i) Electronically under digital signature. without production of challan. 31st December 31st January of the financial year 4. where tax has been paid to the credit of the Central Government. in the case of an office of the Government.24G in respect of tax deducted/collected by deductors/collectors (in the case of an office of the Government. where tax has been paid to the credit of the Central Government without production of a challan [Rules 30 & 37C]: Rule 30(4) and 37CA(3) have been amended to remove the time limit of 10 days specified thereunder for submission of Form No.

07. 3563 of 2012 and CM No. 7/2015. formats and standards for the purpose of furnishing and verification of the statements [New sub-rule (5) of Rule 30 & sub-rule (4) of Rule 37CA]: The procedures. 6. the Hon'ble Delhi High Court has held that the provisions of section 194A do not apply to fixed deposits made in the name of Registrar General of 192 © The Institute of Chartered Accountants of India . Applicability of provisions for deduction of tax at source under section 194A on interest on fixed deposit made in the name of the Registrar General of Court or the depositor of the Fund on directions of Courts [Circular No.2002 which laid down that there would be no requirement for tax deduction at source from payments made to such entities. they would also be entitled for the benefit of the said circular.04. Intimation of book identification number to deductors [New sub-rule (4C) of Rule 30]: The Pay and Accounts Officer or the Treasury Officer or the Cheque Drawing and Disbursing Officer or any other person by whatever name called to whom the deductor reports the tax so deducted has to intimate the book identification number generated by the agency to each of the deductors in respect of whom the sum deducted has been credited. clarified that since corporations covered under section 10(26BBB) satisfy the two conditions of Circular No. in accordance with the procedures.e. Specification of procedures. vide this circular. 01. the CBDT has.23/2015. State or Provincial Act for the welfare and economic up liftment of ex-service-men being the citizen of India. dated 23-04-2015] The CBDT had earlier issued Circular No. Tax not to be deducted from payments made to Corporations whose income is exempt under section 10(26BBB) [Circular No. 4/2002 dated 16.. exempts any income of a corporation established by a Central. He shall also be responsible for the day-to-day administration in relation to the furnishing of the information and verification of the statements. 5. Now. inserted by the Finance Act. Section 10(26BBB). formats and standards shall be specified by the Principal Director General of Income-tax (Systems) for the purposes of furnishing and verification of the statements. 2003 w. 7517/2012 vide judgment dated 11/11/2014.e. 4/2002 i. The corporations covered under section 10(26BBB) are also statutorily not required to file return of income as per the section 139. dated 28-12- 2015] Section 194A stipulates deduction of tax at source (TDS) on interest other than interest on securities if the aggregate of amount of such interest credited or paid to the account of the payee during the financial year exceeds the specified amount. unconditional exemption of income under section 10 and no statutory liability to file return of income under section 139. whose income is unconditionally exempt under section 10 and who are statutorily not required to file return of income as per the section 139.f. In the case of UCO Bank in Writ Petition No.2004. formats and standards specified under Rule 30(5) .

it is clarified that interest on FDRs made in the name of Registrar General of the Court or the depositor of the fund on the directions of the Court. Amount and year of receipt is also unascertainable. will not be subject to TDS till the matter is decided by the Court. till the Court passes the appropriate orders in the matter. No. The Delhi High Court. the CBDT has clarified that while applying the relevant provisions of TDS on a contract for content production. 1961. subject to TDS under that section. However. a distinction is required to be made between: (i) a payment for production of content/programme as per the specifications of the broadcaster/telecaster. This position clearly flows from the definition of `work’ given in clause (iv)(b) of the Explanation to section 194C and the same has also been clarified vide Q. 715 dated 8. such payments are not liable for TDS under section 194C. 04/2016.8. such contract is covered by the definition of the term `work’ in section 194C and. The CBDT has accepted the aforesaid judgment. tax would be required to be deducted at source to the credit of the recipient. dated 29-2-2016] The issue of applicability of TDS provisions on payments made by broadcasters/ telecasters to production houses for production of content or programme for broadcasting/telecasting has been examined by CBDT. thus. it is not known who the beneficiary of the fixed deposits will be. as required in section 194C(1). there is no contract for ‘’carrying out any work”. In this regard. 7.8/2011. 3 of Circular No. therefore. 193 © The Institute of Chartered Accountants of India . undisputedly. the Court on the directions of the Court during the pendency of proceedings before the Court. However. In the first situation where the content is produced as per the specifications provided by the broadcaster/ telecaster and the copyright of the content/programme also gets transferred to the telecaster/ broadcaster. once the Court decides the ownership of the money lying in the fix ed deposit. At that stage. However. in a case where the telecaster/broadcaster acquires only the telecasting/ broadcasting rights of the content already produced by the production house. the provisions of section 194A will apply to the recipient of the income. Accordingly. and (ii) a payment for acquisition of broadcasting/ telecasting rights of the content already produced by the production house. Applicability of TDS provisions on payments by broadcasters or Television Channels to production houses for production of content or programme for telecasting [Circular No. The High Court has also quashed Circular No. held that the person who is ultimately granted the funds would be determined by orders that are passed subsequently. payments of this nature may be liable for TDS under other sections of Chapter XVII-B of the Act.1995. In such cases. The issue under consideration is whether payments made by the broadcaster/telecaster to production houses for production of content/programme are payments under a ‘work contract’ liable for tax deduction at source under section 194C or a contract for ‘professional or technical services’ liable for tax deduction at source under section 194J of the Income-tax Act. Therefore.

respectively. accordingly. The SLPs filed by the Department in the matter of Living Media Ltd. such payments are in the nature of trade discount and not commission and. the CBDT has clarified that no TDS is attracted on payments made by television channels/newspaper companies to the advertising agency for booking or procuring of or canvassing for advertisements. on the other hand. etc. another issue has been raised in various cases as to whether the fees/charges taken or retained by advertising companies from media companies for canvasing/booking advertisements (typically 15% of the billing) is 'commission' or 'discount'. Applicability of TDS provisions on payments by television channels and publishing houses to advertisement companies for procuring or canvassing for advertisements [Circular No. photographers. payment by advertising agency to the media company. therefore. 194 © The Institute of Chartered Accountants of India . and. The issue has been examined by the Allahabad High Court in the case of Jagran Prakashan Ltd. have been dismissed by the Supreme Court vide order dated 11-12-2009 and order dated 5-5-2014. 715 dated 8-8-1995. and Jagran Prakashan Ltd. It is also further clarified that 'commission' referred to in Question No. and Delhi High Court in the matter of Living Media Limited and it was held in both the cases that the relationship between the media company and the advertising agency is that of a 'principal-to-principal' and. there will be no TDS under section 194C on the second type of payment e. 05/2016. 1 & 2 that while TDS under section 194C (as work contract) will be applicable on the first type of payment. artists. and (ii) Payment by advertising agency to the television channel/newspaper company The applicability of TDS on these payments has already been dealt with in Circular No. sportspersons. Though these decisions are in respect of print media. In view of the above.27 of the CBDT's Circular No. is not relevant to the issue of TDS referred to in this Circular. 8. has taken a stand in some cases that since the advertising agencies act on behalf of the media companies for procuring advertisements. The CBDT noted that there are two types of payments involved in the advertising business: (i) Payment by client to the advertising agency. the ratio is also applicable to electronic media/television advertising as the broad nature of the activities involved is similar. 715 dated 8-8-1995 does not refer to payments by media companies to advertising companies for booking of advertisements but to payments for engagement of models. the margin retained by the former amounts to constructive payment of commission and. outside the purview of TDS under section 194H. However. not liable for TDS under section 194H. It has been argued by the assessees that since the relationship between the media company and the advertising company is on a principal-to-principal basis. The Department. therefore.g. dated 29-2-2016] The issue of applicability of TDS provisions on payments made by television channels or media houses publishing newspapers or magazines to advertising agencies for procuring and canvassing for advertisements has been examined by the CBDT. therefore. TDS under section 194H is attracted. where it has been clarified in Question Nos.

5/2016 dated 29. Would the provisions of tax deduction at source under section 194H be attracted on the sum of ` 15 lakhs retained by the advertising company? Answer (i) In this case. the payment of ` 50 lakhs made by Moon TV to the production house would be subject to tax deduction at source under section 194C. (ii) Mudra Adco Ltd. with specific reference to clarification given by the Central Board of Direct Taxes - (i) Moon TV. a television channel. and remitted the balance amount of ` 85 lakhs to the television channel. In view of the above. there is no contract for ‘’carrying out any work”. The copyright of the programme is also transferred to Moon TV. made payment of ` 50 lakhs to a production house for production of programme for telecasting as per the specifications given by the channel. Therefore. the ratio is also applicable to electronic media/television advertising as the broad nature of the activities involved is similar. the payment was made by Moon TV for acquisition of telecasting rights of the content already produced by the production house. The Circular draws reference to the Allahabad High Court ruling in the case of Jagran Prakashan Ltd. If. a television channel. Therefore. Example Discuss the following issues in the context of the provisions of the Income -tax Act. as required in section 194C(1). the CBDT has clarified that no liability to deduct tax is attracted on payments made by television channels to the advertising agency for booking or procuring of or canvassing for advertisements. and the Delhi High Court ruling in the matter of Living Media Limited. the same falls within the scope of definition of the term ‘work’ under section 194C. and the copyright is also transferred to the television channel. from payment of ` 1 crore due to Cloud TV. Though these decisions are in respect of print media. such payment would not be liable for tax deduction at source under section 194C. towards charges for procuring and canvassing advertisements. In both the cases. 195 © The Institute of Chartered Accountants of India .2. (ii) The issue of whether fees/charges taken or retained by advertising companies from media companies for canvasing/booking advertisements (typically 15% of the billing) is 'commission' or 'discount' to attract the provisions of tax deduction at source has been clarified by the CBDT vide its Circular No. Also.. an advertising company. has retained a sum of ` 15 lakhs. therefore. Would such payment be liable for tax deduction at source under section 194C? Discuss.2016. not liable for TDS under section 194H. 1961. the Courts have held that the relationship between the media company and the advertising agency is that of a 'principal -to-principal' and. examine whether the provisions of tax deduction at source under section 194C would be attracted if the payment was made by Moon TV for acquisition of telecasting rights of the content already produced by the production house. since the programme is produced by the production house as per the specifications given by Moon TV. a television channel. however.

02. Civil Appeal No. 9.769 or Circular No.2014. then it has to be refunded with interest under section 244A from the date of payment of such tax.7 /2007 dated 23. and having retained and used it." In view of the above judgment of the Apex Court.4.2016] The procedure for refund of tax deducted at source under section 195 to the person deducting the tax is set out in CBDT Circular No.7/2007 states that no interest under section 244A is admissible on refunds to be granted in accordance with the circular or on the refunds already granted in accordance with Circular No.. Circular No. The Supreme Court of I ndia. Payment of interest on refund under section 244A of excess TDS deposited under section 195 [Circular No.4. no tax is deductible at source on the amount of ` 15 lakhs retained by Mudra Adco Ltd. in Tata Chemical Limited 1. from payment due to Cloud TV. The issue of eligibility for interest on refund of excess TDS to a tax deductor has been a subject matter of controversy and litigation. a television channel. the Government cannot shrug off i ts apparent obligation to reimburse the deductors lawful monies with the accrued interest for the period of undue retention of such monies. The State having received the money without right. 6301 of 2011 vide order dated 26. the advertising company. The obligation to refund money received and retained without right implies and carries with it the right to interest. in view of the clarification given by CBDT. is bound to make the party good. it is settled that if a reside nt deductor is entitled for the refund of tax deposited under section 195. held that refund due and payable to the assessee is debt-owed and payable by the Revenue.11/2016 dated 26. Accordingly.10.2007. 196 © The Institute of Chartered Accountants of India . just as an individual would be under like circumstances.790 dated 20.2000. Though there is no express statutory provision for payment of interest on the refund of excess amount/tax collected by the Revenue.