Changes made in Direct Tax Law by Union Budget 2016-17

Finance Act 2016 (No. 28 of 2016).pdf

A. Tax Rates and TDS

  1. No change in basic exemption limit. The basic exemption limit of Income Tax is Rs.2,50,000/-.
  1. Rate of surcharge in case of individual, HUF, AOP, BOI or artificial jurisdictional person, increased from 12% to 15% if the total income exceeds Rs. 1 crores
  1. Increase in the rebate from tax u/s 87A from existing Rs.2,000/- to Rs.5,000/- from the amount of income tax payable by resident individual whose total income does not exceed Rs. 5 lacs. 
  1. Corporate tax rate in case of domestic company whose turnover or gross receipts in the previous year 14-15 does not exceed Rs.5 crores proposed to be reduced from 30% to 29%. 
  1. 115BA proposed to be inserted from A.Y. 17-18 to tax domestic companies at 25%, at their option, if following conditions are satisfied:-
  • company has been setup and registered on or after 01.03.2016
  • it is engaged in the business of manufacture or production of article or thing
  • it has not claimed any benefit u/s 10AA, benefit of accelerated/additional depreciation, investment allowance, expenditure on scientific research and any deduction in respect of certain income under Part-C of Chapter-VI-A other than the provisions of section 80JJAA; and
  • option is furnished in the prescribed manner before the due date of furnishing of income.
  1. 115BBDA proposed to be inserted to provide that in addition to DDT paid by the companies, tax @10% of gross amount of dividend will be payable by the recipients, i.e. individuals, HUFs and firms receiving dividend in excess of Rs.10 lacs per annum.

Where the recipient is a company, section is not applicable. The effective rate of tax on dividend is thus 30.77% [i.e. 20.47% DDT u/s 115O inclusive of surcharge and cess + 10.3% inclusive of cess]. The reasoning behind introduction of this section is that the tax payer having high dividend income are subjected to tax only u/s 115O whereas such income in their hands would have been chargeable to tax @30%.

  1. Rate of STT in case of option is proposed to be increased from 0.017% to 0.05% w.e.f. 01.06.2016

8. Tax deduction at source (TDS) provisions 

Increase in the threshold limit of deduction of tax at source on various payments mentioned in the relevant sections of the Act:-

Section Head Existing limit (Rs.) Proposed Limit (Rs.)
192A Payment of accumulated balance due  to an employee 30,000 50,000
194BB Winnings from Horse  Race 5,000 10,000
194C Payments to Contractors Annual limit 75000 Annual Limit 1,00,000
194LA

 

Payment of Compensation on acquisition of certain immovable property 2,00,000 2,50,000
194D Insurance commission 20,000 15,000
194G Commission on sale of lottery tickets 1,000 15,000
194H Commission or brokerage 5,000 15,000

Revision in the rates of deduction of tax at source on various payments mentioned in the relevant sections of the Act 

Section Head Existing rate Proposed Rate
194DA Payment of Life Insurance Policy 2% 1%
194EE Payment in respect of NSS Deposits 20% 10%
194D Insurance commission 10% 5%
194G Commission on sale of lottery tickets 10% 5%
194H Commission or brokerage 10% 5%

 

B. Widening of Tax Base and Anti Abuse Measures

1. TCS on sale of vehicles, goods or services

  • 206C proposed to be amended to provide that seller shall collect tax @1% on

(a) sale of motor vehicle of the value exceeding Rs.10 lacs

(b) sale of any goods (other than bullion and jewellery) or providing of any service in cash exceeding Rs. 2 lacs.

  • No tax to be collected in respect of providing of any service on which tax has been deducted.
  • TCS in relation to sale of any goods (other than bullion and jewellery) or services shall not apply to certain class of buyers who fulfils such conditions as may be prescribed.
  • This amendment will take effect from 1st June, 2016.

 

2.Buyback Tax

  • Existing section 115QA provides for levy of additional income tax @20% on domestic company on distributed income on buy back of unlisted shares. Distributed income has been defined 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. Buyback has been defined to mean the purchase of a company of its own shares in accordance with the provisions of sec. 77A of the Companies Act, 1956 [now section 68 of the Companies Act, 2013].
  • It is proposed to amend section 115QA 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 sec. 77A of the Companies Act, 1956 [now sec. 68 of the Companies Act, 2013]. It is further proposed to provide that for the purpose of computing distributed income, the amount received by the company in respect of the shares being bought back shall be determined in the prescribed manner.
  • The amendment will take effect from 1st June, 2016.

 

3.Levy of tax where charitable institution ceases to exist or converts into a non-charitable organization

New Chapter XII-EB ‘Special provision relating to tax on accreted income of certain trust or institution’ proposed to be inserted comprising of sections 115TD to 115TF. Salient provisions of this chapter are as under:-

  • The accreted income of trust or institution registered u/s 12A shall be charged to tax:-

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

– on merger with any entity other than an entity which is a trust or institution having objects similar to it and registered u/s 12AA; or

– on failure to transfer upon dissolution all its assets to any other trust or institution registered u/s 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, within a period of twelve months from the end of the month in which the dissolution takes place

  • A trust or institution shall be deemed to have been converted into a form not eligible for registration u/s 12AA if

-the registration granted u/s 12AA is cancelled

-it has adopted or undertaken modification of its object which do not confirm to the condition of registration and it has

(a) not applied for fresh registration u/s 12AA in the said previous year or

(b) application for fresh registration filed u/s 12AA has been rejected

  • Accreted income shall be amount of aggregate of total assets as reduced by the liability as on the specified date. The method of valuation is proposed to be prescribed in rules.
  • The asset and the liability of the charitable organization which have been transferred to another charitable organization within specified time will be excluded while calculating accreted income.
  • The taxation of accreted income shall be at the maximum marginal rate and such tax is to be paid within 14 days from

(a) the date of cancellation of registration order

(b) the end of previous year if not applied for fresh registration

(c) the date of rejection of fresh application of registration

(d) date on which trust got merged with entity not having object required for registration u/s 12AA

(e) date on which period of 12 months expires in case of dissolution of trust if it fails to transfer all its assets to other trust registered u/s 12AA or approved u/s 10(23C)(iv)(v)(vi)(via)

  • This levy shall be in addition to any income chargeable to tax in the hands of the entity.
  • This tax shall be final tax for which no credit can be taken by the trust or institution or any other person, and like any other additional tax, it shall be leviable even if the trust or institution does not have any other income chargeable to tax in the relevant previous year.
  • In case of failure of payment of tax within the prescribed time, simple interest @ 1% per month or part of it shall be applicable for the period of non-payment.
  • For the purpose of recovery of tax and interest, the principal officer or the trustee and the trust or the institution shall be deemed to be assessee in default and all provisions related to the recovery of taxes shall apply. Further, the recipient of assets of the trust, which is not a charitable organization, shall also be liable to be held as assessee in default in case of non-payment of tax and interest. However, the recipient’s liability shall be limited to the extent of the assets received.
  • These amendments will take effect from 1st June, 2016.

 

C. Measures to phase out deductions 

In tune with the budget speech of FM to reduce the rate of corporate tax from 30% to 25% over the next 4 years, it is proposed to phase out deductions and exemptions as under:-

Sec. 10AA (SEZ units) – No deduction available to units commencing manufacture etc. on or after 01.04.2020

Sec. 35AC (Social development projects or schemes) – No deduction from A.Y. 18-19

Sec. 35CCD (skill development project) – No weighted deduction from A.Y. 2021-2022

Sec. 80IA (development of infrastructure facility) – No deduction to enterprise which starts development or operation and maintenance of the infrastructure facility from A.Y. 17-18

Sec. 80IAB (development of SEZ) – No deduction to enterprise which commences the business activity from A.Y. 17-18.

Sec.80IB (production of mineral oil and natural gas) – No deduction to enterprise which commences the business activity from A.Y. 17-18.

Sec. 32 (Depreciation) – Highest rate of depreciation shall be restricted to 40% from A.Y. 17-18

Deduction u/s 35/3(2AA)/35(2AB)/35AD/35CCC – Weighted deduction will be phased out so that it will not be available from A.Y. 2020-21

 

D. Measures to promote socio-economic growth

1.Exemption of income of Foreign company from storage and sale of crude oil stored as part of strategic reserves

  • In order to set up underground storage facility for storage of crude oil as a part of strategic reserves which entails huge financial burden, section 10 is amended to provide that any income accruing or arising to a foreign national oil companies (NOCs) and multinational companies (MNCs) on account of storage of crude oil in a facility in India and sale of crude oil therefrom to any person resident in India shall not be included in the total income, if, –

(a) 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

(b) having regard to the national interest, the foreign company and the agreement or arrangement are notified by the Central Government in this behalf.

  • Amendment effective retrospectively from AY 2016-17

2.Exemption of certain activity related to diamond trading in “Special Notified Zone”

  • Section 9 is amended to provide that in the case of a foreign mining companies (FMCs) engaged in the business of mining of diamonds, 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 unasserted (without sorting or sale) diamonds in a Special Zone notified by the Central Government in the Official Gazette.
  • Amendment effective retrospectively from AY 2016-17

3.Extending the benefit of additional depreciation u/s 32(1)(iia) for power sector

  • 32(1)(iia) of the Act is amended to include business of transmission of power also for additional depreciation @20%.
  • Amendment effective from A.Y. 17-18

4.Taxation of Income from ‘Patents’ 

  • New sec. 115BBF proposed to be inserted to provide that where the total income of an eligible assessee [a person resident in India who is the true and first inventor of the invention and whose name is entered on the patent register as patentee in accordance with Patents Act, 1970] includes any income by way of royalty in respect of patent developed and registered in India, then such royalty shall be taxable @10% + surcharge + cess on gross basis.
  • No expenditure or allowance in respect of such royalty income shall be allowed
  • Book profit shall be increased by the amount of expenditure relatable to income by way of royalty in respect of patent chargeable to tax and reduced by the amount of income by way of royalty in respect of patent chargeable to tax.
  • Amendment effective from A.Y. 17-18

5.Incentiveto start-ups

  • New section 80-IC inserted to provide 100% deduction of profits and gains derived from an eligible business of an eligible start up.
  • Deduction allowable for any three consecutive years out of five years beginning from the year in which eligible start up is incorporated.
  • Eligibility criteria for start up:-

– Incorporated on or after 01.04.2016 but before 31.03.2019

– Total turnover does not exceed Rs.25 crores in any of the previous years beginning on or after 01.04.2016 and ending on 31.03.2021

– Holds certificate of eligible business from inter-ministerial board of certification

– Not formed by splitting up, or the reconstruction, of a business already in existence

– Not formed by the transfer to a new business of machinery or plant previously used for any purpose.

  • Eligible business means a business which involves innovation, development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property
  • New section 54EE proposed to be inserted to provide exemption from capital gains tax if the long term capital gains proceeds are invested in units of such specified fund, as may be notified by the Central Government for three years failing which the exemption shall be withdrawn. The investment in the units of the specified fund shall be allowed up to Rs. 50 lakhs.
  • The existing provisions of section 54GB is amended to extend the benefit of exemption from tax on long term capital gains in respect of the gains arising on account of transfer of a residential property, if such capital gains are invested in subscription of shares of a company which qualifies to be an eligible start-up subject to the condition that the individual or HUF holds more than fifty per cent shares of the company and such company utilises the amount invested in shares to purchase new asset including computers or computers software.

6.Housing for all

A.Deduction for developers

New sec. 80-IBA proposed to be inserted to provide 100% deduction of profits of an assessee developing and building housing projects which fulfill the following conditions:-

  • project is approved by the competent authority after 01.06.2016 but before 31.03.2019 in accordance with the prescribed guidelines
  • project is completed within a period of 3 years from the date of first approval
  • the built area of shops and commercial establishments does not exceed 3% of the aggregate built up area
  • project is on plot of land measuring less than 1,000 sq. mt. where located in four metro cities or within the area of 25 kms of the municipal limits of these cities or 2,000 sq. mt. for other cities
  • the residential unit of housing projects does not exceed 30 sq. mt. for metros and 60 sq. mt. for other location
  • where the residential unit is allotted to an individual, no other residential unit in the housing project shall be allotted to the individual or any member of his family.
  • project utilizes not less than 90% of FAR for metros and 80% for other locations
  • other conditions are similar to that of section 80-IB(10)

 

B.Deduction to individuals 

  • 80EE amended to provide first home buyers availing home loans, an additional deduction of interest on loan from any financial institution up to Rs. 50,000/-.
  • The house property should be of a value less than Rs.50 lacs and loan amount sanctioned during the period from 01.04.2016 to 31.03.2017 should not exceed Rs.35 lacs.
  • Benefit of deduction is extended till the repayment of loan continues. The deduction is over and above the limit of Rs. 2 lacs provided for a self occupied property u/s 24 of the Act.
  • Amendment effective from A.Y. 17-18

 

7.Tax incentive for employment generation

  • Employment generation incentive u/s 80JJAA allowing deduction of 30% of additional employee cost allowable for three assessment year to an assessee covered u/s 44AB. 
  • Deduction available to all employers in respect of cost incurred on any employee whose total emoluments are less than or equal to Rs.25,000/- per month.
  • Norms for minimum number of days of employment in a financial year reduced from 300 days to 240 days and the condition of 10% increase in number of employees every year is proposed to be done away with.
  • In the first year of new business, 30% of all emoluments paid or payable to employees shall be allowed as deduction.
  • No deduction shall be allowed for cost incurred on those employees for whom the entire contribution under the Employees Pension Scheme is paid by Government.

 

E. Relief and Welfare Measures 

1.Sovereign Gold Bond Scheme, 2015 

  • Section 47 amended to provide that any redemption of Sovereign Gold Bond under the Scheme, by an individual shall not be treated as transfer and therefore shall be exempt from tax on capital gains.
  • Section 48 amended to provide indexation benefit to long terms capital gains arising on transfer of Sovereign Gold Bond to all cases of assesses
  • Amendment effective from A.Y. 17-18

2.Rupee Denomination Bond

  • RBI has permitted Indian corporate to issue rupee denominated bonds outside India to enable them to raised funds from outside India.
  • Section 48 amended to provide that the capital gains arising to non resident investors in case of appreciation of rupee between the date of issue and the date of redemption against the foreign currency in which the investment is made shall be exempt from tax on capital gains.
  • Amendment effective from A.Y. 17-18

3.Gold Monetization Scheme, 2015 

  • Section 2(14) is amended to exclude Deposit Certificates issued under Gold Monetisation Scheme, 2015 notified by the Central Government, from the definition of capital asset and thereby to exempt it from capital gains tax.
  • Section 10(15) amended to provide that the interest on Deposit Certificates issued under the Scheme, shall be exempt from income-tax.
  • Amendment effective from A.Y. 16-17

4.Deduction under section 80GG 

Deduction of expenditure incurred by individual towards payment of rent in respect of furnished or unfurnished accommodation occupied by him if he is not granted house rent allowance (“HRA”) by this employer is Rs.2,000 per month or 25 percent of his total income whichever is less. It is proposed to enhance the limit of Rs.2,000/- per month to Rs.5,000/- per month.

5.Amendment in section 56(2)(vii)

It is proposed to provide that any shares received by an individual or HUF as a consequence of demerger or amalgamation of a company shall not attract provision of section 56(2)(vii).

6. Increase in time period for acquisition or construction of self-occupied property for claiming deduction of interest 

Presently, interest deduction of Rs.2 lacs is allowed on loans taken for self-occupied property provided that acquisition or construction is completed within three years from the end of financial year in which capital was borrowed. It is proposed that the present time limit of three years be increased to five years.

 

F. Ease of doing business/dispute resolution

1.Enabling provision for implementation of various provisions of the Act in case of a foreign company held to be resident in India. 

Applicability of POEM based residence tax deferred by one year to be applicable from 01.04.2017.

2.Presumptive taxation for professionals 

  • New sec. 44ADA proposed to be inserted to provide for estimating the income of an assessee (individual, HUF, partnership firm but not limited liability partnership firms) engaged in any profession referred in section 44AA(1) such as legal, medical, engineering or architectural, accountancy, technical consultancy, interior decoration or any other profession as is notified by the Board.
  • Total Gross receipts should not exceed Rs. 50 lacs.
  • Income shall be estimated @ 50% of the total gross receipts.
  • Deductions u/s 30 to 38 deemed to have been allowed (Including interest and remuneration to partners in case of partnership firm)
  • Assessee is not be required to maintain books of accounts u/s 44AA and gets the accounts audited u/s 44AB unless it claims that the profit and gains from the profession is lower than the deemed profit and gains and its income exceeds the maximum amount which is not chargeable to income tax.
  • Effective from 1stApril, 2017 i.e. AY 2017-18 and subsequent years.

3.Increase in threshold limit for audit for persons having income from profession

  • Presently, every person carrying on a profession is required to get its accounts audited if the gross receipts in a previous year exceed Rs. 25 lacs.  It is proposed to enhance this limit to Rs. 50 lacs.
  • Effective from 1stApril, 2017 ie. AY 2017-18 and subsequent years.

4.Presumptive taxation for persons having income from business 

Following amendments are proposed u/s 44AD i.e. presumptive taxation for retailers:

  • Increase in the threshold limit from Rs.1 crores to Rs.2 crores
  • expenditure in the nature of salary, remuneration, interest paid to partners shall no longer be allowed
  • where an eligible assessee declares profit for any previous year in accordance with provisions of this section and he declares profit for any of the 5 consecutive A.Y.s succeeding such P.Y. not in accordance with provisions of this section, he shall not be eligible to claim the benefit of provisions of this section for 5 A.Y.s subsequent to A.Y. in which profit has not been declared in accordance with provisions of this section.
  • Eligible assessee shall be required to pay advance tax. He may pay advance tax by 15th march of the F.Y.

Effective from 1st April, 2017 i.e. AY 2017-18 and subsequent years.

5.Deduction in respect of provision for bad and doubtful debts in case of NBFCs

  • Clause (c) of Sec. 36(1)(viia) is proposed to be amended to provide deduction from total income, provision for bad and doubtful debts to the extent of 5% of total income in case of NBFCs as was available earlier to PFIs, SFCs and SIICOs.
  • Effective from 1st April, 2017 i.e. AY 2017-18 and subsequent years.

6.Rationalization of scope of tax incentive u/s 32AC 

  • Investment allowance u/s 32AC@ 15% of the actual cost of such new asset where such cost exceeds Rs.25 Crores is presently allowed on a condition to the manufacturer or producer that such new asset must be acquired and installed in the same previous year. It is proposed to provide benefit of this section even if assets is acquired but not installed in the same previous however, installation may be made by 31.03.2017. Deduction shall be allowed in the year of installation.
  • This amendment will be effective retrospectively from 01.04.2016 and will, accordingly, apply in relation to the AY 2016-17 and 2017-18.

7.Exemption to non-residents from requirement of furnishing PAN u/s 206AA

  • Presently requirement of furnishing of PAN as per Sec. 206AA is also applicable to non-resident assessee also. It is proposed to provide that provisions of this section shall not apply to non-resident, not being a company, or to a foreign company, subject to such conditions as may be prescribed.
  • This amendment will take effect from 1st June, 2016.

8.The Income Declaration Scheme, 2016

9.The Direct Tax Dispute Resolution Scheme, 2016

10.Time limit for disposing applications u/s 273A, 273AA or 220(2A)

  • Time limit for waiver of interest u/s 220(2A) & waiver of penalty u/s 273A & 273AA is prescribed to be within a period of 12 months from the end of the month in which such application is received.
  • Pending application as on 01.06.2016 to be disposed off before 31.05.2017 
  • This amendment will take effect from 1st June, 2016. 

11.Legal framework for automation of various processes and paperless assessment 

  • Section 282A (1) propose to be amended to provide that notices and documents required to be issued by income-tax authority under the Act shall be issued by such authority either in paper form or in electronic form in accordance with such procedure as may be prescribed.
  • This amendment will take effect from 1st June, 2016.

 

G. Rationalisation Measures

1.Exemption of Central Government subsidy or grant or cash assistance, etc. towards corpus of fund established for specific purposes from the definition of income

Sec.2(24)(xviii) 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 form part of income. 

2.Extension of scope of section 43B to include certain payments made to Railways

In order to ensure prompt payment of dues to railways, clause (g) in sec. 43B is inserted to provide that any sum payable by the assessee to the Indian Railways for use of railway assets shall be allowed as deduction only, if it is actually paid on or before the due date of furnishing the return of income of the relevant previous year.

3.Clarification regarding set off losses against deemed undisclosed income

  • 115BBE(1) of the Act taxes income relating to section 68/69/69A/69B/69C/69D @30%. Sub sec. (2) provides that no deduction in respect of any expenditure or allowances in relation to the income referred in aforesaid sections shall be allowable.
  • It is proposed to amend sec. 115BBE(2) to provide that set off of any loss shall also be not allowable in respect of income under the aforesaid sections.

4.Taxation of non-compete fees and exclusivity rights in case of profession

  • 28(va) provides that any sum, whether received or receivable, in cash or kind, under an agreement for not carrying out any activity in relation to any business, is chargeable to tax as business income for business entities.
  • It is proposed to provide that any sum received or receivable, in cash or kind, under an agreement, for not carrying out any activity in relation to any profession, shall also be income chargeable to income-tax under the head “Profits and gains of business or profession”.
  • This amendment is to overcome the decision of ITAT, Delhi Bench dt. 10.11.2015 in case of Satya Sheel Khosla Vs. ITO 129 DTR 19.

5.Time limit for carry forward and set off of such loss under section 73A

  • Section 73A provides that any loss, computed in respect of any specified business referred to in section 35AD shall not be set off except against profits and gains, if any, of any other specified business.
  • Section 80 provides that a loss which has not been determined in pursuance of return filed u/s 139(3) shall not be carried forward and set-off u/s 72(1), 73(2), 74(1), 74(3), 74A.
  • Accordingly, section 80 amended to provide that the loss determined u/s 73A shall not be allowed to be carried forward and set off unless it is determined in pursuance of a return filed u/s 139(3).

6.Amortization of spectrum fees

New section 35ABA is inserted to provide amortization of amount paid on the acquisition of any right to use spectrum for telecommunication services by paying spectrum fees in equal installments over a period for which right to use of spectrum remains enforce.

7.Enabling of filing of Form 15G/15H for rental payments 

Sec. 197A amended for making the recipients of payments referred to in section 194-I (rent) also eligible for filing self-declaration in Form no 15G/15H for non-deduction of tax at source. This amendment will take effect from 1st June, 2016.

8.Rationalization of section 50C in case sale consideration is fixed under agreement executed prior to the date of registration of immovable property 

  • 50C proposed to be amended in line with section 43CA to provide that where the date of the agreement fixing the amount of consideration and the date of registration for the transfer of the capital asset are not the same, the value adopted or assessed or assessable by the stamp valuation authority on the date of agreement may be taken for the purposes of computing full value of consideration for such transfer.
  • It is further proposed to provide that this provision shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been received by way of an account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account, on or before the date of the agreement of transfer.

9.Conversion of company into LLP

Section 47(xiiib) amended to provide that in addition to the existing conditions to be satisfied for not considering the conversion of private limited company into LLP as transfer, a further condition that the value of the total assets in the books of accounts of the company in any of the three previous years preceding the previous year in which the conversion takes place, should not exceed five crore rupees is also required to be satisfied.

10.Filing of return of income 

  • 139(1)

Persons whose income is exempt u/s 10(38) shall be liable to file return of income within the due date if income of such person without giving effect to this section exceeds maximum amount not chargeable to tax.

  • 139(4) [Belated Return]

Presently, any person who has not furnished a return within the time allowed u/s 139(1) or u/s 142(1) may furnish the return at any time before the expiry of 1 year from the end of the relevant A.Y. or before the completion of the assessment, whichever is earlier. It is proposed to provide that any person who has not furnished a return within the time allowed u/s 139(1) may furnish the return at any time before the end of the relevant assessment year or before the completion of the assessment, whichever is earlier.

  • 139(5) [Revised Return]

Presently, if any person having furnished the return u/s 139(1) or in pursuance of notice issued u/s 142(1) discovers any omission or any wrong statement therein, he may furnish a revised return at any time before 1 year from the end of the relevant A.Y. or before the completion of the assessment, whichever is earlier. It is proposed to provide that a return furnished u/s 139(4) can also be revised. Thus, now belated return can be revised.

  • 139(9) [Defective Return]

A return of income is regarded as defective unless the self assessment tax together with interest, if any, payable in accordance with sec. 140A has been paid on or before the date of furnishing of return. It is proposed to provide that a return which is otherwise valid would not be treated defective merely because self assessment tax and interest payable in accordance with the provisions of section 140A, has not been paid on or before the date of furnishing of the return.

11.Installment of advance tax and due dates

  • Section 211(1) is amended to provide that advance tax will be paid in four installments of 15%, 45%, 75% and 100% of tax payable on the current income by 15th June, 15th September, 15th December and 15th March, respectively in case of all assesses.
  • Assessees covered u/s 44AD are to pay advance tax of the whole amount in one instalment on or before the 15th March of the financial year consequent upon raising of the turnover limit from Rs.1 crore to rs.2 crore.
  • These amendments will take effect from 1st June, 2016.

12.Rationalisation of time limit for assessment, reassessment and recomputation and assessment in search cases

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

2 years from the end of the AY in which income was first assessable 21 months from the end of the AY in which income was first assessable
Reassessment u/s 147 1 year from the end of the financial year in which notice for reassessment is served 9 months from the end of the financial year in which notice for reassessment 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 1 year from the end of the financial year in which such order is received by assessing officer 9 months from the end of the financial year in which such order is received by prescribed authorities
An order giving effect otherwise than making a fresh assessment or reassessment No time limit was prescribed

 

3 months from the end of the month in which such order is received by prescribed authorities and additional period of six months, where it is not possible to pass such order by assessing officer for reasons beyond its control. For cases pending on 01.06.2016, time limit extended to 31.03.2017
Assessment, reassessment or recomputation to give effect to any finding or direction contained in the order of CIT, CIT(A), ITAT or any court No time limit was prescribed

 

12 months from the end of the month in which such order is received. For cases pending on 01.06.2016, time limit extended to 31.03.2017 or 12 months from the end of the month in which the order is received, whichever is later
Assessment is made on partner on firm in consequence of assessment made on firm u/s 147 No time limit was prescribed

 

12 months from the end of month in which the assessment order in case of the firm is passed
Reference made to TPO u/s 92CA 36 months from the end of the relevant assessment year 33 months from the end of the relevant assessment year
Assessment u/s 153A 2 years 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 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
Assessment u/s 153C 2 years 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

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

 

13.Payment of interest on refund u/s 244A

  • If the return is filed after due date, the period for grant of interest on refund begin from the date of filing of return as against 1st April of the AY at present.
  • Interest would also be paid on refund of self-assessment tax for the period beginning from the date of payment of tax or filing of return, whichever is later, to the date on which the refund is granted.
  • Where appeal effect is not given within 3 months from the end of the month in which such order is received u/s 153(5), additional interest @ 3% p.a. shall be allowed from the expiry of the 3 months to the date on which refund is granted.
  • Amendment effective from 01.06.2016.

 

14.Rationalisation of the provisions relating to Appellate Tribunal

  • The reference of Senior Vice President in section 252 is omitted
  • No appeal can be filed by the department against the order of DRP
  • Section 254(2) 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 as against the present period of four years
  • Section 255(3) amended to provide that single member bench may dispose of a case where the total income as computed by the Assessing Officer does not exceed fifty lakh rupees
  • Amendment effective from 01.06.2016

 

15.Rationalisation of Penalty provisions

  • The existing provisions relating to levy of penalty u/s 271(1)(c) due to concealment of income or furnishing of inaccurate particulars of income by the taxpayer is to be replaced by a new section 270A categorising the defaults into two categories viz. under-reporting of income and misreporting of income.
  • Penalty @ 50% of tax payable would be levied in case of under-reporting of income and @ 200% in case of misreporting of income. Thus, penalty would be 15% or 60% of income sought to be evaded as against the present penalty of 30% to 90% of income sought to be evaded.
  • Proposed cases of under-reporting of income

Where return of income is filed:-

  • Income assessed is greater than the income determined in the return processed u/s 143(1)(a)
  • Income reassessed is greater than the income assessed or reassessed immediately before such re-assessment
  • Deemed total income assessed or reassessed u/s 115JB/115JC is greater than the deemed total income determined in the return processed u/s 143(1)(a)
  • Income assessed or reassessed has the effect of reducing the loss or converting such loss into income

Where return of income is not filed:-

  • Income assessed is greater than the maximum amount not chargeable to tax
  • Deemed total income assessed u/s 115JB/115JC is greater than the maximum amount not chargeable to tax

Amount of under-reporting of income

Where return of income is filed and assessment is made for the first time:-

>Difference between the assessed income and the income determined u/s 143(1)(a)

Where return of income is not filed and assessment is made for the first time:-

>In case of company, firm or local authority- Assessed income

>In case of other person- Difference between the assessed income and the maximum amount not chargeable to tax

Where income is not assessed for the first time:-

>Difference between the income assessed or determined in such order and the income assessed or determined in the order immediately preceding such order

  • Where under-reporting of income arises out of deemed total income determined u/s 115JB/115JC:-

Aggregate of total income assessed under general provisions- Total income assessed as per general provisions as reduced by the amount of unreported income + Total income assessed u/s 115JB/JC- Total income assessed u/s 115JB/JC as reduced by the amount of unreported income i.e., Aggregate of unreported income under normal provision and the provision of section 115JB/115JC. However, the common unreported income would be considered only once.

  • Where income assessed or reassessed has the effect of reducing the loss or converting such loss into income

Difference between the loss claimed and the income or loss assessed or reassessed

  • Under reported income shall not include the following cases:-
  • where the assessee offers an explanation and the income-tax authority is satisfied that the explanation is bona fide and all the material facts have been disclosed
  • where such under-reported income is determined on the basis of an estimate, if the accounts are correct and complete but the method employed is such that the income cannot properly be deducted therefrom
  • where the assessee has, on his own, estimated a lower amount of addition or disallowance on the issue and has included such amount in the computation of his income and disclosed all the facts material to the addition or disallowance
  • where the assessee had maintained information and documents as prescribed under section 92D, declared the international transaction under Chapter X and disclosed all the material facts relating to the transaction
  • where the undisclosed income is on account of a search operation and penalty is leviable under section 271AAB
  • Tax payable shall be 30% of the amount of under-reported income but in case of company, firm or local authority it shall be the amount of tax calculated on such income as if it is the total income
  • Specified cases of misreporting of income
  • misrepresentation or suppression of facts
  • non-recording of investments in books of account
  • claiming of expenditure not substantiated by evidence
  • recording of false entry in books of account
  • failure to record any receipt in books of account having a bearing on total income
  • failure to report any international transaction or deemed international transaction under Chapter X
  • No addition or disallowance of an amount shall form the basis for imposition of penalty, if such addition or disallowance has formed the basis of imposition of penalty in the case of the person for the same or any other assessment year
  • Amendment effective from 01.04.2017

 

16.Immunity from penalty and prosecution by inserting new section 270AA

  • Assessee may make an application to the AO for grant of immunity from imposition of penalty u/s 270A and initiation of proceedings u/s 276C if:-
  • Tax and interest payable as per assessment or reassessment order paid within the period specified in such notice of demand
  • No appeal preferred against assessment or reassessment order
  • Application shall be made within one month from the end of the month in which the order is received in the form and manner as may be prescribed
  • Order u/s 270AA shall be passed by AO after expiry of time allowed for filing of appeal before CIT(A)
  • No immunity if penalty proceedings is initiated for misreporting of income
  • Order accepting or rejecting application to be made within a period of one month from the end of the month in which such application is received. In case of rejection, an opportunity of being heard to assessee. Order of AO shall be final.
  • No appeal shall lie against assessment or reassessment order where application u/s 270AA has been accepted
  • In case if application is rejected, then the period beginning from the date on which such application is made to the date on which the order rejecting the application is served on the assessee shall be excluded for calculation of the time period available for filing appeal before CIT(A) against assessment or reassessment order
  • Amendment effective from 01.04.2017

 

17.Amendment of section 271AAB

  • Section 271AAB(1)(c) provides for minimum penalty of 30% and maximum penalty of 90% of the undisclosed income in case of search
  • The proposed amendment provides for fixed penalty of 60% of the undisclosed income
  • Amendment effective from 01.04.2017

 

18.Amendment of section 272A

  • Levy of penalty of Rs.10,000/- for each default or failure to comply with a notice issued u/s 142(1) or 143(2) or failure to comply with the direction issued u/s 142(2A). Penalty shall be levied by the income tax authority issuing such notice or direction. This amendment is in consequence of omission of section 271(1)(b).
  • Amendment effective from 01.04.2017

 

19.Provision for bank guarantee under section 281B

  • It is proposed that AO shall revoke provisional attachment of property made under sub-section (1) of the aforesaid section in a case where the assessee furnishes a bank guarantee from a scheduled bank, 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.
  • To determine the FMV of the property, the AO may, make a reference to the Valuation Officer, who may be required to submit the report of the estimate of the property to the AO within a period of thirty days from the date of receipt of such reference.

 

20.Processing under section 143(1) be mandated before assessment

  • Processing of return u/s 143(1) shall be mandatory before making assessment u/s 143(3)
  • Amendment effective from 01.04.2017

 

21.Legislative framework to enable and expand the scope of electronic processing of information

In order to expeditiously remove the mismatch between the return and the information available with the Department, it is proposed to expand the scope of adjustments that can be made at the time of processing of returns under sub-section (1) of section 143. It is proposed that such adjustments can be made based on the data available with the Department in the form of audit report filed by the assessee, returns of earlier years of the assessee, 26AS statement, Form 16, and Form 16A. However, before making any such adjustments, in the interest of natural justice, an intimation shall be given to the assessee either in writing or through electronic mode requiring him to respond to such adjustments. The response received, if any, will be duly considered before making any adjustment. However, if no response is received within thirty days of issue of such intimation, the processing shall be carried out incorporating the adjustments.

22.Rationalisation of tax treatment of Recognised Provident Funds, Pension Funds and National Pension Scheme

  • At present tax structure of National Pension System (NPS) is Exempt, Exempt and Tax (EET) and Recognised Provident Funds (RPFs) and superannuation are EEE status i.e. Exempt, Exempt, Exempt.
  • In order to bring greater parity in tax treatment of different types of pension plans, it is proposed to amend section 10 so as to provide that in respect of the contributions made on or after the 1stday of April, 2016 by an employee participating in a recognised provident fund/ superannuation fund/ NPS, up to 40 % of the accumulated balance attributable to such contributions on withdrawal shall be exempt from tax for RPF and. any payment in commutation of an annuity purchased out of contributions made on or after the 1stday of April, 2016 to approved Superannuation Fund and NPS, which exceeds forty per cent of the annuity, shall be chargeable to tax.
  • However, the whole amount received by the nominee, on death of the assessee shall be exempt from tax.
  • Limit of employer contribution to an approved superannuation fund under section 17 increased from 1 lac to 1.50 lacs, in order to bring parity limit of Rs. 1.5 lacs in section 80C. Further with a view to bring all the pension plans under one umberalla, it is also proposed to amend: (i) the fourth schedule so as to provide exemption to one-time portability from a recognised provident fund to National Pension System; (ii) clause (13) of section 10 so as to provide that any payment from an approved superannuation fund by way of transfer to the account of the employee under NPS referred to in section 80CCD and notified by the Central Government shall be exempt from tax.
  • Effective from 1st April, 2017 ie. AY 2017-18 and subsequent years.

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