Changes made in Direct Tax Law by Union Budget 2017-18

A. RATES OF INCOME-TAX

• Rates of income-tax in respect of income liable to tax for the assessment year 2017-18.

1. No change in basic exemption limit.

2. The tax rate for individual, HUF, AOP, BOI or artificial jurisdictional person in the income bracket of Rs.2.5 lakhs (Rs.3 lakhs in case of individual of the age of 60 yrs or more but less than the age of 80 yrs) to Rs.5 lakhs reduced to 5% from the present rate of 10%.

3. Rebate of income tax u/s 87A for individual having total income not exceeding Rs.5 lakhs is reduced to Rs.3.5 lakhs and the amount of tax which was Rs.2,000/- (for AY 2017-18, earlier it was Rs.5,000/-) is to be allowed at Rs.2,500/-.

4. Surcharge @ 10% of tax payable is levied on individuals, HUF, AOP, BOI or artificial jurisdictional person whose total income is above Rs.50 lakhs but does not exceed Rs.1 crore.

5. In case of domestic companies, rate of income tax is reduced to 25% if total turnover or gross receipts of PY 2015-16 does not exceed Rs.50 crore. Benefit of lower tax is not available to other business entity.

6. The Taxation Law (Second Amendment) Act, 2016 has w.e.f. 01.04.2016 has levied surcharge @ 25% on income chargeable to tax u/s 115BBE.

• Income Tax Slab Rates during the financial year 2017-18

(I). Individual, Hindu undivided family, association of persons, body of individuals, artificial juridical person.

(i) The rates of income-tax in the case of every individual (other than those mentioned in (ii) and (iii) below) or Hindu undivided family or every association of persons or body of individuals, whether incorporated or not, or every artificial juridical person referred to in sub-clause (vii) of clause (31) of section 2 of the Act (not being a case to which any other Paragraph of Part III applies) are as under:—

Upto Rs. 2,50,000 …………………………………..Nil

Rs. 2,50,001 to Rs. 5,00,000 …………………….5%

Rs. 5,00,001 to Rs. 10,00,000 ………………….20%

Above Rs. 10,00,000 ……………………………….30%

(ii) In the case of every individual, being a resident in India, who is of the age of sixty years or more but less than eighty years at any time during the previous year,—

Upto Rs.3,00,000…………………………………… Nil

Rs. 3,00,001 to Rs. 5,00,000 …………………….5%

Rs. 5,00,001 to Rs. 10,00,000 ………………….20%

Above Rs. 10,00,000 ………………………………..30%

(iii) in the case of every individual, being a resident in India, who is of the age of eighty years or more at anytime during the previous year,—

Upto Rs.5,00,000…………………………………… Nil

Rs. 5,00,001 to Rs. 10,00,000 ………………….20%

Above Rs. 10,00,000 ………………………………..30%

Surcharge at the rate of,—

• 10% of such income-tax in case of a person having a total income exceeding fifty lakh rupees but not exceeding one crore rupees; and (marginal relief allowed )
• 15% of such income-tax in case of a person having a total income exceeding one crore rupees. (marginal relief allowed)

(II). Co-operative Societies

NO change in slab rate. Surcharge at the rate of 12% of income-tax if total income exceeds one crore rupees. (marginal relief allowed )

(III). Firms

NO change in slab rate. Surcharge at the rate of 12% of income-tax if total income exceeds one crore rupees. (marginal relief allowed )

(IV). Local authorities

NO change in slab rate. Surcharge at the rate of 12% of income-tax if total income exceeds one crore rupees. (marginal relief allowed )

(v). Companies

In case of domestic company, the rate of income-tax shall be 25% of the total income if the total turnover or gross receipts of the previous year 2015-16 does not exceed Rs.25 crore and in all other cases the rate of Income-tax shall be 30% of the total income.

Surcharge at the rate of 7% shall continue to be levied in case of a domestic company if the total income of the domestic company exceeds Rs.1 crore but does not exceed Rs.10 crore. Surcharge at the rate of 12% shall continue to be levied if the total income of the domestic company exceeds Rs.10 crore. In case of companies other than domestic companies, the existing surcharge of 2% shall continue to be levied if the total income exceeds Rs.1 crore but does not exceed Rs.10 crore. Surcharge at the rate of 5% shall continue to be levied if the total income of the company other than domestic company exceeds Rs.10 crore. (marginal relief allowed ) In other cases (including sections 115-O, 115QA, 115R, 115TA or 115TD), the surcharge shall be levied at the rate of 12%.

For financial year 2017-18, additional surcharge called the “Education Cess on income-tax” and “Secondary and Higher Education Cess on income-tax” shall continue to be levied at the rate of 2% and 1% respectively, on the amount of tax computed, inclusive of surcharge (wherever applicable), in all cases. No marginal relief shall be available in respect of such Cesses.

B. Additional Resource Mobilisation

1. Rationalization of taxation of income by way of dividend

• Section 115BBDA with hitherto was applicable on dividend received by individual, HUF or firm amended to provide that such income received by all residents except domestic company, funds/trust/institution referred to in section 10(23C)(iv), (v), (vi), (via) and trust/institutions registered u/s 12AA shall be chargeable to tax @ 10% on gross basis if such dividend income exceeds Rs.10 lakhs.

• The amendment will take effect from 01.04.2018 and will apply to AY 2018-19.

2. Deduction of tax at source in case of certain individuals and HUF (Section 194-IB)

• Under the existing provision of section 194-I, an individual and HUF not liable for tax audit are not required to deduct tax at source.

• It is proposed to insert a new section 194-IB in the Act to provide that individuals or HUF (other than those covered under 44AB of the Act), responsible for paying rent to a resident exceeding Rs.50,000/- for a month or part of month during the PY, shall deduct tax @ 5% of such income.

• Tax is to be deducted at the time of credit of rent for the last month of the PY or the last month of tenancy if property is vacated during the year, as the case may be, to the account of payee or at the time of payment thereof whichever is earlier.

• In the Memorandum, it is clarified that the deductor shall be liable to deduct tax only once in a PY but the language of the section does not suggest so.

• The deductor shall not be required to obtain TAN u/s 203A.

• Where the tax is required to be deducted as per the provisions of section 206AA, such deduction shall not exceed the amount of rent payable for the last month of the PY or the last month of the tenancy, as the case may be.

• Rent means payment made for the use of any land or building or both.

• These amendments will take effect from 01.06.2017.

C. Measures for promoting affordable housing and real estate sector

1. Incentives for promoting investment in immovable property

• It is proposed to amend section 2(42A) of the Act so as to reduce the period of holding from the existing 36 months to 24 months in case of immovable property, being land or building or both, to qualify as long term capital asset.

• The amendment will take effect from 01.04.2018 and will apply to AY 2018-19.

2. Shifting base year from 1981 to 2001 for computation of capital gains

• It is proposed to amend the section 55 so as to advance the cut-off date of 01.04.1981 to 01.04.2001. Accordingly, where the long-term capital asset has been acquired before 01.04.2001, then the cost of acquisition will be taken to be the FMV of the asset as on the 01.04.2001 and the cost of improvement shall include only those capital expenses which are incurred after 01.04.2001.

• These amendments will take effect from 01.04.2018 and will apply to AY 2018-19.

3. Rationalisation of provisions of section 80-IBA to promote affordable housing

• The existing provisions of section 80-IBA provides for 100% deduction in respect of the profits and gains derived from the business of developing and building certain housing projects subject to specified conditions. One of the conditions provides that the built-up area of the residential unit should not exceed 30 square metres where the project is located (i) within the cities of Chennai, Delhi, Kolkata or Mumbai or (ii) within the distance of 25kms from the municipal limits of these cities, measured aerially. Further, it is also provided that the project shall be completed within 3 years.

• In order to promote the development of affordable housing sector, it is proposed to amend section 80-IBA so as to provide the following relaxations:—

• The size of residential unit shall be measured by taking into account the “carpet area” as defined in Real Estate (Regulation and Development) Act, 2016 and not the “built-up area”.

• The restriction of 30 square meters shall not apply to the project located within distance of 25 kms from the municipal limits of the Chennai, Delhi, Kolkata or Mumbai.

• The condition of period of completion of project shall be increased to 5 years.

• Carpet Area under RERA, 2016 means a net usable floor area of an apartment excluding the area covered by external walls, areas under services shafts, exclusive balcony or veranda area and exclusive open terrace area but includes the area covered by internal partition walls of the apartment.

• These amendments will take effect from 01.04.2018 and will apply to AY 2018-19.

4. Special provisions for computation of capital gains in case of joint development agreement

• It is proposed to insert a new sub-section (5A) in section 45 so as to provide that in case of an assessee being individual or HUF who enters into a specified agreement (registered development agreement) for development of a project, the capital gains shall be chargeable to income-tax as income of the PY in which the certificate of completion for the whole or part of the project is issued by the competent authority (and not when the possession of immovable property is handed over to the developer for development of a project).

• The full value of consideration received shall be deemed to be the stamp duty value of the owner share in the project on the date of issuing of certificate of completion as increased by consideration received in cash, if any.

• The benefit of this section shall not apply to an assessee who transfers his share in the project to any other person on or before the date of issue of said certificate of completion. In such a situation, capital gains shall be computed as per general provisions of the Act and shall be deemed to be the income of the previous year in which such transfer took place.

• It is also proposed to insert a new sub-section (7) in section 49 so as to provide that the cost of acquisition of the share in the project being land or building or both, in the hands of the land owner shall be the amount which is deemed as full value of consideration under the said proposed provision.

• These amendments will take effect from 01.04.2018 and will apply to AY 2018-19.

• It is also proposed to insert a new section 194-IC in the Act so as to provide that in case any monetary consideration is payable under the specified agreement, tax @10% shall be deductible from such payment.

• This amendment will take effect from 01.04.2017, i.e. AY 2017-18.

5. Expanding the scope of long term bonds under 54EC

– The existing provisions of section 54EC provides that investment in bond issued by the National Highways Authority of India or by the Rural Electrification Corporation Limited is eligible for exemption under this section.

– It is proposed to amend the section so as to include any bond which has been notified by the Central Government in this behalf.

– This amendment will take effect from 01.04.2018 and will apply to AY 2018-19.

6. No notional income for house property held as stock-in-trade

– It is proposed to insert a new sub-section (5) to section 23 so as to provide that where the property consisting of any building and land appurtenant thereto is held as stock-in-trade and the property or any part of the property is not let during the whole or any part of the previous year, the annual value of such property or part of the property, for the period up to one year from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority shall be taken to be nil.

• Delhi High Court in case of CIT Vs. Ansal Housing Finance & Leasing Co. Ltd. (2013) 354 ITR 180 held that unsold flats in case of a builder would be liable to be assessed at its ALV u/s 23. Against this order, SC has admitted the SLP reported in 243 Taxman 144.

• This amendment will take effect from 01.04.2018 and will apply to AY 2018-19.

7. Tax incentive for the development of capital of Andhra Pradesh

• Section 10(37A) proposed to be inserted to provide that capital gain arising from the Land Pooling Scheme (LPS) as well as transfer of land pooling ownership certificates (LPOCs) or reconstituted plot or land of the scheme made by Government of Andhra Pradesh shall not be chargeable to tax in case of individual or HUF in following cases:-

• Transfer of capital asset being land or building or both, under land pooling scheme.

• Sale of LPOCs by the said persons received in lieu of land transferred under the scheme.

• Sale of reconstituted plot or land by said persons within two years from the end of the financial year in which the possession of such plot or land was handed over to the said persons.

• Section 49 is accordingly amended to provide that where reconstituted plot or land, received under land pooling scheme is transferred after the expiry of two years from the end of the financial year in which the possession of such plot or land was handed over to the said assessee, the cost of acquisition of such plot or land shall be deemed to be its stamp duty value on the last day of the second financial year after the end of financial year in which the possession of such asset was handed over to the assessee.

D. Measures for stimulating growth

1. Extension of eligible period of concessional tax rate on interest in case of external commercial borrowing and extension of benefit to rupee denominated bonds

• The existing provisions of section 194LC which provide that the interest payable to a non-resident by a specified company on borrowings made by it in foreign currency from sources outside India under a loan agreement or by way of issue of any long-term bond including long-term infrastructure bond shall be eligible for concessional TDS of 5% on borrowings made before 01.07.2017 is extended to the borrowings made before 01.07.2020.

• This amendment will take effect from 01.04.2018 and will apply to AY 2018-19.

• It is further proposed to extend the benefit of the section to the rupee denominated bond issued outside India before 01.07.2020.

• This amendment will take effect retrospectively from 01.04.2016 and will apply to AY 2016-17.

2. Extension of eligible period of concessional tax rate under section 194LD

– The existing provisions of section 194LD of the Act which provides for lower TDS @ 5% in case of interest payable at any time on or after 01.06.2013 but before 01.07.2017 to FIIs and QFIs on their investments in Government securities and rupee denominated corporate bonds is extended to interest payable before 01.07.2020.

• This amendment will take effect from 01.04.2018 and will apply to AY 2018-19.

3. Carry forward and set off of loss in case of certain companies

• The existing provisions of section 79 of the Act provides that where a change in shareholding has taken place in PY in the case of a company, not being a company in which the public are substantially interested, no loss incurred in any year prior to the PY shall be carried forward and set off against the income of the PY unless on the last day of the PY the shares of the company carrying not less than 51% of the voting power were beneficially held by persons who beneficially held shares of the company carrying not less than 51% of the voting power on the last day of the year or years in which the loss was incurred.

• In order to facilitate ease of doing business and to promote start up India, it is proposed to amend section 79 of the Act to provide that where a change in shareholding has taken place in a PY in the case of a company, not being a company in which the public are substantially interested but being an eligible start-up as referred to in section 80-IAC, the loss incurred in any year prior to the PY shall be carried forward and set off against the income of the PY, if all the shareholders of such company which held shares carrying voting power on the last day of the year or years in which the loss was incurred, being the loss incurred during the period of seven years beginning from the year in which such company is incorporated, continue to hold those shares on the last day of such PY.

• It is also proposed to provide that the provisions of this section shall not apply to a case where a change in the voting power and shareholding takes place in a PY consequent upon the death of shareholder or on account of transfer of shares by way of gift to any relative of the shareholder making such gift.

• This amendment will take effect from 01.04.2018 and will apply to AY 2018-19.

4. Extending the period for claiming deduction by start-ups

– It is proposed to amend the section 80-IAC to provide that an eligible start-up shall be allowed deduction of 100% of the profits and gains derived from eligible business for any 3 consecutive AYs out of 7 years instead of 5 years beginning from the year in which such eligible start-up is incorporated.

• This amendment will take effect from 01.04.2018 and will apply to AY 2018-19.

5. Rationalisation of Provisions relating to tax credit for Minimum Alternate Tax and Alternate Minimum Tax

– It is proposed to amend the section 115JAA/115JD to provide that the tax credit determined under these sections can be carried forward up to 15 AYs immediately succeeding the AY in which such tax credit becomes allowable as against present period of 10 AYs.

• It is also proposed to amend section 115JAA and 115JD so as to provide that the amount of tax credit in respect of MAT/ AMT shall not be allowed to be carried forward to subsequent year to the extent such credit relates to the difference between the amount of foreign tax credit (FTC) allowed against MAT/AMT and FTC allowable against the tax computed under regular provisions of Act.

• These amendments will take effect from 01.04.2018 and will apply to AY 2018-19.

6. Extension of scope of section 43D to Co-operative Banks

• The existing provisions of section 43D of the Act provides that interest income in relation to certain categories of bad or doubtful debts received by certain institutions or banks (scheduled banks) or corporations or companies, shall be chargeable to tax in the PY in which it is credited to its profit and loss account for that year or actually received, whichever is earlier. This provision is now extended to co-operative banks also (other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank).

• It is further proposed to extend the scope of section 43B to co-operative banks so as to provide that any sum payable by the assessee as interest on any loan or advances from a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank shall be allowed as deduction if it is actually paid on or before the due date of furnishing the return of income of the relevant previous year.

• These amendments will take effect from 01.04.2018 and will apply to AY 2018-19.

7. Increase in deduction limit in respect of provision for bad and doubtful debts

• The existing provisions of sub-clause (a) section 36(1)(viia) of the Act provides that a scheduled bank or a non-scheduled bank or a co-operative bank can claim deduction in respect of provision for bad and doubtful debts. The amount of such deduction is limited to 7.5% of the total income (computed before making any deduction under the said clause and Chapter VIA) and an amount not exceeding 10% of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner at the end of the PY.

• It is proposed to amend the said sub-clause to enhance the present limit from 7.5% to 8.5% of the total income.

• The amendment will take effect from 01.04.2018 and will apply to AY 2018-19.

E. Promoting digital economy

1. Restricting cash donations

• In order to provide cash less economy and transparency, it is proposed to amend section 80G so as to reduce the limit of cash donation from Rs.10,000/- to Rs.2,000/-.

• The amendment will take effect from 01.04.2018 and will apply to AY 2018-19.

2. Disallowance of depreciation under section 32 and capital expenditure under section 35AD on cash payment

• In order to discourage cash transactions even for capital expenditure, it is proposed to amend the provisions of section 43 of the Act (definition of actual cost) to provide that where an assessee incurs any expenditure for acquisition of any asset in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account, exceeds Rs.10,000/-, such expenditure shall be ignored for the purposes of determination of actual cost of such asset.

• The existing provisions of section 35AD provides that deduction in respect of the expenditure of capital nature incurred wholly and exclusively for the purpose of any specified business shall be allowed during the PY in which such expenditure is incurred. It is proposed to amend the section so as to provide that no deduction shall be allowed in respect of any expenditure for which payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account, exceeds Rs.10,000/-.

• These amendments will take effect from 01.04.2018 and will apply to AY 2018-19.

3. Measures to discourage cash transactions

– In order to disincentivise cash transactions, it is proposed to amend the provision of section 40A(3) of the Act to provide the following:-

(a) To reduce the existing threshold of cash payment to a person from Rs.20,000/- to Rs.10,000/- in a single day.

(b) Deeming a payment as profits and gains of business of profession if the expenditure is incurred in a particular year but the cash payment is made in any subsequent year of a sum exceeding Rs.10,000/- to a person in a single day; and

(c) Further expand the specified mode of payment so as to include ‘use of electronic clearing system through a bank account’.

• These amendments will take effect from 01.04.2018 and will apply to AY 2018-19.

4. Measures for promoting digital payments in case of small unorganized businesses

– In order to promote digital transactions and to encourage small unorganized business to accept digital payments, it is proposed to amend section 44AD of the Act to reduce the existing rate of deemed total income of 8% to 6% in respect of the amount of such total turnover or gross receipts received by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account during the previous year or before the due date specified in section 139(1) in respect of that previous year.

• However, the existing rate of deemed profit of 8% shall continue to apply in respect of total turnover or gross receipts received in any other mode.

• The amendment will take effect from 01.04.2017 and will apply to AY 2017-18.

5. Restriction on cash transactions

• In order to achieve the mission of the Government to move towards a less cash economy and to reduce generation & circulation of black money, it is proposed to insert section 269ST in the Act to provide that no person shall receive an amount of Rs.3 lakhs or more-

(a) in aggregate from a person in a day; or

(b) in respect of a single transaction; or

(c) in respect of transactions relating to one event or occasion from a person,

otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account.

• It is further provided that the said restriction shall not apply to (i) Government, (ii) any banking company, (iii) post office savings bank or co-operative bank, (iv) any receipt from sale of agricultural produce by an individual or HUF in whose hands such receipts constitutes agricultural income (v) such other persons or class of persons or receipts, as may be specified by the CG by notification in the Official Gazette and (vi) in respect of transactions of the nature referred to in section 269SS.

• It is also proposed to insert new section 271DA in the Act to provide that if person receives any sum in contravention of the provisions of section 269ST, he shall be liable to pay the penalty of a sum equal to the amount of such receipt. The penalty shall not be imposable if such person proves that there were good and sufficient reasons for the contravention.

• It is also proposed to consequentially amend the provisions of section 206C to omit the provision relating to tax collection at source at the rate of 1% of sale consideration on cash sale of jewellery exceeding Rs.5 lakhs. However, inspite of this amendment, the provision of section 206C would apply on cash sale of jewellery exceeding Rs.2 lacs as it would be otherwise covered by the term ‘any other goods’.

• These amendments will take effect from 01.04.2017.

F. Transparency in electoral funding

READ: Electoral Bond – A New System to Develop Transparency in Political Funding

G. Ease of doing business

1. Enabling of filing of Form 15G/15H for commission payments specified under section 194D

• The existing provisions of section 197A of the Act provide that tax shall not be deducted if the recipient of certain payments furnishes to the payer a self- declaration in prescribed Form No.15G/15H declaring that the tax on his estimated total income of the relevant previous year would be nil.

• It is proposed to extend the scope of the section so as to cover deduction at source in respect insurance commission also referred to in section 194D.

• This amendment will take effect from 01.06.2017.

2. Increasing the threshold limit for maintenance of books of accounts in case of Individuals and Hindu undivided family

– It is proposed to amend the provisions of section 44AA to increase monetary limits of income and total sales/turnover/gross receipts, as the case may be, for maintenance of books of accounts from Rs.1.20 lakhs to Rs.2.50 lahks and from Rs.10 lakhs to Rs.25 lakhs respectively in the case of individuals and HUF carrying on business or profession.

• This amendment will take effect from 01.04.2018 and will apply to AY 2018-19.

3. Exclusion of certain specified person from requirement of audit of accounts u/s 44AB

• It is proposed to amend the section 44AB so as to provide that the person who declares profits for the PY in accordance with the provisions of section 44AD shall not be required to get his accounts audited if the total sales/total turnover/gross receipts, as the case may be, in business does not exceed Rs.2 cores in such PY.

• This amendment will take effect from 01.04.2017 and will apply to AY 2017-18.

4. Non-deduction of tax in case of exempt compensation under RFCTLAAR Act, 2013

– Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR Act) provides that any compensation received for compulsory acquisition of land under the RFCTLARR Act is exempted from the levy of income-tax.

• It is accordingly proposed to amend the section 194LA of the Act so as to insert a new proviso to provide that no deduction of tax at source shall be made under this section where such payment is made in respect of any award or agreement which has been exempted from the levy of income-tax under section 96 of the RFCTLARR Act, 2013.

• This amendment will take effect from 01.04.2017.

5. Exemption from tax collection at source under sub-section (1F) of section 206C in case of certain specified buyers

• It is proposed to amend the existing provision section 206C(1F) of the Act which provides for collection of tax at source @ 1% on sale of motor vehicle exceeding Rs.10 lakhs so as to exempt the following class of buyers:-

• Central Government, State Government and an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State; or
• local authority as defined in the Explanation to clause (20) of section 10; or
• a public sector company which is engaged in the business of carrying passengers.

• This amendment will take effect from 01.04.2017.

6. Simplification of the provisions of tax deduction at source in case fees for professional or technical services under section 194J

– It is proposed to insert a proviso in the section 194J so as to reduce the rate of tax deduction at source to 2% from 10% in case of payments received or credited to a payee, who is engaged only in the business of operation of call centre.

• This amendment will take effect from 01.06.2017.

7. Scope of section 92BA of the Income-tax Act relating to Specified Domestic Transactions

• It is proposed to amend the existing provisions of section 92BA of the Act so as to provide that expenditure in respect of which payment has been made by the assessee to a person referred to in section 40A(2)(b) are to be excluded from the scope of section 92BA of the Act. Accordingly, it is also proposed to make a consequential amendment in section 40(A)(2)(b) of the Act.

• This amendment will take effect from 01.04.2017 and will apply to AY 2017-18.

8. Tax neutral conversion of preference shares to equity shares

• It is proposed to amend section 47 to provide that the conversion of preference share of a company into its equity share shall not be regarded as transfer.

• Consequentially, it is proposed to amend the provision of section 2(42A) of the Act so as to provide that while computing the capital gain, period of holding shall include the period for which the preference shares were held by the assessee.

• Consequentially, it is proposed to amend the provision of section 47 of the Act so as to provide that cost of acquisition of the equity shares shall be deemed to be the cost of the preference share in relation to which such asset is acquired by the assessee.

• This amendment will take effect from 01.04.2018 and will apply to AY 2018-19.

9. Cost of acquisition in tax neutral demerger of a foreign company

• It is proposed to amend section 49 of the Act so as to provide that in case where demerged foreign company transfer shares of an Indian company to a resulting foreign company, then the cost of acquisition of such shares in the hands of the resulting foreign company shall be the same as it was in the hands of demerged foreign company.

• This amendment will take effect from 01.04.2018 and will apply to AY 2018-19.

10.Income from transfer of Carbon credits

• It is proposed to insert a new section 115BBG to provide that where the total income of the assessee includes any income from transfer of carbon credit, such income shall be taxable at the concessional rate of 10% (plus applicable surcharge and cess) on the gross amount of such income. No expenditure or allowance in respect of such income shall be allowed under the Act.

• It may be noted that Andhra Pradesh High Court in case of CIT Vs. My Home Power Ltd. 365 ITR 82 has held that carbon credits are capital receipts.

• This amendment will take effect from 01.04.2018 and will apply to AY 2018-19.

11.Processing of return within the prescribed time and enable withholding of refund in certain cases

• The provisions of section 143(1D) provide that processing of a return shall not be necessary where notice has been issued to the assessee under sub-section (2) of the said section. Amendment to the said sub-section brought by Finance Act, 2016 provides that with effect from AY 2017-18, processing u/s 143(1) is to be done before passing of assessment order.

• In order to address the grievance of delay in issuance of refund in genuine cases which are routinely selected for scrutiny assessment, it is proposed that provisions of section 143(1D) shall cease to apply in respect of returns furnished for AY 2017-18 and onwards.

• Consequentially, it is proposed to insert a new section 241A to provide that where refund of any amount becomes due to the assessee u/s 143(1) in respect of the returns furnished for AY commencing on or after 01.04.2017 and the AO is of the opinion that grant of refund may adversely affect the recovery of revenue, he may for the reasons recorded in writing and with the previous approval of the Principal Commissioner or Commissioner, withhold the refund upto the date on which the assessment is made.

• This amendment is to take care of the decision of Delhi High Court in case of Tata Teleservices Ltd. Vs. Central Board of Direct Taxes & Anr. (2016) 136 DTR 145 where it is held that the real effect of the Instruction No.1 of 2015 dt. 13.01.2015 is to curtail the discretion of the AO by ‘preventing’ him from processing the return, where notice has been issued to the assessee u/s 143(2) of the Act. If the legislative intent was that the return would not be processed at all once a notice is issued u/s 143(2) of the Act, then the legislature ought to have used express language and not the expression “shall not be necessary” in sec. 143(1D). By the device of issuing an instruction in purported exercise of its power u/s 119 of the Act, the CBDT cannot proceed to interpret or instruct the IT Department to ‘prevent’ the issue of refund. In the event that a notice is issued to the assessee u/s 143(2) of the Act, it will be a matter of the discretion of the concerned AO whether he should process the return. Consequently, the Court is of the view that the impugned Instruction No.1 of 2015 dt. 13.01.2015 issued by the CBDT is unsustainable in law and it is hereby quashed. It is directed that the said instruction shall not hereafter be relied upon to deny refunds to the assessees in whose cases notices might have been issued u/s 143(2) of the Act. The question whether such return should be processed will have to be decided by the AO concerned exercising his discretion in terms of sec. 143(1D) of the Act.

• This amendment will take effect from 01.04.2017 and will apply to AY 2017-18.

12.Rationalisation of section 211 and section 234C relating to advance tax

• It is proposed to amend the section 211 of the Act to provide that the assessee who declares profits and gains in accordance with presumptive taxation regime provided u/s 44ADA shall be liable to pay advance tax in one instalment on or before the 15th of March.

• Consequential amendment is made in section 234C to provide that in respect of an assessee referred to in section 44ADA, interest shall be levied, if the advance tax paid on or before the 15th March, is less than the tax due on the returned income.

• It is further proposed to provide that that if shortfall in payment of advance tax is on account of under-estimation or failure in estimation of income of the nature referred to in section 115BBDA (taxation of dividend income), the interest under section 234C shall not be levied subject to fulfilment of conditions specified therein.

• This amendment will take effect from 01.04.2017 and will apply to AY 2017-18.

13.Interest on refund due to deductor

• It is proposed to widen the scope of section 244A by insertion of a new sub-section (1B) in the said section to provide that where refund of any amount becomes due to the deductor, such person shall be entitled to receive, in addition to the refund, simple interest on such refund, calculated @ 1.5% for every month or part of a month from the date on which claim for refund is made or in case of an order passed in appeal, from the date on which the tax is paid, to the date on which refund is granted.

• It is also proposed to provide that the interest shall not be allowed for the period for which the delay in the proceedings resulting in the refund is attributable to the deductor.

• This amendment will take effect from 01.04.2017.

14.Amendment of section 253

• It is proposed to expand the scope of the section 253 to provide that the orders passed by the prescribed authority under sub-clauses (iv) and (v) of sub-section (23C) of section 10 shall also be appealable before the Appellate Tribunal.

• This amendment will take effect from 01.04.2017.

15.Rationalisation of time limits for completion of assessment, reassessment, re-computation and search assessment

Section 153/ 153B is proposed to be substituted with the following changes in time limit from the existing time limits:-

Section reference	Old time limit	New time limit
Regular assessment u/s 143/ Best judgment assessment u/s 144	21 months from the end of the AY in which income was first assessable	For AY 2018-19 18 months from the end of the AY in which income was first assessable For AY 2019-20 and onwards 18 months from the end of the AY in which income was first assessable
Reassessment u/s 147	9 months from the end of the financial year in which notice u/s 148 is served	Notice served on or after 01.04.2019 12 months from the end of the financial year in which notice u/s 148 is served
An order of fresh assessment as a result of an order u/s 254 or 263 or 264 setting aside or cancelling an assessment	9 months from the end of the financial year in which such order is received/passed by prescribed authorities	Order passed or received in FY 2019-20 and onwards 12 months from the end of the financial year in which such order is received/passed by prescribed authorities
Order u/s 250 or 254 or 260 or 262 or 263 or 264 requiring verification of an issue	No specific provisions	Time limit as above would apply
Assessment u/s 153A	21 months from the end of the financial year in which the last of the authorisations for search u/s 132 or for requisition u/s 132A was executed	Search conducted in FY 2018-19 18 months from the end of the financial year in which the last of the authorisations for search u/s 132 or for requisition u/s 132A was executed Search conducted in FY 2019-20 and onwards 12 months from the end of the financial year in which the last of the authorisations for search u/s 132 or for requisition u/s 132A was executed
Assessment u/s 153C	21 months from the end of the financial year in which the last of the authorisation for search u/s 132 or requisition u/s 132A was executed	Period available in case of a person on whom search is conducted or 12 months from the end of the financial year in which books or documents or assets are handed over to the AO having jurisdiction over such person, whichever is later.

H. Anti – Abuse Measures

1. Exemption of long term capital gains tax u/s 10(38)

• 10(38) is proposed to be amended to provide that the exemption for income arising on transfer of equity shares acquired on or after 1^st Oct, 2004 shall be available only if the acquisition of such shares is chargeable to STT.

• Earlier, this exemption was available to the transactions of sale undertaken on/after 1^st October, 2014 and which was chargeable to STT.

• For genuine cases where STT could not have been paid like acquisition of shares in IPO, FPO, Bonus or right issue, etc it is proposed to notify such transfers where the condition of chargeability of STT on acquisition shall not be applicable.

• This amendment will take effect from 1^stApril, 2018 and is applicable from AY 2018-19.

2. Fair Market Value to be full value of consideration in certain cases

• New Sec. 50CA shall be inserted to provide that the FMV shall be the full value of consideration in case of transfer of share of a company other than quoted share for the purpose of computing the income taxable as capital gain.

• It shall apply where the consideration in such transfer is less than the FMV of such shares determined in the prescribed manner.

• This amendment will take effect from 1^st April, 2018 and is applicable from AY 2018-19.

3. Widening scope of Income from Other Sources

• New clause (x) is inserted in Sec. 56(2) in place of existing clause (vii) & (viia) to expand the scope of chargeability of any sum of money / property received without consideration or inadequate consideration in hands of all assessees.

• It provides that the receipt of sum of money / property in excess of Rs. 50,000/- by any person without consideration / inadequate consideration shall be chargeable to tax as income from other sources in the hands of the recipient. Thus, purchase of property by firm/ companies would also be covered.

• This amendment will take effect from 1^st April, 2017 i.e., AY 2017-18.

4. Disallowance for non-deduction of tax from payment to resident

• 58(1A) is proposed to be amended to provide thatthe provisions of Sec. 40(a)(ia) shall be applicable in computing the income from other sources as they apply in computing the profit and gains of business or profession.

• This amendment will take effect from 1stApril, 2018 and is applicable from AY 2018-19.

5. Limitation of Interest deduction in certain cases

• New Sec. 94B is inserted to provide that interest expenses claimed by an entity to its associated enterprises shall be restricted to 30% of its earnings before interest, taxes, depreciation and amortization (EBITDA) or interest paid or payable to associated enterprise, whichever is less.

• It shall apply to an Indian company, or a PE of a foreign company being the borrower who pays interest in respect of any form of debt issued to a non-resident or to a PE of a non-resident and who is an ‘associated enterprise’ of the borrower and shall not apply to an Indian company or a PE of a foreign company engaged in banking or insurance business.

• In case where the debt has been issued by a lender which is not associated but an associated enterprise either provides an implicit or explicit guarantee to such lender or deposits a corresponding and matching amount of funds with the lender then, such debt shall be deemed to have been issued by an associated enterprise.

• The disallowed interest expense shall be allowed to be carried forward for 8 AYs immediately succeeding the AY in which the disallowance was first made and deduction against the income computed under the head”Profits and gains of business or profession” to the extent of maximum allowable interest expenditure

• The provision of Sec. 94B shall apply if the threshold limit of Rs. 1 crore is exceeded.

• This amendment will take effect from 1^stApril, 2018 and is applicable from AY 2018-19.

6. Secondary adjustments in certain cases

• New Sec. 92CE is inserted to provide that a secondary adjustment shall be carried out by the assessee where a primary adjustment to transfer price, has been made suo motu by the assessee in his return of income; or made by the Assessing Officer and has been accepted by the assessee; or is determined by an advance pricing agreement entered into by the assessee under section 92CC; or is made as per the safe harbour rules framed under section 92CB; or is arising as a result of resolution of an assessment by way of the mutual agreement procedure under an agreement entered into under section 90 or 90A for avoiding double taxation.

• It provides that where as a result of primary adjustment to the transfer price, there is an increase in the total income or reduction in the loss, as the case may be, of the assessee, the excess money which is available with its associated enterprise, if not repatriated to India within the time as may be prescribed, shall be deemed to be an advance made by the assessee to such associated enterprise and the interest on such advance, shall be computed as the income of the assessee, in such manner as may be prescribed.

• It shall apply only if the amount of primary adjustment made in case of the assessee in any previous year, exceeds one crore rupees.

• It is not applicable where the primary adjustment is made by the assessee in respect of an assessment year commencing on or before 1st April, 2016

• This amendment will take effect from 1^st April, 2018 and is applicable from AY 2018-19.

7. Restriction on exemption in case of corpus donation by exempt entities to other exempt entities

• New Explanation 2 to Sec. 11 is inserted to provide that any amount credited or paid, out of income referred to in Sec. 11(1)(a) or (b) r.w. Explanation 1, being contributions with specific direction that they shall form part of the corpus of the trust or institution and shall not be treated as application of such contribution to charitable or religious purposes.

• New proviso to Sec. 10(23C) is proposed to be inserted to provide similar restriction as above in respect of any amount credited or paid out of income, being voluntary contributionswith specific direction that they shall form part of the corpus, to any trust or institution registered u/s 12AA by not treating the said contribution as application of income to the objects of such entities.

• This amendment will take effect from 1^st April, 2018 and is applicable from AY 2018-19.

8. Mandatory furnishing of return by certain exempt entities

• 139(4C) is amended so as to provide that any person as referred to in Sec. 10(23AAA), Investor Protection Fund referred to in Sec.10(23EC) or (23ED), Core Settlement Guarantee Fund referred to in Sec.10(23EE) and any Board or Authority referred to in Sec.10(29A) shall also be mandatorily required to furnish a return of income so as to verify that they actually carry out the activities for which the exemption has been provided under the Act.

• This amendment will take effect from 1^st April, 2018 and is applicable from AY 2018-19.

9. Time Limit for filing revised return curtailed

• 139(5) is amended so as to provide that the time for furnishing of revised return in case the assessee discovers any omission or wrong statement in the return of income already furnished shall be available upto the end of the relevant assessment year or before the completion of assessment, whichever is earlier.

10.Fee for delayed filing of return

• New Sec. 234F is inserted to provide fees for delay in furnishing of return as under:

Return furnished after due date		In case income does not exceed Rs. 5 Lakhs
But before 31st Dec of AY	In any other case
Rs. 5,000/-	Rs. 10,000/-	Rs. 1,000/-

• A consequential amendment shall be made in Sec. 140A to provide for inclusion in case of delay in furnishing of return of income, alongwith the tax and interest payable, fee for delay in furnishing of return of income shall also be payable.

• A consequential amendment shall be made to Sec. 143(1) to provide that in computation of amount payable or refund due, as the case may be, on account of processing of return under the said sub-section, the fee payable under section 234F shall also be taken into account.

• A consequential amendment is proposed in Sec. 271F to provide that penalty for failure to furnish return of income shall not be applicable fromAY 2018-19.

• This amendment will take effect from 1^st April, 2018 and is applicable from AY 2018-19.

11.Penalty on professionals for furnishing incorrect information in statutory report or certificate

• New Sec. 271J is inserted to provide that that if an accountant or a merchant banker or a registered valuer, furnishes incorrect information in a report or certificate under any provisions of the Act or the rules made thereunder, the AO or the CIT (Appeals) may direct him to pay a sum of Rs. 10,000/- for each such report or certificate by way of penalty.

• A consequential amendment shall be made to Sec. 273B to provide that if the person proves that there was reasonable cause for the failure, then penalty shall not be imposable in respect of the proposed section 271J.

• This amendment will take effect from 1^st April, 2017.

I. Rationalisation Measures

1. Clarification regarding the applicability of section 112

• Finance Act, 2012 w.e.f. 01.04.2013 amended the provisions of section 112(1)(c) of the Act to provide concessional rate of taxation of 10% for LTCG arising from the transfer of unlisted securities in case of non-resident. Finance Act, 2016 w.e.f. 01.04.2017 amended the said section to provide that LTCG arising from transfer of a capital asset being shares of a company not being a company in which the public are substantially interested shall also be chargeable to tax at the rate of 10%.

• It is proposed to provide that the effective date of amendment made to section 112(1)(c)(iii) vide Finance Act, 2016 shall be 01.04.2013 instead of 01.04.2017.

2. Rationalisation of provisions of section 10AA

• Under the existing provisions of section 10AA, deduction for fifteen consecutive years is provided from the total income of an assessee in respect of profits and gains from his Unit operating in Special Economic Zone which are engaged in manufacturing or production of articles or things or providing any services, subject to fulfilment of the conditions mentioned in that section.

• It is proposed to insert a new Explanation after sub-section (1) of the said section w.e.f. 01.04.2018 so as to provide that the amount of deduction referred to in that section shall be allowed from the total income of the assessee computed in accordance with the provisions of the Income-tax Act, before giving effect to the provisions of the said section and the deduction under the said section shall not exceed such total income of the assessee.

3. Definition of ‘person responsible for paying’ in case of payments covered under sub-section (6) of section 195

• 195(6) provides that the person responsible for paying to a non-resident, not being a company, or to a foreign company, any sum, whether or not chargeable under the provisions of this Act, shall furnish the information relating to payment of such sum, in such form and manner, as may be prescribed. Section 204 of Act has defined the meaning of ‘person responsible for paying’. Clause (iii) of the said section provides that in the case of credit or payment of any sum chargeable under the provisions of this Act, the ‘person responsible for paying’ shall be the payer himself, or, if the payer is a company, the company itself including the principal officer thereof.

• It is proposed to insert a new clause (iib) in the said section so as to provide that in the case of furnishing of information relating to payment to a non-resident, not being a company, or to a foreign company, of any sum, whether or not chargeable under the provisions of this Act, the ‘person responsible for paying’ shall be the payer himself, or, if the payer is a company, the company itself including the principal officer thereof.

• This amendment will take effect from 1st April, 2017.

4. Clarity of procedure in respect of change or modifications of object and filing of return of income in case of entities exempt under sections 11 and 12

• Section 12A of the Act provides for conditions for applicability of sections 11 and 12 in relation to the benefit of exemption in respect of income of any trust or institution.
• It is proposed to insert a new clause (ab) in section 12A to provide that provisions of sections 11 and 12 shall not apply in relation to income of the trust or institution, unless the person in receipt of the income has made an application for registration of the trust or the institution which has adopted or undertaken modifications in the objects which do not conform to the conditions of registration, in the prescribed form and manner within a period of thirty days from the date of said adoption or modification, to the Principal Commissioner or Commissioner.

• It is proposed to further amend section 12A so as to provide for further condition that the person in receipt of the income chargeable to income-tax shall furnish the return of income within the time allowed under section 139 of the Act.

• These amendments will take effect from 1st April, 2018.

5. Cost of Acquisition of capital assets of entities in case of levy of tax on accreted income under section 115TD:

• Section 49 of the Act provides for computation of cost with reference to certain modes of acquisition of capital asset.

• It is proposed to amend said section so as to provide that where the capital gain arises from the transfer of an asset, being the asset held by a trust or an institution in respect of which accreted income has been computed and the tax has been paid thereon in accordance with the provisions of Chapter XII-EB, the cost of acquisition of such asset shall be deemed to be the fair market value of the asset which has been taken into account for computation of accreted income as on the specified date referred to in sub-section (2) of section 115TD.

• This amendment will take effect retrospectively from 1st June, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent years.

6. Restriction on set-off of loss from House property

• Section 71 of the Act relates to set-off of loss from one head against income from another.

• It is proposed to insert sub-section (3A) in the said section to provide that set-off of loss under the head “Income from house property” against any other head of income shall be restricted to two lakh rupees for any assessment year. However, the unabsorbed loss shall be allowed to be carried forward for set-off in subsequent years in accordance with the existing provisions of the Act.

• This amendment will take effect from 1st April, 2018 and will, accordingly apply in relation to assessment year 2018-19 and subsequent years.

7. Strengthening of PAN quoting mechanism in the TCS regime

– It is proposed to insert new section 206CC w.e.f. 01.04.2017 to provide the following:-

I. any person paying any sum or amount, on which tax is collectable at source under Chapter XVII BB (hereafter referred to as collectee) shall furnish his Permanent Account Number to the person responsible for collecting such tax (hereafter referred to as collector), failing which tax shall be collected at the twice the rate mentioned in the relevant section under Chapter XVII BB or at the rate of 5% whichever is higher.

II. that the declaration filed under sub section (1A) of section 206C shall not be valid unless the person filing the declaration furnishes his Permanent Account Number in such declaration.

III. that in case any declaration becomes invalid under sub-section (2), the collector shall collect the tax at source in accordance with the provisions of sub-section (1).

IV.no certificate under sub section (9) of section 206C shall be granted unless it contains the Permanent Account Number of the applicant.

V. the collector knows about the correct PAN of the collectee it is also proposed to provide for mandatory quoting of PAN of the collectee by both the collector and the collectee in all correspondence, bills and vouchers exchanged between them.

VI. that the collectee shall furnish his Permanent Account Number to the collector who shall indicate the same in all its correspondence, bills, vouchers and other documents which are sent to collectee.

VII. where the Permanent Account Number provided by the collectee is invalid or it does not belong to the collectee, then it shall be deemed that Permanent Account Number has not been furnished to the collector.

VIII. to exempt the non-resident who does not have permanent establishment in India from the provisions of this proposed section 206CC of the Act.

8. Reason to believe to conduct a search etc. not to be disclosed

9. Rationalisation of provisions of the Income Declaration Scheme, 2016 and consequential amendment to section 153A and 153C

• Section 197C of the FA, 2016 is omitted. However, in order to protect the interest of the revenue in cases where tangible evidence(s) are found during a search or seizure operation (including 132A cases) and the same is represented in the form of undisclosed investment in any asset, it is proposed that section 153A relating to search assessments be amended to provide that notice under the said section can be issued for an assessment year or years beyond the sixth assessment year already provided upto the tenth assessment year if—

(i) the Assessing Officer has in his possession books of accounts or other documents or evidence which reveal that the income which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more in one year or in aggregate in the relevant four assessment years(falling beyond the sixth year);

(ii) such income escaping assessment is represented in the form of asset;

(iii) the income escaping assessment or part thereof relates to such year or years.

• It is however proposed that the amended provisions of section 153A shall apply where search under section 132 is initiated or requisition under section 132A is made on or after the 1st day of April, 2017.

• It is also proposed to consequentially amend section 153C to provide a reference to the relevant assessment year or years as referred to in section 153A.

• These amendments will take effect from lst April, 2017.

J. Benefit for NPS Subscribers

1. Tax-exemption to partial withdrawal from National Pension System (NPS)

• New Sec. 10(12B) is inserted to provide exemption from tax at the time of partial withdrawal by an employee in accordance with the terms and conditions specified under Pension Fund Regulatory and Development Authority Act, 2013 and regulations made there under to the extent it does not exceed twenty-five per cent of the contribution made by him.

• This amendment will take effect from 1^st April, 2018 and shall be applicable from AY 2018-19.

2. Rationalisation of deduction under section 80CCD for self-employed individual

• Sec 80CCD(1) is amended so as to provide that the limit of deduction available an individual other than employee shall increasefrom 10%to 20%.

• This amendment will take effect from 1^st April, 2018 and shall be applicable from AY 2018-19.

---

Union Budget 2017-18, Changes made in Direct Tax Law, Income Tax Amendment in Budget 2017, Budget 2017, #budget2017, Income tax changes in budget 2017, analysis of income tax amendments in budget 2017