Clarification
regarding applicability of provisions of Section 194-I to payments made by the
customers on account of cooling charges to the cold storage owners
Representations have been received from various quarters
regarding applicability of the provisions of Section 194-I to cooling charges
paid by the various customers to the owners of cold storages. It has been
represented that the cold storage owners provide a composite service, which
involves preservation of essential food items including perishable goods at
various temperatures suitable for specific food items for required periods and
storage of goods being incidental to the activity of preservation. The cooling
of goods is controlled through mechanical process. The customer brings its
packages for preservation for a required period and takes away its packages
after paying cooling charges. The customer does not hire the building,
plant/machinery etc. in any manner and does not become a tenant of any kind.
2. The matter has been examined. The main
function of the cold storage is to preserve perishable goods by means of a
mechanical process, and storage of such goods is only incidental in nature. The
customer is also not given any right to use any demarcated space/place or the
machinery of the cold store and thus does not become a tenant. Therefore, the
provision of 194-I is not applicable to the cooling charges paid by the
customers of the cold storage.
3. However, since the arrangement between
the customers and cold storage owners are basically contractual in nature, the
provision of section 194-C will be applicable to the amounts paid as cooling
charges by the customers of the cold storage. This may be brought to the notice
of the Assessing Officers under your charge.
[F.No.275/59/2007-IT(B)]
CIRCULAR
NO. 2/2008, DATED
22-2-2008
1. Securities and Exchange Board of
India (SEBI) vide Circular No. MRD/DoP/SE/DEP/Cir.
14/2007, dated 20-12-2007, has decided to permit all classes of investors
(individuals, institutional, etc.) to short sell. Further, with a view to
provide a mechanism for borrowing of securities to enable settlement of
securities sold short, SEBI has also decided to put in place a full-fledged
Securities Lending and Borrowing (SLB) Scheme for all market participants in
the Indian securities market under the overall framework of Securities Lending
Scheme, 1997 of SEBI (Circular No. SMD/ Policy/ SL/
CIR-09/97, dated 7-5-1997).
2. In this context, the following taxation
issues have arisen in respect of transactions under the scheme of Securities
Lending.
(i) Whether
the lending/borrowing of securities under the Securities Lending Scheme will
amount to transfer under clause (47) of section 2 of the Income-tax Act
(Act) in the hands of the lender?
(ii) Whether lending/borrowings of the
securities will be subjected to Securities Transaction Tax (STT)?
3. The Lending and Borrowing of Securities
under the new scheme notified by SEBI vide Circular No. MRD/DoP/SE/DEP/Cir. 14/2007, dated 20-12-2007 is in accordance
with the overall framework of the Securities Lending Scheme of 1997.
Accordingly, the provisions of section 47(xv) of the Act will be equally
applicable in respect of the transactions under the new scheme.
4. Securities Transaction Tax (STT) is
levied on purchase or sale of an equity share, unit and derivative, under such
circumstances as specified in section 98 of the Finance (No. 2) Act, 2004. The
transactions in the nature of lending and borrowing under the new Scheme do not
fall within the scope of section 98 to the Finance (No. 2) Act, 2004.
Therefore, the transactions of lending and borrowing are not liable to
Securities Transaction Tax (STT).
5. The contents of this circular may be
brought to the notice of all the officers in your region.
Explanatory
Notes to the provisions of the Finance Act, 2007
finance act, 2007
Circular no. 3/ 2008, dated
12-3-2008
Amendment at a
glance
|
Section/Schedule |
|
Particulars |
|
|
|
Finance Act. |
|
2/First Schedule. |
|
Rate structure. 3.1-3.3.10 |
|
|
|
Income-tax Act. |
|
2(1C), 2(1D), 2(7A), 2(9B), 120(4)(b). |
|
Clarificatory amendment to the
definition of Assessing Officer and definition of certain other Income Tax
Authorities. 4.1 |
|
2(14)(ii). |
|
Widening the scope of Capital Assets. 5.1-5.2 |
|
2(25A). |
|
New definition of |
|
9, Explanation. |
|
Income deemed to accrue or arise in |
|
10(10BC). |
|
Exemption from compensation on account of any disaster. 8.1-8.4 |
|
10(15)(vii). |
|
Exemption for interest on notified bonds issued by State Pooled
Finance Entities. 9.1-9.4 |
|
10(23BBD). |
|
Exemption for income of ASOSAI-Secretariat. 10.1-10.3 |
|
10(23BBG). |
|
Exemption for income of Central Electricity Regulatory Commission.
11.1-11.2 |
|
10(23C)(iv), 10(23C)(v), 10(23C) Second, nineth,
thirteenth and sixteenth proviso, 143(3) Sub-clause (ii) of first proviso,
296. |
|
Substitution of the power of notification of certain charitable and
religious entities by power of approval by the prescribed authority.
12.1-12.5 |
|
10(23EC). |
|
Exemption for certain incomes of investor protection fund set up by
commodity exchanges. 13.1-13.4 |
|
10(23FB), 10(23FB) Clause (c) of Explanation 1. |
|
Exemption for certain income of a venture capital company or venture
capital fund. 14.1-14.3 |
|
10AA(4). |
|
Tax benefit only for new unit in SEZ. 15.1-15.6 |
|
12A(a), 12A(aa), 12A(1), 12A(2), 12AA(1),
12AA(2). |
|
Removal of the requirement for charitable or religious trust or
institutions to file for registration within one year of creation or establishment.
16.1-16.7 |
|
13(1)(d)(iii) |
|
Allowing share investment in certain cases as a permissible investment
mode for a trust or institution. 17.1-17.5 |
|
17(2)(ii) Explanation 1, Explanation 2, Explanation 3, 17(1)(iii)
proviso. |
|
Clarification regarding concession in the matter of rent. 18.1-18.12 |
|
35(2AB)(v). |
|
Weighted deduction under clause (1) of sub-section (2AB) of Section 35
to be allowed for five more years. 19.1-19.4 |
|
36(1)(viia)(a), 36(1)(viia)
Clause (ii) of Explanation, 10(15)(iv)(FA) Explanation. |
|
Deduction in respect of any provision for bad and doubtful debts to be
allowed in the case of co-operative banks under section 36(1)(viia). 20.1-20.7 |
|
36(1)(viii). |
|
Rationalisation of provisions
relating to deduction in respect of creation and maintenance of special
reserve under section 36(1)(viii). 21.1-21.7 |
|
36(1)(x). |
|
Withdrawal of deduction under section 36(1)(x) in respect of contribution
by Public Financial Institutions towards Exchange Risk Administration Fund
(ERAF). 22.1-22.6 |
|
36(1)(xii). |
|
Central Government vested with power to notify a statutory corporation
for a body corporate for the purposes of deduction under section 36(1)(xii).
23.1-23.3 |
|
36(1)(xiv). |
|
Providing for deduction of some paid by a Public Financial Institution
to a notified Credit Guaranteed Trust for Small Industries. 24.1-24.3 |
|
40A(3). |
|
Strengthening the provisions of section 40A(3). 25.1-25.7 |
|
72AB, 44DB, 49(2E). |
|
Provisions relating to business re-organisation
of Co-operative Banks. 26.1-26.12 |
|
2(24)(xiv). |
|
Giving retrospective effect to exception from taxation for certain
incomes and to include certain incomes in the definition of Income. 27.1-27.6 |
|
54EC (1) Proviso, 54EC(3) Clause (b) of Explanation, 54EC(3) Proviso
to clause (b) of Explanation, 54EC(3)(ba). |
|
Providing condition for investment in Long-term Specified Bonds under
section 54EC. 28.1-28.7 |
|
72A(1). |
|
Provisions of Section 72A extended to Public Sector Company or Public
Sector Companies engaged in the business of operation of aircraft. 29.1-29.3 |
|
80C(2)(xxii). |
|
Enlargement of scope of section 80C. 30.1-30.2 |
|
7(iii), 17(1)(viii), 80CCD(1), 80CCD(2). |
|
Extension of tax benefit under section 80CCD to employees of other
employers. 31.1-31.2 |
|
36(1)(ib), 80D(1), 80D(1)(i), 80D(1)(ii), 80D(1), Proviso. |
|
Rationalization of provisions related to deduction of health insurance
premium. 32.1-32.5 |
|
80E(1), 80E(3)(a), 80E(3)(e). |
|
Deduction for amount of interest paid on a loan taken for higher
education of a relative. 33.1-33.3 |
|
80-IA Explanation. |
|
Clarification regarding developer with reference to infrastructure
facility, industrial park, etc. for the purposes of section 80-IA. 34.1-34.4 |
|
80-IA(12A). |
|
Tax benefit under section 80-IA not available to
undertaking/enterprise of Indian companies undergoing amalgamation or
demerger after 31.3.2007. 35.1-35.2 |
|
80-IA(4)(i) Explanation. |
|
Expansion of the scope of infrastructure facility for the purposes of
tax benefit under section 80-IA. 36.1-36.3 |
|
80-IA(4)(v)(b). |
|
Extension of time limit for generation or transmission or distribution
of power by an undertaking of an Indian company set up for reconstruction or
revival of a power generating plant. 37.1-37.3 |
|
80-IA(4)(vi), 80-IA(2), 80-IA(3). |
|
Deduction in the case of an undertaking laying and operating
cross-country natural gas distribution network. 38.1-38.6 |
|
80-IB(4) fourth proviso. |
|
Extension of time limit for setting up industrial undertakings in the State
of Jammu and Kashmir for the purpose of tax benefit under section 80-IB(4).
39.1-39.3 |
|
80-ID. |
|
Tax holiday for hotels and convention centres
in specified area. 40.1-40.6 |
|
80-IC(2)(a)(i), 80-IC(2)(b)(i), 80-IE. |
|
Extension of benefit of tax holiday in respect of undertaking located
in North-Eastern States (including |
|
80A(3), 80AC. |
|
Consequential amendments in section 80A and 80AC. 42.1-42.4 |
|
92CA(3A), 92CA(4), 153(1) second proviso, 153(2) third proviso,
153(2A) third proviso, 153B(1) third proviso, 153B(1) forth proviso. |
|
Extension of Time limitation for making assessment where a reference
is made to the Transfer Pricing Officer. 43.1-43.5 |
|
115JB clause (f) of Explanation, 115JB clause (ii) of Explanation. |
|
Widening the scope of Minimum Alternate Tax to include income exempt
under section 10A and 10B of the Income-tax Act. 44.1-44.4 |
|
115-O(1), 115R(2)(i), 115R(2)(ii),
115R(2)(iii), Chapter XII-E clause (d) of Explanation, Chapter XII-E clause
(e) of Explanation. |
|
Increase in the rates of Tax on distributed profits in certain cases.
45.1-45.8 |
|
2(42A) sub-clause (hb) of clause(i) of explanation 1, 2(42A) Explanation 3, 49(2AB),
115WB(1)(b), 115WB(1)(c), 115WB(1)(d), 115WB(2)(v), 115WB(2)(vii), 115WC(1)(ba), 115WKA. |
|
Rationalization of Fringe Benefit Tax. 46.1-46.16 |
|
115WJ(2), 115WJ(3), 115WJ(4), 115WJ(5). |
|
Alignment of due date of payment of advance tax on fringe benefits
with that of advance tax on income. 47.1-47.11 |
|
139(9) proviso, 139C, 139D, 295(2)(eeba),
295(2)(eebb). |
|
Rules for facilitating annexure-less returns. 48.1-48.7 |
|
142(2A) proviso, 142(2D) proviso. |
|
Rationalisation of provision
relating to special audit under section 142 (2A). 49.1-49.5 |
|
153D. |
|
Assessment of search casesOrders of
assessment and reassessment to be approved by the Joint Commissioner.
50.1-50.3 |
|
172(4A). |
|
Providing time limit for completion of assessments for returns filed
under section 172. 51.1-51.4 |
|
193 proviso to clause (iv) of proviso. |
|
Amendment of section 193 of the Income-tax Act, 1961 to provide for TDS
on 8% Savings (Taxable) Bonds, 2003. 52.1-52.4 |
|
194A(3)(i), 206A(1). |
|
Increasing the threshold limit in respect of interest payable by a
banking Company or a co-operative society or on any deposit with a notified post-office
scheme under Section 194A. 53.1-53.5 |
|
194C(1). |
|
Expansion of scope of the provisions of section 194C. 54.1-54.6 |
|
194H, 194H third proviso. |
|
Increase in the rate of TDS under section 194H to 10% and exemption
from TDS thereunder from commission payable by Bharat Sanchar Nigam Limited and Mahanagar
Telephone Nigam Limited to their PCO franchisees.
55.1-55.5 |
|
194-I(a), 194-I(b), 194-I(c). |
|
Reduction in the rate for deduction of tax at source on rent for the use
of any machinery or plant or equipment under Section 194-I. 56.1-56.4 |
|
194J(1). |
|
Enhancement of the rate of TDS under section 194J of the Income-tax
Act. 57.1-57.4 |
|
197A(1C). |
|
Omission of reference to omitted section 88B from section 197A.
58.1-58.3 |
|
132B(4)(a), 201(1A), 245D(6A), second schedule Rule 60(1)(a), second
schedule Rule 68A(3) |
|
Change of method for calculation of interest from per annum basis to
per month basis. 59.1-59.6 |
|
206C(1C) Explanation 1, 206C(1C) Explanation 2. |
|
Definition of the expression mining and quarrying under section 206C
of the Income-tax Act, 1961. 60.1-60.4 |
|
245A(b), 245A(g), 245C(1), proviso, 245C(1A), 245C(1B), 245C(1C)(c), 245C(4),
245D(1), 245D(2A), 245D(2B), 245D(2C), 245D(2D), 245D(3), 245D(4), 245D(4A),
245DD(2) proviso, 245E second proviso, 245F (2) first proviso, 245F(2) second
proviso, 245H(1) second proviso, 245HA, 245HAA, 245K. |
|
Revised Settlement Scheme. 61.1-61.17 |
|
246A(1)(hb), 246A(1B). |
|
Providing for the right to appeal against the order holding a person
as an assessee in default under section 206C(6A).
62.1-62.5 |
|
248. |
|
Provision of appeal by a person denying liability to deduct tax.
63.1-63.3 |
|
249(2)(a). |
|
Provision for Form of appeal and limitation: Consequential to the
amendment made to section 248. 64.1-64.3 |
|
253(1)(c). |
|
Provision relating to approval of charitable institutions and funds.
65.1-65.3 |
|
254(2A) first proviso, 254(2A) second proviso, 254(2A) third proviso. |
|
Prescribing time-limit for grant of stay by the Appellate Tribunal.
66.1-66.6 |
|
271(1) Explanation 4, 271(1) Explanation 5, 271(1) Explanation 5A. |
|
Rationalisation of provisions
relating to penalty for concealment of or furnishing inaccurate particulars
of income. 67.1-67.8 |
|
246(1)(j)(B), 271AAA, |
|
Provision for penalty for concealment in search and seizure cases.
68.1-68.5 |
|
292C |
|
Clarification in respect of presumption as to seized books of account,
money, bullion, jewellery or other valuable article
or thing to other proceedings under the Income-tax Act. 69.1-69.4 |
|
Fourth schedule First proviso to Rule 3(1) of part A, fourth schedule
second proviso to Rule 3(1) of part A. |
|
Extension of time limit set out in Rule 3 for complying with the
conditions laid down in clause (ea) of Rule 4 of Part A of the Fourth
Schedule to the Income-tax Act. 70.1-70.7 |
|
|
|
Wealth tax Act. |
|
2(ca). |
|
Clarificatory amendment to the
definition of Assessing Officer and definition of certain other Income Tax
Authorities. 4.1 |
|
2(ka). |
|
New definition of |
|
22D(6A). |
|
Change of method for calculation of interest from per annum basis to
per month basis. 59.1-59.6 |
|
22A(b), 22A(f), 22C(1) proviso, 22C(1A), 22C(1B), 22C(1C)(c), 22C(4),
22D(1), 22D(2A), 22D(2B), 22D(2C), 22D(2D), 22D(3), 22D(4), 22D(4A), 22DD(2) proviso,
22E second proviso, 22F (2) first proviso, 22F(2) second proviso, 22H(1)
second proviso, 22HA, 22HAA, 22K. |
|
Revised Settlement Scheme. 61.1-61.17 |
|
42D. |
|
Clarification in respect of presumption as to seized books of account,
money, bullion, jewellery or other valuable article
or thing to other proceedings under the Income-tax Act. 69.1-69.4 |
|
|
|
Finance Act, 2005. |
|
Chapter VII Section 94(5), Chapter VII Section 94(8)(a), Chapter VII
Section 94(8)(b)(i). |
|
Exclusion of office or establishment of the Central Government or the
Government of a State and enhancement of exemption limit the provisions of a
banking Cash Transaction Tax (BCTT). 71.1-71.4 |
fiinance Act, 2007
Finance
Act, 2007 - Explanatory Notes on provisions relating to Direct Taxes
1. Introduction
1.1 The Finance Act, 2007 (hereafter referred to
as the Act) as passed by the Parliament, received the assent of the President
on the 11th day of May, 2007 and has been enacted as Act No. 22 of
2007. This circular explains the substance of the provisions of the Act
relating to direct taxes.
2. Changes made by the Finance Act, 2007
2.1 The Finance Act, 2007 (hereinafter
referred to as the Act), has,
(i) specified
the rates of income-tax for the assessment year 2007-08 and the rates of
income-tax on the basis of which tax has to be deducted and advance tax has to
be paid during financial Year 2007-08
(ii) amended
sections 2, 7, 9,10, 10AA,12A, 12AA, 13, 17, 35, 36, 40A, 47, 49, 54EC, 56,
72A, 80A, 80AC, 80C, 80CCD, 80D, 80E, 80-IA, 80-IB, 80-IC, 92CA,
115JB, 115-O, 115R,
115WB, 115WC, 115WJ, 120, 132B, 139, 142, 143, 153, 153B, 172, 193, 194A, 194C,
194H, 194-I, 194J, 197A, 201, 206A, 206C, 245A, 245C, 245D, 245DD, 245E, 245F,
245H, 246A, 249, 253, 254, 271, 295, 296 of the Income-tax Act, 1961;
(iii) substituted Section 245K, 248 of the Income Tax Act, 1961;
(iv) inserted
new sections 44DB, 72AB, 80-ID, 80-IE, 115WKA, 139C, 139D, 153D, 245HA, 271AAA,
292C in the Income-tax Act, 1961;
(v) amended
Chapter XII-E of the Income Tax Act, 1961;
(vi) amended
rule 60 and 68A of the second Schedule to the Income-tax Act, 1961;
(vii)
amended
rule 3 and 4 of the Part A of the fourth Schedule to the Income-tax Act, 1961;
(viii)
amended
section 2, 22A, 22C, 22D, 22DD, 22E, 22F, 22H, of the Wealth-tax Act, 1957.
(ix) substituted
section 22K of the Wealth-tax Act, 1957.
(x) inserted
new section 22HA, 22HAA, 42D of the Wealth-tax Act, 1957.
(xi) amended
section 93, 94 of Finance (No.2) Act, 2004.
(xii)
amended
section 94 of Chapter VII of the Finance Act, 2005.
3. Rate structure
3.1 Rates of income-tax
in respect of incomes liable to tax for the assessment year 2007-08
3.1-1 In respect of
income of all categories of taxpayers liable to tax for the assessment year
2007-08, the rates of income-tax have been specified in Part I of the First Schedule
to the Act. These rates are the same as those laid down in Part III of the
First Schedule to the Finance Act, 2006 for the purposes of computation of
advance tax, deduction of tax at source from Salaries and charging of tax
payable in certain cases during the financial year 2006-07.
3.1-2 The major
features of the rates specified in the said Part I are
as follows:
3.1-3 Individual, Hindu undivided family,
association of persons, body of individuals or artificial juridical person.
Paragraph A
of Part I of the First Schedule specifies the rates of income-tax in the case
of every individual, Hindu undivided family, association of persons, body of
individuals or artificial juridical person (other than a cooperative society,
firm, local authority and company) as under:
|
Income chargeable to tax |
Rate of income-tax |
||
|
Individual (other than individual resident woman and resident senior
citizen), HUF, association of persons, body of individuals and artificial
juridical person |
Individual woman resident in |
Individual senior citizen, resident in |
|
|
Upto Rs.
1,00,000 |
Nil |
Nil |
Nil |
|
Rs. 1,00,001-1,35,000 |
10% |
||
|
Rs. 1,35,001 - Rs.
1,50,000 |
10% |
||
|
Rs. 1,50,001 - Rs.
1,85,000 |
20% |
20% |
|
|
Rs. 1,85,001 - Rs.
2,50,000 |
20% |
||
|
Exceeding Rs. 2,50,000 |
30% |
30% |
30% |
3.1-4 Surcharge- In the case of every individual, Hindu
undivided family, association of persons or body of individuals, surcharge
shall be levied only where the total income exceeds Rs.
10,00,000/-. For this purpose, the income-tax on such income shall be reduced
by the amount of rebate of income-tax computed under Chapter VIII-A. The
income-tax so reduced shall thereafter be enhanced by a surcharge for the
purposes of the
3.1-5 In the case of
an artificial juridical person, surcharge shall be levied at ten per cent. of
the income-tax payable on all levels of income.
3.1-6 Education Cess- An
additional surcharge called the Education Cess on
income-tax shall be levied at the rate of two per cent. on the amount of tax
computed, inclusive of surcharge, in all cases. For instance, if the income-tax
computed is Rs. 1,00,000/- and the surcharge is Rs. 10,000/-, then the education cess
of two per cent. is to be computed on Rs. 1,10,000/-
which works out to Rs. 2,200/-. No marginal relief
shall be available in respect of Education Cess.
3.1-7 Co-operative Society- In the case of
every co-operative society, the rates of income-tax have been specified in
Paragraph B of Part I of the First Schedule to the Act as under-
|
Income chargeable to tax |
Rate |
|
Up to Rs.
10,000 |
10% |
|
Rs. 10,001 - Rs. 20,000 |
20% |
|
Exceeding Rs. 20,000 |
30% |
No surcharge shall be levied. Education Cess
shall be levied at the rate of two per cent. on the amount of tax computed.
3.1-8. Firm - In
the case of every firm, the rate of income-tax has been specified at thirty per
cent. in Paragraph C of Part I of the First Schedule to the Act. Surcharge at
the rate of ten per cent. shall be levied. Education Cess
shall be levied at the rate of two per cent. on the amount of tax computed,
inclusive of surcharge.
3.1-9. Local authority - In the case of every local
authority, the rate of income-tax has been specified at thirty per cent. in
Paragraph D of Part I of the First Schedule to the Act. No surcharge shall be
levied. Education Cess shall be levied at the rate of
two per cent. on the amount of tax computed.
3.1-10. Company -
In the case of a company, the rate of income-tax has been specified in
Paragraph E of Part I of the First Schedule to the Act. In case of a domestic
company, the rate of income-tax is thirty per cent. of the total income. The
amount of income-tax computed shall be enhanced by a surcharge of ten per cent.
Education Cess shall be levied at the rate of two per
cent. on the amount of tax, inclusive of surcharge.
In the
case of a company other than a domestic company, royalties received from
Government or an Indian concern under an approved agreement made after
31-3-1961, but before 1-4-1976 is chargeable to tax at the rate of fifty per
cent. Similarly, fees for rendering technical services received by such company
from Government or Indian concern under an approved agreement made after
29-2-1964, but before 1-4-1976, is taxable at the rate of fifty per cent. On
the balance of the total income of such company, if any, the tax rate is forty
per cent. The tax computed shall be enhanced by a surcharge of two and one-half
per cent. Education Cess shall be levied at the rate
of two per cent. on the amount of tax, inclusive of surcharge.
3.2 Rates for
deduction of income-tax at source from certain incomes during the financial
year 2007-2008
3.2-1 In every case
in which under the provisions of sections 193, 194, 194A, 194B, 194BB, 194D and
195 of the Income-tax Act, tax is to be deducted at the rates in force, the
rates for deduction of income-tax at source during the financial year 2007-08
have been specified in Part II of the First Schedule to the Act. The rates for deduction of income-tax
at source during the financial year 2007-08 will continue to be the same as
those specified in Part II of the First Schedule to the Finance Act, 2006.
3.2-2 Surcharge
- The tax deducted at source in each case shall be increased by a surcharge
for purposes of the
(i) in
the case of every individual, Hindu undivided family, association of persons
and body of individuals, at the rate of ten per cent. of such tax, where the
income or the aggregate of such incomes paid or likely to be paid and subject
to the deduction exceeds ten lakh rupees;
(ii)
in the case of every artificial juridical person, at the rate of ten per
cent. of such tax;
3.2-3 In the case of every firm and company, the
tax deducted at source in each case shall be increased by a surcharge only
where the income or the aggregate of such incomes paid or likely to be paid and
subject to deduction exceeds one crore rupees. Such
surcharge shall be computed as follows-
(i) in the
case of every firm and domestic company, at the rate of ten per cent. of such
income-tax.
(ii) in the case of every company other than a
domestic company, at the rate of two and one-half per cent. of such income-tax.
3.2-4 No surcharge
shall be levied on the amount of income-tax deducted in the case of a
co-operative society and local authority.
3.2-5 Education Cess - An additional surcharge called the Education Cess on income-tax shall be levied at the rate of two per
cent. on the amount of tax deducted, inclusive of surcharge, if any, in all
cases. For instance, if such tax is Rs. 1,00,000/-
and the surcharge is Rs. 10,000/-, then the education
cess of two per cent. is to be computed on Rs. 1,10,000/- which works out to be Rs.
2,200/-.
In
addition, the amount of tax deducted and surcharge shall be further increased
by an additional surcharge called Secondary and Higher Education Cess on income-tax
at the rate of one per cent. in all cases. Thus in the earlier illustration,
where the amount of tax deducted is Rs. 1,00,000/-,
the surcharge is Rs. 10,000/-, the Education Cess of two per cent. is Rs.
2,200/-, the said Secondary and Higher Education Cess
will be computed on Rs. 1,10,000/- which works out to
be Rs. 1,100/-. The total cess
in this case will amount to Rs. 3,300/- (i.e. Rs. 2,200/- + Rs. 1,100/-).
3.3 Rates for
computation of advance tax, deduction of income-tax at source from Salaries, and
charging of income-tax in certain cases during the financial year 2007-08.
3.3-1 The rates for deducting income-tax at source from
Salaries and computing advance tax during the financial year 2006-07 have been specified
in Part III of the First Schedule to the Act. These rates are also applicable
for charging income-tax during the financial year 2007-08 on current incomes in
cases where accelerated assessments have to be made, e.g., provisional
assessment of shipping profits arising in India to non-residents, assessment of
persons leaving India for good during that financial year, assessment of
persons who are likely to transfer property to avoid tax, assessment of bodies
formed for short duration, etc. The rates are as follows:
3.3-2
Individual,
Hindu Undivided Family, Association of Persons, Body of Individuals or
Artificial Juridical Person
Paragraph A
of Part III of the First Schedule specifies the rates of income-tax in the case
of every individual, Hindu undivided family, association of persons, body of
individuals or artificial juridical person (other than a co-operative society,
firm, local authority and company). In the case of individuals, the basic
exemption limit has been enhanced from Rs. 1,00,000/-
to Rs. 1,10,000/-. The exemption limit for every
woman resident in India and below the age of 65 years of age has been enhanced
from Rs. 1,35,000/- to Rs.
1,45,000/-. Further, the exemption limit for every individual resident in India
and of the age of 65 years or more at any time during the previous year has
been raised from Rs. 1,85,000/- to Rs. 1,95,000/-.
The rates
of tax during the financial year 2007-08 in the case of persons mentioned above
are as follows:
|
Income chargeable to tax |
Rate of income-tax |
||
|
Individual (other than individual woman resident in |
Individual woman, resident in |
Individual senior citizen, resident in |
|
|
Up to Rs. 1,10,000 |
Nil |
Nil |
Nil |
|
Rs. 1,10,001 - Rs.
1,45,000 |
10% |
||
|
Rs. 1,45,001 - Rs.
1,50,000 |
10% |
||
|
Rs. 1,50,001 - Rs.
1,95,000 |
20% |
20% |
|
|
Rs. 1,95,001 - Rs.
2,50,000 |
20% |
||
|
Exceeding Rs. 2,50,000 |
30% |
30% |
30% |
3.3-3 Surcharge- In the case of every individual,
Hindu undivided family, association of persons or body of individuals, surcharge
shall be levied only where the total income exceeds ten lakh
rupees. For this purpose, the income-tax on such income shall be reduced by the
amount of rebate of income-tax computed under Chapter VIII-A. The income-tax so
reduced shall thereafter be enhanced by a surcharge for the purposes of the
3.3-4 In the case of
artificial juridical person, surcharge shall be levied at the rate of ten per
cent. of the income-tax payable on all levels of income.
3.3.5 In respect of
fringe benefits chargeable to tax under section 115WA of the Income Tax Act, in
the case of every association of persons and body of individuals, surcharge
shall be levied at the rate of ten per cent, where the fringe benefits exceed
ten lakh rupees. In the case of artificial juridical
person, surcharge shall be levied at the rate of ten per cent. irrespective of
the amount of fringe benefits.
3.3-6 Education Cess- An
additional surcharge called the Education Cess on
income-tax shall continue to be levied at the rate of two per cent. on the
amount of tax computed, inclusive of surcharge, if any, in all cases as
illustrated in para 3.1-6.
In
addition, the amount of tax computed and surcharge shall also be increased by
an additional surcharge called Secondary and Higher Education Cess on income-tax
at the rate of one per cent. of such income-tax and surcharge as illustrated in
para 3.2-5. No marginal relief shall be available in
respect of Education Cess.
3.3-7 Co-operative societies - In the case of
every co-operative society, the rates of income-tax have been specified in
Paragraph B of Part III of the First Schedule to the Act. The rates are as
follows-
|
Income chargeable to tax |
Rate |
|
Up to Rs. 10,000 |
10% |
|
Rs. 10,001 - Rs.
20,000 |
20% |
|
Exceeding Rs. 20,000 |
30% |
No
surcharge shall be levied. Education Cess on
income-tax and Secondary and Higher Education Cess on
income-tax shall be levied at the
rate of two per cent. and one per cent. respectively of the amount of tax
computed. No marginal relief shall be available in respect of Education Cess.
3.3-8 Firms - In the case of every firm, the
rate of income-tax of thirty per cent. has been specified in Paragraph C of
Part III of the First Schedule to the Act. Surcharge at the rate of ten per
cent. shall be levied only in cases where the firm has total income exceeding
one crore rupees. However, marginal relief shall be
allowed to ensure that the additional amount of income-tax payable, including
surcharge, on the excess of income over one crore
rupees is limited to the amount by which the income is more than one crore rupees. In respect of fringe benefits chargeable to
tax under section 115WA of the Income Tax Act, surcharge shall be levied at the
rate of ten per cent .of the amount of tax irrespective of the amount of fringe
benefits.
Additional
surcharge called the Education Cess on Income-tax
shall continue to be levied at the rate of two per cent. on the amount of tax
computed, inclusive of surcharge, in all cases. In addition, such amount of tax
and surcharge shall be further increased by an additional surcharge called
Secondary and Higher Education Cess on income-tax
computed at the rate of one per cent. on the amount of tax, inclusive of
surcharge, in all cases. No marginal relief shall be available in respect of
Education Cess.
3.3-9 Local authorities - In the case of
every local authority, the rate of income-tax has been specified at thirty per
cent. in Paragraph D of Part III of the First Schedule to the Act. No surcharge
shall be levied. However, Education Cess on
Income-tax and Secondary and Higher Education Cess on
income-tax shall be levied at the
rate of two per cent. and one per cent. respectively of the amount of tax
computed. No marginal relief shall be available in respect of Education Cess.
3.3-10 Companies -
In the case of a company, the rate of income-tax has been specified in
Paragraph E of Part III of the First Schedule to the Act.
In case
of a domestic company, the rate of income-tax is thirty per cent. of the total
income. The tax computed shall be enhanced by a surcharge of ten per cent. only
where such domestic company has total income exceeding one crore
rupees.
In the
case of a company other than a domestic company, royalties received from
Government or Indian concern under an approved agreement made after 31-3-1961,
but before 1-4-1976 shall be taxed at fifty per cent. Similarly, in the case of
fees for technical services received by such company from Government or Indian
concern under an approved agreement made after 29-2-1964, but before 1-4-1976,
shall be taxed at fifty per cent. On the balance of the total income of such
company, the tax rate shall be forty per cent. The tax computed shall be
enhanced by a surcharge of two and one-half per cent. only where such company
has total income exceeding one crore rupees..
However,
marginal relief shall be allowed in the case of every company to ensure that
the additional amount of income-tax payable, including surcharge, on the excess
of income over one crore rupees is limited to the
amount by which the income is more than one crore
rupees. Also, in the case of every company having total income chargeable to
tax under section 115JB of the Income Tax Act and where such income exceeds one
crore rupees, marginal relief shall be provided.
In
respect of fringe benefits, in the case of a domestic company, surcharge shall
be levied at the rate of ten per cent. of the amount of tax, irrespective of
the amount of fringe benefits. In the case of a company other than a domestic
company, in respect of fringe benefits, surcharge shall be levied at the rate of
two and one-half per cent. of the amount of tax, irrespective of the amount of
fringe benefits
Education
Cess on income-tax shall continue to be levied at the
rate of two per cent. on the amount of tax computed, inclusive of surcharge in
the case of every company. Also, such amount of tax and surcharge shall be
further increased by an additional surcharge called Secondary and Higher
Education Cess on income-tax at the rate of one per
cent. of the amount of tax, computed, inclusive of surcharge.
[Section 2 & First Schedule]
4. Clarificatory amendment to the definition of Assessing Officer and
definition of certain other Income-tax Authorities:
4.1
As per the provisions of clause (7A) to section 2, the expression Assessing
Officer has been defined to include Assistant Commissioner or Deputy
Commissioner or Assistant Director or Deputy Director or the Income-tax Officer
who is vested with the relevant jurisdiction by virtue of directions or orders
issued under sub-section (1) or sub-section (2) of section 120 or any other
provision of this Act. The Joint Commissioner or Joint Director who is directed
under clause (b) of sub-section (4) of section 120 can also exercise or perform
all or any of the powers and functions conferred on or assigned to an Assessing
Officer under this Act. The Income-tax authorities- Additional Commissioner and
Additional Director were not specifically mentioned in the said definition
because Additional Commissioner and Additional Director were included in the
definition of Joint Commissioner and Joint Director respectively under
clauses(28C) and (28D) of the section(2) respectively. However, in order to
further clarify the intension of the legislature with regard to the meaning of
the term Assessing Officer, the following amendments have been carried out
through the Finance Act, 2007:-
(i) Clause (7A) of Section 2 has been
amended so as to include Additional Commissioner in the said clause. This
amendment will take retrospective effect and will be effective from 1st June,
1994.
(ii) Clause
(7A) of Section 2 has been amended so as to include Additional Director in the
said clause. This amendment will take retrospective effect and will be
effective from 1st October, 1996.
(iii) Clause
(IC) has been inserted in section 2 so as to provide that Additional
Commissioner means a person appointed to be an Additional Commissioner of lncome-tax under sub-section (1) of section 117. This
amendment will take retrospective effect and will be effective from 1st
June, 1994.
(iv) Clause
(ID) has been inserted in section 2 so as to provide that Additional Director
means a person appointed to be an Additional Director of Income tax under
sub-section (1) of section 117. This amendment will take retrospective effect
and will be effective from the Ist day of October,
1996.
(v) Clause
(9B) has been inserted in section 2 so as to provide that Assistant Director
means a person appointed to be an Assistant Director of Income-tax under
sub-section (1) of section 117. This amendment will take retrospective effect
and will be effective from 1st April, 1988.
(vi) Similar amendments have also been
carried out in the Wealth-tax Act so as to provide that Assessing Officer shall
include Additional Commissioner and Additional Director.
(vii) Clause (b) of sub-section (4) of section 120 has been
amended so as to provide that the powers and functions conferred on or assigned
to the Assessing Officer may also be exercised or performed by an Additional
Commissioner. This amendment will retrospective effect and will be effective
from 1st June, 1994.
(viii) Clause (b) of sub-section (4) of section 120 has further been
amended to provide that the powers and functions conferred on or assigned to
the Assessing Officer may also be exercised or performed by the Additional
Director. This amendment will have retrospective effect and will be effective
from lst October, 1996.
[Section 3, 42 & 83]
5. Widening
the scope of capital assets.
5.1
Under the provisions of clause (14) of section (2), a
capital asset has been defined to mean, property of any kind held by an assessee, whether or not connected with his business or
profession. Personal effects held for personal use by the assessee
or any member of his family dependent on him are excluded from the ambit of
definition of capital asset. Presently, the only asset which is in the nature
of personal effects, but is included in the definition of capital assets is jewellery.
5.2
With a view to widen the scope of capital assets, the said clause has
been amended, so as to further include assets like archaeological collections,
drawings, paintings, sculptures, or any work of art in the definition of
Capital assets. These capital assets will attract capital gains tax from
Assessment Year 2008-09 onwards.
[Section 3]
6. New definition of
6.1 The definition of
The Double Taxation Avoidance
Agreements (DTAAs) entered into by
6.2
Applicability These amendments will take effect retrospectively from the 25th
day of August, 1976.
[Sections 3 & 83]
7. Income
deemed to accrue or arise in
7.1
Section 9 relates to incomes deemed to accrue or arise in
7.2
Thus, a legal fiction was created whereby interest, royalty and fees for
technical services were brought to tax on the basis of the source rule of
taxation. Hence, irrespective of the situs of the
services, the tax jurisdiction will be determined by the situs
of the payer and the situs of the utilization of
services. In terms of the said provisions, income does not have to actually
accrue or arise in
7.3
Recent judicial opinion has held that despite the deeming fiction in the
said section, for any such deemed income to be taxable in
7.4
In view of the above judicial opinion, a need was felt to reiterate the
legislative intent behind the introduction of the said clauses. Accordingly, an
Explanation has been inserted in
section 9 to clarify that where income is deemed to accrue or arise in India
under clauses (v), (vi), or (vii) of sub-section(1) of section 9, such income shall
be included in the total income of the non-resident, regardless of whether the
non-resident has a residence or place of business or business connection in
India. In such cases, therefore, there will be no need to establish any
territorial nexus between the income deemed to accrue
or arise to the non-resident under the said clauses and the
7.5
Applicability-
This amendment will take effect retrospectively from the 1st day of
June, 1976.
[Section 5]
8. Exemption
for compensation on account of any disaster.
8.1
8.2
An ambiguity prevailed under the existing law regarding the taxability
of such compensation sums in the hands of the recipients. In order to remove
such ambiguity and to categorically exempt any such compensation from income-tax,
a new clause (10BC) has been inserted in section 10. This clause provides that
any amount received or receivable from the Central Government or a State
Government or a local authority by an individual or his legal heir by way of
compensation on account of any disaster shall be exempt. This however excludes
any amount received or receivable by the individual or legal heir which has
been allowed a deduction under the Income-tax Act on account of any loss or
damage caused by such disaster.
8.3
For this purpose, the expression disaster shall have the same meaning as
is assigned to it under clause (d) of section 2 of the Disaster Management Act,
2005 (53 of 2005). Under the said clause (d), "disaster" means a
catastrophe, mishap, calamity or grave occurrence in any area, arising from
natural or man made causes, or by accident or negligence which results in
substantial loss of life or human suffering or damage to, and destruction of,
property, or damage to, or degradation of, environment, and is of such a nature
or magnitude as to be beyond the coping capacity of the community of the
affected area.
8.4
Applicability This amendment will take effect
retrospectively from the 1st day of April, 2005 and will,
accordingly, apply in relation to the assessment year 2005-2006 and subsequent
assessment years.
[Section
6]
9. Exemption for interest on notified
bonds issued by State Pooled Finance Entities.
9.1
Under the existing provisions of sub-clause (vii) of clause (15) of
section 10, interest on bonds issued by a local authority and specified by the
Central Government by notification in the Official Gazette, is exempt from
income-tax.
9.2
State Pooled Finance Entities have been set up to issue debt securities
on behalf of urban local bodies in terms of the Guidelines for the Pooled
Finance Development Scheme notified by the Ministry of Urban Development.
9.3
The interest on such bonds does not enjoy exemption under the Income Tax
Act. In order to enable such urban local bodies to raise funds for capital
investment in urban infrastructure through the Pooled Finance Mechanism,
sub-clause (vii) of clause (15) of section 10 has been amended to provide that
interest on bonds issued by a State Pooled Finance Entity and specified by the
Central Government by notification in the Official Gazette, shall also be
exempt from income-tax. By way of an Explanation
to the said sub-clause, State Pooled Finance Entity has been defined to
mean such entity which is set up in accordance with the guidelines for the
Pooled Finance Development Scheme notified by the Central Government in the
Ministry of Urban Development
9.4
Applicability-
This amendment will take effect from the 1st day of April, 2008 and
will accordingly, apply in relation to the assessment year 2008-2009 and
subsequent assessment years.
[Section 6]
10. Exemption
for income of ASOSAI-SECRETARIAT.
10.1
Under clause (23BBD) of
section 10, any income of the Secretariat of the Asian Organisation of the Supreme Audit Institutions registered
as ASOSAI-SECRETARIAT under the Societies Registration Act, 1860 is exempt for
seven previous years relevant to the assessment years beginning on the 1st
day of April, 2001 and ending on the 31st day of March 2008.
10.2
The term of
10.3
Applicability-
This amendment will take effect from the 1st day of April, 2008 and
will, accordingly, apply in relation to the assessment years 2008-2009,
2009-2010, 2010-2011.
[Section 6]
11. Exemption for income of Central Electricity
Regulatory Commission
11.1
A new clause (23BBG) has been inserted in section 10 to provide that any
income of Central Electricity Regulatory Commission constituted under
sub-section (1) of section 76 of the Electricity Act, 2003 shall be exempt.
11.2
Applicability-
This amendment will take effect from the 1st day of April, 2008 and
will, accordingly, apply in relation to the assessment year 2008-2009 and
subsequent assessment years.
[Section 6]
12. Substitution
of the power of notification of certain charitable and religious entities by
power of approval by the prescribed authority.
12.1
Under sub-clauses (iv) and (v) of clause (23C) of section 10, the income
of the funds, trusts and institutions referred to therein is exempt from tax if
they are notified by the Central Government. Sub-clause (iv) relates to any
fund or institution established for charitable purposes having importance
throughout
12.2
As the existing procedure of centralised
notification by the Central Government for the purpose of claiming exemption
was found to be time-consuming and cumbersome, a need was felt to streamline
such procedure. Accordingly, the said sub-clauses have been amended to
substitute such procedure of notification by the Central Government by a new
procedure of approval by the prescribed authority. The prescribed authority
will be the Chief Commissioner of Income-tax or Director General of Income-tax
designated for this purpose by Central Board of Direct Taxes. With this
decentralization of the powers of the Central Government to the field
authorities, no notification for exemption under the said sub-clauses will be
issued by the Central Government on or after 1.6.2007.
12.3
Consequential amendments have been made in the second proviso, ninth proviso
and thirteenth proviso to clause (23C) of section 10 and in sub-clause (ii) of
the first proviso to sub-section (3) of section 143. Through these amendments,
a reference to approval by the prescribed authority has been included in
addition to notification issued under the said sub-clauses. To give effect to
the aforesaid amendment, a new proviso has also been inserted after the
fifteenth proviso which provides that all pending applications in respect of
which no notification has been issued under the said sub-clauses (iv) or (v)
before the 1st day of June, 2007, shall stand transferred on that day to the
prescribed authority and the prescribed authority may proceed with such
applications under those sub-clauses from the stage at which they were on that
day. Vide notification S.O. 850(E) dated 30th May, 2007, the
relevant Rule 2C of Income Tax Rules, 1962 was amended to reflect the above
change in procedure. Further, vide Notification S.O. 851(E) dated 30th
May, 2007, certain Chief Commissioners and Directors General were authorized by
the Central Board of Direct Taxes to act as prescribed authority for the
purposes of sub-clause (iv) and sub-clause (v) of clause (23C) of section 10 w.e.f. 1.6.2007.
12.4
Consequential amendment has also been made in section 296 to provide
that every notification issued before the 1st day of June, 2007
under sub-clause (iv) of clause (23C) of section 10
shall be placed before each House of Parliament within the specified period.
12.5
Applicability- These
amendments will take effect from the 1st day of June, 2007.
[Section 6, 47 & 80]
13. Exemption for certain incomes of Investor
Protection Fund set up by commodity exchanges.
13.1
Under clause (23EA) of section 10, any income, by way of contributions received from recognized stock exchanges and the
members thereof, of notified Investor Protection Funds, set up by recognized
stock exchanges in
13.2
Under the Income-tax Act, Investor Protection Funds of commodity
exchanges do not enjoy such exemption even though they are similarly placed. A
need was therefore felt to provide exemption to Investor Protection funds set
up by commodity exchanges on the lines of the exemption presently available to
Investor Protection Funds set up by recognised stock
exchanges. Accordingly, a new clause
(23EC) has been inserted in section 10 to provide exemption for any income, by
way of contributions received from commodity exchanges and the members thereof,
of such Investor Protection Fund, set up by commodity exchanges in
13.3
Further, as stipulated in clause (23EA), it
has also been provided in new clause (23EC) that where any amount standing to
the credit of the said Fund and not charged to income-tax during any previous
year is shared, either wholly or in part, with a commodity exchange, the whole
of the amount so shared shall be deemed to be the income of the previous year
in which the amount is so shared and shall accordingly be chargeable to
income-tax. Commodity exchange has been defined in the Explanation thereto to mean a registered association as defined in
clause (jj) of section 2 of the Forward Contracts
(Regulation) Act, 1952.
13.4
Applicability-
This amendment will take effect from the 1st day of April, 2008, and
will, accordingly apply in relation to the assessment year 2008-2009 and
subsequent assessment years.
[Section 6]
14. Exemption for certain income of a
venture capital company or venture capital fund.
14.1
Clause (23FB) of section 10 provides exemption
in respect of any income of a venture capital company or venture capital fund
set up to raise funds for investment in a venture capital undertaking. Such
venture capital undertaking has been defined in clause (c) of Explanation 1 to clause (23FB) to mean a
venture capital undertaking referred to in the Securities and Exchange Board of
India (Venture Capital Funds) Regulations, 1996 made under the Securities and
Exchange Board of India Act, 1992 and notified as such in the Official Gazette
by the Board for the purposes of the clause.
14.2
With a view to make the tax benefit more focused and to channelise existing as well as future investments in key,
risk-prone thrust areas, clause (23FB) has been amended whereby such exemption
will now be available only in respect of income of a venture capital company or venture capital fund from
investment in a venture capital undertaking. For this purpose, the said clause
(c) of Explanation 1 has also been
amended to define venture capital undertaking as such domestic company
whose shares are not listed in a recognised stock
exchange in India and which is engaged in the-
(i)
business of
(A)
nanotechnology;
(B)
information
technology relating to hardware and software development;
(C)
seed research and development;
(D)
bio-technology;
(E)
research
and development of new chemical entities in the pharmaceutical sector;
(F)
production
of bio-fuels;
(G)
building
and operating composite hotel-cum-convention centre with seating capacity of
more than three thousand; or
(H)
developing
or operating and maintaining or developing, operating and maintaining any
infrastructure facility as defined in the Explanation
to clause (i) of sub-section (4) of section
80-IA; or
(ii)
dairy
or poultry industry.
14.3
Applicability-
This amendment will take effect from the 1st day of April, 2008 and
will accordingly apply in relation to the assessment year 2008-2009 and
subsequent assessment years.
[Section 6]
15. Tax benefit only for new unit in Special
Economic Zone (SEZ).
15.1
Section 10AA of the Income-tax Act provides that in computing the total
income of an entrepreneur, from his unit in the Special Economic Zone(SEZ), the
following deduction shall be allowed:-
(i)
hundred
per cent. of profits and gains derived from the export made in eligible
business for a period of five consecutive assessment years beginning from the
year in which such business commences;
(ii)
fifty
per cent. of such profits and gains for further five assessment years; and
(iii)
an
amount not exceeding fifty per cent of the profit debited to the profit and
loss account of the previous year in respect of which the deduction is to be
allowed and credited to a reserve account to be created and utilized for the
purposes of the business in the specified manner, for the next five consecutive
assessment years.
15.2
Under the existing provisions contained in sub-section (4) of the said
section, it is provided that section 10AA is applicable to any undertaking
being the unit, which has begun or begins to manufacture or produce articles or
things or provide services during the previous year relevant to the assessment
year commencing on or after the 1st day of April, 2006 in any SEZ.
15.3
Considering the fact that the special economic zones are intended to
promote new industry and new investment and not to facilitate migration of
existing industries to avail of tax concessions sub-section (4) of section 10AA
has been substituted so as to provide that section 10AA is applicable to any
undertaking, being the unit, which fulfills all the following conditions,
namely:-
(i)
it
has begun or begins to manufacture or produce articles or things or provide
services during the previous year relevant to the assessment year commencing on
or after the 1st day of April, 2006 in any SEZ;
(ii)
it
is not formed by the splitting up, or the reconstruction, of a business already
in existence; and
(iii)
it
is not formed by the transfer to a new business of machinery or plant
previously used for any purpose.
15.4
The conditions at (ii) shall not apply in respect of any undertaking,
being the unit, which is formed as a result of the re-establishment,
reconstruction or revival by the assessee of the
business of any such undertakings as is referred to in section 33B, in the
circumstances and within the period specified in that section.
15.5
Explanation 1
and Explanation 2 to sub-section (3) of section 80-IA shall apply
for the purposes of determining satisfaction of conditions at (iii).
15.6
Applicability- This
amendment will take effect retrospectively from the 10th day of
February, 2006.
[Section
7]
16. Removal
of the requirement for charitable or religious trusts or institutions to file
for registration within one year of creation or establishment.
16.1
Sections 11 and 12 grant exemption in respect of income of charitable or
religious trusts or institutions. In order to claim such exemption, inter alia, the trust or institution is required to make an
application for registration under clause (a) of section 12A in the prescribed
form and in the prescribed manner to the Commissioner within one year from the
date of its creation or establishment and such trust or institution has to be
registered under section 12AA.
16.2
Where such application is made after one year, the Commissioner has the
powers to condone such delay, if he is satisfied that the trust or institution
was prevented from making the application within the specified time limit for
sufficient reasons. If the Commissioner is so satisfied, the exemption under
sections 11 and 12 shall apply to such trust or institution from the date of
creation of the trust or establishment of the institution. However, where the
Commissioner is not so satisfied, the exemption shall become applicable only
from the 1st day of the financial year in which the application is
made.
16.3
A
need has been felt to streamline the procedure relating to the registration of
charitable or religious trusts or institutions. In line with such intention,
the abovementioned clause (a) has been sunset by restricting its applicability
to applications made before 1.6.2007. A new clause (aa)
has been inserted in section 12A to provide that the provisions of section 11
and 12 shall not apply in relation to the income of the trust or institution
unless the person in receipt of the income has made an application for the
registration of the trust or institution on or after the 1st day of June, 2007
in the prescribed form and in the prescribed manner to the Commissioner and
such trust or institution is registered under section 12AA.
16.4
In addition, section 12A has been re-numbered as sub-section (1) of
section 12A and new sub-section (2) has been inserted in section 12A to provide
that where an application has been made on or after the 1st day of June,
2007, the provisions of sections 11 and 12 shall apply in relation to the
income of such trust or institution for the assessment year immediately
following the financial year in which such application is made.
16.5
With the above amendments, a trust or institution will no longer be
compelled to file an application for registration within one year from the date
of its creation or establishment. Thus, where an application is filed on or
after the 1st day of June, 2007, the exemption under sections 11 and
12 shall be available on a prospective basis. Accordingly, the discretion
presently vested with the Commissioner to determine the period from which the
exemption shall be applicable and the consequent power of condonation
of delay for prior years stand removed
6.6
Consequential amendments have been made in sub-sections (1) and (2) of
section 12AA so as to include a reference to an application for registration of
a trust or institution made under newly inserted clause (aa) of section 12A.
16.5
Applicability-
These amendments will take effect from the 1st day of June, 2007
[Sections 8 & 9]
17. Allowing share investment in certain
cases as a permissible investment mode for a trust or institution.
17.1
Section 11(5) of the Act specifies various permissible forms and modes
of investing or depositing the funds of a trust or institution for the purposes
of availing exemption. Residual clause (xii) of section 11(5) allows any other
form or mode as maybe prescribed in Rule 17C of the Income Tax Rules, 1962.
Under clauses (iv) and (v) of Rule 17C, investment in the equity share capital
of certain companies by certain entities has been permitted.
17.2
However, under sub-clause (iii) of clause (d) of sub-section (1) of
section 13, exemption under the provisions of section 11 or section 12 is not
allowable in respect of the income of a trust or institution, if any shares are
held by it for any period during the previous year after 30.11.1983. The only
exception which has been provided is for shares held in a public sector company
by the trust or institution.
17.3
This had resulted in an anomalous situation whereby share investment is
allowed as a permitted form or mode of investment under section 11(5)(xii) read with rule 17C, whereas such share investment
stands prohibited under section 13(1)(d)(iii).
17.4
With a view to harmonise the provisions of
section 13(1)(d)(iii) with those of section
11(5)(xii), sub-clause (iii) of clause (d) of sub-section (1) of section 13 has
been substituted with a new sub-clause. This new sub-clause provides that the
provisions of section 11 and section 12 shall not apply in respect of any
income of a charitable or religious trust or institution, if for any period
during the previous year, any shares in a company are held by the trust or
institution after the 30th day of November, 1983, other than
(A)
shares
in a public sector company;
(B)
shares
which are prescribed as a form or mode of investment under clause (xii) of
sub-section (5) of section 11,
17.5
Applicability-
This amendment will take effect retrospectively from the 1st day of
April, 1999 and will accordingly apply in relation to the assessment year
1999-2000 and subsequent assessment years.
[Section 10]
18. Clarification regarding concession in the
matter of rent.
18.1 Section 15 of the Income-tax Act provides
that any salary due or paid or allowed or any arrears of salary paid or allowed
to the employee in the previous year by an employer or a former employer is
chargeable to tax under the head salaries. The term salary has been defined in
section 17 of the Income-tax Act and it includes perquisites or profits in lieu
of or in addition to any salary or wages. The term perquisite as defined in sub-section (2) of section 17 of the Income-tax Act, 1961,inter-alia,
includes –
(i)
the value of rent-free accommodation provided to the assessee by his employer;
(ii)
the value of any concession in the matter of rent respecting any
accommodation provided to the assessee by his
employer.
18.2 Rule 3 of the Income-tax
Rules, 1962, has been formulated in exercise of the powers conferred by section
295 of the IT Act. It provides, inter-alia, for the
method for determination of value of residential accommodation provided by the
employer to the employee. Rule 3 initially had provided for valuation of
perquisite, in the nature of residential accommodation, by discretionary method
which was certain percentage of salary or fair market rent whichever is less.
This method was found to be cumbersome as the estimation of fair rent had been
the subject matter of litigation at various levels. Accordingly, the procedure
for determining the perquisite value was simplified by adopting presumptive
method in 2001 which provided that the perquisite value of residential accommodation
shall be determined in the following manner:-
(i)
For
Central Govt. and State govt. employees the perquisite value would be equal to
license fee payable by the employee;
(ii)
In
case of other employees, the perquisite value would be equal to 10 per cent of
the salary, if the accommodation is located in a city having population
exceeding four lakhs and 7.5 % for other cities,
based on the census of 1991.
18.1
The perquisite value so determined was to be reduced by the
amount, if any, recovered from or paid by the employee. Rule 3 was further
amended in 2005 so as to increase the rate of 10% to 20% and 7.5% to 15%.
Further, the base for population was changed to 2001 census.
18.2
The constitutional validity of rule 3 relating to the
perquisite value of residential accommodation as amended by SO. No. 940 (E)
dated 25.9.2001 was challenged before various High Courts and before the
Supreme Court.
18.3
The Honble High Court of Jharkhand has, in the case of the Tata
Workers Union and another Vs Union of India (256 ITR 725), upheld the validity
of rule 3 as amended by notification S.O. No. 940(E) by holding that the impugned notification does not suffer
from any arbitrariness because in our considered opinion, for rationalising and simplifying the procedure, the Board
brought about the impugned notification otherwise on account of cumbersome
procedure as per the old rule various difficulties were being faced.
18.4
18.6The Honble Supreme Court, in the case of Arun
Kumar Vs. UOI (2006-119-SC) (Appeal (Civil) 3270 of 2003) held thatthough Rule 3 of the Rules cannot be held arbitrary,
discriminatory or ultra vires Article 14 of the
Constitution nor inconsistent with the parent Act [Section 17(2)(ii)], it is in
the nature of machinery-provision and applies only to the cases of concession
in the matter of rent respecting any accommodation provided by an employer to
his employees. Whether or not Parliament could have in the exercise of
legislative power created a deeming fiction as to concession in the matter of
rent in certain circumstances (for which we express no final opinion), no such
deeming provision is found in the Act. It is, therefore, open to the assessee to contend that there is no concession in the
matter of accommodation provided by the employer to the employees and the case
is not covered by section 17(2)(ii) of the Act.
18.5
Thus, Honble Supreme Court has, while
upholding the validity of Rule-3, held that the fact of a concession would have
to be proved in each case before the rate of 15 per cent or 20 percent is
applied to that case. The Supreme Court decision was not adverse to the
Government and, in fact, indicated that the way out would be to insert a
deeming provision. If the judgement were to be
applied in each case, it would have resulted in considerable inconvenience to
the assessee and long drawn out proceedings as the
fact of concession in the matter of rent would have had to be examined in each
and every case on discretionary basis.
18.6
Hence, the Finance Act 2007 inserted a deeming provision defining what constitute
concession in the matter of rent with retrospective effect from 1.4.2002, i.e.
assessment year 2002-03 and subsequent years. Further, the presumptive rates
for valuation of concessional rent accommodation were
reduced with retrospective effect from 1.4.2006, i.e. assessment year 2006-07
and subsequent years to provide relief to salaried employees.
18.7
It has now been provided that concession in the matter of rent with
respect to an accommodation owned and provided by the employer shall be deemed
to have been provided if the rent recovered from the employee is less than the
value determined as under:-
·
For
unfurnished accommodations located in cities having population of more than 25 Lakh and provided by an employer other than the Central
Government or State Government valuation will be 15% of salary;
·
For
unfurnished accommodations located in cities having population of more than 10 Lakh but not more than 25 Lakh
and is provided by an employer other than the Central Government or State
Government valuation will be 10% of salary;
·
For
unfurnished accommodations located in other area and is provided by an employer
other than the Central Government or State Government valuation will be 7.5% of
salary;
·
For
unfurnished accommodation provided by Central Government or State Government
the valuation will be the licence fee
·
In
case of unfurnished lease property, the valuation will be 15% of the salary or
lease rental which ever is lower
·
In case furniture is provided, the actual hire
charge (in case the furniture is hired from third party) or 10% of cost of
furniture (if the furniture is owned by the employer) is to be added
·
In
case any part of rent is being recovered from or paid by the employee, the valuation arrived above shall be
reduced by that amount.
·
The
population shall be as per 2001 census.
18.8
Rule 3 has also been amended accordingly and notified vide
S.O. 1896(E), dated 7th November, 2007. The reason for legislature
to prefer presumptive method in 2001 in comparison to a discretionary method
was to eliminate discretionary powers of the A.O. The pre-2001 system of
determining the fair market rent in each case would have led to prolonged legal
battle causing enormous inconvenience to taxpayers. The insertion of
explanation with retrospective effect seeks to clarify such intention. The
lowering of valuation rate with retrospective effect is aimed to provide relief
to taxpayers.
18.9
It is also realized that, due to retrospective effect of
this amendment, taxpayers may be entitled to refunds, as in their case tax on
perquisite in the form of rent free or concessional
rent accommodation would have been deducted at a higher rate than what has been
enacted now for assessment years 2006-2007 and 2007-2008. For these years, the
taxpayers, who had already lodged their tax returns for these years, can claim
refund by filing a rectification application under section 154 of the
Income-tax Act. The application should enclose a certificate from the employer
certifying the year-wise value of perquisite determined, relating to rent free
or concessional rent accommodation provided to that
employee, and the tax deducted there upon and paid to Central Government. The
assessing officers are directed to admit such applications and process them u/s
154 of the Income-tax Act.
18.10
While amending Rule 3, sub-rules 2, 6, 7 (ii), (iii), (iv), (v) and (vi) have also been reintroduced. These
sub-rules were omitted by the Finance Act, 2005 while introducing the provisions
of Fringe Benefit Tax in order to avoid double taxation of those benefits which
were sought to be taxed as fringe benefit. However, Chapter XII-H of the
Income-tax Act relating to Fringe Benefit Tax, as provided in the Finance Act,
2005, is not applicable to all employers. For example individual, HUF, exempted
trust, government, etc. are a few examples of employers who are not subjected
to FBT. Accordingly, these sub-rules have been reintroduced to provide
valuation rules for valuation of perquisites enjoyed by an employee employed
with an employer, who is not subjected to fringe benefit tax. Sub-rule 7(ix)
has been inserted to provide for valuation of any other benefit or amenity, etc
in residual cases relating to any employer. These sub-rules shall take effect
from the 1st day of April, 2008 and will accordingly apply in
relation to the assessment year 2008-09 and subsequent years.
[Section 11]
19. Weighted deduction under clause (1) of
sub-section (2AB) of section 35 to be allowed for five more years.
19.1
The existing provisions of clause (1) of sub-section (2AB) of section
35, allowed in the case of a company, engaged in the business of biotechnology
or in the business of manufacture or production of any drugs, pharmaceuticals,
electronic equipment, computers, telecommunication equipment, chemicals or any
other article or thing notified by the Board, a deduction of a sum equal to one
and one-half times of the expenditure incurred on scientific research (not
being expenditure in the nature of cost of any land or building) on in-house
research and development facility as approved by the prescribed authority.
19.2
The existing provisions were not applicable in respect of any
expenditure incurred by a company after 31st March, 2007 and no
weighted deduction against expenditure incurred after that date was admissible.
19.3
Considering the general realisation that research and development still needs some
fiscal support for a few more years, the Finance Act, 2007 has amended clause
(5) of the said sub-section, thereby allowing weighted deduction
referred to in clause (1) for a further period of five years,
that is, in respect of the expenditure incurred up to 31st
March, 2012.
19.4
Applicability This
amendment will take effect from 1-4-2008 and will accordingly apply in relation
to the assessment year 2008-09 onwards upto
assessment year 2012-13.
[Section 12]
20. Deduction in respect of any provision for
bad and doubtful debts to be allowed in the case of co-operative banks under
section 36(1)(viia).
20.1
Under the existing provisions of clause (viia)
of sub-section (1) of section 36, deduction of an amount not exceeding seven
and one-half per cent. of the total income (computed before making any
deduction under the said clause and Chapter VIA) and an amount not exceeding
ten per cent. of the aggregate average advances made by the rural branches of a
scheduled bank or a non-scheduled bank computed in the prescribed manner was
allowed as deduction in the computation of income of such banks. Scheduled
bank, as defined in the Explanation to clause (viia)
of sub-section (1) of the section 36, did not include a co-operative bank.
20.2
The deduction earlier allowable under section 80P in the case of a
co-operative society engaged in carrying on the business of banking
(co-operative banks) has been withdrawn from assessment year 2007-2008 barring
in the case of a primary agricultural credit society or a primary co-operative
agricultural and rural development bank.
20.3
Since profits of co-operative banks have become taxable after withdrawal
of 80P deduction, the Finance Act, 2007 has amended sub-clause (a) clause (viia) of sub-section (1) of section 36 to allow deduction
in respect of any provision for bad and doubtful debts to a co-operative bank
other than a primary agricultural credit society or a primary co-operative
agricultural and rural development bank.
20.4
The definition of scheduled bank in clause (ii) of Explanation to said
clause (viia) has also been amended to include
scheduled co-operative banks within the definition.
20.5
Under the existing provisions contained in the Explanation to
item (fa) of sub-clause (iv) of clause (15) of
section 10, the expression scheduled bank was defined to have the meaning
assigned to it in clause (ii) of the Explanation to clause (viia) of sub-section (1) of section 36 which does not,
inter alia, include co-operative banks. However, the
definition of scheduled bank has been amended to include scheduled co-operative
banks. The referral definition of scheduled bank occurring in the Explanation
to the aforesaid item (fa) did not allow exemption of
interest payable to a non-resident or a not ordinarily resident by a
co-operative bank. In order to continue with this position, the definition of
scheduled bank in its pre-amended form in clause (ii) of Explanation to clause
(viia) of sub-section (1) of section 36 has being
substituted for the existing Explanation in the aforesaid item (fa) so that the scope of the exemption allowed under the
aforesaid item (fa) is not changed.
20.6
The amendment to the definition of scheduled banks as it appears in
clause (viia) of sub-section (1) of section 36 will
also have the effect of making the provisions of section 43D applicable to
scheduled co-operative banks.
20.7
Applicability - These amendments will take effect, retrospectively, from
the 1st day of April, 2007 and will, accordingly apply in relation
to the assessment year 2007-2008 and subsequent assessment years.
[Section 6
& 13]
21. Rationalisation
of provisions relating to deduction in respect of creation and maintenance of
special reserve under section 36(1)(viii).
21.1
The existing provisions of clause (viii) of sub-section (1) of section
36 of the Income-tax Act, 1961 provided for a deduction in respect of any
special reserve created and maintained by,-
(i) a financial
corporation engaged in providing long-term finance for industrial or
agricultural development or development of infrastructure facility in
(ii) a public
company formed and registered in
Maximum deduction allowable under the
aforesaid clause was forty per cent. of the profits derived from the business
of providing long-term finance
21.2
The provisions regarding this special deduction also existed in the
Income-tax Act, 1922 and were retained in the Income-tax Act, 1961. The
objective of this deduction originally was to stimulate industrial development
of the country. The scope of the provisions of the said clause was later on
widened by the Finance (No.2) Bill, 1971 to include in its ambit the approved
financial corporations engaged in providing long-term finance for agricultural
development in
21.3
Since the introduction of this special deduction and subsequent widening
of its scope, high tax incidence on companies has come down substantially. The
benefit of this deduction was also intended to enable corporations to augment
their initial low equity base on account of limited accessibility to capital
market. In the wake of liberalisation, from the
beginning of the nineties, there has been considerable expansion and deepening
of the capital market. Accessibility to capital market has markedly improved.
21.4
The Finance Act, 2007, therefore, has limited the deduction to twenty
per cent. of the profits derived from the business of providing long-term
finance. Considering the provision for outer limit to the deduction, which is
twice the amount of the paid-up share capital and of the general reserves, the
reduction in the level of deduction to twenty per cent will have the effect of
elongating the time period during which the deduction can be claimed by the
beneficiary specified entities. Effectively therefore the specified entities
are not adversely affected in the long term.
21.5
The provision has also been restructured to provide for different
categories of entities (which now also includes
co-operative banks) and their respective activities for eligibility of the
deduction under the said clause. For claiming deduction under the said clause,
(i) a financial corporation specified in section 4A
of the Companies Act or a financial corporation which is a public sector
company or a banking company or a co-operative bank (other than a primary
agricultural credit society or a primary co-operative agricultural and rural
development bank) has to be engaged in the business of providing long-term
finance in India for industrial or agricultural development or development of
infrastructure facility, (ii) a housing finance company has to be engaged in
the business of providing long-term finance for the construction or purchase of
houses in India for residential purposes and (iii) any other financial
corporation including a public company, has to be engaged in the business of
providing long-term finance for development of infrastructure facility in
India. It may be clarified that a financial corporation specified in section 4A
of the Companies Act shall include such corporations specified under
sub-section (1) and under sub-section (2) of section 4A of the Companies Act.
21.6
The amendment made by the Finance Act, 2007 also provides definitions of
the expressions banking company, co-operative bank, primary agricultural credit
society, primary co-operative agricultural and rural development bank, housing
finance company, public company, infrastructure facility and long-term finance.
21.7
Applicability This amendment will take effect from 1-4-2008 and will accordingly
apply in relation to the assessment year 2008-09 and subsequent assessment
years.
[Section 13]
22. Withdrawal of deduction under section
36(1)(x) in respect of contribution by public
financial institutions towards Exchange Risk Administration Fund [ERAF].
22.1 Under the existing provisions of clause (x) of sub-section (1)
of section 36, any sum paid by a public financial institution by way of
contribution towards any Exchange Risk Administration Fund (ERAF) set up by
public financial institutions, either jointly or separately, was allowed as
deduction in the computation of income of the payer institution.
22.2 ERAFs were set
up under a scheme known as Exchange Risk Administration Scheme (ERAS). The
benefit of coverage of exchange risk under the Scheme was available to
borrowers of foreign currency loans provided by institutions out of their
external commercial borrowings.
22.3 An exemption under clause (23E) of
section 10 in respect of any income of a notified ERAF set up by public financial
institutions was earlier provided by the Finance Act, 1989. By virtue of clause
(14A) of section 10, income in the nature of Exchange Risk Premium received by
public financial institutions from the borrower and thereafter credited to the
ERAF was also exempted from tax. The exemption to ERAFs
under section 10(23E) was withdrawn by the Finance Act, 2002 from assessment
year 2003-04 on the ground that the operations of these funds were on a
commercial line whereby they were collecting an exchange risk premium from
borrowers of foreign currency to meet the actual losses on account of exchange
fluctuation. ERAFs had been in existence for a
considerable time since 1989 and it was felt that tax exemption to them had
outlived the utility. Exemption under clause (14A) of section 10 was also
withdrawn simultaneously.
22.4 The foreign exchange scenario in
22.5 The Finance Act, 2007, accordingly, has
omitted clause (x) from the said sub-section.
22.6 Applicability - This amendment
will take effect from 1-4-2008 and will accordingly apply in relation to the
assessment year 2008-09 and subsequent assessment years.
[Section 13]
23. Central Government vested with power to
notify a statutory corporation or a body corporate for the purposes of
deduction under section 36(1)(xii).
23.1 Under the existing provisions of clause
(xii) of sub-section (1) of section 36, any expenditure (not being in the
nature of capital expenditure) incurred by a corporation or a body corporate,
by whatever name called, constituted or established by a Central, State or
Provincial Act, for the objects and purposes authorised
by the said Acts, was allowed as deduction in the computation of its income.
23.2 The objects and purposes as listed in the
said Acts may authorise any kind of expenditure, the allowability of which could not have been questioned in
terms of the existing provisions. Therefore, the Finance Act, 2007 has
substituted the said clause (xii) to provide that the deduction shall be
allowed if such corporation or body corporate is notified by the Central
Government in the Official Gazette under the said clause, having regard to the
objects and purposes of the corresponding Central, State or Provincial Act.
23.3 Applicability - This amendment
will take effect from 1-4-2008 and will accordingly apply in relation to the
assessment year 2008-09 and subsequent assessment years.
[Section 13]
24. Providing for deduction of sum paid by a
public Financial Institution to a notified credit guarantee trust for small
industries.
24.1 The Finance Act, 2007 inserted a new
clause (xiv) in sub-section (1) of section 36 of the Income-tax Act, 1961 to
provide for deduction of any sum paid by a public financial institution by way
of contribution to such credit guarantee fund trust for small industries as the
Central Government may, by notification in the official gazette, specify in
this behalf.
24.2 Applicability - This amendment will take effect
from 1-4-2008 and will accordingly apply in relation to the assessment year
2008-09 and subsequent assessment years.
24.3 Pursuant to the said amendment, Credit
Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), set up by
Government of India and Small Industries Development Bank of India (SIDBI), has
been notified under clause (xiv) of sub-section (1) of section 36 of the
Income-tax Act, 1961 vide Notification No. S.O. 1569(E) Dated 18th
September, 2007.
[Section 13]
25. Strengthening
the provisions of section 40A(3).
25.1
The existing provisions of sub-section (3) of section 40A provided for disallowance
of twenty per cent of the expenditure incurred, payment in respect of which is
made in a sum exceeding twenty thousand rupees, otherwise than by an account
payee cheque drawn on a bank or by an account payee
bank draft.
25.2
The said sub-section was inserted by the Finance Act, 1968 providing for
disallowance of hundred per cent of the expenditure, if payment was made in
contravention of its provisions. Subsequently, the Finance Act, 1995 amended
this sub-section with effect from 1st April, 1996 to restrict the
disallowance to twenty per cent of the expenditure, payment against which is
made in violation of its provisions.
25.3
The provisions of the said sub-section were to act as an anti-evasion
measure. It has come to notice that substitution of the disallowance of hundred
per cent. by twenty per cent. has diluted the deterrence potential of the
provisions. Therefore, to re-strengthen the deterrence potential, the Finance
Act, 2007 has substituted sub-section (3) of section 40A to provide for hundred
per cent disallowance of payments which are made in violation of its
provisions.
25.4
There were occasions when deduction of expenditure was claimed in one
year and the payment against such expenditure was made in any subsequent year
in violation of the provisions of the said sub-section. In such cases, the
existing first proviso to the said sub-section provided for re-computation of
the total income of the previous year in which the liability to pay against the
expenditure was incurred. Such re-computation was allowed to be made under the
provisions in section 154 and the limitation of four years in respect of such
re-computation was reckoned from the end of the assessment year next following
the previous year in which the payment in contravention of provisions of
sub-section (3) of section 40A was made. In many cases, violation was noticed
after expiry of four years when no remedy was available. Rectification of past
assessments involved inconvenience to the assessee
and increased paper work for the Department. The Finance Act, 2007, therefore,
has substituted the existing method of disallowance in an earlier year with a
simplified method of contemporaneous disallowance by deeming the payments made
in contravention of law in any subsequent year as profits and gains of business
or profession of such year in which payment is made in violation of law. This
method of deeming the income in the year of payment, will cast an obligation on
the assessee to declare this deemed income in terms
of the existing requirement under law to affirm that the amount of total income
and other particulars in his return of income are truly stated.
25.5
The Finance Act, 2007 has further provided that no disallowance shall be
made or no payment shall be deemed to be the profits or gains of business or
profession if any payment exceeding twenty thousand rupees is made otherwise
than by specified instruments, in such cases and under such circumstances as
may be prescribed, having regard to - (i) the nature
and extent of banking facilities available, (ii) business expediency
considerations and (iii) other relevant factors.
25.6
In pursuance of the above amendment, the Board have
issued Notification No. S.O. 1044(E) dated 27th June, 2007
substituting Rule 6DD of the Income-tax Rules, 1962 containing exceptions to
the provisions of sub-section (3) of section 40A. The exceptions now provided
in the newly notified Rule 6DD include payments by the use of electronic
clearing system through a bank account, a credit card and a debit card. The
exceptions also include now payments upto Rs. 50,000/- on account of terminal benefits without
reference to any salary ceiling. Considering the spread of banking services
across the Country, exception earlier provided to payments made to various
state level industrial development corporations and National Industrial
Development Corporation has been withdrawn in the new Rule. The new Rule shall
come into force with effect from the assessment year 2008-2009.
25.7
pplicability - This amendment will take effect
from 1-4-2008 and will accordingly apply in relation to the assessment year
2008-09 and subsequent assessment years.
[Section 14]
26. Provisions relating
to business reorganisation of cooperative banks.
26.1
A new section 72AB has been inserted providing for carry forward and set-off
of accumulated loss and unabsorbed depreciation allowance in business re-organisation of cooperative banks. The provisions are
applicable to an assessee, being a successor
co-operative bank, in a case where amalgamation has taken place during the relevant
previous year. The said successor cooperative bank will be entitled to set off
the accumulated loss and the unabsorbed depreciation, if any, of the
predecessor co-operative bank as if such amalgamation had not taken place. All
the other provisions of this Act relating to set off and carry forward of loss
and allowance for depreciation will also apply accordingly.
26.2 In respect of cooperative banks, business
reorganization has been defined to mean the reorganization of business involving
the amalgamation or demerger of a co-operative bank.
26.3 Further, amalgamation in respect of
cooperative bank has been defined to mean the merger of an amalgamating
co-operative bank or banks with an amalgamated co-operative bank, in such
manner that -
(i) all the assets and liabilities of the amalgamating
co-operative bank or banks immediately before the merger (other than the assets
transferred, by sale or distribution on winding up, to the amalgamated
co-operative bank) become the assets and liabilities of the amalgamated
co-operative bank;
(ii) the members holding seventy-five per
cent or more voting rights in the amalgamating co-operative bank become members
of the amalgamated co-operative bank; and
(iii) the shareholders holding seventy-five per
cent or more in value of the shares in the amalgamating co-operative bank
(other than the shares held by the amalgamated co-operative bank or its nominee
or its subsidiary, immediately before the merger) become shareholders of the
amalgamated co-operative bank.
26.2
Demerger in respect of cooperative bank has been defined to mean the
transfer by a demerged co-operative bank of one or
more of its undertakings to any resulting co-operative bank, in such manner
that
(i) all the assets and liabilities of the undertaking or
undertakings immediately before the transfer become the assets and liabilities
of the resulting co-operative bank;
(ii) the assets and the liabilities are
transferred to the resulting co-operative bank at values (other than change in
the value of assets consequent to their revaluation) appearing in its books of
account immediately before the transfer;
(iii) the resulting co-operative bank issues,
in consideration of the transfer, its membership to the members of the demerged co-operative bank on a proportionate basis;
(iv) the shareholders holding seventy-five per
cent or more in value of the shares in the demerged
co-operative bank (other than shares already held by the resulting bank or its
nominee or its subsidiary immediately before the transfer), become shareholders
of the resulting co-operative bank, otherwise than as a result of the
acquisition of the assets of the demerged
co-operative bank or any undertaking thereof by the resulting co-operative
bank;
26.3
set of conditions have been provided both in the case of successor and
predecessor cooperative banks, which have to be fulfilled for availing the
provisions as enumerated in this section.
(A)
The following conditions have been
prescribed for the predecessor co-operative bank:-
(i) the said cooperative bank has been
engaged in the business of banking for three or more years; and
(ii) the
said cooperative bank has held at least three-fourths of the book value of
fixed assets as on the date of the business reorganisation,
continuously for two years prior to the date of business reorganization.
(B)
The following conditions have been
prescribed for the successor co-operative bank:
(i) the said cooperative bank holds at
least three-fourths of the book value of fixed assets of the predecessor co-operative
bank acquired through business reorganisation,
continuously for a minimum period of five years immediately succeeding the date
of business reorganisation;
(ii) the
said cooperative bank continues the business of the predecessor co-operative
bank for a minimum period of five years from the date of business reorganisation; and
(iii) the said cooperative bank fulfils such other conditions as may
be prescribed to ensure the revival of the business of the predecessor
co-operative bank or to ensure that the business reorganization is for genuine
business purpose. Besides, the Central Government may, for the purposes of this
section, by notification in the Official Gazette, specify such other conditions
as it considers necessary, other than those prescribed to ensure that the
business reorganisation is for genuine business
purposes.
26.4
The amount of accumulated loss and unabsorbed depreciation, which can be
allowed to set-off against the income of resulting co-operative bank has been
provided as under:
(i) the accumulated loss or unabsorbed
depreciation of the demerged co-operative bank if the
whole of the amount of such loss or unabsorbed depreciation is directly
relatable to the undertakings transferred to the resulting co-operative bank;
or
(ii) the
amount which bears the same proportion to the accumulated loss or unabsorbed
depreciation of the demerged co-operative bank as the
assets of the undertaking transferred to the resulting co-operative bank bears
to the assets of the demerged co-operative bank if
such accumulated loss or unabsorbed depreciation is not directly relatable to
the undertakings transferred to the resulting co-operative bank.
26.5
Further, accumulated loss and unabsorbed depreciation have been defined
as under :-
(a) accumulated
loss means so much of loss of the amalgamating co-operative bank or the demerged co-operative bank, as the case may be, under the
head Profits and gains of business or profession (not being a loss sustained in
a speculation business) which such amalgamating co-operative bank or the demerged co-operative bank, would have been entitled to
carry forward and set-off under the provisions of as if the business reorganisation had not taken place;
(b) unabsorbed
depreciation means so much of the allowance for depreciation of the amalgamating
co-operative bank or the demerged co-operative bank,
as the case may be, which remains to be allowed and which would have been
allowed to such bank as if the business reorganisation
had not taken place;
26.6
With a view to lend clarity to the number of years to be reckoned for
the purposes of set off and carry forward of loss and allowance for
depreciation, it has been provided that
(i) the period
commencing from the beginning of the previous year and ending on the date
immediately preceding the date of business reorganisation,
and
(ii) the period commencing from the date of
such business reorganisation and ending with the
previous year shall be deemed to be two different previous years for the
purposes of set off and carry forward of loss and allowance for depreciation.
26.7
It has also been provided that in a case where the conditions specified
in sub-section (2) or notified under sub-section (4) of this section are not
complied with, the set off of accumulated loss or unabsorbed depreciation
allowed in any previous year to the successor co-operative bank shall be deemed
to be the income of the successor co-operative bank chargeable to tax for the
year in which the conditions are not complied with.
26.8
Further, a new section 44 DB has been inserted so as to
provide for computing deductions in the case of business re-organisation
of cooperative banks. Thus, proportionate deduction in the proportion of number
and days prior and after the date of amalgamation for depreciation,
amortization of certain preliminary expenses, expenditure relating to
amalgamation and demerger and amortization of expenditure incurred under
voluntary retirement scheme (VRS) is allowable to the predecessor and successor
co-operative bank in a scheme of amalgamation or demerger.
26.9
The expressions amalgamated co-operative bank, amalgamating co-operative
bank, amalgamation, business reorganisation,
co-operative bank, demerged co-operative bank,
demerger, predecessor co-operative bank, successor co-operative bank and
resulting co-operative bank have been defined similarly in sections 44DB and
72AB.
26.10
Applicability-
This amendment will take effect from 1-4-2008 and will accordingly apply in
relation to the assessment year 2008-09 and subsequent assessment years.
[Sections 15 & 21]
27. Giving
retrospective effect to exception from taxation for certain incomes and to
include certain other incomes in the definition of income.
27.1
Vide Finance (No.2) Act, 2004, clause (v) was
inserted in sub-section (2) of section 56 w.e.f.
1.4.2005. This clause presently provides that where any sum of money exceeding
twenty-five thousand rupees is received without consideration by an individual
or a Hindu undivided family from any person on or after the 1st day
of September, 2004, but before the 1st day of April, 2006, the whole
of such sum shall be chargeable to income-tax under the head income from other
sources. Under the Proviso thereto, certain exceptions have been provided in
respect of any sum of money received from certain specified persons and under
certain specified circumstances.
27.2
Vide Taxation Laws (Amendment) Act, 2006, clauses (e), (f) and (g) were
inserted in the said Proviso w.e.f. 13.7.2006 so as
to provide further exceptions in respect of any sum of money received from any
local authority or an entity referred to in clause (23C) of section 10 or any
trust or institution registered under section 12AA.
27.3
The aforesaid clause (v) of section 56(2) came into force from 1.4.2005.
The same effectivity date has now been given to the
abovementioned clauses (e), (f) and (g) of the said Proviso. This amendment
will apply in relation to the assessment years 2005-2006 and 2006-2007.
27.4
Further, vide Taxation Laws (Amendment) Act, 2006, a new clause (vi) was
inserted in sub-section (2) of section 56, which, inter alia,
provided that the whole of the aggregate value of any sum of money exceeding
fifty thousand rupees, received without consideration by an individual or Hindu
undivided family in any previous year from any person or persons on or after
the 1st day of April, 2006, shall be chargeable to income-tax under
the head income from other sources.
27.5
Section 2(24), which relates to the definition of income, does not
contain a reference to the sum of money referred to in the said clause (vi).
With a view to provide a reference to said clause (vi) in the definition of
income, a new sub-clause (xiv) has been inserted in section 2(24) to provide
that income includes any sum referred to in clause (vi) of sub-section (2) of
section 56.
27.6
As clause (vi) of sub-section (2) of section 56 came into effect from
1.4.2007, the abovementioned sub-clause (xiv) has also been inserted with
effect from the same date i.e w.e.f.
1.4.2007. This amendment will take effect retrospectively from the 1st
day of April, 2007 and will accordingly apply in relation to the assessment
year 2007-2008 and subsequent years.
[Sections 3 & 19]
28. Providing
condition for investment in long-term specified bonds under section 54EC.
28.1
Section 54EC provides tax exemption on capital gains arising
from the transfer of a long-term capital asset to the extent such capital gains
are invested in long-term specified assets within a period of six months from
the date of such transfer. The Finance Act, 2006 amended the definition of
long-term specified assets so as to mean any bond redeemable after three years
and issued on or after the 1st day of April, 2006 by National Highways
Authority of India (NHAI) and Rural Electrification Corporation Limited (REC).
Such bonds had to be notified by the Central Government in the Official
Gazette.
28.2
The quantum of investible bonds
issued by NHAI and REC being limited, it was felt necessary to ensure that the
benefit was available to all the investors. For this purpose, it was necessary
to ensure that the limited number of bonds available for subscription is also
available for small investors. Therefore, with a view to ensure equitable
distribution of benefits amongst prospective investors, the government decided
to impose a ceiling on the quantum of investment that could be made in such
bonds. Accordingly, the said section has been amended so as to provide for a
ceiling on investment by an assessee in such
long-term specified assets. Investments in such specified assets to avail
exemption under section 54EC, on or after 1st day of April, 2007
will not exceed fifty lakh rupees in a financial
year.
28.3
Applicability- This amendment will take effect retrospectively from the 1st
day of April, 2007 and will apply in relation to the assessment year 2007-08
and subsequent assessment years.
28.4
The said section has further been amended by substituting the existing
clause (b) of explanation to the said section, so as to provide that the
Central Government, while notifying such bonds in the Official Gazette may lay
down in the said notification such conditions, including the condition for
providing a limit on the amount of investment by an assessee
in such bonds, as it thinks fit.
28.5
Applicability:
This amendment will take effect retrospectively from the 1st of April, 2006.
28.6
Further, a proviso has been inserted in the said clause (b), so
substituted, so as to provide that where any bond has been issued before the
1st day of April, 2007, under a notification subject to the conditions
specified therein by the Central Government in the Official Gazette under the
provisions of said clause (b), as they stood immediately before their amendment
by the Finance Act,2007, such bond will be deemed to be a bond notified under
the provisions of new clause (b). Accordingly the notification S.O.2146(E)dated
22nd December, 2006, with the conditions specified therein, will be deemed to
have been issued under the proviso to the said clause (b), so substituted.
28.7
The said proviso has been inserted with effect from the
1st day of April, 2006.
[Section 18]
29. Provisions of Section 72A extended to
Public Sector Company or Public Sector Companies engaged in the business of
operation of aircraft.
29.1
Under the existing provisions of section 72A, the accumulated
losses and unabsorbed depreciation of the amalgamating companies or company
shall be set-off against the profit of the amalgamated company. Presently, the
benefit is available in case of amalgamation of a company owning an industrial
undertaking or a ship or a hotel with another company. Such benefits are also
available in the case of amalgamation of a banking company referred to in
clause (c) of section 5 of the Banking Regulation Act, 1949with a specified
bank.
29.2
The said section has been amended so as to extend the
benefits of carry-forward and set-off of accumulated losses and unabsorbed
depreciation available under section 72A to amalgamation of one or more Public
Sector Company or Public Sector companies engaged in the business of operation of aircraft
with one or more public sector company or Public Sector companies engaged in similar business.
29.3
Applicability - This amendment will take effect from
1-4-2008 and will accordingly apply in relation to the assessment year 2008-09 and
subsequent assessment years.
[Section 20]
30. Enlargement of scope of section 80C
30.1
A new clause (xxii) has been inserted in sub-section (2) of section 80C,
thereby enlarging its scope by making the subscription to any notified bonds of
National Bank for Agriculture and Rural Development (NABARD) eligible for
deduction within the overall ceiling of Rs.
1,00,000/-.
30.2
Applicability-
This amendment will take effect from 1st April, 2008 and will,
accordingly, apply in relation to the assessment year 2008-2009 and subsequent
assessment years.
[Section
24]
31. Extension of tax benefit under section
80CCD to employees of other employers.
31.1 Under section 80CCD, in the case of an individual employed by
Central Government on or after 1st January, 2004, contribution
during the previous year by the employee to his account (maximum 10% of salary)
or by the employer to employees account (maximum 10% of salary), under a
Central Government notified pension fund, is allowed as deduction. By Finance
Act, 2007, this section has been amended to extend the benefit to individuals
employed by any other employers on or after 1st January, 2004, as
well. Consequential amendments have been carried out in section 7 and section
17 to provide that the contribution by any other employer in the previous year,
to the account of an employee under a pension scheme, referred to in section
80CCD, shall be deemed to be the income received in India (section 7) and shall
be taxed under the head salary (section 17).
31.2 Applicability- This amendment
will take effect retrospectively from 1-4-2004 and will accordingly apply in
relation to assessment year 2004-05 and subsequent assessment years.
[Section 4,11
& 25]
32.
Rationalization of provisions
related to deduction of health insurance premium.
32.1
Section 80D of the Income-tax provides that in computing the total
income of an assessee, being an individual or a Hindu
undivided family, the sum paid by cheque to
effect or to keep in force an insurance on the health of the assessee or on the health of any member of the family shall
be allowed as a deduction. The maximum amount allowed as deduction is ten
thousand rupees. In the case of senior citizens, the maximum amount of
deduction allowed is fifteen thousand rupees.
32.2
Similarly, clause (ib) of sub-section (1) of
section 36 provides for a deduction of the amount of any premium paid by cheque by the assessee, as an
employer, to effect or to keep in force an insurance on the health of his
employees under a scheme framed by the General Insurance Corporation formed
under section 9 of the General Insurance Business (Nationalisation)
Act, 1972 and approved by the Central Government or by any other insurer and
approved by the Insurance Regulatory and Development Authority established
under sub-section (1) of section 3 of the Insurance Regulatory and Development
Authority Act, 1999.
32.3
With a view to allow deduction for payments made through electronic
mode, credit card, etc., the provisions of section 80D and clause (ib) of sub-section (1) of section 36 have been amended so
as to provide that the payment of premium made by any mode other than cash,
shall be eligible for deduction under these sections.
32.4
The maximum amount of deduction allowable under section 80D has also been
increased from rupees fifteen thousand to rupees twenty thousand, in case of
senior citizens, and from rupees ten thousand to rupees fifteen thousand, in
all other cases.
32.5
Applicability-
These amendments will take effect from the 1st day of April, 2008
and will, accordingly, apply in relation to the assessment year 2008-09 and
subsequent assessment years.
[Section 13 &
26]
33. Deduction for amount of interest paid
on a loan taken for higher education of a relative.
33.1
Under section 80E of the Income-tax Act, a deduction is allowed to an
individual, of any amount paid in the previous year, out of his income
chargeable to tax, by way of interest on loan taken by him from any financial
institution or approved charitable institution for the purpose of pursuing his
higher education. This tax benefit was introduced with a view to develop merit
goods in the form of high quality human resources in the country and to
encourage talented individuals to take up higher studies despite resource
constraints. Till assessment year 2007-08, the benefit was available only to an
individual for his own education. By Finance Act, 2007, section 80E has been
amended to extend the deduction available under this section to any individual
for the payment made by way of interest on loan taken by him for higher
education of his relative (i.e. spouse and children) as well.
33.2
amendment has also been carried out in clause (a) of sub-section (3) of
section 80E in the definition of approved charitable institution. The
requirement of approval by the prescribed authority under clause (23C) of
section 10 has been replaced with the notification by the Central Government.
This is a consequential amendment due to change in procedure from approval to
notification under clause (23C) of section 10.
33.3
Applicability-
These amendments will take effect from 1-4-2008 and will accordingly apply in
relation to the assessment year 2008-09 and subsequent assessment years
[Section 27]
34. Clarification regarding developer with
reference to infrastructure facility, industrial park, etc. for the purposes of
section 80-IA.
34.1
Section 80-IA provides for a ten-year tax benefit to an enterprise or an
undertaking engaged in development or operation and maintenance or development,
operation and maintenance of infrastructure facilities, providing
telecommunication service, generation or generation and distribution of power
or development of an Industrial Parks or a Special Economic Zones.
34.2
The tax benefit was introduced for the reason that industrial
modernization requires a massive expansion of, and qualitative improvement in,
infrastructure (viz., expressways, highways, airports, ports and rapid urban
rail transport systems) which was lacking in our country. The purpose of the
tax benefit has all along been for encouraging private sector participation by
way of investment in development of the infrastructure sector and not for the
persons who merely execute the civil construction work or any other works
contract. The incentive has all along been intended to benefit developers who
undertake entrepreneurial and investment risk and not contractors who only
undertake business risk.
34.3
Accordingly, it has been clarified by inserting an
explanation that the provisions of section 80-IA shall not apply to a person
who executes a works contract entered into with the undertaking or enterprise
referred to in the said section. Thus, in a case where a person makes the
investment and himself executes the development work i.e., carries out the
civil construction work, he will be eligible for tax benefit under section
80-IA. In contrast to this, a person, who enters into a contract with another
person (including Government or an undertaking or enterprise referred to in
section 80-IA) for executing works contract, will not be eligible for the tax
benefit under section 80-IA.
34.4
Applicability-
This amendment will take effect retrospectively from the 1st day of
April, 2000 and will, accordingly, apply in relation to the assessment year 2000-2001
and subsequent assessment years.
[Section 28]
35. Tax benefit under section 80-IA not
available to undertaking/enterprise of Indian companies undergoing amalgamation
or demerger after 31.3.2007.
35.1
Sub-section (12) of section 80-IA provides that where any undertaking of
an Indian company which is entitled to the deduction under the said section is
transferred before the expiry of the period specified therein, to another
Indian company in a scheme of amalgamation or demerger, the provisions of the said
section 80-IA shall apply to the amalgamated or the resulting company as they
would have applied to the amalgamating or the demerged
company if the amalgamation or demerger had not taken place. The main intention
in providing benefit under section 80-IA had been to provide incentive to those
who had taken initial investment and entrepreneur risk. Hence, it was felt that
there was no justification for passing on the benefit to someone who had not
taken these risks and had only acquired the eligible undertaking much later
when the risks had reduced. Hence, a new sub-section (12A) has been inserted in
section 80-IA so as to provide that the provisions of sub-section (12) shall
not apply to any undertaking or enterprise which is transferred in a scheme of amalgamation
or demerger after 31.3.2007. Thus, if an undertaking or an enterprise is
transferred in a scheme of amalgamation or demerger after 31.3.2007, the
benefit of deduction under section 80-IA will not be available to the
amalgamated or demerged undertaking or enterprise.
The content of this circular will supercede whatever
contrary has been stated, on this issue, in any other circular, issued by the
Central Board of Direct Taxes earlier.
35.2
Applicability - This amendment will take effect from 1-4-2008 and will
accordingly apply in relation to the assessment year 2008-09 and subsequent
assessment years.
[Section 28]
36. Expansion of the scope of infrastructure
facility for the purposes of tax benefit under section 80-IA
36.1
Explanation to clause (i) of sub-section (4)
of section 80-IA defines the expression infrastructure facility to mean a road
including toll road, a bridge, a rail system, a highway project including
housing or other activities being an integral part of the highway project, a
water supply project, water treatment system, irrigation project, sanitation
and sewerage system or solid waste management system, a port, airport, inland
waterway or inland port.
36.2
Considering the fact that navigational channels in the sea is a high risk
project (involving huge capital investment) and also has long gestation period,
scope of the expression infrastructure facility has been expanded so as to
include a navigational channel in the sea within its ambit for the purposes of
ten year tax benefit under section 80-IA.
36.3
Applicability-
This amendment will take effect from the 1st day of April, 2008 and
will, accordingly, apply in relation to the assessment year 2008-2009 and
subsequent assessment years.
[Section 28]
37. Extension of time limit for generation
or transmission or distribution of power by an undertaking of an Indian company
set up for reconstruction or revival of a power generating plant.
37.1
Under the existing provisions contained in clause (v) of sub-section (4)
of section 80-IA, an undertaking owned by an Indian company and set up for
reconstruction or revival of a power generating plant is eligible for ten year
tax benefit if it fulfills the following conditions:-
(a)
such
company is formed before 30.11.2005 with majority equity participation by
public sector companies for enforcing the security interest of the lenders to
the company owning the power generating plant;
(b)
such
Indian company is notified by the Central Government before 31.12.2005; and
(c)
the
undertaking begins to generate or transmit or distribute power before 31st
March, 2007.
37.2
With a view to provide adequate time for revival of the power generating
plant, the time limit for generating or transmitting or distributing power has
been
extended by one year i.e.
the undertaking should begins to generate or transmit or distribute power
before 31st March 2008.
37.3
Applicability-
This amendment will take effect from the 1st day of April, 2008 and
will, accordingly, apply in relation to the assessment year 2008-2009 and
subsequent assessment years.
[Section 28]
38. Deduction in the case of an
undertaking laying and operating cross-country natural gas distribution
network.
38.1
Sub-section (4) and (5) of section 80-IA specify the activities eligible
for deduction under the said section. Considering the fact that tax subsidy for
gas pipelines will enable substitution of the existing subsidy on LPG, a new
clause (vi) in the said sub-section (4) of section 80-IA has been inserted so
as to provide that any undertaking carrying on the business of laying and
operating cross-country natural gas distribution network, including gas
pipelines and storage facilities being an integral part of the network, shall
be eligible for deduction under the said section if;-
·
it is owned by a company registered in
·
it has been approved by the Petroleum and Natural
Gas Regulatory Board established under sub-section (1) of section 3 of the
Petroleum and Natural Gas Regulatory Board Act, 2006 and notified by the
Central Government in the Official Gazette;
·
one-third of its total pipeline capacity
is available for use on common carrier basis by any person other than the assessee or an associated person;
·
it starts functioning on or after 1st
April, 2007; and
·
it fulfills such other condition as may be
prescribed.
38.2
The expression associated person for the purposes of clause (vi) has
also been defined to mean a person-
·
who participates directly or indirectly or
through one or more intermediaries in the management or control or capital of
the assessee;
·
who holds, directly or indirectly, shares
carrying not less than twenty-six percent of the voting power in the assessee;
·
who appoints more than half of the Board
of directors or members of the governing board, or one or more executive
directors or executive members of the governing board of the assessee; or
·
who guarantees not less than ten per cent
of the total borrowings of the assessee.
38.3
It has also been provided that the deduction shall be allowed for ten
consecutive assessment years out of fifteen years beginning from the year in which
an undertaking lays and begins to operate the cross-country natural gas
distribution network.
38.4
It has also been provided that any undertaking formed by way of
reconstruction or splitting up or by transfer to a new business of old plant
and machinery (subject to certain exceptions) shall not be eligible for the
above deduction under section 80-IA.
38.5
Consequential amendments have been carried out in sub-section (2) and
(3) of section 80-IA.
38.6
Applicability-
These amendments will take effect from the 1st day of April, 2008
and will, accordingly, apply in relation to the assessment year 2008-2009 and
subsequent assessment years.
[Section 28]
39. Extension
of time limit for setting up industrial undertakings in the State of Jammu and
Kashmir for the purpose of tax benefit under section 80-IB(4).
39.1
Under the existing provisions contained in sub-section (4) of section
80-IB, industrial undertakings engaged in manufacture or production of articles
or things or operation of a cold storage plant and set up during the period
beginning on 1st April, 1993 and ending on 31st March,
2007 in the State of Jammu and Kashmir, are eligible for a hundred per cent.
deduction of profits for a period of five assessment years, followed by
twenty-five per cent. (thirty per cent. in the case of a company) for the next
five assessment years. The deduction is subject to a negative list of articles
or things specified in Part-C of the Thirteenth Schedule to the Income-tax Act,
which should not be manufactured or produced by such industrial undertakings.
39.2
With a view to promote the industrial development of the State of Jammu
and Kashmir, the terminal date for setting up of industrial undertakings and
commencement of eligible business in the State has been extended by five more years,
i.e., from 31.3.2007 to 31.3.2012.
39.3
Applicability-
This amendment will take effect from the 1st day of April, 2008 and
will, accordingly, apply in relation to the assessment year 2008-2009 and
subsequent assessment years.
[Section 29]
40. Tax holiday for hotels and convention centres in specified area.
40.1
With a view to provide adequate number of hotel rooms to met the
requirement for accommodating the visitors to the Commonwealth Games which is
to be hosted by the country in 2010 and also to boost the number of convention centres, a new section 80-ID has been inserted to provide
for deduction in respect of profits and gains from the business of hotels and
convention centres in specified area.
40.2
It has been provided that where the gross total income of an assessee includes any profits and gains derived by an
undertaking from the business of hotel or from the business of building, owning
and operating a convention centre, hundred percent deduction of the profits and
gains derived from such business shall be allowed for five consecutive
assessment years beginning from the initial assessment year. Initial assessment
year has been defined as
·
Assessment
year relevant to the previous year in which the business of the hotel starts
functioning ( in case of hotel); and
·
Assessment
year relevant to the previous year in which the convention centre starts
operating on a commercial basis ( in case of the convention centre).
40.3
This new section applies to any undertaking
·
engaged
in the business of hotel located in the specified area, if such hotel is
constructed and has started or starts functioning at any time during the period
beginning on 1st April, 2007 and ending on 31st March,
2010; or
·
engaged
in the business of building, owning and operating a convention centre, located
in the specified area, if such convention centre is constructed at any time
during the period beginning on 1st April, 2007 and ending on 31st
March, 2010.
40.4
The following conditions have also been prescribed in the newly inserted
section:-
·
the
eligible business should not be formed by splitting or reconstruction of
business already in existence;
·
the
eligible business should not be formed by transfer to a new business of a
building previously used as a hotel or a convention center, as the case may be;
·
the
eligible business should not be formed by transfer to a new business machinery or
plant previously used for any purpose. The provisions of explanation 1 and 2 to
sub-section (3) of section 80-IA shall also apply to this condition;
·
the
assessee should furnish along with the return of
income, the report an audit in such form and containing such particulars as may
be prescribed, and duly signed and verified by an accountant certifying that
the deduction has been correctly claimed;
·
in
computing the total income of the assessee, no
deduction shall be allowed under any other section contained in Chapter VIA or
in section 10AA, in relation to the profits and gains of the undertaking;
·
provisions
contained in sub-section (5) and sub-sections (8) to (11) of section 80-IA
shall, so far as may be, apply to the eligible business under this section; and
·
for
the purpose of this section, hotel shall mean a hotel of two-star, three-star
and four-star category as classified by the Central Government and specified
area shall mean the National Capital Territory of Delhi and districts of Faridabad, Gurgaon, Gautam Budh Nagar
and Ghaziabad.
40.5
The Central Board of Direct Taxes have notified Rule 18DE and Form
10CCBBA vide notification no. S.O. 1989(E), dated 27th November,
2007, prescribing area, size, numbers and other conditions for convention centres and the form for the purposes of audit report for
both hotels and convention centres.
40.6
Applicability-
These amendments, will take effect from the 1st day of April, 2008
and will, accordingly, apply in relation to the assessment year 2008-2009 and
subsequent assessment years.
[Section 31]
41. Extension of benefit of tax holiday in
respect of undertaking located in North-Eastern States (including
41.1
Under section 80-IC benefit of tax holiday is available to an undertaking
located in any of the North Eastern states on fulfillment of statutory
conditions. However, no benefit is available, under section 80-IC, if the
undertaking begins to manufacture or produce an article or things or undertakes
substantial expansion after the 31st March, 2007. However, in the
case of
41.2
new section 80-IE has been inserted to provide tax benefits and it
applies to any undertaking which is located in any of the North-Eastern States
(including the state of
·
to
manufacture or produce any eligible article or thing;
·
to
undertake substantial expansion to manufacture or produce any eligible article
or thing; or
·
to
carry on any eligible business
41.3
Eligible article or things has been defined as the article or thing
other than the following:
·
Goods falling under Chapter 24 of the
First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) which
pertains to tobacco and manufactured tobacco substitutes;
·
Pan masala as
covered under Chapter 21 of the First Schedule to the Central Excise Tariff
Act, 1985 (5 of 1986)
·
Plastic carry bags of less than 20 microns
as specified by the Ministry of Environment and Forests vide Notification No.
S.O. 705(E), dated the 2nd September, 1999 and S.O. 698(E), dated
the 17th June, 2003; and
·
Goods falling under Chapter 27 of the
First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), produced by
petroleum oil or gas refineries.
41.4
Eligible business has been defined as the business of,-
·
Hotel(not
below two star category)
·
Adventure
and leisure sports including ropeways;
·
Providing
medical and health services in the nature of nursing home with a minimum
capacity of 25 beds;
·
Running
an old-age home;
Operating vocational training institute
for hotel management, catering and food craft, entrepreneurship development, nursing
and para-medical, civil aviation related training,
fashion designing and industrial training;
·
Running
information technology related training centre;
·
Manufacturing
of information technology hardware; and
·
Bio-technology.
41.5
The deduction under this section is available for ten consecutive
assessment years commencing from initial assessment year, i.e., assessment year
relevant to the previous year in which the undertaking begins to manufacture or
produce articles or things or has completed substantial expansion or begins
eligible business.
41.6
The following conditions have also been prescribed in the newly inserted
section:-
·
The undertaking should not be formed by
splitting or reconstruction of business already in existence. This condition
shall not apply inrespect of an undertaking which is
formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as
referred to in section 33B, in the circumstances and within the period
specified in the said section.
·
It should not be formed by transfer to a
new business machinery or plant previously used. The provisions of explanation
1 and 2 to sub-section (3) of section 80-IA shall also apply to this condition.
·
An assessee
entitled to the deduction, in respect of the profits and gains of the
undertaking under section 80-IE, would not be entitled to claim a deduction
under any other section of Chapter VIA or section 10A or section 10AA or
section 10B or section 10BA in relation to the said profits and gains.
·
In computing the total period for
deduction under section 80-IE, the period for which the deduction was allowed
under second proviso to section 80-IB(4) or section 80-IC or section 10C shall
be included. In other words, in case of any undertaking established prior to
the dates specified in section 80-IE, and eligible for deduction under section
80-IB or 10C or 80-IC, the aggregate period for claiming the deduction under
section 80-IE shall not exceed 10 years;
·
The provisions contained in sub-section
(5) and sub-sections (7) to (12) of section 80-IA shall also apply to eligible
undertaking under this section.
41.7
pplicability- These amendment will take effect from 1-4-2008 and
will accordingly apply in relation to the assessment year 2008-09 and
subsequent assessment years.
[Section 30 &
32]
42. Consequential amendments in section 80A
and 80AC.
42.1
Consequential to insertion of new section 80-ID and 80-IE, amendments
have also been carried out in sub-section (2) of section 80A and section 80AC
to make them applicable for assessees claiming deductions under sections 80-ID
and 80-IE.
42.2
These amendments will take effect from 1st April, 2008 and will,
accordingly, apply in relation to the assessment year 2008-2009 and subsequent
years.
42.3
retrospective amendment has also been carried out in sub-section (3) of
section 80A to make it applicable to assessees claiming deduction under section
80-IC.
42.4
This amendment will take effect retrospectively from the 1st
day of April 2004, and will, accordingly apply in relation to assessment year
2004-05 and subsequent assessment years.
[Section 22 &
23]
43. Extension of Time limitation for making
assessment where a reference is made to the Transfer Pricing Officer
43.1
The existing provisions of the Act does not provide any
additional time to the Assessing Officer for completing assessment or
reassessment in cases where a reference is made by him under sub-section 92CA
to the Transfer Pricing Officer for determination of the Arms length price of
an international transaction. Since, the time limit for selection of cases for
scrutiny is one year from the end of the month in which the return was filed;
references to Transfer Pricing Officers are made mostly after one year of
filing of the return. Thus, Transfer Pricing Officers are not getting adequate
time to make a meaningful audit of transfer price in cases referred to them.
43.2
With a view that the Transfer Pricing Officers get
sufficient time to make the audit of transfer price and also to provide
Assessing Officers sufficient time to make assessment in cases involving
international transactions, the time limits specified in sections 153 and 153B
for making the assessment or reassessment, in cases where a reference has been
made to the Transfer Pricing Officer, has been revised. The revised time limits
in such cases shall be the time limits specified under the aforesaid sections,
as increased by twelve months. Further, it has also been provided that the
Transfer Pricing Officer shall determine the Arms length price at least two
months before the expiry of statutory time limit for making the assessment or
reassessment. Thus, a time-limit has been provided in the statute,
making it obligatory for the TPO to complete audit of transfer price within the
stipulated time.
43.3
The provisions of sub-section (4) of section 92CA,
provides that on receipt of the order under sub-section(3) of the said section,
the Assessing Officer shall proceed to compute the total income of the assessee under sub-section (4) of section 92C having regard
to the Arms length price determined under sub-section (3) by the Transfer
Pricing Officer.
43.4
Sub-section (4) of section 92CA has been amended so as to
provide that, on receipt of the order under sub-section(3) of section 92CA, the
Assessing Officer shall proceed to compute the total income of the assessee under sub-section(4) of section 92C in conformity
with the Arms length price determined under sub-section (3) of section 92CA by
the Transfer Pricing Officer. Thus, with the amendment in the provisions, the
arms length price determined by the Transfer Pricing Officer(TPO) would be
binding on the Assessing Officer.
43.5
Applicability- These amendments shall apply in cases where reference to
Transfer Pricing Officer was made on or after 1st June, 2007 and shall also be
applicable in cases where a reference to the Transfer Pricing Officer was made
prior to 1.6.2007 but the Transfer Pricing Officer did not pass order under
sub- section (3) of section 92CA before the said date.
[Section 33, 48 & 49]
44. Widening
the scope of Minimum Alternate Tax to include income exempt under section 10A
and 10B of the Income-tax Act.
44.1
The provision of Minimum Alternate Tax (MAT) is governed by section
115JB and section 115JAA of the Income-tax Act. These sections provide for levy
and computation of MAT and for calculation, carry forward and set off of tax
credit on account of MAT.
44.2
developer in a unit or SEZ. Till enactment of Finance Act, 2007, the
method of calculation of MAT under this section also provided for exclusion of
income which were either exempt or allowed as deduction under section 10
[except section 10(38)], section 10A, section 10B, section 11 or section 12 of
the Income-tax Act. Such exclusion of income from purview of MAT is contrary to
the basic principle for introduction of MAT, which provides that every
corporate taxpayer participating in the economy must contribute to the
exchequer a minimum amount of tax on its book profit. Accordingly, clause (f)
and clause (ii) of the explanation occurring after sub-section (2) of section
115JB, have been amended by the Finance Act, 2007 to omit reference to section
10A and 10B.
44.3
Hence, from assessment year 2008-09 and onwards, while calculating MAT
under section 115JB, the book profit shall not be increased by the amount or
amounts of expenditure relatable to any income to which section 10A or section
10B applies. Similarly, the amount of income to which any of the provisions of
section 10A or section 10B apply, shall not be reduced from the book profit for
the purposes of calculation of income-tax payable under section 115JB. In other
words, the income to which section 10A or section 10B applies will also be
subjected to the provisions of MAT.
44.4
Applicability-
This amendment will take effect from 1-4-2008 and will accordingly apply in
relation to the assessment year 2008-09 and subsequent assessment years.
[Section 34]
45. Increase
in the rates of Tax on distributed profits in certain cases.
45.1
Under sub-section (1) of section 115-O contained in Chapter XII-D, inter alia, any
amount declared, distributed or paid by a domestic company by way of dividends
on or after the 1st day of April, 2003, whether out of current or accumulated
profits, shall be charged to additional income-tax or tax on distributed
profits at the rate of twelve and one-half per cent.
45.2
The said rate of tax on distributed profits has been increased from twelve
and one-half per cent. to fifteen per cent.
45.3
This amendment will take effect from 1st April, 2007.
45.4
Under sub-section (2) of section 115R contained in Chapter XII-E, inter alia, any
amount of income distributed by the specified company or a Mutual Fund to its
unit holders shall be chargeable to tax and such specified company or Mutual
fund shall be liable to pay additional income-tax on such distributed income at
the rate of-
(i)
welve and one-half per cent. on income distributed to any
person, being an individual or a Hindu undivided family; and
(ii)
twenty
per cent. on income distributed to any other person.
45.5
The said sub-section (2) has been amended to provide that any amount of
income distributed by the specified company or a Mutual Fund to its unit holders
shall be chargeable to tax and such specified company or Mutual fund shall be
liable to pay additional income-tax on such distributed income at the rate of-
(i)
twenty-five
per cent. on income distributed by a money market mutual fund or a liquid fund;
(ii)
twelve
and one-half per cent. on income distributed to any person, being an individual
or a Hindu undivided family by a fund other than a money market mutual fund or
a liquid fund ; and
(iii)
twenty
per cent. on income distributed to any other person by a fund other than a
money market mutual fund or a liquid fund.
45.6
Thus, through the above amendment, a new rate of tax has been specified
in respect of income distributed by a money market mutual fund or a liquid
fund. The existing rates of tax on income distributed by a fund other than a
money market mutual fund or a liquid fund shall remain the same.
45.7
For this purpose, money market mutual fund and liquid fund have been
defined in the Explanation after
section 115T. Money market mutual fund has been defined therein to mean a money
market mutual fund as defined in sub-clause (p) of clause (2) of the Securities
and Exchange Board of India (Mutual Funds) Regulations, 1996. Similarly, liquid
fund has been defined therein to mean a scheme or plan of a mutual fund which
is classified by SEBI as a liquid fund in accordance with the guidelines issued
by it in this behalf under the Securities and Exchange Board of India Act, 1992
or regulations made thereunder.
45.8
Applicability-
These amendments will take effect from 1st April, 2007.
[Section 35,36 & 37]
46. Rationalization of Fringe Benefit Tax.
46.1
In terms of the provisions of Chapter XII-H of the Income-tax Act, an
employer, being a company, is liable to pay Fringe Benefit Tax (FBT) in respect
of the fringe benefits provided or deemed to have been provided by it to its
employees, directly or indirectly, during the previous year.
46.2
With a view to bring grant of stock options by employers to employees
within the purview of FBT, Finance Act, 2007 has inserted a new clause (d) in
sub-section (1) of section 115WB. A new clause (ba)
in sub-section (1) of the said section 115WC has been inserted to provide for
computation of fringe benefit in such cases. The salient features of this
provision are:-
(i)
FBT
shall apply in all cases where any specified security or sweat equity shares
has been allotted or transferred by the employer to his employees;
(ii)
FBT
shall be payable in the previous year in which such allotment or transfer has
taken place;
(iii)
the
provisions of this new clause shall apply irrespective of the allotment or
transfer being direct or indirect;
(iv)
the
provisions of this new clause shall apply irrespective of the allotment or
transfer being free of cost or at concessional rate;
(v)
the
provisions of this new clause shall apply irrespective of the allotment or
transfer being to current or former employee or employees;
(vi)
the
provisions of this new clause shall apply in cases where the allotment or
transfer is on or after 1st day of April, 2007.
(vii)
the
value of fringe benefit in such cases shall be determined in accordance with
the formula
A B
Where, A = the Fair Market Value (FMV) of
the specified security or sweat equity shares on the date of vesting of the
option; and
B = the amount, if any, actually paid by,
or recovered from the employee;
46.3
The expressions specified security and sweat equity shares have also
been defined. The value of fringe benefit is subjected to FBT at the prevailing
rate, which is currently 30% plus surcharge plus education cess.
46.4
The expression fair market value has been defined to mean the value
determined in accordance with the method as may be prescribed by the Board.
Option has been defined to mean a right but not an obligation granted to an
employee to apply for the specified security or sweat equity shares at a
predetermined price.
46.5
The Central Board of Direct Taxes (CBDT) vide notification S.O. No.
1805(E) dated 23rd October, 2007 has inserted Rule 40C in the
income-tax Rules; which has prescribed the method for determination of fair
market value of specified security or sweat equity share, being a share in the
company. Salient features of this rule are:
(i)
In
a case where, on the date of the vesting of the option, the share in the company
is listed on a recognized stock exchange, the fair market value shall be the
average of the opening price and closing price of the share on that date on the
said stock exchange;
(ii)
If
on the date of vesting of the option, the share is listed on more than one
recognized stock exchanges, the fair market value shall be the average of
opening price and closing price of the share on the recognised
stock exchange which records the highest volume of trading in the share;
(iii)
If
on the date of vesting of the option, there is no trading in the share on any
recognized stock exchange, the fair market value shall be,-
(a)
the
closing price of the share on any recognised stock
exchange on a date closest to the date of vesting of the option and immediately
preceding such date; or
(b)
the
closing price of the share on a recognised stock
exchange, which records the highest volume of trading in such share, if the
closing price, as on the date closest to the date of vesting of the option and
immediately preceding such date, is recorded on more than one recognized stock
exchange.
(iv)
In
a case where, on the date of vesting of the option, the share in the company is
not listed on a recognized stock exchange, the fair market value shall be such
value of the share in the company, as determined by a Category 1 Merchant
Banker registered with the Security and Exchange Board of India, on the
specified date.
(v)
The
specified date has been defined as to mean,-
(i)
the
date of vesting of the option; or
(ii)
any
date earlier than the date of the vesting of the option, not being a date which
is more than 180 days earlier than the date of the vesting
46.6
Further, the Central Board of Direct Taxes has inserted a new rule 40D
in the Income-tax Rules, vide notification S.O. No. 113(E), dated 18-012008,
prescribing the method for determination of fair market value of specified
security, not being an equity share in the company. Through the same
notification, rule 40C has been amended to omit the definition of equity share.
46.7
Consequent to insertion of clause (ba) in
sub-section (1) of section 115WC providing for the valuation of fringe benefits
referred to in clause (d) of sub-section (1) of section 115WB, a new
sub-section (2AB) has been inserted in section 49.
46.8
This new sub-section provide that the cost of acquisition of specified
security or sweat equity shares shall be the fair market value which has been
taken into account while computing the value of fringe benefit under the new
clause (ba) of sub-section (1) of section 115WC.
46.9
A new sub-clause (hb) has also been inserted
in clause (i) of Explanation 1 to clause (42A) of
section 2. This new sub-clause provide that the period of holding in case of
such specified security or sweat equity shares, in the hand of the employee,
shall be reckoned from the date of allotment or transfer of such security or
shares.
46.10
A new section 115WKA has also been inserted enabling the employer to
recover the fringe benefit tax from the employee in respect of specified
security or sweat equity shares, if such security or shares are transferred or
allotted to the employee on or after 1st April, 2007.
46.11
It has been prescribed that the employer can vary the agreement or
scheme under which such specified security or sweat equity shares has been allotted
or transferred. The agreement or scheme can be varied with a purpose to recover
from the employee the fringe benefit tax to the extent to which such employer
is liable to pay the fringe benefit tax in relation to the allotment or
transfer of such specified security or sweat equity shares to such employee.
46.12
The above amendments are explained with the help of an illustration.
Illustration: A company X grants option to
its employee R on 1st April, 2004 to apply for 100 shares of the
company at a pre-determined price of Rs. 50/- per
share with date of vesting of the option being 1st April, 2006 and
exercise period being 1st April, 2006 to 31st March,
2010.
Employee R exercises his option on 31st
March, 2007 and shares are allotted/transferred to him on 3rd April,
2007. On 25th October, 2007 these shares are sold for Rs. 200/- each. On the date of vesting of the option , fair
market value of the share was Rs. 80/- per share. The
tax implication of above situation will be as under:-
Since
shares are allotted or transferred on or after 1st April, 2007,
provision of fringe benefit tax are attracted. Fringe benefit with respect to
employee R is (Rs. 80 Rs.
50) X 100 = Rs. 3,000/-.
Company X will pay fringe benefit tax on Rs. 3,000/-.
Cost of acquisition in the hand of employee
R = Rs. 80/- per share
Capital gain = (Rs.200 Rs.
80) X 100 = Rs. 12,000/-
Period of holding = 3rd April,
2007 to 25th October, 2007 i.e., less than 12 months. Hence, the
amount of RS. 12,000/- will be charged to short term capital gain.
46.13
Various issues arising out of the above amendment have been explained by
issuance of Circular No.9/2007 dated 20-12-2007.
46.14
Sub-section (2) of the section 115WB deems certain expenses or payments as
fringe benefit. Proviso to clause (D) of sub-section (2) of section 115WB
excludes certain expenditure on advertisement from sales promotion including
publicity. Clause (v) of the proviso excludes certain expenditure on certain
items of advertisement. Clause (vii) of the proviso excludes the expenditure on
distribution of free samples of medicines or of medical equipment to doctors.
46.15
To expand the domain of such exceptions to provide relief to employers,
clause (v) of the above proviso has been amended and clause (vii) of the above
proviso has been substituted so as to provide that the expenditure on display
of products and on distribution of samples of any item either free of cost or
at concessional rate to any person including doctors,
shall not be included in sales promotion including publicity for valuation of
fringe benefits.
46.16
Applicability-
These amendments will take effect from 1st April, 2008 and will,
accordingly, apply in relation to the assessment year 2008-2009 and subsequent assessment
years.
[Section 3, 17, 38,
39 & 41]
47. Alignment of due date of payment of
advance tax on fringe benefits with that of advance tax on income.
47.1
Section 115WJ provides that every assessee who
is liable to pay advance tax on his current fringe benefits shall pay the same
on his own accord.
47.2
Sub-section (2) of section 115WJ provided that the advance tax payable
in the financial year on the value of the fringe benefits referred to in
section 115WC, shall be payable on or before the 15th day of the
month following each quarter. However, the advance tax payable for the quarter
ending on the 31st March of the financial year shall be payable on
or before the 15th day of March of the said financial year.
47.3
Sub-section (3) of section 115WJ provided that where an assessee has failed to pay the advance tax for any quarter
or where the advance tax paid by him is less than thirty per cent. of the value
of fringe benefits paid or payable in that quarter, he shall be liable to pay
simple interest at the rate of one per cent. on the amount by which the advance
tax paid falls short of, thirty per cent. of the value of fringe benefits for
any quarter, for every month or part of the month for which the shortfall
continues.
47.4
Sub-section (2) of the said section has been substituted so as to
provide that the amount of advance tax on the current fringe benefits shall be
payable by all the companies, who are liable to pay the same, in four
installments during each financial year. The companies shall pay not less than
fifteen per cent of such advance tax on or before 15th June;
forty-five per cent as reduced by the amount paid in earlier instalment on or before 15th September;
seventy-five per cent as reduced by the amount paid in earlier instalment (s) on or before 15th December; and
the whole amount as reduced by any amount paid in earlier instalment(s)
on or before 15th March of the financial year.
47.5
It has also been provided that the assessees (other than companies), who
are liable to pay the advance tax on current fringe benefits shall pay the same
in three installments during each financial year. Such assessees shall pay not
less than thirty per cent of such advance tax on or before 15th
September; sixty per cent as reduced by the amount paid in earlier instalment on or before 15th December; and the
whole amount as reduced by any amount paid in earlier instalment(s)
on or before 15th March of the financial year.
47.6
New sub-sections (3) and (4) of section 115WJ provide that where an assessee has failed to pay the advance tax payable by him
on or before the due date for any instalment or where
the advance tax paid by him is less than the amount payable by the due date, he
shall be liable to pay simple interest at the rate of one per cent. per month
for three months on the amount of shortfall with respect of each installment.
For example if a company only pays 10 percent of advance tax payable by 15th
June, 45 percent by 15th September, 65 percent by 15th
December and 95 percent by 15th March then such company shall be
liable to pay interest at
·
1
percent per month for three months on shortfall of 5 percent of total advance
tax on first installment, plus
·
1
percent per month for three months on shortfall of 10 percent of total advance
tax on third installment due, plus
·
1
percent on shortfall of 5 percent on total advance tax on fourth installment.
47.7
new sub-section (5) has also been inserted to provide that where the assessee has not paid any advance tax or has paid less than
90% of the tax assessed under section 115WE or section 115WF or section 115WJ,
the assessee shall be liable to pay simple interest
at the rate of one percent per month for every month or part of a month
comprised in the period from 1st April next following such financial
year till the date of assessment of tax under section 11WE or section 115WF or
section 115WG. This interest is in addition to the interest leviable
under sub-section (3) or sub-section (4).
47.8
Vide notification S.O. No.1805(E) dated the 23rd of October
2007, the Central Board of Direct Taxes has inserted Rule 40C in the Income Tax
Rule 1962 for valuation of shares in a company for Fringe benefit on ESOPs.
This rule shall take effect from 1st April, 2008 and accordingly;
apply in relation to the assessment year 2008-2009 and subsequent years.
47.9
Since the rule relating to valuation were notified on 23rd
October 2007, the CBDT had earlier extended the date of payment of first and
second instalment of Fringe Benefit Tax, (which was
to be paid on or before June 15, 2007, and September 15, 2007) in respect of
transfer or allotment of specified security or sweat equity shares to its
employees, to the 15th of December, 2007 (the date of payment of third instalment).
47.10
It is also seen that there could be cases where employees after being
allotted or transferred such specified security or sweat equity share on or
after 1st day of April 2007, had subsequently transferred these
shares resulting in capital gain. For such assessee,
the determination of cost of acquisition of these shares, for the purpose of
calculation of capital gain, also depended on valuation norms which were
notified only on 23 Oct 2007. Hence, it is clarified that in such cases also,
the date of payment of first instalment of capital
gain tax ( i.e. 15th September, 2007) in respect of transfer of such
specified security or sweat equity shares, is deemed to be extended to 15th
December, 2007 (the date of payment of second instalment).
47.11
Applicability-
These amendments will take effect from 1st day of June, 2007.
[Section 40]
48. Rules for facilitating annexure-less
returns.
48.1
The provisions contained in explanation to sub-section (9)
of section 139, provides that a return of income shall be regarded as defective
unless, the conditions specified in clauses (a) to (f) of the explanation to
the said sub-section are fulfilled.
48.2
The Finance Act, 2006, amended the said section by
inserting a proviso to the said sub-section (9), conferring on the central
Board of Direct Taxes, to dispense with any of the conditions specified in
clauses (a) to (f) of the explanation. However, apart from the conditions
specified in clauses (a) to (f) of the explanation to the said sub-section,
documents, statements, receipts, certificate, audited reports or any other
documents are also required to be annexed for claiming benefits or deductions
under the Income-tax Act as specified under other sections.
48.3
new section 139C has been inserted so as to provide that
the Board may make rules providing for a class or classes of persons who may
not be required to furnish documents, statements, receipts, certificate,
audited reports or any other documents, which are otherwise required to be
furnished along with the return under any other provisions of this Act.
However, on demand the said documents, statements, receipts, certificate,
audited reports or any other documents are to be produced before the Assessing
Officer.
48.4
A new section 139D has also been inserted so as to provide
that the Board may make rules providing for the class or classes of persons who
shall be required to furnish the return of income in electronic form; the form
and the manner in which the return of income in electronic form may be
furnished; the documents, statements, receipts. certificates or audited reports
which may not be furnished along with the return of income in electronic form
but have to be produced before the Assessing Officer on demand; the computer
resource or the electronic record to which the return of income in electronic
form may be transmitted.
48.5
Consequentially, new clauses (eeba)
and (eebb) in sub-section (2) of section 295 have
been inserted which provides for rule making powers of the Board.
48.6
As the provisions contained in the proviso to sub-section
(9) of section 139 has been incorporated in the new sections 139Cand 139D, the
proviso to the explanation to sub-section (9) of section 139 has been omitted.
48.7
Applicability- These amendments will take effect retrospectively from the 1st
day of June, 2006.
[Sections
44, 45 & 79]
49. Rationalisation
of provision relating to special audit under section 142 (2A).
49.1
The existing provisions of sub-section(2A) of section 142,
provides that at any stage of the proceedings before him, if the Assessing
Officer having regard to the nature and complexity of the accounts of the assessee and the interests of the revenue, is of the
opinion that it is necessary so to do, he may, with the previous approval of
the Chief Commissioner or Commissioner, direct the assessee
to get the accounts audited by an accountant, as defined in the Explanation
below sub-section (2) of section 288. The accountant is to be nominated by the
Chief Commissioner or Commissioner in this behalf and he is to furnish a report
of such audit in the prescribed form duly signed and verified by him and
setting forth such particulars as may be prescribed and such other particulars
as the Assessing Officer may require. Subsection (2D) of section 142 provides
that the expenses of, incidental to, any audit under subsection (2A) (including
the remuneration of the accountant) shall be determined by the Chief
Commissioner or Commissioner (which determination shall be final) and paid by
the assessee and in default of such payment, shall be
recoverable from the assessee in the manner provided
in Chapter XVII-D for the recovery of arrears of tax.
49.2
The provisions of sub-section (2A) of section 142 of
Income tax Act were reviewed by the Honble Supreme
Court in the case of Rajesh Kumar and Others Vs. Deputy Commissioner of
Income-tax Others [287 ITR 91 (2006)]. The Honble
Supreme Court observed that the direction under sub- section (2A) of section
142 of Income tax Act for special audit of the accounts of the assessee is not administrative in nature and is a
quasi-judicial order. Therefore, while arriving upon a decision to order
special audit under the said provisions, the principles of natural justice are
required to be applied, inter-alia, to minimize
arbitrariness. The Honble Apex Court further observed
that the expression having regard to the nature and complexity of accounts is
significant, and if the assessee is put to a notice,
he could show that the nature of the accounts is not such as would require
appointment of a special auditor, and assessee could
further show that what the Assessing Officer considers complex is, in fact not
so. For these reasons, the
49.3
There is no legislative intent to allow the assessee an opportunity of being heard before ordering a
special audit under sub-section (2 A) of section 142 of the Income tax Act.
Accordingly the Income Tax Department has over the years ordered a large number
of special audits without giving any opportunity to the tax payer of being
heard. While it is not feasible to give effect to the ratio of the decision of
the Honble Supreme Court in the case of Rajesh Kumar
and others in view of the large number of cases where such audit has been
ordered in the past, respectfully following the decision of the Honble Supreme Court in the said case, a proviso has been
inserted in sub-section (2A) of section 142 providing that the Assessing
Officer shall not direct the assessee to get the
accounts so audited unless the assessee has been
given a reasonable opportunity of being heard. This will apply prospectively.
49.4
A proviso has also been inserted to the sub-section (2D) so
as to provide that where any direction is issued under sub-section (2A) by the
Assessing Officer to an assessee to get the accounts
audited, the expenses of, and incidental to, such audit(including the
remuneration of the Accountant) shall be determined by the Chief Commissioner
or Commissioner in accordance with such guidelines as may be prescribed and the
expenses so determined shall be paid by the Central Government.
49.5
Applicability- These amendments will take effect from the 1st day
of June, 2007.
[Section
46]
50. Assessment of search casesOrders
of assessment and reassessment to be approved by the Joint Commissioner.
50.1
The existing provisions of making assessment and
reassessment in cases where search has been conducted under section 132 or
requisition is made under section 132A, does not provide for any approval for
such assessment.
50.2
new section 153D has been inserted to provide that no
order of assessment or reassessment shall be passed by an Assessing Officer below
the rank of Joint Commissioner except with the previous approval of the Joint
Commissioner. Such provision has been made applicable to orders of assessment
or reassessment passed under clause (b) of section 153A in respect of each
assessment year falling within six assessment years immediately preceding the
assessment year relevant to the previous year in which search is conducted
under section 132 or requisition is made under section 132A. The provision has
also been made applicable to orders of assessment passed under clause (b) of
section 153B in respect of the assessment year relevant to the previous year in
which search is conducted under section 132 or requisitioned is made under
section 132A.
50.3
Applicability- These amendments will take effect from the 1st day
of June, 2007.
[Section 50]
51. Providing time limit for completion of
assessments for returns filed under section 172
51.1
The provisions of section 172 relate to shipping business of
non-residents which, inter alia, require preparation
and furnishing of the return before departure of the ship, or within a maximum
period of thirty days from the date of departure of the ship subject to certain
conditions. The existing provisions of the said section, however, did not
provide for a time limit for completion of assessment in respect of a return
furnished under sub-section (3) thereof.
51.2
The Finance Act, 2007, therefore, has inserted a new sub-section (4A)
providing that no order assessing the income and determining the sum of tax
payable thereon shall be made under the said section after the expiry of nine
months from the end of the financial year in which the return under sub-section
(3) is furnished.
51.3
The Finance Act, 2007 has further inserted a proviso to the newly
inserted sub-section (4A) so as to provide that where a return
under sub-section (3) is furnished before the 1st day of April,
2007, the order assessing the income and determining the sum of tax payable
thereon may be made at any time up to the 31st day of December,
2008. This will give a longer time limit of 21 months to complete all pending
assessments under section 172.
51.4
Applicability - These amendments will take effect retrospectively from the 1st
day of April, 2007.
[Section 51]
52. Amendment of section 193 of the Income-tax
Act, 1961 to provide for TDS on 8% Savings (Taxable) Bonds, 2003.
52.1
The existing provisions of section 193 excluded, inter alia, any interest payable on any security of the Central
Government or a State Government from the requirement of deduction of tax at
source. Consequently, tax was not being deducted on interest payable on 8%
Savings (Taxable) Bonds, 2003.
52.2
The 8% Savings (Taxable) Bonds, 2003 are Central Government securities.
The notification issued by the Department of Economic Affairs dated 21st
March, 2003 also clarifies that the interest paid on 8% Savings (Taxable)
Bonds, 2003 is taxable under the Income-tax Act. Non-deduction of tax on these
bonds has been resulting in evasion of taxes.
52.3
The Finance Act, 2007 has, therefore, amended the said section to
provide that the person responsible for paying to a resident any interest on 8%
Savings (Taxable) Bonds, 2003 shall deduct income-tax if interest payable on
such Bonds exceeds ten thousand rupees during a financial year.
52.4
Applicability-
This amendment will take effect from the 1st day of June, 2007.
[section 52]
53. Increasing the threshold limit in respect
of interest payable by a banking Company or a co-operative society or on any
deposit with a notified post-office scheme under Section 194A.
53.1
The existing clause (i) of sub-section (3) of
section 194A provided that deduction of income-tax at source shall not be made
in a case where the amount of income by way of interest other than Interest on
securities did not exceed five thousand rupees.
53.2
The Finance Act, 2007 has amended said sub-section (3) to provide that
the limit for deduction of tax at source under the aforesaid section shall be
ten thousand rupees,-
(i)
Where
the payer is a banking company to which the Banking Regulation Act, 1949 (10 of
1949) applies (including any bank or banking institution, referred to in
section 51 of that Act);
(ii)
Where
the payer is a co-operative society engaged in carrying on the business of
banking;
(iii)
On
any deposit with post office under any scheme framed by the Central Government
and notified by it in this behalf.
In other cases, the
threshold limit shall be retained at five thousand rupees.
53.3
Consequential amendment has also
been carried out to the provisions of section 206A relating to furnishing of
quarterly return in respect of payment of interest to residents without
deduction of tax at source.
53.4
The Central Government have,
vide notification No. S.O. 861 (E) dated 1st June, 2007, notified the
Senior Citizens Savings Scheme, 2004 for the purposes of sub-clause (c) of
clause (i) of sub-section (3) of section 194-A of the
Income-tax Act. By virtue of this notification, no tax will be required to be
deducted at source under section 194A of the Income-tax Act, 1961 on interest
credited or paid or likely to be credited or paid on any deposit made under
Senior Citizens Savings Scheme, 2004, where such interest does not exceed ten
thousand rupees during the financial year.
53.5
Applicability- This amendment will take effect from the 1st
day of June, 2007.
[section 53 &
60]
54. Expansion of scope of the provisions of
section 194C.
54.1
contractor for carrying out any
work (including supply of labour for carrying out any
work) in pursuance of a contract between the contractor and the Government,
local authorities, statutory corporations, companies, co-operative societies,
statutory authorities engaged in providing housing accommodation etc.,
registered societies, trusts, universities and firms. The rate of TDS is 1% in
respect of advertising contracts and 2% in other cases.
54.2
The existing provisions of sub-section (1) of section 194C did not
provide for deduction of tax at source on payments made by an individual or a
Hindu undivided family to a contractor.
54.3
Considering the rising number of contracts being awarded by individuals
and HUFs carrying on business or profession and the
increasing volume of such payments to contractors, it was felt that there is
need to require such persons to deduct tax at source from payments made by them
to contractors.
54.4
There would be genuine difficulties if individuals or HUFs with small business turnovers or gross receipts of
profession are required to deduct tax at source. An exception in such cases
would be justified. Similarly the contracts awarded by an individual or a
member of HUF exclusively for personal purposes merit exclusion.
54.5
Accordingly, the Finance Act, 2007 has substituted the said sub-section
(1) to include in its ambit such individual or a Hindu undivided family, whose
total sales, gross receipts or turnover from the business or profession carried
on exceed the monetary limits specified under clause (a) or clause (b) of
section 44AB during the financial year immediately preceding the financial year
in which sum is credited or paid to the account of the contractor. This
amendment shall not apply in respect of payments made to a contractor by any
individual or a member of a Hindu undivided family exclusively for their
personal purposes.
54.6
Applicability-
This amendment will take effect from the 1st day of June, 2007.
[section 54]
55. Increase in the rate of TDS under section
194H to 10% and exemption from TDS thereunder from
commission payable by Bharat Sanchar
Nigam Limited and Mahanagar
Telephone Nigam Limited to their PCO franchisees.
55.1
The existing provisions of section 194H required deduction of tax at
source on payment of commission or brokerage, the rate for deduction of tax
being five per cent.
55.2
Deduction of tax at source facilitates capturing of income for tax
purposes at the earliest point of time. However, deduction of tax at source in
cases of payees whose income remains below taxable limit merely results in
unnecessary paper work. Public Call Office (PCO) franchisees of Bharat Sanchar Nigam Limited or Mahanagar
Telephone Nigam Limited represent this category as
very small sums of commission are received by them and there would be very few
such cases where income would be above the threshold exemption limit.
55.3
The Finance Act, 2007 has, therefore, amended the said section to
provide that tax shall not be deducted on payments of commission or brokerage
payable by Bharat Sanchar Nigam Limited or Mahanagar
Telephone Nigam Limited to their public call office
franchisees.
55.4
Many cases have come to notice where tax incidence in the case of
recipient of commission or brokerage is much higher than the amount of tax
collected at the rate of five per cent. This had resulted in either deferment
in collection of taxes or escapement of income in some cases. This problem has
been addressed by the Finance Act, 2007 by enhancement of the existing rate of
five per cent. for deduction of tax at source to ten per cent.
55.5
Applicability-
This amendment will take effect from the 1st day of June, 2007.
[Section 55
]
56. Reduction in the rate for deduction of
tax at source on rent for the use of any machinery or plant or equipment under
Section 194-I.
56.1
The existing provisions of section 194-I provided for deduction of tax
at source by the person paying any income by way of rent to a resident.
Individuals and HUFs, having their turnover below the
limits specified in clause (a) or clause (b) of section 44AB, were not required
to deduct tax under this section. The existing rate of deduction of tax was
fifteen per cent. if the payee was an individual or a Hindu undivided family
and twenty per cent. in the case of other payees. Rent for the purposes of this
section was defined in the Explanation.
56.2
The existing definition of Rent as amended by the Taxation Laws
(Amendment) Act, 2006 had come into force from 13th July, 2006 and
in this definition rent on three new items, viz. machinery, plant and equipment
had been inserted. Subsequent to the above amendment, representations had been
received to the effect that the profit margin in the transactions involving
lease or hire of machinery, plant or other equipment being quite low, TDS at
the existing rates of 15% and 20% was resulting in higher amounts of collection
of tax than the tax incidence in such cases.
56.3
Accordingly, the Finance Act, 2007 has amended the said section to
separately specify the rate of deduction of tax at source at a lower rate of
ten per cent. in respect of any income payable by way of rent for the use of
any machinery or plant or equipment.
56.4
Applicability-
This amendment will take effect from the 1st day of June, 2007.
[Section 56]
57. Enhancement of the rate of TDS under
section 194J of the Income-tax Act.
57.1
Under the existing provisions of sub-section (1) of section 194J, a
specified person was required to deduct an amount equal to five per cent. of
any sum payable to a resident by way of fees for professional services or fees
for technical services.
57.2
The data collected on tax deduction in various cases of professionals
and technical experts, showed that the tax incidence in such cases was much
higher than the amount of tax collected by way of deduction of tax at source at
the existing rate of five per cent.
57.3
Accordingly, the Finance Act, 2007 has amended the said section to
specify a higher rate of ten per cent. for tax deduction at source. The
increased rate for deduction of tax at source shall be applicable to payment of
any sum by way of fees for professional services or fees for technical services
or royalty or any sum referred to in clause (va) of
section 28.
57.4
Applicability-
This amendment will take effect from the 1st day of June, 2007.
[Section 57]
58. Omission of reference to omitted
section 88B from section 197A.
58.1
The existing provisions of sub-section (1C) of section 197A contained
reference to section 88B which was omitted with effect from 1st
April, 2006.
58.2
The Finance Act, 2007 has deleted the reference to the omitted section
88B from the said sub-section.
58.3
Applicability-
This amendment will take effect retrospectively from 1st April, 2006
and will, accordingly, apply in relation to the assessment year 2006-2007 and
subsequent assessment years.
[Section 58]
59. Change of method for calculation of
interest from per annum basis to per month basis.
59.1
Sub-section (1A) of section 201 provided that the person who has not
deducted the whole or any part of the tax or after deduction has failed to pay
the tax as required by or under the Act, shall be liable to pay simple interest
at the rate of twelve per cent. per annum on the amount of such tax from the
date on which such tax was deductible to the date on which such tax is actually
paid.
59.2
On the other hand, under the other provisions of the Income-tax Act
which relate to charge of interest from the assessee,
namely, sections 220, 234A, 234B and 234D interest chargeable from the assessee is calculated for every month or part of a month
comprised in the period for which interest is to be charged. Under section
234C(1)(a)(i), simple interest is charged at the rate
of one per cent. per month for the period specified in that section. Under
section 244A also under which interest is paid on refunds to the assessee, interest is calculated for every month or part of
a month.
59.3
The difference between calculation of interest on per-annum basis and
per-month basis lies in the difference in procedure followed for calculation of
interest under these two methods. When interest is calculated on per annum
basis, any fraction of a month is ignored and when interest is calculated for
every month or part of a month basis, any fraction of a month is deemed a full
month and interest is calculated for the full month. This principle has been
followed in framing rule 119A which provides for procedure for calculation of
interest on annual or monthly basis.
59.4
Under the widely applicable provisions of sections 220(2), 234A, 234B,
234C, 234D and 244A, the interest is chargeable on per month basis. Accordingly,
the Finance Act, 2007 has changed the method for calculation of interest to per
month basis from the existing per annum basis under clause (a) of sub-section
(4) of section 132B, sub-section (1A) of section 201, sub-section (6A) of
section 245D, rule 60(1)(a) and rule 68A(3) of the Second Schedule to the
Income-tax Act, and sub-section (6A) of section 22D of the Wealth-tax Act.
59.5
The amendments regarding change of method of calculation of interest to
monthly basis will be applicable in respect of interest chargeable or payable
for the period commencing on or after 1st April, 2008. For any
period ending on or before 31st March, 2008, interest shall continue
to be charged or paid on per annum basis under the aforementioned sections
which are proposed to be amended. However, in respect of any period commencing
on or before 31st March, 2008 and ending after that date, such
interest shall, in respect of so much of such period as falls after that date,
be calculated on per month basis.
59.6
Applicability-
These amendments will take effect on the 1st day of April, 2008.
[Section 43,
59, 64, 81 & 86]
60. Definition of the expression mining
and quarrying under section 206C of the Income-tax Act, 1961.
60.1
The existing provisions of section 206C provided for collection of tax
at source, inter alia, from the licensee or lessee in
respect of any licence, contract or lease relating to
any mining and quarrying specified in column (2) of the Table in sub-section (1C)
of the said section. The rate for collection of tax at source was specified in
column (3) of the Table.
60.2
The existing provisions of the said section did not provide for a
definition of the expression mining and quarrying. Representations had been received
from a few quarters that this phrase, in the absence of its definition in the
section, was being taken to include oil exploration and incidental services and
tax was being collected from licensees engaged in such exploration. Since, oil
exploration and incidental services are in the organized sector, the provisions
of TCS were not intended to be made applicable.
60.3
The Finance Act, 2007 has, accordingly, inserted Explanation 1 to
provide that for the purposes of sub-section (1) of section 206C, mining and
quarrying shall not include mining and quarrying of mineral oil. Explanation
2 further clarifies that for the purposes of Explanation 1, mineral oil
includes petroleum and natural gas.
60.4
Applicability-
This amendment will take effect from the 1st day of June, 2007.
[Section 61]
61. Revised Settlement Scheme
61.1
Chapter XIX-A of the Income-tax Act contains provisions
relating to settlement of cases by the Settlement Commission. With a view to
avoid delay in determining the tax liability of an assessee
which is caused because of factors like duplication of proceedings, absence of
statutory time frame for settling the case and also with a view to streamline
the proceedings before the Settlement Commission, provisions of Chapter XIX-A
of the Income-tax Act have been amended. The important changes that have been
carried out, inter-alia, are enumerated below.
61.2
Under the existing provisions, an assessee
may make an application to the Commission at any stage of the proceedings in
his case pending before any Income-tax Authorities. After 31st May, 2007, an assessee can make an application to the Commission only
during the pendency of the proceedings before the
Assessing Officer. It is further clarified that (a) since intimation under
section 143(1) is not an assessment order, there will be no bar in filing an
application for settlement subsequent to receipt of an intimation under section
143(1). It is not material whether time-limit for issue of notice under section
143(2) has expired or not; (b) the assessment shall be deemed to have been
completed only on the date of service of assessment order to the applicant.
61.3
The provisions have further been amended to exclude the
following proceedings of assessment during which an assessee
shall not be allowed to make the application before the Commission
(a) assessment /
reassessment proceedings in response to a notice under section 148. These
proceedings shall be deemed to have commenced on the date on which notice under
section 148 was issued.
(b) assessment or
reassessment proceedings under section 153A for each of six assessment years
preceding the assessment year relevant to the previous year in which a search
under section 132 was conducted or a requisition under section 132A was made;
and also the assessment or reassessment proceedings in case of such persons for
the assessment year relevant to the previous year in which the search under
section 132 was conducted or the requisition under section 132A was made. These
proceedings shall be deemed to have commenced on the date on which the search
under section 132 was initiated or the requisition under section 132A was made;
(c) proceedings of
making fresh assessment where original assessment was set aside under section
254 by the Appellate Tribunal or under section 263 or section 264 by the
Commissioner Such proceedings shall be deemed to have commenced from the date
on which the order setting aside the original assessment was passed;
61.4
The provisions prescribed that an application can be made
only if the additional amount of income-tax payable on the income disclosed in
the application exceeds one lakh rupees. This limit
has been enhanced to three lakh rupees.
61.5
The provisions prescribed that the income-tax payable on
the income disclosed in the application has to be paid after the application is
allowed to be proceeded with under sub-section (1) of section 245D. The
provision has been amended to provide that such tax along with interest, if
any, shall be paid on or before the date of making the application and proof of
such payment shall be attached with the application. Further, it has been
provided that the applicant shall also intimate the Assessing Officer in the
prescribed manner of having made such application to the Settlement Commission.
61.6
The provisions prescribed that the Commission, on receipt
of an application, calls for a report from the Commissioner. After considering
the material contained in such report and having regard to the nature and
circumstances of the case or the complexity of the investigation involved, the
Commission passes an order to reject the application or to allow the
application to be further proceeded with. Under the existing provisions, there
is no statutory time limit for passing the order for rejecting or allowing the
application to be proceeded with. However, a suggestive time limit of one year
from the end of the month in which such application was made has been provided.
The provisions have been amended to provide that the Settlement Commission,
within 7days of receipt of the application shall issue a notice to the
applicant to explain as to why his application be admitted. Thereafter, within
14 days from the date of receipt of the application, the Settlement Commission
shall pass an order for rejecting the application or allowing the application
to be proceeded with. Complexity of the investigation involved in a case shall
not be the criteria for admitting or rejecting the application. Further, where
no order or rejection or admission of an application is passed within the
aforesaid period, the application shall be deemed to have been allowed to be
proceeded with. The following has also been provided-
(a) the
applications which were made before 1st June, 2007 but pending on that date as
to whether to be rejected or allowed to be proceeded with, shall be deemed to
have been allowed to be proceeded with if the tax on the income disclosed in
the application and the interest is paid on or before 31st July, 2007. In case,
such tax and interest is not paid on or before the aforesaid date, the
application shall be deemed to have been rejected;
(b) in respect of
applications which were admitted before 1st June, 2007 but order of settlement
was not passed before the said date, the tax on the income declared in the application
and interest thereon shall have to be paid on or before 31st July, 2007. Tax
and interest shall be paid by this date even in cases where the Commission has
already granted any extension or instalment for
payment of tax beyond the said date. If the tax and interest is not paid on or
before 31st July, 2007, the application shall not be allowed to be
further proceeded with and the proceedings before the Commission shall abate on
31st July, 2007.
61.7
If an application made on or after 1st June, 2007 is allowed
to be proceeded with, the Settlement Commission shall issue a notice to the
Commissioner within 30 days from the date on which the application was
received. In case of applications referred to in para 61.6(a) above, if the tax and interest has been paid before 31st July,
2007, such notice shall be issued to the Commissioner on or before the 7th day
of August, 2007. The Commissioner shall send his report within 30 days from the
date on which the communication from the Settlement Commission is received by
him.
61.8
On receipt of the report of the Commissioner, the
Settlement Commission shall hear the applicant and the Commissioner within
fifteen days from the date of receipt of the report. If it is found that the
application was not a valid application, the Commission by passing an order may
declare the application invalid. Copy of the order declaring an application
invalid will have to be sent to the applicant and the Commissioner. In case an
application is declared invalid the proceedings before the Commission shall
abate. If the Commissioner does not send the report within the specified
period, the Commission may proceed in the matter further without the report of
the Commissioner.
61.9
In respect of applications made before 1.7.2007 and referred to in para 61.6(a) or 61.6(b), above which are not declared
invalid or as the case may be, allowed to be further proceeded with, the Settlement Commission, if, is of the opinion to do
so, may direct the Commissioner to make or cause to be made such further
inquiry or investigation as it deems fit. The Commissioner shall submit his
report within 90 days from the date on which the communication from the
Settlement Commission is received by him;
61.10
The Commission shall, after giving an opportunity to the
Commissioner and to the applicant and considering the reports of the
Commissioner and other material available with it, pass the settlement order.
Under the pre-amended provisions, there was no time limitation for making the
order of settlement. The provision has been amended to provide that the
Commission shall pass such order within 9 months from the end of the month in which the application
was received. In respect of applications referred to in para
61.6(a) or 61.6(b) above, the Settlement Commission
shall pass the order on or before 31st March, 2008;
61.11
The provisions provided that the Commission may grant
immunity from prosecution under Indian Penal Code, Income-tax Act and any other
Central Act. The provisions have been amended to provide that the Commission
shall not grant immunity from prosecution under any law other than Income-tax
Act and Wealth-tax Act. However, in respect of pending applications, the
existing provisions shall continue.
61.12
The provisions provide that the Commission may, if it is
necessary or expedient to do so, reopen completed proceedings. The provisions
have been amended to provide that the Commission shall not have powers to
reopen the completed proceedings in a case where an application under section
245C has been filed on or after 1st June, 2007.
61.13
It has also been provided that, if the application made on or after 1.7.2007 is
rejected or such application or an application referred to in para 61.6(a) above is declared invalid or an application
referred to in para 61.6(b) above is not allowed to be
further proceeded with or the settlement order is
not passed within the specified period, the proceedings before the Commission
shall abate and the Assessing Officer or other income-tax Authority before whom
the proceeding were pending at the time of making the application, as the case
may be, shall resume and complete the proceeding. Credit shall be allowed for
the tax and interest paid by the applicant by the Assessing Officer. The period
from the date on which the application was made before the Commission and upto the date on which proceedings get abated shall be
excluded from the time limitation for completing the proceedings by the
Assessing Officer;
61.14
The provisions have also been amended to provide that
after 1.6.2007, an assessee can apply for settlement
only once during his lifetime. For this purpose, an application which was not
admitted shall not be deemed to be an application;
61.15
It has also been provided that the definition of
Vice-Chairman shall include the senior Member among the Members of a Bench so
that, if there is no Vice-Chairman at a Bench, it can be presided over by a
Member who is senior amongst the Members of the Bench;
61.16
Chapter V-A of the Wealth-tax Act also contains similar
provisions for settling a Wealth-tax case by the Settlement Commission. Similar
amendments have been carried out in the Wealth-tax Act also.
61.17
Applicability- These amendments will take effect from the 1st day
of June, 2007.
[Sections
62,63,64,65,66,67,68,69,70,84,85,86,87,88,89,90,91 & 92]
62. Providing for the right to appeal
against the order holding a person as an assessee in
default under section 206C(6A).
62.1
The existing provisions of sub-section (6A) of section 206C deem a
person responsible for collecting tax to be the assessee
in default in respect of the whole or any part of the tax which he fails to
collect or after collection fails to pay in accordance with the provisions of
the Act. The Assessing Officer is required to pass an order deeming such person
an assessee in default.
62.2
By virtue of the provisions of the aforesaid sub-section (6A), a
liability is visited upon the person responsible for collecting tax and payment
thereof as taxes become recoverable from him. Such person should, therefore,
have been entitled to file an appeal against the order of the Assessing Officer
deeming him as an assessee in default. Provisions for
appeal already exist against similar order passed by the Assessing Officer
under sub-section (1) of section 201 whereby a person is deemed as an assessee in default if he fails to deduct or after
deducting fails to pay the tax to the Government account.
62.3
The Finance Act, 2007, therefore, has inserted a new clause (hb) in sub-section (1) of section 246A to provide that a
person deemed as an assessee in default may appeal
before the Commissioner (Appeals).
62.4
The Finance Act, 2007 has also inserted a new sub-section (1B) in
section 246A to provide that an appeal filed by an assessee
in default against an order made under sub-section (6A) of section 206C on or
after the 1st day of April, 2007 but before the 1st day
of June, 2007 shall be deemed to have been filed before the Commissioner
(Appeals) under new clause (hb) of sub-section (1) of
section 246.
62.5
Applicability - These amendments will take effect from the 1st
day of June, 2007.
[Section 71]
63. Provision
of appeal by a person denying liability to deduct tax.
63.1
The provisions of section 248, provided that where any
person has deducted and paid tax in accordance with the provisions of sections
195 and 200 in respect of any sum chargeable under the Act, other than interest
and who denies his liability to make such deductions, may make an appeal to the
Commissioner (Appeals) to be declared not liable to make such deductions.
63.2
Section 248 has been substituted, so as to provide that
where under an agreement or other arrangement, the tax deductible on any
income, other than interest, under section 195 is to be borne by the person by
whom the income is payable, and such person having paid such tax to the credit
of the Central Government, claims that no tax was required to be deducted on
such income, he may appeal to the Commissioner (Appeals) for a declaration that
no tax was deductible on such income.
63.3
Applicability- These amendments will take effect from the 1st day
of June, 2007.
[Section 72]
64. Provision for Form of appeal and
limitation: Consequential to the amendment made to section 248.
64.1
The provisions of sub-section (2) of section 249 provide the
different situations and the relevant dates from which thirty days for filing
appeal is to be counted. The provisions of clause (a) of sub-section (2)
provided that where the appeal relates to any tax deducted under sub-section
(1) of section 195, thirty days for filling appeal shall be counted from the
date of payment of the tax.
64.2
Section 248 has been amended so as to provide for an
appeal by a person, who has paid the tax deductible on income of the
non-resident under net of tax arrangement and who is denying that any tax was
deductible. Consequentially, clause (a) of sub-section (2) of section 249 has
been amended providing that where the appeal is under section 248, the
prescribed time shall be counted from the date of payment of tax.
64.3
Applicability- These amendments will take effect from the 1st day
of June, 2007.
[Section 73]
65. Provision relating to approval of
charitable institutions and funds.
65.1
The provision of section 80G provides that the deductions
in respect of donations to certain funds, charitable institutions are available
from the taxable income of the donor. The said section provides for two
categories of funds- one that are enumerated in sub-section (2) and the
secondly, those funds which are approved by the Commissioner under clause (vi)
of sub-section (5) of the said section. Under the pre-amended provisions of
section 253, no appeal could be filed before the Appellate Tribunal against the
order of rejection of approval by the Commissioner under section 80G (5) (vi).
65.2
Therefore, section 253 has been amended so as to allow an
appeal to be filed against such orders of the Commissioner before the Appellate
Tribunal.
65.3
Applicability- This amendment will take effect from the 1st day of
June, 2007.
[Section 74]
66. Prescribing time-limit for grant of stay
by the Appellate Tribunal.
66.1
The provisions of section 254 provided that the Appellate
Tribunal may pass an order of stay in any proceeding relating to an appeal
filed before it. In such cases, it was provided that the Appellate Tribunal
shall dispose of the appeal within a period of one hundred and eighty days from
the date of such order. If the appeal is not decided within the period for
which the stay was granted, the stay order should be vacated after the expiry
of the stay period.
66.2
Section 254 has been amended so as to provide that the
Appellate Tribunal, after considering the merits of the application made by the
assessee, may pass an order of stay in any proceeding
relating to an appeal filed under sub-section (1) of section 253, for a period
not exceeding one hundred and eighty days from the date of such order. The
Appellate Tribunal shall dispose of the appeal within the said period of stay
specified in that order.
66.3
It is further provided that where such appeal is not
disposed of within the aforesaid period of stay, the Appellate Tribunal may
extend the period of stay or pass an order of stay for a further period or
periods as it thinks fit. Such extension in the period of stay is to be granted
on an application made in this behalf by the assessee
and after the Appellate Tribunal is satisfied that the delay in disposing of
the appeal is not attributable to the assessee.
66.4
It has also been provided that the aggregate of the period
originally allowed and the period or periods so extended or allowed shall not
in any case exceed three hundred and sixty five days. The Appellate Tribunal
shall dispose of the appeal within the period or periods of stay so extended or
allowed.
66.5
It has also been provided that if the appeal is not
disposed of within the period originally allowed or within the period or
periods, subsequently extended, the order of stay shall stand vacated after the
expiry of such period or periods.
66.6
Applicability- This amendment will take effect from the 1st day of
June, 2007.
[Section 75]
67. Rationalisation
of provisions relating to penalty for concealment of or furnishing inaccurate
particulars of income.
67.1
The provisions of clause (b) of Explanation 4 to sub-section
(1) of section 271, provided that in a case to which Explanation 3 to the said
sub-section (1) applies, the amount of tax sought to be evaded shall mean the
tax on the total income assessed.
67.2
Explanation 4 has been amended so as to provide that in a
case to which said Explanation 3 applies, the amount of tax sought to be evaded
shall mean the tax on the total income assessed as reduced by the amount of
advance tax, tax deducted at source, tax collected at source and self
assessment tax paid before the issue of notice under section 148.
67.3
Applicability: This amendment takes effect retrospectively
from 1st April, 2003 and will, accordingly, apply in relation to assessment
year 2003-04 and subsequent years.
67.4
The provisions of Explanation 5 to sub-section (1) of
section 271, provides that where in the course of a search under section 132,
the assessee is found to be the owner of any money,
bullion, jewellery or other valuable article or thing
(referred to as assets in this Explanation) and the assessee
claims that such assets have been acquired by him by utilising
(wholly or in part) his income (i) for any previous
year which has ended before the date of the search, but the return of income
for such year has not been furnished before the said date or, where such return
has been furnished before the said date, such income has not been declared
therein; or (ii) for any previous year which is to end on after the date of the
search, then, notwithstanding that such income is declared by him in any return
of income furnished on or after the date of the search, he shall, for the
purposes of imposition of a penalty under clause (c) of sub-section (1) of
section 271, be deemed to have concealed the particulars of his income or
furnished inaccurate particulars of such income. However, penalty shall not be
levied if certain conditions prescribed therein are fulfilled.
67.5
Explanation 5 has been amended so as to provide that
provisions of said Explanation shall be applicable only in a case where search
under section 132 was initiated before 1st June, 2007.
67.6
Applicability: The amendment has taken effect from 1st
June, 2007 and will be applicable to cases where search under section 132 is
initiated on or after 1st June, 2007.
67.7
A new Explanation 5A to sub-section (1) of section 271 has
also been inserted so as to provide that where in the course of a search
initiated under section 132 on or after the 1st day of June, 2007, the assessee is found to be the owner of (i)
any money, bullion, jewellery or other valuable
article or thing (referred to as assets in the proposed new Explanation) or
(ii) any income based on any entry in any books of account or other documents
or transactions and claims that such assets or entry in the books of account or
other documents or transactions represents his income (wholly or in part) for
any previous year; which has ended before the date of the search and the due
date for filing the return of income for such year has expired and the assessee has not filed the return, then, notwithstanding
that such income is declared by him in any return of income furnished on or
after the date of the search, he shall, for the purposes of imposition of a
penalty under clause (c) of sub-section (1) of this section, be deemed to have
concealed the particulars of his income or furnished inaccurate particulars of
such income.
67.8
Applicability This amendment will take effect from the 1st
day of June, 2007 and will be applicable to cases where search under section
132 is initiated on or after 1st day of June, 2007.
[Section
76]
68. Provision for penalty for concealment in
search and seizure cases.
68.1
A new section 271AAA has also been inserted so as to
provide that, in a case where search has been initiated under section 132 on or
after 1st June, 2007, the assessee shall be liable to
pay by way of penalty, in addition to tax, if any, payable by him, a sum
computed at the rate of ten per cent of the undisclosed income of the specified
previous year. However, provisions of this section shall not be applicable if
the assessee (i) in a
statement under sub-section (4) of section132 in the course of the search,
admits the undisclosed income and specifies the manner in which such income has
been derived; (ii) substantiates the manner in which the undisclosed income was
derived; and (iii) pays the tax, together with interest, if any, in respect of
the undisclosed income. It is further provided that no penalty under the
provisions of clause (c) of sub-section (1) of section 271 shall be levied or
imposed upon the assessee in respect of the
undisclosed income referred to in this section. It is also provided that the
provisions of section 274 and section 275 shall, so far as may be, apply in
relation to the penalty leviable under the new section.
68.2
For the purposes of this section, undisclosed income has
been defined to mean (i) any income of the specified
previous years represented, either wholly or partly, by any money, bullion, jewellery or other valuable article or thing or any entry
in the books of account or other documents or transactions found in the course
of a search under section 132, which has not been recorded on or before the
date of search in the books of account or other documents maintained in the
normal course relating to such previous year; or which has otherwise not been
disclosed to the Chief Commissioner or Commissioner before the date of the
search; or (ii) any income of the specified previous year represented, either
wholly or partly, by any entry in respect of an expense recorded in the books
of account or other documents maintained in the normal course relating to the
specified previous year which is found to be false and would not have been
found to be so had the search not been conducted.
68.3
For the purposes of this section, specified previous year
has been defined, so as to mean the previous year
(i)
which has ended before the date of search, but the date of
filing the return of income under sub-section (1) of section 139 for such year
has not expired before the date of search and the assessee
has not furnished the return of income for the previous year before the said
date; or
(ii)
in which search was conducted.
68.4
An appeal to the Commissioner against levy of penalty
under the proposed new section 271AAA has also been provided.
68.5
Applicability- This amendment will take effect from the 1st day of
June, 2007 and will accordingly apply in relation to assessment year 2007-2008
and subsequent years in cases where search under section 132 is initiated on or
after 1st June, 2007.
[Section 71 & 77]
69. Clarification in respect of presumption
as to seized books of account, money, bullion, jewellery
or other valuable article or thing to other proceedings under the Income-tax
Act.
69.1
The provisions of sub-section (4A) of section 132 provides
that the books of account, money, bullion, jewellery
or other valuable article or thing found in the possession or control of any
person in the course of a search under section 132 will be presumed to belong
to the said person. It is further provided that it will be presumed that the
contents of such books of account and other documents are true; and that the
signature and every other part of such books of account and other documents
which purport to be in handwriting of any particular person or which may
reasonably be assumed to have been signed by, or to be in the handwriting of,
any particular person, are in that persons handwriting, and in the case of a
document stamped, executed or attested, that it was duly stamped and executed
or attested by the person by whom it purports to have been so executed or
attested.
69.2
A new section 292C has been inserted so as to clarify that
presumptions provided in sub-section (4A) of section 132 can be made in any proceedings
under this Act.
69.3
Further, similar amendment in the Wealth-tax Act has also
been inserted by of a new section 42D.
69.4
Applicability- This amendment will take effect retrospectively from the 1st
day of October, 1975.
[Section
78 & 93]
70. Extension of time limit set out in Rule 3
for complying with the conditions laid down in clause (ea) of Rule 4 of Part A
of the Fourth Schedule to the Income-tax Act.
70.1
Rule 4 of Part A of the Fourth Schedule to the Income-tax Act provides
for the conditions which are required to be satisfied by a provident fund for
receiving or retaining recognition under the Income-tax Act. Clause (ea) of the
said rule provides that the fund shall be of an establishment to which the
provisions of sub-section (3) or sub-section (4) of section 1 of the Employees
Provident Funds and Miscellaneous Provisions Act, 1952 are applicable and such
establishment has been exempted under section 17 of the said Act from the
operation of all or any of the provisions of any scheme referred to in that
section.
70.2
With a view to set out the conditions given in clause (ea) in
unambiguous terms clause (ea) has been substituted so as to provide that for
receiving and retaining recognition under the Income-tax Act, the fund shall be
a fund of an establishment to which the provisions of sub-section (3) of
section 1 of the Employees Provident Funds and Miscellaneous Provisions Act,
1952 apply or of an establishment which has been notified by the Central
Provident Fund Commissioner under sub-section (4) of section 1 of the said Act,
and such establishment shall obtain exemption under section 17 of the said Act
from the operation of all or any of the provisions of any scheme referred to in
that section.
70.3
Rule 3 of Part A of the Fourth Schedule provides that the Chief
Commissioner or the Commissioner of Income-tax may accord recognition to any
provident fund which satisfies the conditions prescribed in rule 4 and the
rules made by the Board in this behalf.
70.4
The proviso to sub-rule (1) of the said rule 3, inter-alia, specifies that in a case where recognition has been
accorded to any provident fund on or before 31st March, 2006, and
such provident fund does not satisfy the conditions set out in clause (ea) of
rule 4, the recognition to such fund shall be withdrawn, if such fund does not
satisfy such conditions on or before 31st March, 2007.
70.5
With a view to provide adequate time to the Employees Provident Fund
Organization to decide on the applications seeking exemption under section 17
of the Employees Provident Fund and Miscellaneous Provisions Act, 1952, time
limit provided under rule 3 of the Fourth Schedule to the Income-tax Act for
fulfillment of the condition specified in clause (ea) of rule 4 of Part A of
the said Schedule has been extended from 31.3.2007 to 31.3.2008.
70.6
A proviso in sub-rule (1) of rule 3 has also been inserted so as to
provide that the first proviso shall not apply to the provident fund of an
establishment in respect of which a notification has been issued by the Central
Government under sub-section (2) of section 16 of the Employees Provident Fund
and Miscellaneous Provisions Act, 1952.
70.7
Applicability-
This amendment will take effect from the 1st day of April, 2008 and
will, accordingly, apply in relation to the assessment year 2008-2009 and
subsequent assessment years.
[Section 82]
71. Exclusion of office
or establishment of the Central Government or the Government of a State and enhancement of exemption limit in the
provisions of a banking Cash Transaction Tax (BCTT).
71.1
The provisions of Banking Cash Transaction Tax (BCTT), as
contained in Chapter VII of the Finance Act, 2005, in section 94, provides that
tax is to be levied at the rate of 0.1 per cent (10 basis points) on taxable
banking transactions. Such banking transactions included- (i)
Withdrawals of cash (by whatever mode) exceeding Rs.
25,000 in the case of individuals and HUFs and Rs. 1,00,000 for other taxable entities on any single day
from an account (other than a saving bank account) with any scheduled bank; and
(ii) Receipt of cash exceeding a specified limit from any scheduled bank on any
single day on encashment of one or more term deposits, whether on maturity or
otherwise. The BCTT was also payable amongst others, by an office or
establishment of the Central Government or the Government of a State.
71.2
The said section has been amended, so as to exclude the
offices or establishments of the Central Government and governments of the
states from the purview of definition of person.
71.3
Further, the existing limit of taxable banking
transactions has been enhanced from the present twenty-five thousand to fifty
thousand rupees for individuals and Hindu undivided family.
71.4
Applicability- This amendment will take effect from 1st day of
June, 2007.
[Section 144]
[F.No. 142/14/2007-TPL]
Clarification on deduction of tax at
source (TDS) on service tax component on rental income under section 194-I of
the Income-tax Act
CIRCULAR NO. 4/2008,
DATED 28-4-2008
Representations/letters have been received in the
Board seeking clarification as to whether TDS provisions under section 194-I of
the Income-tax Act will be applicable on the gross rental amount payable
(inclusive of service tax) or net rental amount payable (exclusive of service
tax).
2. The
matter has been examined by the Board. As per the provisions of 194-I, tax is
deductible at source on income
by way rent paid to any resident. Further rent has been defined in 194-I as rent
means any payment, by whatever name called, under any lease, sub-lease, tenancy
or any other agreement or arrangement for the use of (either separately or
together) any,-
(a)
land; or
(b)
building (including factory building); or
(c)
land appurtenant to a building (including factory building); or
(d)
machinery; or
(e)
plant; or
(f)
equipment; or
(g)
furniture; or
(h)
fittings, whether or not any or all of the above
are owned by the payee;
3. Service
tax paid by the tenant doesnt partake the nature of
income of the landlord. The landlord only acts as a collecting agency for
Government for collection of service tax. Therefore it has been decided that
tax deduction at source (TDS) under sections 194-I of Income-tax Act would be
required to be made on the amount of rent paid/payable without including the
service tax.
4. These
instructions may be brought to the notice of all officers working in your
region for strict compliance.
5. These
instructions should also be brought to the notice of the officers responsible
for conducting internal audit and adherence to these should be checked by the
auditing parties.
[F.No.275/73/2007-IT(B)]
MANDATORY E-PAYMENT OF
TAXES
CIRCULAR NO.
5/2008, DATED 14-7-2008
The Central Board
of Direct Taxes, vide notification S.O. No. 493(E), dated 13.3.2008 have
notified the categories of taxpayers who are mandatorily
required to electronically pay taxes on or after the 1st day of April, 2008.
The taxpayers who are required to pay taxes by the prescribed mode are - (i) a company; and (ii) a person (other than a company), to
whom provisions of section 44AB of the Income-tax Act, 1961 are applicable.
2 Further, payment of tax electronically
has been defined to mean payment of tax by way of - (i)
internet banking facility of the authorized bank: or (ii) credit or debit
cards.
3. In this context, representations have
been received from some of the foreign assessee
highlighting the difficulties being faced by them in complying with the
provisions with regard to mandatory e-payment of taxes. It has been pointed out
by such foreign assessee that they do not have a
presence in
4 With a view to facilitating electronic payment of taxes by different categories of taxpayers, it is hereby clarified that, - an assessee can make electronic payment of taxes also from the account of any other person. However, the challan for making such payment must clearly indicate the Permanent Account Number (PAN) of the assessee on whose behalf the payment is made. It is not necessary for the assessee to make payment of taxes from his own account in an authorized bank. Further, it is also clarified that payment of any amount by a deductor by way of Tax Deducted at Source (TDS) or Tax Collected at Source (TCS) shall fall within the meaning of 'tax' for the purpose of the rule 125 of the Income-tax Rules, 1962.
NEW RETURN FORMS FOR THE ASSESSMENT YEAR 2008-09 - AND MATTERS CONNECTED
THERETO
CIRCULAR NO.
6/2008, DATED 18-7-2008
The Central Board of Direct Taxes, vide
notification S.O. No. 752(E), dated 28.3.2008 have notified return forms for
the assessment year 2008-09. With a view to enabling tax payers to file returns
in the electronic mode, these returns (except ITR-7) have been made
annexure-less. The instructions for filling up the return forms clearly
stipulate that "No document (including TDS/TCS certificate, report of
audit) should be attached to this form. Official receiving the return has been
instructed to detach all documents enclosed with this form and return the same
to the assessee..
2. It has come to the notice of the Board
that in spite of the directions contained in the Instructions for filling the
return forms, the practice of accepting returns, along with annexures
is still continuing. This practice goes against the expressed policy of the
Government and is not in consonance with the legal provisions. Therefore, it is
emphasized that Chief Commissioners of Income Tax must ensure strict compliance
with the provisions of law. It may be reiterated that all annexures
accompanying the income tax return forms should be detached and returned to the
tax payers by the receiving official.
Further, while processing such returns
under section 143(1), the credit for tax deducted at source (TDS)/Tax Collected
at Source (TCS) shall be allowed on the basis of details furnished in the
relevant schedules of the return forms subject to Instruction No.6/2008 dated
18th June, 2008 issued by the Central Board of Direct Taxes in respect of
assessment year 2007-08 or any similar instructions as may be issued for
assessment year 2008-09. No disallowance of claim for TDS/TCS shall be made by
the Assessing Officer only on the ground that the TDS/TCS certificates have not
been filed along with the return of income or Form ITR-V. The same procedure
shall also apply in respect of challans relating to
Advance Tax and Self Assessment Tax.
Assessees are advised to retain with
themselves all annexures relating to computation of
income, TDS/TCS certificates, counterfoil of challans
relating to payment of advance tax and self assessment tax, audit reports and
any other document which they would have otherwise liked to file in support of
their claims. The original documents and certificates may be produced by them
as and when called for by the Assessing Officer.
5. Instances
have also come to the knowledge of the Board that ITR-V verification form are
being received without giving them a Receipt Number. Since ITR-V verification
form is an acknowledgement, the same should be received by giving a Return
Receipt Number, as if it were a return. Separate counters may be set-up to
receive such ITR-V verification forms. These ITR-V verification forms should be
kept in safe custody.
Order under section 119(1) of the Income-tax Act, 1961
regarding exemption from the TDS provisions under section 197 read in
conjunction with section 10(26BBB) of Income-tax Act, 1961
CIRCULAR NO. 7/2008, DATED
1-8-2008
In exercise of the powers conferred under sub-section (1) of
section 119 of Income-tax Act, 1961, Central Board of Direct Taxes hereby
directs that corporations which are established by a Central, State or
Provincial Act for the welfare and economic upliftment
of ex-servicemen and whose income qualifies for exemption from income-tax under
section 10(26BBB) of the Income-tax Act, 1961, are hereby given exemption from
Tax Deduction/Collection at Source on their receipts.
2. This
exemption shall not absolve such organisation from
their statutory obligation of deducting TDS on all contractual payments made by
them to other parties including sub-contractors etc.
3. This
exemption shall be valid for 3 years from the date of issue of this order.
4. After
the end of 3 years, all the Chief Commissioners of Income-tax will send their
feedback to the CBDT on the benefits and, or shortcomings observed in the
working so as to enable a review and further decision by the Board in the
matter.
Circular
Income Tax Act
Section 139 of the Income-tax
Act, 1961 - Return of Income - Compulsory filing of e-return of income for
assessment year 2008-09 - Furnishing of return by representative assessee of non-residents
Circular No. 8/2008, Dated 22-9-2008
The Central Board
of Direct Taxes, vide notification S.O. No. 752(E), dated 28-3-2008, inter alia, notified a new return forms for all the assessee for assessment year 2008-09. It was provided in
the rule 12 of Income-tax Rules, 1962 that a firm required to furnish the
return in Form ITR-5 and to whom provisions of section 44AB are applicable or a
company required to furnish the return in Form ITR-6 shall compulsorily furnish
the return of income electronically for assessment year 2008-09.
2. It has been brought to the notice of the
Board that the agents of non-residents, within the meaning of section 160(1)(i) of the Income-tax Act, are facing difficulties in
electronically furnishing the returns of non-residents. This is because of the
reason that there may be more than one agent for a non-resident in
Circular
Income Tax Act
Section 192 of the Income-tax Act, 1961 - Deduction of
tax at source - Income-tax deduction from salaries during the financial year
2008-09
Circular No. 9/2008, Dated 29-9-2008
Reference is invited to Circular No.
08/2007, dated 5-12-2007 whereby the rates of deduction of income-tax from the
payment of income under the head Salaries under section 192 of the Income-tax
Act, 1961, during the financial year 2007-08, were intimated. The present
Circular contains the rates of deduction of income-tax from the payment of
income chargeable under the head Salaries during the financial year 2008-09 and
explains certain related provisions of the Income-tax Act. The relevant Acts,
Rules, Forms and Notifications are available at the website of the Income-tax
Department - www.incometaxindia.gov.in.
Finance Act, 2008
2. As
per the Finance Act, 2008, income-tax is required to be deducted under section
192 of the Income-tax Act, 1961 from income chargeable under the head Salaries
for the financial year 2008-09 (i.e. assessment year 2009-10) at the
following rates:
RATES OF
INCOME-TAX
A. Normal Rates of
tax:
|
1. |
Where the total income does not exceed Rs.
1,50,000. |
|
Nil |
|
2. |
Where the total income exceeds Rs. 1,50,000
but does not exceed Rs. 3,00,000. |
|
10 per cent of the amount by which the total income exceeds Rs. 1,50,000. |
|
3. |
Where the total income exceeds Rs. 3,00,000
but does not exceed Rs. 5,00,000. |
|
Rs. 15,000 plus 20 per cent of the
amount by which the total income exceeds Rs.
3,00,000. |
|
4. |
Where the total income exceeds Rs. 5,00,000. |
|
Rs. 55,000 plus 30 per cent of the
amount by which the total income exceeds Rs.
5,00,000. |
B. Rates of tax for
a woman, resident in
|
1. |
Where the total income does not exceed Rs.
1,80,000. |
|
Nil |
|
2. |
Where the total income exceeds Rs. 1,80,000
but does not exceed Rs. 3,00,000. |
|
10 per cent of the amount by which the total income exceeds Rs. 1,80,000. |
|
3. |
Where the total income exceeds Rs. 3,00,000
but does not exceed Rs. 5,00,000. |
|
Rs. 12,000 plus 20 per cent of the
amount by which the total income exceeds Rs.
3,00,000. |
|
4. |
Where the total income exceeds Rs. 5,00,000. |
|
Rs. 52,000 plus 30 per cent of the
amount by which the total income exceeds Rs.
5,00,000. |
C. Rates of tax for
an individual, resident in
|
1. |
Where the total income does not exceed Rs.
2,25,000. |
|
Nil |
|
2. |
Where the total income exceeds Rs. 2,25,000
but does not exceed Rs. 3,00,000. |
|
10 per cent of the amount by which the total income exceeds Rs. 2,25,000. |
|
3. |
Where the total income exceeds Rs. 3,00,000
but does not exceed Rs. 5,00,000. |
|
Rs. 7,500 plus 20 per cent of the
amount by which the total income exceeds Rs.
3,00,000. |
|
4. |
Where the total income exceeds Rs. 5,00,000. |
|
Rs. 47,500 plus 30 per cent of the
amount by which the total income exceeds Rs.
5,00,000. |
Surcharge on
Income-tax:
The amount of income-tax computed in
accordance with the preceding provisions of this paragraph shall be increased
by a surcharge at the rate of ten per cent of such income-tax where the total
income exceeds ten lakh rupees.
However, the total amount payable as
income-tax and surcharge shall not exceed the total amount payable as
income-tax on a total income of Rs. 10,00,000 by more
than the amount of income that exceeds Rs. 10,00,000.
Additional surcharge on Income-tax
(Education Cess on Income-tax):
The amount of income-tax as increased by
surcharge, if any, mentioned above shall be further increased by an additional
surcharge (Education Cess on Income-tax) at the rate
of two per cent of the income-tax and surcharge.
Additional surcharge on Income-tax (Secondary
and Higher Education Cess on Income-tax):
From Financial year 2007-08 onwards, an
additional surcharge is chargeable at the rate of one per cent of income-tax
and surcharge (not including the Education Cess on
income-tax).
Surcharge,
Education Cess, and Secondary and Higher Education Cess are payable by both resident and non-resident
assessees.
3. Section 192 of the Income-tax Act,
1961: Broad Scheme of Tax Deduction at Source from Salaries.
3.1 Method of Tax Calculation - Every person
who is responsible for paying any income chargeable under the head Salaries
shall deduct income-tax on the estimated income of the assessee
under the head Salaries for the financial year 2008-09. The income- tax is
required to be calculated on the basis of the rates given above and shall be
deducted on average at the time of each payment. No tax will, however, be
required to be deducted at source in any case unless the estimated salary
income including the value of perquisites, for the financial year exceeds Rs. 1,50,000 or Rs. 1,80,000 or Rs. 2,25,000, as the case may be, depending upon the age
and gender of the employee. (Some typical examples of computation of tax are
given at Annexure-I).
3.2 Payment of Tax on Non-monetary Perquisites
by Employer - An option has been given to the employer to pay the tax on
non-monetary perquisites given to an employee. The employer may, at his option,
make payment of the tax on such perquisites himself without making any TDS from
the salary of the employee. The employer will have to pay such tax at the time
when such tax was otherwise deductible i.e. at the time of payment of income
chargeable under the head Salaries to the employee.
3.3 Computation of Average Income-tax - For
the purpose of making the payment of tax mentioned in para
3.2 above, tax is to be determined at the average of income-tax computed on the
basis of rate in force for the financial year, on the income chargeable under
the head Salaries, including the value of perquisites for which tax has been
paid by the employer himself.
Illustration.Suppose that the income
chargeable under the head Salary of a male employee below sixty-five years of
age for the year inclusive of all perquisites is Rs.
4,50,000, out of which, Rs. 50,000 is on account of
non-monetary perquisites and the employer opts to pay the tax on such
perquisites as per the provisions discussed in para
3.2 above.
Steps :
|
Income chargeable under
the head Salaries inclusive of all perquisites: |
Rs. 4,50,000 |
|
Tax on total salaries (including
Cess): |
Rs. 46,350 |
|
Average rate of tax
[(46,350/4,50,000) 100]: |
10.3% |
|
Tax payable on Rs. 50,000 (10.3% of 50,000): |
Rs. 5,150 |
|
Amount required to be
deposited each month: |
Rs. 430 |
The tax so paid by the employer shall be deemed to be TDS
made from the salary of the employee.
3.4 Salary from more than one
employer - Sub-section (2) of section 192 deals with situations where an
individual is working under more than one employer or has changed from one
employer to another. It provides for deduction of tax at source by such
employer (as the taxpayer may choose) from the aggregate salary of the employee
who is or has been in receipt of salary from more than one employer. The
employee is now required to furnish to the present/chosen employer details of
the income under the head Salaries due or received from the former/other
employer and also tax deducted at source therefrom,
in writing and duly verified by him and by the former/other employer. The
present/chosen employer will be required to deduct tax at source on the
aggregate amount of salary (including salary received from the former or other
employer).
3.5 Relief when salary paid
in arrear or advance - Under sub-section (2A) of section 192 where the assessee, being a Government servant or an employee in a
company, co-operative society, local authority, university, institution,
association or body is entitled to the relief under sub-section (1) of section
89, he may furnish to the person responsible for making the payment referred to
in Para (3.1), such particulars in Form No. 10E duly verified by him, and
thereupon the person responsible as aforesaid shall compute the relief on the
basis of such particulars and take the same into account in making the
deduction under Para (3.1) above.
Explanation.For this purpose University means a
University established or incorporated by or under a Central, State or
Provincial Act, and includes an institution declared under section 3 of the
University Grants Commission Act, 1956 (3 of 1956), to be University for the
purposes of the Act.
3.6 [Form 12C has been
omitted by the IT (24th Amendment) Rules, 2003 with effect from 1-10-2003 -
(i) Sub-section (2B) of section 192 enables a
taxpayer to furnish particulars of income under any head other than Salaries
and of any tax deducted at source thereon. Form No. 12C, which was earlier
prescribed for furnishing such particulars (Annexure-II), has since been
omitted from the Income-tax Rules. However, the particulars may now be
furnished in a simple statement, which is properly verified by the taxpayer in
the same manner as was required to be done in Form 12C.
(ii) Such income should not be a loss under
any such head other than the loss under the head Income from House Property for
the same financial year. The person responsible for making payment (DDO) shall
take such other income and tax, if any, deducted at source from such income,
and the loss, if any, under the head Income from House Property into account
for the purpose of computing tax deductible under section 192 of the Income-tax
Act. However, this sub-section shall not in any case have the effect of
reducing the tax deductible (except where the loss under the head Income from
House Property has been taken into account) from income under the head Salaries
below the amount that would be so deductible if the other income and the tax
deducted thereon had not been taken into account. In other words, the DDO can
take into account any loss (negative income) only under the head Income from
House Property and no other head for working out the amount of total tax to be
deducted. While taking into account the loss from House Property, the DDO shall
ensure that the assessee files the declaration
referred to above and encloses therewith a computation of such loss from House
Property.
(iii) Sub-section (2C) lays down that a person
responsible for paying any income chargeable under the head Salaries shall
furnish to the person to whom such payment is made a statement giving correct
and complete particulars of perquisites or profits in lieu of salary provided
to him and the value thereof in Form No. 12BA. (Annexure-III). Form No. 12BA
along with Form No. 16, as issued by the employer, are required to be produced
on demand before the Assessing Officer in terms of section 139C of the
Income-tax Act.
3.7 Conditions for claim of deduction of
interest on borrowed capital for computation of income from house property - (i) For the purpose of computing income/loss under the head
income from house property in respect of a self-occupied residential house, a
normal deduction of Rs. 30,000 is allowable in
respect of interest on borrowed capital. However, a deduction on account of
interest up to a maximum limit of Rs. 1,50,000 is
available if such loan has been taken on or after 1-4-1999 for constructing or
acquiring the residential house and the construction or acquisition of the
residential unit out of such loan has been completed within three years from
the end of the financial year in which capital was borrowed. Such higher
deduction is not allowable in respect of interest on capital borrowed for the
purposes of repairs or renovation of an existing residential house. To claim
the higher deduction in respect of interest up to Rs.
1,50,000, the employee should furnish a certificate from the person to whom any
interest is payable on the capital borrowed, specifying the amount of interest
payable by such employee for the purpose of construction or acquisition of the
residential house or for conversion of a part or whole of the capital borrowed,
which remains to be repaid as a new loan.
3.7 (ii) The essential conditions for
availing higher deduction of interest of Rs. 1,50,000
in respect of a self-occupied residential house are that the amount of capital
must have been borrowed on or after 1-4-1999 and the acquisition or
construction of residential house must have been completed within three years
from the end of the financial year in which capital was borrowed. There is no
stipulation regarding the date of commencement of construction. Consequently,
the construction of the residential house could have commenced before 1-4-1999
but, as long as its construction/acquisition is completed within three years,
from the end of the financial year in which capital was borrowed the higher
deduction would be available in respect of the capital borrowed after 1-4-1999.
It may also be noted that there is no stipulation regarding the construction/acquisition
of the residential unit being entirely financed by capital borrowed on or after
1-4-1999. The loan taken prior to 1-4-1999 will carry deduction of interest up
to Rs. 30,000 only. However, in any case the total
amount of deduction of interest on borrowed capital will not exceed Rs. 1,50,000 in a year.
3.8 Adjustment for excess or shortfall of
deduction - The provisions of sub-section (3) of section 192 allow the deductor to make adjustments for any excess or shortfall in
the deduction of tax already made during the financial year, in subsequent
deductions for that employee within that financial year itself.
3.9 TDS on payment of balance under provident
fund and superannuation fund - The trustees of a Recognized Provident Fund, or
any person authorized by the regulations of the fund to make payment of
accumulated balances due to employees, shall, in cases where sub-rule (1) of
rule 9 of Part A of the Fourth Schedule to the Act applies, at the time when
the accumulated balance due to an employee is paid, make therefrom
the deduction specified in rule 10 of Part A of the Fourth Schedule.
3.10 Where any contribution made by an employer,
including interest on such contributions, if any, in an approved superannuation
fund is paid to the employee, tax on the amount so paid shall be deducted by
the trustees of the fund to the extent provided in rule 6 of Part B of the
Fourth Schedule to the Act.
3.11 Salary paid in foreign currency - For the purposes
of deduction of tax on salary payable in foreign currency, the value in rupees
of such salary shall be calculated at the prescribed rate of exchange.
4. Persons responsible for deducting tax and their duties
4.1 Under clause (i)
of section 204 of the Act the persons responsible for paying for the purpose of
section 192 means the employer himself or if the employer is a Company, the
Company itself including the Principal Officer thereof.
4.2 The tax determined as per para 6 should be deducted from the salary under section 192
of the Act.
4.3 Deduction of tax at lower rate - Section
197 enables the taxpayer to make an application in Form No. 13 to his Assessing
Officer, and, if the Assessing Officer is satisfied that the total income of
the taxpayer justifies the deduction of income-tax at any lower rate or no
deduction of income-tax, he may issue an appropriate certificate to that effect
which should be taken into account by the Drawing and Disbursing Officer while
deducting tax at source. In the absence of such a certificate furnished by the
employee, the employer should deduct income-tax on the salary payable at the
normal rates: (Circular No. 147, dated 28-10-1974).
4.4 Deposit of tax deducted - According to the
provisions of section 200, any person deducting any sum in accordance with the
provisions of section 192 or paying tax on non-monetary perquisites on behalf
of the employee under section 192(1A), shall pay the sum so deducted or tax so
calculated on the said non-monetary perquisites, as the case may be, to the
credit of the Central Government in prescribed manner (vide Rule 30 of the
Income-tax Rules, 1962). In the case of deductions made by, or, on behalf of
the Government, the payment has to be made on the day of the tax- deduction
itself. In other cases, the payment has to be made within one week from the
last day of month in which deduction is made.
4.5 Penalty for failure to deposit tax
deducted - If a person fails to deduct the whole or any part of the tax at
source, or, after deducting, fails to pay the whole or any part of the tax to
the credit of the Central Government within the prescribed time, he shall be
liable to action in accordance with the provisions of section 201. Sub-section
(1A) of section 201 lays down that such person shall be liable to pay simple
interest at one per cent for every month or part of the month on the amount of
such tax from the date on which such tax was deductible to the date on which
the tax is actually paid. Such interest, if chargeable, has to be paid before
furnishing of quarterly statement of TDS for each quarter. Section 271C lays
down that if any person fails to deduct tax at source, he shall be liable to
pay, by way of penalty, a sum equal to the amount of tax not deducted by him.
Further, section 276B lays down that if a person fails to pay to the credit of
the Central Government within the prescribed time the tax deducted at source by
him, he shall be punishable with rigorous imprisonment for a term which shall
be between 3 months and 7 years, along with fine.
4.6 Furnishing of certificate
for tax deducted - According to the provisions of section 203, every person
responsible for deducting tax at source is required to furnish a certificate to
the payee to the effect that tax has been deducted and to specify therein the
amount deducted and certain other particulars. This certificate, usually called
the TDS certificate, has to be furnished within a period of one month from the
end of the relevant financial year. Even the banks deducting tax at the time of
payment of pension are required to issue such certificates. In the case of
employees receiving salary income (including pension), the certificate has to
be issued in Form No. 16. However, in the case of an employee who is resident
in
Information relating to the nature and
value of perquisites is to be provided by the employer in Form No. 12BA in case
of salary above Rs. 1,50,000. In other cases, the
information would have to be provided by the employer in Form 16 itself. In
either case, Form 16 with Form 12BA or Form 16 by itself will have to be
furnished within a period of one month from the end of relevant financial year.
An employer, who has paid the tax on
perquisites on behalf of the employee as per the provisions discussed in paras 3.2 and 3.3, shall furnish to the employee concerned
a certificate to the effect that tax has been paid to the Central Government
and specify the amount so paid, the rate at which tax has been paid and certain
other particulars in the amended Form 16.
The obligation cast on the employer under
section 192(2C) for furnishing a statement showing the value of perquisites
provided to the employee is a serious responsibility of the employer, which is
expected to be discharged in accordance with law and rules of valuation framed thereunder. Any false information, fabricated documentation
or suppression of requisite information will entail consequences therefor provided under the law. The certificates in Form
No. 12BA and Form No. 16 are to be issued on tax-deductors
own stationery within one month from the close of the financial year, i.e.,
by April 30 of every year. If he fails to issue these certificates to the
person concerned, as required by section 203, he will be liable to pay, by way
of penalty, under section 272A, a sum which shall be Rs.
100 for every day during which the failure continues.
4.7 Option to issue TDS
Certificates by way of digital signatures - Since the requirement of
annexing the TDS certificates with the return of income has been dispensed
with, the TDS certificates will be now issued only for the purpose of personal
record of the deductees subject to the condition that
they may be required to produce the same on demand before the Assessing Officer
in terms of section 139C, inserted by the Finance Act, 2007. The TDS claim made
in the return of income is also required to be matched with the e-TDS returns
furnished by the deductors. Assessing Officers may,
if considered necessary, also write to the deductors
for verification of the correctness of the taxes deducted or other particulars
mentioned in the certificate. It has been decided for the proper administration
of this Income-tax Act to allow the deductors, at
their option, in respect of the tax to be deducted at source from income
chargeable under the head Salaries to use their digital signatures to
authenticate the certificates of deduction of tax at source in Form No. 16. The
deductors will have to ensure that TDS certificates
in Form No. 16 bearing digital signatures have a control No. with log to be
maintained by the employer (deductor). The deductor will ensure that its TAN and the PAN of the
employee are correctly mentioned in such Form No. 16 issued with digital
signatures. The deductors will also ensure that once
the certificates are digitally signed, the contents of the certificates are not
amenable to change by anyone. The income-tax authorities shall treat such
certificate with digital signatures as a certificate issued in accordance with
rule 31 of the Income-tax Rules, 1962. (Circular No. 2/2007, dated 21-5-2007).
4.8 Mandatory quoting of PAN and TAN -
According to the provisions of section 203A of the Income-tax Act, it is
obligatory for all persons responsible for deducting tax at source to obtain
and quote the Tax-deduction Account No. (TAN) in the challans,
TDS- certificates, statements and other documents. Detailed instructions in
this regard are available in this Departments Circular No. 497 [F.No. 275/118/87-IT(B), dated 9-10-1987]. If a person fails
to comply with the provisions of section 203A, he will be liable to pay, by way
of penalty, under section 272BB, a sum of ten thousand rupees. Similarly, as
per section 139A(5B), it is obligatory for persons deducting tax at source to
quote PAN of the persons from whose income-tax has been deducted in the
statement furnished under section 192(2C), certificates furnished under section
203 and all returns prepared and delivered as per the provisions of section
200(3) of the Income-tax Act, 1961.
4.9 All tax deductors/collectors
are required to file the TDS returns in Form No. 24Q (for tax deducted from
salaries). As the requirement of filing TDS/TCS certificates has been done away
with, the lack of PAN of deductees is creating
difficulties in giving credit for the tax deducted. It has, therefore, been
decided that TDS returns for salaries, i.e., Form No. 24Q with less than 95 per
cent of PAN data will not be accepted for the quarter ending on 30-3-2008 and
thereafter. Tax deductors and tax collectors are,
therefore, advised to quote correct PAN details of all deductees
in the TDS returns, failing which the TDS returns will not be accepted and all
penal consequences under the Income-tax Act will follow. Taxpayers liable to TDS
are also advised to furnish their correct PAN with their deductors,
failing which they will also face penal proceedings under the Income-tax Act.
4.10 Quarterly Statement of TDS - The person
deducting the tax (employer in case of salary income), is required to file
Quarterly Statements of TDS for the periods ending on 30th June, 30th
September, 31st December and 31st March of each financial year, duly verified,
to the Director General of Income-tax (Systems) or M/s. National Securities
Depository Ltd. (NSDL). These statements are required to be filed on or before
the 15th July, the 15th October, the 15th January in respect of the first three
quarters of the financial year and on or before the 15th June following the
last quarter of the financial year. The requirement of filing an annual return
of TDS has been done away with with effect from
1-4-2006. The quarterly statement for the last quarter filed in Form 24Q (as
amended by Notification No. S.O. 704(E), dated 12-5-2006) shall be treated as
the annual return of TDS.
It is now mandatory for all offices of the
Government and all companies to file quarterly statements of TDS on computer
media only in accordance with the Electronic Filing of Returns of Tax Deducted
at Source Scheme, 2003 as notified vide Notification No. S.O. 974(E), dated
26-8-2003. (Annexure-V). The quarterly statements are to be filed by such deductors in electronic format with the e-TDS Intermediary
at any of the TIN Facilitation Centres, particulars
of which are available at www.incometaxindia.gov.in
and at http://tin.nsdl.com. If a person fails to furnish the quarterly
statements in due time, he shall be liable to pay by way of penalty under
section 272A(2)(k), a sum which shall be Rs. 100 for
every day during which the failure continues. However, this sum shall not
exceed the amount of tax which was deductible at source.
The Quarterly Statements are be filed on
computer media only in accordance with rule 31A of the Income-tax Rules, 1962.
These Quarterly Statements compulsorily require quoting of the Tax Deduction
Account Number (TAN) of the tax-deductor and the
Permanent Account Number (PAN) of the employees whose tax has been deducted.
Therefore, all Drawing and Disbursing Officers of the Central and State
Governments/ Departments, who have not yet obtained TAN, must immediately apply
for and obtain TAN. Similarly, all employees (including non-resident employees)
from whose income, tax is to be deducted may be advised to obtain PAN, if not
already obtained, and to quote the same correctly, as otherwise the credit for
the tax deducted cannot be given. A penalty under section 272B of Rs. 10,000 has been prescribed for wilfully
intimating a false PAN.
For and from the quarter ending 30-9-2007,
filing of TDS returns in electronic form is also mandatory for deductors required to get their accounts audited under
section 44AB of the Income-tax Act in the immediately preceding financial year
or where the number of deductees records in a
quarterly statement for any quarter of the immediately preceding financial year
is equal to or more than fifty. TDS returns in paper form will no longer be
accepted from such tax deductors.
4.11 A return filed on the prescribed computer
readable media shall be deemed to be a return for the purposes of section
200(3) and the Rules made thereunder, and shall be
admissible in any proceeding thereunder, without
further proof of production of the original, as evidence of any contents of the
original.
4.12 Challans for
Deposit of TDS - While making the payment of tax deducted at source to the
credit of the Central Government, it may be ensured that the correct amount of
income-tax is recorded in the relevant challan. It
may also be ensured that the right type of challan is
used. The relevant challan for making payment of tax
deducted at source from salaries is challan No.
ITNS-281. Wherever the amount of tax deducted at source is credited to the
Central Government through book adjustment, care should be taken to ensure that
the correct amount of income-tax is reflected therein.
4.13 TDS on Income from Pension - In the case of
pensioners who receive their pension from a nationalized bank, the instructions
contained in this circular shall apply in the same manner as they apply to
salary-income. The deductions from the amount of pension under section 80C on
account of contribution to Life Insurance, Provident Fund, NSC etc., if the
pensioners furnish the relevant details to the banks, may be allowed. Necessary
instructions in this regard were issued by the Reserve Bank of India to the
State Bank of India and other nationalized Banks vide RBIs Pension Circular
(Central Series) No. 7/C.D.R./1992 (Ref. CO: DGBA: GA (NBS) No.
60/GA.64(11CVL)-/92), dated the 27th April, 1992, and, these instructions
should be followed by all the branches of the Banks, which have been entrusted
with the task of payment of pensions. Further all branches of the banks are
bound under section 203 to issue certificate of tax deducted in Form 16 to the
pensioners also vide CBDT Circular No. 761, dated 13-1-1998.
4.14 Important Circulars - Where Non-Residents are
deputed to work in India and taxes are borne by the employer, if any refund
becomes due to the employee after he has already left India and has no bank
account in India by the time the assessment orders are passed, the refund can
be issued to the employer as the tax has been borne by it : Circular No. 707,
dated 11-7-1995.
4.15 TDS certificates issued by Central Government
departments which are making payments by book adjustment, should be accepted by
the Assessing Officers if they indicate that credit has been effected to the
Income-tax Department by book adjustment and the date of such adjustment is
given therein. In such cases, the Assessing Officers may not insist on details
like challan numbers, dates of payment into
Government Account etc., but they should in any case satisfy themselves
regarding the genuineness of the certificates produced before them : Circular
No. 747, dated 27-12-1996.
4.16 There is a specific procedure laid down for
refund of payments made by the deductor in excess of
taxes deducted at source, vide Circular No. 285, dated 21-10-1980.
4.17 In respect of non-residents, the salary paid
for services rendered in
5. Estimation of income under the head
Salaries
5.1 Income chargeable under the head Salaries
- (1) The following income shall be chargeable to income-tax under the head
Salaries :
(a) any salary due from an employer or a former
employer to an assessee in the previous year, whether
paid or not;
(b) any salary paid or allowed to him in the
previous year by or on behalf of an employer or a former employer though not
due or before it became due to him;
(c) any arrears of salary paid or allowed to
him in the previous year by or on behalf of an employer or a former employer,
if not charged to income-tax for any earlier previous year.
(2) For the removal of doubts, it is clarified
that where any salary paid in advance is included in the total income of any
person for any previous year it shall not be included again in the total income
of the person when the salary becomes due. Any salary, bonus, commission or
remuneration, by whatever name called, due to, or received by, a partner of a
firm from the firm shall not be regarded as Salary.
(3) Definition of Salary - Salary includes
wages, fees, commissions, perquisites, profits in lieu of, or, in addition to
salary, advance of salary, annuity or pension, gratuity, payments in respect of
encashment of leave etc. It also includes the annual accretion to the employees
account in a recognized provident fund to the extent it is chargeable to tax
under rule 6 of Part A of the Fourth Schedule of the Income- tax Act.
Contributions made by the employer to the account of the employee in a
recognized provident fund in excess of 12 per cent of the salary of the
employee, along with interest applicable, shall be included in the income of
the assessee for the previous year. Any contribution
made, in excess of 10 per cent, by the Central Government or any other employer
to the account of the employee under the New Pension Scheme as notified vide
Notification No. F.N. 5/7/2003-ECB&PR, dated 22-12-2003 (enclosed as
Annexure-VA) and referred to in section 80CCD [para
5.4(C) of this Circular] shall also be included in the salary income. Other
items included in salary, profits in lieu of salary and perquisites are
described in section 17 of the Income-tax Act. It may be noted that, since
salary includes pensions, tax at source would have to be deducted from pension
also, if otherwise called for. However, no tax is required to be deducted from
the commuted portion of pension which is exempt, as explained in clause (3) of para 5.2 of this Circular.
(4) Section 17 defines the terms salary,
perquisite and profits in lieu of salary.
Perquisite
includes:
(a) The
value of rent-free accommodation provided to the employee by his employer;
(b) The
value of any concession in the matter of rent in respect of any accommodation
provided to the employee by his employer;
(c) The
value of any benefit or amenity granted or provided free of cost or at concessional rate in any of the following cases:
(i) By a
company to an employee who is a director of such company;
(ii) By a company to an employee who has a
substantial interest in the company;
(iii) By an employer (including a company) to
an employee, who is not covered by (i) or (ii) above
and whose income under the head Salaries (whether due from or paid or allowed
by one or more employers), exclusive of the value of all benefits and amenities
not provided by way of monetary payment, exceeds Rs.
50,000.
What constitute concession in the matter of
rent have been prescribed in Explanations 1 to 4 below 17(2)(ii)
of the Income-tax Act, 1961. It is further provided that profits in lieu of
salary shall include amounts received in lump sum or otherwise, prior to
employment or after cessation of employment for the purposes of taxation. The
rules for valuation of perquisite are as under :
I. Accommodation - For purpose of
valuation of the perquisite of unfurnished accommodation, all employees are
divided into two categories: (i) Central
Government & State Government employees; and (ii) Others.
For employees of the Central and State Governments the value
of perquisite shall be equal to the licence fee
charged for such accommodation as reduced by the rent actually paid by the
employee.
For all others, i.e., those salaried taxpayers not in
employment of the Central Government and the State Government, the valuation of
perquisite in respect of accommodation would be at prescribed rates, as
discussed below:
(a) Where
the accommodation provided to the employee is owned by the employer, the rate
is 15 per cent of salary in cities having population exceeding 25 lakh as per the 2001 Census. The rate is 10 per cent of
salary in cities having population exceeding 10 lakhs
but not exceeding 25 lakhs as per 2001 Census. For
other places, the perquisite value would be 7 per cent of the salary.
(b) Where
the accommodation so provided is taken on lease/rent by the employer, the
prescribed rate is 15 per cent of the salary or the actual amount of lease
rental payable by the employer, whichever is lower, as reduced by any amount of
rent paid by the employee.
For furnished accommodation, the value of perquisite as
determined by the above method shall be increased by
(i) 10 per cent of the cost of furniture,
appliances and equipments, or
(ii) where
the furniture, appliances and equipments have been taken on hire, by the amount
of actual hire charges payable.
-
as reduced by any charges paid by the employee himself.
Accommodation includes a house, flat, farm
house, hotel accommodation, motel, service apartment guest house, a caravan,
mobile home, ship etc. However, the value of any accommodation provided to an
employee working at a mining site or an onshore oil exploration site or a
project execution site or a dam site or a power generation site or an off-shore
site will not be treated as a perquisite. However, such accommodation should
either be located in a remote area or where it is not located in a remote area,
the accommodation should be of a temporary nature having plinth area of not
more than 800 square feet and should not be located within 8 kilometers of the
local limits of any municipality or cantonment board. A project execution site
for the purposes of this sub-rule means a site of project up to the stage of
its commissioning. A remote area means an area located at least 40 kilometers
away from a town having a population not exceeding 20,000 as per the latest
published All-India Census.
If an accommodation is provided by an employer
in a hotel the value of the benefit in such a case shall be 24 per cent of the
annual salary or the actual charges paid or payable to such hotel, whichever is
lower, for the period during which such accommodation is provided as reduced by
any rent actually paid or payable by the employee. However, where in cases the
employee is provided such accommodation for a period not exceeding in aggregate
fifteen days on transfer from one place to another, no perquisite value for
such accommodation provided in a hotel shall be charged. It may be clarified
that while services provided as an integral part of the accommodation, need not
be valued separately as perquisite, any other services over and above that for
which the employer makes payment or reimburses the employee shall be valued as
a perquisite as per the residual clause. In other words, composite tariff for
accommodation will be valued as per these Rules and any other charges for other
facilities provided by the hotel will be separately valued under the residual
clause. Also, if on account of an employees transfer from one place to another,
the employee is provided with accommodation at the new place of posting while
retaining the accommodation at the other place, the value of perquisite shall
be determined with reference to only one such accommodation which has the lower
value as per the table prescribed in Rule 3 of the Income-tax Rules, for a
period up to 90 days. However, after that the value of perquisite shall be
charged for both accommodations as prescribed.
II. Personal attendants etc. - The value of
free service of all personal attendants including a sweeper, gardener and a
watchman is to be taken at actual cost to the employer. Where the attendant is
provided at the residence of the employee, full cost will be taxed as
perquisite in the hands of the employee irrespective of the degree of personal
service rendered to him. Any amount paid by the employee for such facilities or
services shall be reduced from the above amount.
III. Gas, electricity & water - For free
supply of gas, electricity and water for household consumption, the rules
provide that the amount paid by the employer to the agency supplying the
amenity shall be the value of perquisite. Where the supply is made from the
employers own resources, the manufacturing cost per unit incurred by the
employer would be taken for the valuation of perquisite. Any amount paid by the
employee for such facilities or services shall be reduced from the above
amount.
IV. Free or concessional
education - Perquisite on account of free or concessional
education shall be valued in a manner assuming that such expenses are borne by
the employee, and would cover cases where an employer is running, maintaining
or directly or indirectly financing the educational institution. Any amount
paid by the employee for such facilities or services shall be reduced from the
above amount. However, where such educational institution itself is maintained
and owned by the employer or where such free educational facilities are
provided in any institution by reason of his being in employment of that
employer, the value of the perquisite to the employee shall be determined with
reference to the cost of such education in a similar institution in or near the
locality if the cost of such education or such benefit per child exceeds Rs. 1,000 p.m.
V. Interest-free or concessional
loans - It is common practice, particularly in financial institutions, to
provide interest-free or concessional loans to
employees or any member of his household. The value of perquisite arising from
such loans would be the excess of interest payable at prescribed interest rate
over interest, if any, actually paid by the employee or any member of his
household. The prescribed interest rate would now be the rate charged per annum
by the State Bank of
However, small loans up to Rs. 20,000 in the aggregate are exempt. Loans for medical
treatment specified in Rule 3A are also exempt, provided the amount of loan for
medical reimbursement is not reimbursed under any medical insurance scheme.
Where any medical insurance reimbursement is received, the perquisite value at
the prescribed rate shall be charged from the date of reimbursement on the
amount reimbursed, but not repaid against the outstanding loan taken
specifically for this purpose.
VI. Use of assets - It is common practice for
an asset owned by the employer to be used by the employee or any member of his
household. This perquisite is to be charged at the rate of 10 per cent of the
original cost of the asset as reduced by any charges recovered from the
employee for such use. However, the use of Computers and Laptops would not give
rise to any perquisite.
VII. Transfer of assets - Often an employee or
member of his household benefits from the transfer of movable asset (not being
shares or securities) at no cost or at a cost less than its market value from
the employer. The difference between the original cost of the movable asset
(not being shares or securities) and the sum, if any, paid by the employee,
shall be taken as the value of perquisite. In case of a movable asset, which
has already been put to use, the original cost shall be reduced by a sum of 10
per cent of such original cost for every completed year of use of the asset.
Owing to a higher degree of obsolescence, in case of computers and electronic
gadgets, however, the value of perquisite shall be worked out by reducing 50
per cent of the actual cost by the reducing balance method for each completed
year of use. Electronic gadgets in this case means data storage and handling
devices like computer, digital diaries and printers. They do not include
household appliance (i.e. white goods) like washing machines, microwave ovens,
mixers, hot plates, ovens etc. Similarly, in case of cars, the value of
perquisite shall be worked out by reducing 20 per cent of its actual cost by
the reducing balance method for each completed year of use.
VIII. Medical Reimbursement by the employer
exceeding Rs. 15,000 p.a. under section 17(2)(v) is
to be taken as perquisites - It is pertinent to mention that benefits
specifically exempt under section 10(13A), 10(5), 10(14), 17 etc. would
continue to be exempt. These include benefits like travel on tour and transfer,
leave travel, daily allowance to meet tour expenses as prescribed, medical
facilities subject to conditions.
5.2 Incomes
not included in the Head Salaries(Exemptions) - Any income falling within
any of the following clauses shall not be included in computing the income from
salaries for the purpose of section 192 of the Act :
(1) The
value of any travel concession or assistance received by or due to an employee from
his employer or former employer for himself and his family, in connection with
his proceeding (a) on leave to any place in India or (b) on
retirement from service, or, after termination of service to any place in India
is exempt under clause (5) of section 10 subject, however, to the conditions
prescribed in rule 2B of the Income-tax Rules, 1962.
For the purpose of this
clause, family in relation to an individual means :
(i) The spouse and children of the
individual; and
(ii) the
parents, brothers and sisters of the individual or any of them, wholly or
mainly dependent on the individual.
It may also be noted that the amount exempt
under this clause shall in no case exceed the amount of expenses actually
incurred for the purpose of such travel.
(2) Death-cum-retirement gratuity or any
other gratuity which is exempt to the extent specified from inclusion in
computing the total income under clause (10) of section 10.
(3) Any payment in commutation of pension received
under the Civil Pension (Commutation) Rules of the Central Government or under
any similar scheme applicable to the members of the civil services of the
Union, or holders of civil posts/posts connected with defence,
under the Union, or civil posts under a State, or to the members of the All
India Services/Defence Services, or, to the employees
of a local authority or a corporation established by a Central, State or
Provincial Act, is exempt under sub-clause (i)
of clause (10A) of section 10. As regards payments in commutation of pension
received under any scheme of any other employer, exemption will be governed by
the provisions of sub-clause (ii) of clause (10A) of section 10. Also,
any payment in commutation of pension received from a Regimental Fund or
Non-Public Fund established by the Armed Forces of the Union referred to in
section 10(23AAB) is exempt under sub-clause (iii) of clause (10A) of
section 10.
(4) Any payment received by an employee of
the Central Government or a State Government, as cash-equivalent of the leave
salary in respect of the period of earned leave at his credit at the time of
his retirement, whether on superannuation or otherwise, is exempt under
sub-clause (i) of clause (10AA) of section 10. In the
case of other employees, this exemption will be determined with reference to
the leave to their credit at the time of retirement on superannuation, or
otherwise, subject to a maximum of ten months leave. This exemption will be
further limited to the maximum amount specified by the Government of India
Notification No. S.O. 588(E), dated 31-5-2002 at Rs.
3,00,000 in relation to such employees who retire, whether on superannuation or
otherwise, after 1-4-1998.
(5) Under section 10(10B), the retrenchment
compensation received by a workman is exempt from income-tax subject to certain
limits. The maximum amount of retrenchment compensation exempt is the sum
calculated on the basis provided in section 25F(b) of the Industrial Disputes
Act, 1947 or any amount not less than Rs. 50,000 as
the Central Government may by notification specify in the Official Gazette,
whichever is less. These limits shall not apply in the case where the
compensation is paid under any scheme which is approved in this behalf by the
Central Government, having regard to the need for extending special protection
to the workmen in the undertaking to which the scheme applies and other
relevant circumstances. The maximum limit of such payment is Rs. 5,00,000 where retrenchment is on or after 1-1-1997.
(6) Under section 10(10C), any payment
received or receivable (even if received in instalments)
by an employee of the following bodies at the time of his voluntary retirement
or termination of his service, in accordance with any scheme or schemes of
voluntary retirement or in the case of public sector company, a scheme of
voluntary separation, is exempted from income-tax to the extent that such
amount does not exceed five lakh rupees:
(a) A public sector company;
(b) Any other company;
(c) An Authority established under a
Central, State or Provincial Act;
(d) A Local Authority;
(e) A Co-operative Society;
(f) A university established or
incorporated or under a Central, State or Provincial Act, or, an Institution
declared to be a University under section 3 of the University Grants Commission
Act, 1956;
(g) Any Indian Institute of Technology within
the meaning of Clause (g) of section 3 of the
(h) Such Institute of Management as the
Central Government may by notification in the Official Gazette, specify in this
behalf.
The exemption of amount received under VRS
has been extended to employees of the Central Government and State Government
and employees of notified institutions having importance throughout
(7) Any sum received under a Life Insurance
Policy, including the sum allocated by way of bonus on such policy other than:
(i) any sum
received under sub-section (3) of section 80DD or sub-section (3) of section
80DDA or,
(ii) any sum received under Keyman insurance policy or,
(iii) any sum received under an insurance policy
issued on or after 1-4-2003 in respect of which the premium payable for any of
the years during the term of the policy exceeds 20 per cent of the actual
capital sum assured. However, any sum received under such policy on the death
of a person would still be exempt.
(8) any payment from a Provident Fund to
which the Provident Funds Act, 1925 (19 of 1925), applies or from any other
provident fund set up by the Central Government and notified by it in this
behalf in the Official Gazette.
(9) Under section 10(13A) of the Income-tax
Act, 1961, any special allowance specifically granted to an assessee
by his employer to meet expenditure incurred on payment of rent (by whatever
name called) in respect of residential accommodation occupied by the assessee is exempt from income-tax to the extent as may be
prescribed, having regard to the area or place in which such accommodation is
situated and other relevant considerations. According to rule 2A of the
Income-tax Rules, 1962, the quantum of exemption allowable on account of grant
of special allowance to meet expenditure on payment of rent shall be:
(a) The
actual amount of such allowance received by an employer in respect of the
relevant period; or
(b) The
actual expenditure incurred in payment of rent in excess of 1/10 of the salary
due for the relevant period; or
(c) Where
such accommodation is situated in
(d) Where
such accommodation is situated in any other place, 40 per cent of the salary
due to the employee for the relevant period,whichever
is the least.
For this purpose,
Salary includes dearness allowance, if the terms of employment so provide, but
excludes all other allowances and perquisites.
It has to be noted
that only the expenditure actually incurred on payment of rent in respect of
residential accommodation occupied by the assessee
subject to the limits laid down in rule 2A, qualifies for exemption from
income-tax. Thus, house rent allowance granted to an employee who is residing
in a house/flat owned by him is not exempt from income-tax. The disbursing
authorities should satisfy themselves in this regard by insisting on production
of evidence of actual payment of rent before excluding the House Rent Allowance
or any portion thereof from the total income of the employee.
Though incurring
actual expenditure on payment of rent is a pre-requisite for claiming deduction
under section 10(13A), it has been decided as an administrative measure that
salaried employees drawing house rent allowance up to Rs.
3,000 per month will be exempted from production of rent receipt. It may,
however, be noted that this concession is only for the purpose of tax-deduction
at source, and, in the regular assessment of the employee, the Assessing
Officer will be free to make such enquiry as he deems fit for the purpose of
satisfying himself that the employee has incurred actual expenditure on payment
of rent.
(10) Clause
(14) of section 10 provides for exemption of the following allowances :
(i) Any
special allowance or benefit granted to an employee to meet the expenses
incurred in the performance of his duties as prescribed under rule 2BB subject
to the extent to which such expenses are actually incurred for that purpose.
(ii) Any allowance granted to an employee
either to meet his personal expenses at the place of his posting or at the
place he ordinarily resides or to compensate him for the increased cost of
living, which may be prescribed and to the extent as may be prescribed.
However,
the allowance referred to in (ii) above should not be in the nature of a
personal allowance granted to the assessee to
remunerate or compensate him for performing duties of a special nature relating
to his office or employment unless such allowance is related to his place of
posting or residence.
The CBDT has
prescribed guidelines for the purpose of clauses (i)
and (ii) of section 10(14) vide Notification No. S.O. 617(E),
dated 7th July, 1995 (F.No. 142/9/95-TPL) which has
been amended vide Notification S.O. No. 403(E), dated 24-4-2000 (F. No.
142/34/99-TPL). The transport allowance granted to an employee to meet his
expenditure for the purpose of commuting between the place of his residence and
the place of duty is exempt to the extent of Rs. 800
per month vide Notification S.O. No. 395(E), dated 13-5-1998.
(11) Under section 10(15)(iv)(i) of the Income-tax Act, interest payable by the
Government on deposits made by an employee of the Central Government or a State
Government or a public sector company out of his retirement benefits, in
accordance with such scheme framed in this behalf by the Central Government and
notified in the Official Gazette is exempt from income-tax. By Notification No.
F. 2/14/89-NS-II, dated 7-6-1989, as amended by notification No. F.
2/14/89-NS-II, dated 12-10-1989, the Central Government has notified a scheme
called Deposit Scheme for Retiring Government Employees, 1989 for the purpose
of the said clause.
(12) Clause (18) of section 10 provides for
exemption of any income by way of pension received by an individual who has
been in the service of the Central Government or State Government and has been
awarded Param Vir Chakra or
Maha Vir Chakra or Vir Chakra or such other gallantry award as may be
specifically notified by the Central Government or family pension received by
any member of the family of such individual. Family for this purpose shall have
the meaning assigned to it in section 10(5) of the Act. Such notification has
been made vide Notification Nos. S.O. 1948(E), dated 24-11-2000 and 81(E),
dated 29-1-2001, which are enclosed as per Annexure VI-A & VI-B.
(13) Under section 17 of the Act, exemption from
tax will also be available in respect of :
(a) the value of any medical treatment
provided to an employee or any member of his family, in any hospital maintained
by the employer;
(b) any sum paid by the employer in respect
of any expenditure actually incurred by the employee on his medical treatment
or of any member of his family :
(i) in
any hospital maintained by the Government or any local authority or any other
hospital approved by the Government for the purposes of medical treatment of
its employees;
(ii) in respect of the prescribed diseases or
ailments as provided in rule 3A(2) of Income-tax Rules, 1962, in any hospital
approved by the Chief Commissioner having regard to the prescribed guidelines
as provided in rule 3(A)(1) of Income-tax Rules, 1962 :
(c) premium paid by the employer in respect
of medical insurance taken for his employees (under any scheme approved by the
Central Government or Insurance Regulatory and Development Authority) or
reimbursement of insurance premium to the employees who take medical insurance
for themselves or for their family members (under any scheme approved by the
Central Government or Insurance Regulatory and Development Authority);
(d) reimbursement, by the employer, of the
amount spent by an employee in obtaining medical treatment for himself or any
member of his family from any doctor, not exceeding in the aggregate Rs. 15,000 in an year.
(e) As regards medical treatment abroad, the
actual expenditure on stay and treatment abroad of the employee or any member
of his family, or, on stay abroad of one attendant who accompanies the patient,
in connection with such treatment, will be excluded from perquisites to the
extent permitted by the Reserve Bank of
For the purpose of availing exemption on expenditure
incurred on medical treatment, hospital includes a dispensary or clinic or
nursing home, and family in relation to an individual means the spouse and children
of the individual. Family also includes parents, brothers and sisters of the
individual if they are wholly or mainly dependent on the individual.
Deductions under
section 16 of the Act
5.3 Entertainment Allowance - A
deduction is also allowed under clause (ii) of section 16 in respect of
any allowance in the nature of an entertainment allowance specifically granted
by an employer to the assessee, who is in receipt of
a salary from the Government, a sum equal to one-fifth of his salary (exclusive
of any allowance, benefit or other perquisite) or five thousand rupees
whichever is less. No deduction on account of entertainment allowance is
available to non-government employees.
Tax On Employment
The tax on
employment (Professional Tax) within the meaning of clause (2) of Article 276
of the Constitution of India, leviable by or under
any law, shall also be allowed as a deduction in computing the income under the
head Salaries.
It may be clarified
that Standard Deduction from gross salary income, which was being allowed up to
financial year 2004-05 is not allowable from financial year 2005-06 onwards.
5.4 Deductions under chapter VI-A of the
Act - In computing the taxable income of the employee, the following deductions
under Chapter VI-A of the Act are to be allowed from his gross total income :
A. As per section 80C, an employee will be
entitled to deductions for the whole of amounts paid or deposited in the
current financial year in the following schemes, subject to a limit of Rs. 1,00,000 :
(1) Payment of insurance premium to effect or
to keep in force an insurance on the life of the individual, the spouse or any
child of the individual.
(2) Any payment made to effect or to keep in force
a contract for a deferred annuity, not being an annuity plan as is referred to
in item (7) herein below on the life of the individual, the spouse or any child
of the individual, provided that such contract does not contain a provision for
the exercise by the insured of an option to receive a cash payment in lieu of
the payment of the annuity;
(3) Any sum deducted from the salary payable
by, or, on behalf of the Government to any individual, being a sum deducted in
accordance with the conditions of his service for the purpose of securing to
him a deferred annuity or making provision for his spouse or children, in so
far as the sum deducted does not exceed 1/5th of the salary;
(4) Any contribution made :
(a) by an individual to any Provident Fund to
which the Provident Fund Act, 1925 applies;
(b) to any provident fund set up by the
Central Government, and notified by it in this behalf in the Official Gazette,
where such contribution is to an account standing in the name of an individual,
or spouse or children ;
[The Central Government has since
notified Public Provident Fund vide Notification S.O. No. 1559(E), dated
3-11-2005.]
(c) by an employee to a Recognized Provident
Fund;
(d) by an employee to an approved
superannuation fund;
It may be noted that
contribution to any Fund shall not include any sums in repayment of loan;
(5) Any subscription :
(a) to any such security of the Central
Government or any such deposit scheme as the Central Government may, by notification
in the Official Gazette, specify in this behalf;
(b) to any such saving certificates as
defined under section 2(c) of the Government Saving Certificate Act,
1959 as the Government may, by notification in the Official Gazette, specify in
this behalf.
[The Central
Government has since notified National Saving Certificate (VIIIth
Issue) vide Notification S.O. No. 1560(E), dated 3-11-2005.]
(6) Any
sum paid as contribution in the case of an individual, for himself, spouse or
any child,
(a) for participation in the Unit Linked
Insurance Plan, 1971 of the Unit Trust of India;
(b) for participation in any unit-linked
insurance plan of the LIC Mutual Fund referred to in clause (23D) of section 10
and as notified by the Central Government.
[The Central
Government has since notified Unit Linked Insurance Plan (formerly known as Dhanraksha, 1989) of LIC Mutual Fund vide
Notification S.O. No. 1561(E), dated 3-11-2005.]
(7) Any subscription made to effect or keep
in force a contract for such annuity plan of the Life Insurance Corporation or
any other insurer as the Central Government may, by notification in the
Official Gazette, specify;
[The Central Government has since notified
New Jeevan Dhara, New Jeevan Dhara-I, New Jeevan Akshay, New Jeevan Akshay-I and New Jeevan Akshay-II vide
Notification S.O. No. 1562(E), dated 3-11-2005 and Jeevan
Akshay-III vide Notification S.O. No. 847(E), dated
1-6-2006]
(8) Any subscription made to any units of any
Mutual Fund, referred to in clause (23D) of section 10, or from the
Administrator or the specified company referred to in Unit Trust of India
(Transfer of Undertaking & Repeal) Act, 2002 under any plan formulated in
accordance with any scheme as the Central Government, may, by notification in
the Official Gazette, specify in this behalf;
[The Central
Government has since notified the Equity Linked Saving Scheme, 2005 for this
purpose vide Notification S.O. No. 1563(E), dated 3-11-2005]
The investments made
after 1-4-2006 in plans formulated in accordance with Equity Linked Saving
Scheme, 1992 or
Equity Linked
Saving Scheme, 1998 shall also qualify for deduction under section 80C.
(9) Any contribution made by an individual to
any pension fund set up by any Mutual Fund referred to in clause (23D) of
section 10, or, by the Administrator or the specified company referred to in
Unit Trust of India (Transfer of Undertaking & Repeal) Act, 2002, as the
Central Government may, by notification in the Official Gazette, specify in
this behalf;
[The
Central Government has since notified UTI-Retirement Benefit Pension Fund vide
Notification S.O. No. 1564(E), dated 3-11-2005.]
(10) Any subscription made to any such deposit
scheme of, or, any contribution made to any such pension fund set up by, the National Housing Bank, as the
Central Government may, by notification in the Official Gazette, specify in
this behalf;
(11) Any subscription made to any such deposit
scheme, as the Central Government may, by notification in the Official Gazette,
specify for the purpose of being floated by (a) public sector companies engaged
in providing long-term finance for construction or purchase of houses in India
for residential purposes, or, (b) any authority constituted in India by, or,
under any law, enacted either for the purpose of dealing with and satisfying
the need for housing accommodation or for the purpose of planning, development
or improvement of cities, towns and villages, or for both.
[The Central
Government has since notified the Public Deposit Scheme of HUDCO vide
Notification S.O. No. 37(E), dated 11-1-2007, for the purposes of section
80C(2)(xvi)(a)].
(12) Any sums paid by an assessee
for the purpose of purchase or construction of a residential house property,
the income from which is chargeable to tax under the head Income from house
property (or which would, if it has not been used for assessees own residence,
have been chargeable to tax under that head) where such payments are made
towards or by way of any instalment or part payment
of the amount due under any self-financing or other scheme of any Development
Authority, Housing Board etc.
The deduction will
also be allowable in respect of repayment of loans borrowed by an assessee from the Government, or any bank or Life Insurance
Corporation, or National Housing Bank, or certain other categories of
institutions engaged in the business of providing long term finance for
construction or purchase of houses in
The stamp duty,
registration fee and other expenses incurred for the purpose of transfer shall
also be covered. Payment towards the cost of house property, however, will not
include, admission fee or cost of share or initial deposit or the cost of any
addition or alteration to, or, renovation or repair of the house property which
is carried out after the issue of the completion certificate by competent
authority, or after the occupation of the house by the assessee
or after it has been let out. Payments towards any expenditure in respect of
which the deduction is allowable under the provisions of section 24 of the
Income-tax Act will also not be included in payments towards the cost of
purchase or construction of a house property.
Where the house
property in respect of which deduction has been allowed under these provisions
is transferred by the taxpayer at any time before the expiry of five years from
the end of the financial year in which possession of such property is obtained
by him or he receives back, by way of refund or otherwise, any sum specified in
section 80C(2)(xviii), no deduction under these provisions shall be
allowed in respect of such sums paid in such previous year in which the
transfer is made and the aggregate amount of deductions of income so allowed in
the earlier years shall be added to the total income of the assessee
of such previous year and shall be liable to tax accordingly.
(13) Tuition fees, whether at the time of
admission or thereafter, paid to any university, college, school or other
educational institution situated in India, for the purpose of full-time
education of any two children of the employee.
Full-time education
includes any educational course offered by any university, college, school or
other educational institution to a student who is enrolled full-time for the
said course. It is also clarified that full-time education includes play-school
activities, pre-nursery and nursery classes.
It is clarified
that the amount allowable as tuition fees shall include any payment of fee to
any university, college, school or other educational institution in
(14) Subscription to equity shares or debentures
forming part of any eligible issue of capital made by a public company, which
is approved by the Board or by any public finance institution.
(15) Subscription to any units of any mutual
fund referred to in clause (23D) of section 10 and approved by the Board, if
the amount of subscription to such units is subscribed only in eligible issue
of capital of any company.
(16) Investment as a term deposit for a fixed
period of not less than five years with a scheduled bank, which is in
accordance with a scheme framed and notified by the Central Government, in the
Official Gazette for these purposes.
[The Central Government has since notified the
Bank Term Deposit Scheme, 2006 for this purpose vide Notification S.O.
No. 1220(E), dated 28-7-2006]
(17) Subscription to such bonds issued by the
National Bank for Agriculture and Rural Development, as the Central Government
may, by such notification in the Official Gazette, specify in this behalf.
(18) Any investment in an account under the
Senior Citizens Savings Scheme Rules, 2004.
(19) Any investment as five year time deposit in
an account under the Post Office Time Deposit Rules, 1981.
It may be clarified
that the amount of premium or other payment made on an insurance policy [other
than a contract for deferred annuity mentioned in sub-para
(2)] shall be eligible for deduction only to the extent of 20 per cent of the
actual capital sum assured. In calculating any such actual capital sum, the
following shall not be taken into account :
(i) the
value of any premiums agreed to be returned, or
(ii) any benefit by way of bonus or otherwise
over and above the sum actually assured which may be received under the policy.
B. As per section 80CCC, where an assessee being an individual has in the previous year paid
or deposited any amount out of his income chargeable to tax to effect or keep
in force a contract for any annuity plan of Life Insurance Corporation of India
or any other insurer for receiving pension from the Fund referred to in clause
(23AAB) of section 10, he shall, in accordance with, and subject to the
provisions of this section, be allowed a deduction in the computation of his
total income, of the whole of the amount paid or deposited (excluding interest
or bonus accrued or credited to the assessees account, if any) as does not
exceed the amount of one lakh rupees in the previous
year.
Where any amount paid or deposited
by the assessee has been taken into account for the
purposes of this section, a rebate/deduction with reference to such amount
shall not be allowed under section 88 up to assessment year 2005-06 and under
section 80C from assessment year 2006-07 onwards.
C. As per the provisions of section 80CCD,
where an assessee, being an individual employed by
the Central Government on or after the 1st day of January, 2004, has in the previous
year paid or deposited any amount in his account under a pension scheme as
notified vide Notification No. F. N. 5/7/2003-ECB&PR, dated
22-12-2003, he shall be allowed a deduction in the computation of his total
income, of the whole of the amount so paid or deposited as does not exceed ten
per cent of his salary in the previous year.
Where, in the case
of such an employee, the Central Government makes any contribution to his
account under such pension scheme, the employee shall be allowed a deduction in
the computation of his total income, of the whole of the amount contributed by
the Central Government as does not exceed ten per cent of his salary in the
previous year.
Where any amount
standing to the credit of the assessee in his account
under such pension scheme, in respect of which a deduction has been allowed as
per the provisions discussed above, together with the amount accrued thereon,
if any, is received by the assessee or his nominee,
in whole or in part, in any financial year,
(a) on
account of closure or his opting out of such pension scheme; or
(b) as
pension received from the annuity plan purchased or taken on such closure or
opting out,the whole of the amount referred to in
clause (a) or clause (b) above shall be deemed to be the income of the assessee or his nominee, as the case may be, in the
financial year in which such amount is received, and shall accordingly be
charged to tax as income of that financial year.
For the purposes of
deduction under section 80CCD, salary includes dearness allowance, if the terms
of employment so provide, but excludes all other allowances and perquisites.
The aggregate amount of deduction under sections 80C,
80CCC and 80CCD shall not exceed Rs. 1,00,000
(Section 80CCE).
D. Section 80D of the Income-tax Act
provides for a deduction of up to fifteen thousand rupees to an assessee, being an individual or a Hindu Undivided family.
The deduction is allowed for making a payment to effect or keep in force an
insurance on :
(a) the health of the assessee
or on the health of the wife or husband, dependent parents or dependent
children of the assessee where the assessee is an individual;
(b) the health of any member of the family
where the assessee is a Hindu undivided family.
In the case the assessee or any other member of the family, on whose health
the insurance has been effected or kept in force, is a senior citizen, the
deduction allowed is up to twenty thousand rupees. The existing provisions also
have the requirements that the payment must be through a mode other than cash
and should be out of the taxable income of the assessee.
Since health
insurance cover for the elderly comes at a relatively higher price, it is
necessary to encourage individual assessees to supplement the efforts of their
parents in getting themselves medically insured. Accordingly, it is proposed to
allow an additional deduction of up to fifteen thousand rupees to an assessee, being an individual, on any payment made to
effect or keep in force an insurance on the health of his parent or parents.
The existing condition of dependent with respect to parents is being dispensed
with. This deduction shall be in addition to the existing deduction available
to the individual assess on medical insurance for himself, his spouse and
dependent children.
Further, it is proposed that if either of the individual assesseess parents, who have been medically insured, is a
senior citizen, the deduction would be allowed up to twenty thousand rupees.
For example, an individual assessee pays (through any mode other than cash) during the
previous year medical insurance premia as under :
(i) Rs. 12,000 to keep in force an insurance policy on his
health and on the health of his wife and dependent children;
(ii) Rs. 17,000 to
keep in force an insurance policy on the health of his parents.
Under the proposed new provisions he will
be allowed a deduction of Rs. 27,000 (Rs. 12,000+Rs. 15,000) if neither of his parents is a
senior citizen. However, if any of his parents is a senior citizen, he will be
allowed a deduction of Rs. 29,000 (Rs. 12,000+Rs.17,000). Whether the parents are dependent or
not, is not a consideration for deciding the deduction under the proposed new
section.
Further, in the above example, if cost of
insurance on the health of the parents is Rs. 30,000,
out of which Rs. 17,000 is paid (by any non-cash
mode) by the son and Rs. 13,000 by the father (who is
a senior citizen), out of their respective taxable income, the son will get a
deduction of Rs. 17,000 (in addition to the deduction
of Rs. 12,000 for the medical insurance on self and
family) and the father will get a deduction of Rs.
13,000.
E. Under section 80DD, where an assessee, who is a resident in
(a) incurred any expenditure for the medical
treatment (including nursing), training and rehabilitation of a dependant,
being a person with disability; or
(b) paid or deposited any amount under a
scheme framed in this behalf by the Life Insurance Corporation or any other insurer
or the Administrator or the specified company subject to the conditions
specified in this regard and approved by the Board in this behalf for the
maintenance of a dependant, being a person with disability,the
assessee shall be allowed a deduction of a sum of
fifty thousand rupees from his gross total income of that year.
However, where such dependant is a person with severe
disability, an amount of seventy-five thousand rupees shall be allowed as
deduction subject to the specified conditions.
The deduction under this section shall be allowed only if
the following conditions are fulfilled :
A. (i) the scheme referred to in clause (b)
above provides for payment of annuity or lump sum amount for the benefit of a
dependant, being a person with disability, in the event of the death of the
individual in whose name subscription to the scheme has been made;
(ii) the assessee
nominates either the dependant, being a person with disability, or any other
person or a trust to receive the payment on his behalf, for the benefit of the
dependant, being a person with disability.
However, if the
dependant, being a person with disability, predeceases the assessee,
an amount equal to the amount paid or deposited under sub-para
(b) above shall be deemed to be the income of the assessee
of the previous year in which such amount is received by the assessee and shall accordingly be chargeable to tax as the
income of that previous year.
B. The assessee,
claiming a deduction under this section, shall furnish a copy of the
certificate issued by the medical authority in the prescribed form and manner,
along with the return of income under section 139, in respect of the assessment
year for which the deduction is claimed:
In cases where the condition of
disability requires reassessment of its extent after a period stipulated in the
aforesaid certificate, no deduction under this section shall be allowed for any
subsequent period unless a new certificate is obtained from the medical
authority in the prescribed form and manner and a copy thereof is furnished
along with the return of income.
For the purposes of
section 80DD,
(a) Administrator means the Administrator as
referred to in clause (a) of section 2 of the Unit Trust of India
(Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002) ;
(b) dependant means
(i) in
the case of an individual, the spouse, children, parents, brothers and sisters
of the individual or any of them;
(ii) in the case of a Hindu undivided family,
a member of the Hindu undivided family, dependant wholly or mainly on such
individual or Hindu undivided family for his support and maintenance, and who
has not claimed any deduction under section 80U in computing his total income
for the assessment year relating to the previous year;
(c) disability shall have the meaning
assigned to it in clause (i) of section 2 of
the Persons with Disabilities (Equal Opportunities, Protection of Rights and
Full Participation) Act, 1995 (1 of 1996) and includes autism, cerebral palsy
and multiple disability referred to in clauses (a), (c) and (h)
of section 2 of the National Trust for Welfare of Persons with Autism, Cerebral
Palsy, Mental Retardation and Multiple Disabilities Act, 1999 (44 of 1999);
(d) Life Insurance Corporation shall have the
same meaning as in clause (iii) of sub-section (8) of section 88;
(e) medical authority means the medical
authority as referred to in clause (p) of section 2 of the Persons with
Disabilities (Equal Opportunities, Protection of Rights and Full Participation)
Act, 1995 (1 of 1996) or such other medical authority as may, by notification,
be specified by the Central Government for certifying autism, cerebral palsy,
multiple disabilities, person with disability and severe disability referred to
in clauses (a), (c) , (h) , (j) and (o) of
section 2 of the National Trust for Welfare of Persons with Autism, Cerebral
Palsy, Mental Retardation and Multiple Disabilities Act, 1999 (44 of 1999);
(f) person with disability means a person as
referred to in clause (t) of section 2 of the Persons with Disabilities
(Equal Opportunities, Protection of Rights and Full Participation) Act, 1995 (1
of 1996) or clause (j) of section 2 of the National Trust for Welfare of
Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple
Disabilities Act, 1999 (44 of 1999);
(g) person with severe disability means
(i) a
person with eighty per cent or more of one or more disabilities, as referred to
in sub-section (4) of section 56 of the Persons with Disabilities (Equal
Opportunities, Protection of Rights and Full Participation) Act, 1995 (1 of
1996); or
(ii) a person with severe disability referred
to in clause (o) of section 2 of the National Trust for Welfare of
Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple
Disabilities Act, 1999 (44 of 1999);
(h) specified company means a company as
referred to in clause (h) of section 2 of the Unit Trust of India
(Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002).
F. Under section 80E of the Act a
deduction will be allowed in respect of repayment of interest on loan taken for
higher education, subject to the following conditions:
(i) In
computing the total income of an assessee, being an
individual, there shall be deducted, in accordance with and subject to the
provisions of this section, any amount paid by him in the previous year, out of
his income chargeable to tax, by way of interest on loan, taken by him from any
financial institution or any approved charitable institution for the purpose of
pursuing his higher education or for the purpose of higher education of his
spouse or children.
(ii) The deduction specified above shall be
allowed in computing the total income in respect of the initial assessment year
and seven assessment years immediately succeeding the initial assessment year
or until the interest referred to above is paid in full by the assessee, whichever is earlier.
For this purpose
(a) approved charitable institution means an institution
established for charitable purposes and approved by the prescribed authority
under clause (2C) of section 10, or, an institution referred to in clause (a)
of sub-section (2) of section 80G.
(b) financial institution means a banking
company to which the Banking Regulation Act, 1949 (10 of 1949) applies
(including any bank or banking institution referred to in section 51 of that
Act); or any other financial institution which the Central Government may, by
notification in the Official Gazette, specify in this behalf;
(c) higher education means full-time studies
for any graduate or post-graduate course in engineering, medicine, management,
or, for post-graduate course in applied sciences or pure sciences, including
mathematics and statistics;
(d) initial assessment year means the
assessment year relevant to the previous year, in which the assessee
starts paying the interest on the loan.
G. No deduction should be allowed by the
D.D.O. from the salary income in respect of any donations made for charitable
purposes. The tax relief on such donations as admissible under section 80G of
the Act, will have to be claimed by the tax payer in the return of income.
However, D.D.O. on due verification may allow donations to following bodies to
the extent of 50 per cent of the contribution:
(i) Jawaharlal
Nehru Memorial Fund.
(ii) The Prime Ministers Drought Relief Fund.
(iii) The National Childrens
Fund.
(iv) The Indira
Gandhi Memorial Trust.
(v) The Rajiv
Gandhi Foundation.
and to the following bodies to the extent
of 100 per cent of the contribution:
(i) National
Defence Fund or The Prime Ministers National Relief
Fund.
(ii) The Prime Ministers Armenia Earthquake
Relief Fund.
(iii) The Africa (Public Contributions -
(iv) The National Foundation for Communal
Harmony.
(v) Chief Ministers Earthquake Relief Fund,
(vi) National Blood Transfusion Council.
(vii) State Blood Transfusion Council.
(viii) Army Central Welfare Fund.
(ix) Indian Naval Benevolent Fund.
(x) Air Force Central Welfare Fund.
(xi) The Andhra Pradesh Chief Ministers
Cyclone Relief Fund - 1996.
(xii) The National Illness Assistance Fund.
(xiii) The Chief Ministers Relief Fund or
Lieutenant Governors Relief Fund in respect of any State or Union Territory as
the case may be, subject to certain conditions.
(xiv) The University or Educational Institution
of national eminence approved by the Prescribed Authority.
(xv) The National Sports Fund to be set up by
Central Government.
(xvi) The National Cultural Fund set up by the
Central Government.
(xvii) The Fund for Technology Development and
Application set by the Central Government.
(xviii) The National Trust for Welfare of persons
with Autism, Cerebral Palsy, Mental Retardation and Multiple disabilities.
(xix) Any fund set up by the State Government of
Gujarat exclusively for providing relief to the victims of earthquake in
(xx) Any Zila Saksharta Samiti in any district
under the chairmanship of the Collector of that district for the purpose or
purposes of improvement of primary education in villages and towns in such
district and for literacy and post-literacy activities.
(xxi) any
fund setup by a State Government to provide medical relief to the poor; or.
H. Under section 80GG of the Act an assessee is entitled to a deduction in respect of house
rent paid by him for his own residence. Such deduction is permissible subject
to the following conditions :
(a) The assessee
has not been in receipt of any House Rent Allowance specifically granted to him
which qualifies for exemption under section 10(13A) of the Act;
(b) The assessee
files the declaration in Form No. 10BA. (Annexure-VII)
(c) He will be entitled to a deduction in
respect of house rent paid by him in excess of 10 per cent of his total income,
subject to a ceiling of 25 per cent thereof or Rs.
2,000 per month, whichever is less. The total income for working out these
percentages will be computed before making any deduction under section 80GG.
(d) The assessee
does not own:
(i) any
residential accommodation himself or by his spouse or minor child or where such
assessee is a member of a Hindu Undivided Family, by
such family, at the place where he ordinarily resides or performs duties of his
office or carries on his business or profession; or
(ii) at any other place, any residential
accommodation being accommodation in the occupation of the assessee,
the value of which is to be determined under clause (a) of sub-section
(2) or, as the case may be, clause (a) of sub-section (4) of section 23:
The Drawing and
Disbursing Authorities should satisfy themselves that all the conditions
mentioned above are satisfied before such deduction is allowed by them to the assessee. They should also satisfy themselves in this
regard by insisting on production of evidence of actual payment of rent.
I. Under section 80U, in computing the
total income of an individual, being a resident, who, at any time during the
previous year, is certified by the medical authority to be a person with
disability, there shall be allowed a deduction of a sum of fifty thousand
rupees.
However, where such
individual is a person with severe disability, a higher deduction of
seventy-five thousand rupees shall be allowable.
Every individual
claiming a deduction under this section shall furnish a copy of the certificate
issued by the medical authority in the prescribed form and manner along with
the return of income, in respect of the assessment year for which the deduction
is claimed.
In cases where the
condition of disability requires reassessment of its extent after a period
stipulated in the aforesaid certificate, no deduction under this section shall
be allowed for any subsequent period unless a new certificate is obtained from
the medical authority in the prescribed form and manner and a copy thereof is
furnished along with the return of income.
For the purposes of
this section, the expressions disability, medical authority, person with
disability and person with severe disability shall have the same meaning as
given in section 80DD (sub-para E of para 5.4 of this Circular).
DDOs to satisfy themselves of the genuineness
of claim :
(21) The Drawing and Disbursing Officers should
satisfy themselves about the actual deposits/subscriptions/payments made by the
employees, by calling for such particulars/information as they deem necessary
before allowing the aforesaid deductions. In case the DDO is not satisfied
about the genuineness of the employees claim regarding any
deposit/subscription/payment made by the employee, he should not allow the
same, and the employee would be free to claim the deduction/rebate on such
amount by filing his return of income and furnishing the necessary proof etc.,
therewith, to the satisfaction of the Assessing Officer.
6. Calculation of income-tax to be deducted
6.1 Salary income for the purpose of section
192 shall be computed as follow:
(a) First compute the gross salary as mentioned
in para 5.1 excluding all the incomes mentioned in para 5.2;
(b) Allow deductions mentioned in para 5.3 from the figure arrived at (a) above.
(c) Allow deductions mentioned in para 5.4 from the figure arrived at (b) above
ensuring that aggregate of the deductions mentioned in para
5.4 does not exceed the figure of (b) and if it exceeds, it should be
restricted to that amount.
This will be the
amount of income from salaries on which Income-tax would be required to be
deducted. This income should be rounded off to the nearest multiple of ten
rupees.
6.2 Income-tax on such income shall be
calculated at the rates given in para 2 of this
Circular keeping in view the age and gender of the employee.
6.3 The amount of tax payable so arrived at
shall be increased by surcharge (if applicable) and additional surcharge
(Education Cess) at the prescribed rate to arrive at
the total tax payable.
6.4 The amount of tax as arrived at para 6.3 should be deducted every month in equal instalments. Any excess or deficit arising out of any
previous deduction can be adjusted by increasing or decreasing the amount of
subsequent deductions during the same financial year.
7. Miscellaneous
7.1 These instructions are not exhaustive and
are issued only with a view to helping the employers to understand the various
provisions relating to deduction of tax from salaries. Wherever there is any
doubt, reference may be made to the provisions of the Income-tax Act, 1961, the
Income-tax Rules, 1962 and the Finance Act, 2008.
7.2 In case any assistance is required, the
Assessing Officer/the local Public Relation Officer of the Income-tax
Department may be contacted.
7.3 These instructions may be brought to the
notice of all Disbursing Officers and Undertakings including those under the
control of the Central/State Governments.
7.4 Copies of this Circular are available with
the Director of Income-tax (Research, Statistics & Publications and Public Relations),
6th Floor, Mayur Bhavan, Indira Chowk, New Delhi-110 001
and at the following websites:
www.finmin.nic.in
www.incometaxindia.gov.in
Clarification regarding TDS of
arrears of salary paid to Government servants on account of the implementation of
the recommendations of sixth pay commission
The Implementation
Cell of the Department of Expenditure, Ministry of Finance vide its
Office Order F. No. 1/1/2008-IC, dated 30th August, 2008 has stated at Para 2(v)
Bills may be drawn
separately in respect of the arrears of pay and allowances for the period from
January 1, 2006 to August 31, 2008. The aggregate arrears, computed after
deduction of subscription at enhanced rates of GPF and NPS with reference to
the revised pay, may be paid in two instalments, the
first instalment being restricted to 40 per cent of
the aggregate arrears. DDOs/PAOs will ensure that
action is taken simultaneously in regard to Governments contribution towards
enhanced subscription. Orders in regard to the payment of the second instalment of arrears will be issued separately.
A number of
representations have been received by CBDT seeking clarification as to whether
TDS need to be deducted on 40 per cent of arrears to be paid during 2008-09 or
on the entire arrears payable to the Government servant. The matter has been
examined by the Board; the issue is clarified as given below.
Salary is as
defined under section 15 of Income-tax Act, 1961 :
(a) any salary due from an employer or a former
employer to an assessee in the previous year, whether
paid or not;
(b) any salary paid or allowed to him in the
previous year by or on behalf of an employer or a former employer though not
due or before it became due to him;
(c) any arrears of salary paid or allowed
to him in the previous year by or on behalf of an employer or a former
employer, if not charged to income-tax for any earlier previous year.
2. It is clear from the Office Memorandum issued
by the Department of Expenditure that 60 per cent of the pay arrears neither
fall in the category of due nor are allowed. Moreover, section 192 of
Income-tax Act, 1961, inter alia, requires any
person responsible for paying any income chargeable under the head Salaries to
deduct income-tax on the amount payable at the stipulated rate at the time of
payment. Therefore it is clarified that income-tax at source would be deducted
under section 192 only from the arrears of salary actually paid during financial
year 2008-09. On the balance, tax would be deducted during the financial year
in which these pay arrears are actually paid.
Annexure-I
Example
1
For Assessment Year 2009-10
Calculation of income-tax in the case of a
male employee having gross salary income of :
(i) Rs. 2,00,000,
(ii) Rs. 5,00,000 and
(iii) Rs. 10,00,000
|
Particulars |
(Rupees) |
|
(Rupees) |
|
(Rupees) |
|
|
(i) |
|
(ii) |
|
(iii) |
|
Gross Salary Income |
2,00,000 |
|
5,00,000 |
|
10,00,000 |
|
(Including allowances) |
|
|
|
|
|
|
Contribution to G.P.F. |
20,000 |
|
50,000 |
|
1,00,000 |
|
Computation of Total
Income and tax payable thereon |
|
|
|
|
|
|
Gross Salary |
2,00,000 |
|
5,00,000 |
|
10,00,000 |
|
Less : Deduction U/s 80C |
20,000 |
|
50,000 |
|
1,00,000 |
|
Taxable Income |
1,80,000 |
|
4,50,000 |
|
9,00,000 |
|
Tax thereon |
3,000 |
|
45,000 |
|
1,75,000 |
|
Add : |
|
|
|
|
|
|
Surcharge |
Nil |
|
Nil |
|
Nil |
|
Education Cess @2% |
60 |
|
900 |
|
3,500 |
|
Secondary and Higher |
30 |
|
450 |
|
1,750 |
|
Total tax payable |
3,090 |
|
46,350 |
|
1,80,250 |
Note
1 :
Surcharge at the rate of 10 per cent of the tax payable is to be charged only
if taxable income exceeds Rs. 10,00,000.
Note
2 :
Additional surcharge (Education Cess on Income-tax)
is to be charged at the rate of 2 per cent of the Income-tax and surcharge, if
any.
Note
3 :
Additional surcharge (Secondary and Higher Education Cess
on Income-tax) is to be charged at the rate of one per cent of the Income-tax
and surcharge, if any (not including the Education Cess
on Income-tax).
Note
4 :
Surcharge, Education Cess, and Secondary and Higher
Education Cess are payable by both resident and
non-resident assessees.
Example
2
For Assessment Year 2009-10
Calculation of
Income-tax in the case of a male employee having a handicapped dependent.
Particulars :
|
1. |
Gross Salary |
Rs. 3,20,000 |
|
2. |
Amount spent on treatment of a dependant, being person with disability
(but not severe disability) |
Rs. 7,000 |
|
3. |
Amount paid to LIC with regard to annuity for the maintenance of a dependant,
being person with disability (but not severe disability) |
Rs. 50,000 |
|
4. |
GPF Contribution |
Rs. 25,000 |
|
5. |
LIP Paid |
Rs. 10,000 |
Computation of Tax
|
|
Gross Salary |
Rs. 3,20,000 |
||
|
|
Less : Deduction U/s 80DD
(Restricted to Rs. 50,000 only) |
Rs. 50,000 |
||
|
|
Taxable Income |
Rs. 2,70,000 |
||
|
|
Less : Deduction u/s 80C
: |
|
||
|
|
GPF |
Rs. 25,000 |
|
|
|
|
LIP |
Rs. 10,000 |
|
|
|
|
Total |
35,000 |
|
Rs. 35,000 |
|
|
Total Income |
Rs. 2,35,000 |
||
|
|
Income-tax
thereon/payable |
Rs. 8,500 |
||
|
|
Add : |
|
||
|
|
Surcharge |
Nil |
||
|
|
Education Cess @2% |
Rs. 170 |
||
|
|
Secondary and Higher
Education Cess @1% |
Rs. 85 |
||
|
|
Total income-tax payable |
Rs. 8,755 |
||
|
|
Rounded off to |
Rs. 8,760 |
||
Example
3
For Assessment Year 2009-10
Calculation of
Income-tax in the case of a male employee where medical treatment expenditure
was borne by the employer.
Particulars :
|
1. |
Gross Salary |
Rs. 3,00,000 |
|
2. |
Medical Reimbursement by
employer on the treatment of self and dependent family member |
Rs. 30,000 |
|
3. |
Contribution of GPF |
Rs. 20,000 |
|
4. |
LIC premium |
Rs. 20,000 |
|
5. |
Repayment of |
Rs. 25,000 |
|
6. |
Tuition fees for two
children |
Rs. 60,000 |
|
7. |
Investment in Unit-Linked
Insurance Plan |
Rs. 20,000 |
Computation of Tax
|
|
Gross Salary |
Rs. 3,00,000 |
||
|
|
Add : Perquisite in respect of reimbursement of Medical Expenses in excess
of Rs. 15,000 in view of section 17(2)(v) |
Rs. 15,000 |
||
|
|
Taxable Income |
Rs. 3,15,000 |
||
|
|
Less : Deduction under section 80C : |
|
||
|
|
GPF |
20,000 |
|
|
|
|
LIC |
20,000 |
|
|
|
|
Repayment of HBA |
25,000 |
|
|
|
|
Tuition Fees |
60,000 |
|
|
|
|
Investment in |
|
|
|
|
|
Unit-Linked Insurance |
20,000 |
|
|
|
|
Plan |
|
|
|
|
|
Total |
1,45,000 |
|
|
|
|
Restricted to Rs. 1,00,000 |
Rs. 1,00,000 |
||
|
|
Total Income : |
Rs. 2,15,000 |
||
|
|
Tax Payable |
Rs. 6,500 |
||
|
|
Add : |
|
||
|
|
Surcharge |
Nil |
||
|
|
Education Cess @2% |
130 |
||
|
|
Secondary and Higher |
|
||
|
|
Education Cess @1% |
65 |
||
|
|
Total Income-tax payable |
Rs. 6,695 |
||
|
|
Rounded off to |
Rs. 6,700 |
||
Example
4
For Assessment Year 2009-10
Illustrative
calculation of House Rent Allowance under section 10(13A) in respect of
residential accommodation situated in
Particulars
|
1. |
Salary |
Rs. 2,50,000 |
|
2. |
Dearness Allowance |
Rs. 1,00,000 |
|
3. |
House Rent Allowance |
Rs. 1,40,000 |
|
4. |
House rent paid |
Rs. 1,44,000 |
|
5. |
General Provident Fund |
Rs. 36,000 |
|
6. |
Life Insurance Premium |
Rs. 4,000 |
|
7. |
Subscription to
Unit-Linked Insurance Plan |
Rs. 50,000 |
Computation of
total income and tax payable thereon
|
1. |
Salary + D.A. + C.C.A. |
Rs. 3,50,000 |
||
|
|
House Rent Allowance |
Rs. 1,40,000 |
||
|
2. |
Total Salary income |
Rs. 4,90,000 |
||
|
3. |
Less: House Rent allowance exempt U/s 10(13A): Least of: |
|
||
|
|
a. Actual amount of HRA received = 1,40,000 |
|
||
|
|
b. Expenditure of rent in excess of 10% of salary (including D.A. presuming
that D.A. is taken for retirement benefit) (1,44,000 - 35,000) = 1,09,000 |
|
||
|
|
c. 50% of Salary (Basic + DA) = Rs. 1,75,000 |
Rs. 1,09,000 |
||
|
|
Gross Total Income: |
Rs. 3,81,000 |
||
|
|
Less: Deduction under section 80C: |
|
||
|
|
GPF |
36,000 |
|
|
|
|
LIC |
4,000 |
|
|
|
|
Subscription to |
|
||
|
|
Unit Linked |
|
||
|
|
Insurance Plan |
50,000 |
|
|
|
|
Total: |
90,000 |
|
Rs. 90,000 |
|
|
Total Income |
|
|
Rs. 2,91,000 |
|
|
Tax payable on total income |
Rs. 11,100 |
||
|
|
Add: |
|
||
|
|
Surcharge |
|
||
|
|
Education Cess @ 2% |
222 |
||
|
|
Secondary and Higher Education Cess @ 1% |
111 |
||
|
|
Total Income-tax payable |
Rs. 11,433 |
||
|
|
Rounded off to |
Rs. 11,430 |
||
Example
5
For Assessment Year 2009-10
Illustrating
valuation of perquisite and calculation of tax in the case of a male employee
of a private company in Mumbai who was provided accommodation in a flat at concessional rate for ten months and in a hotel for two
months.
|
1. |
Salary. |
Rs. 7,00,000 |
|
2. |
Bonus |
Rs. 1,40,000 |
|
3. |
Free gas, electricity, water etc. |
|
|
|
(Actual bills paid by company) |
|
|
4(b) |
Hotel rent paid by employer |
|
|
|
(for two months) |
Rs. 1,00,000 |
|
4(c) |
Rent recovered from employee |
Rs. 60,000 |
|
4(d) |
Cost of furniture |
Rs . 2,00,000 |
|
5. |
Subscription to Unit Linked |
|
|
|
Insurance Plan |
Rs. 50,000 |
|
6. |
Life Insurance Premium |
Rs. 10,000 |
|
7. |
Contribution to recognized P.F. |
Rs. 42,000 |
Computation of
total income and tax paid thereon
|
1. |
Salary |
Rs. 7,00,000 |
|
2. |
Bonus |
Rs. 1,40,000 |
|
|
Total Salary for Valuation of Perquisite i.e. Rs.
70,000 per month |
Rs. 8,40,000 |
Valuation of perquisites
|
(a) |
Perq. for flat: |
|
|||
|
|
Lower of (15% of salary for ten months = Rs.1,05,000) and (actual rent
paid = 3,60,000) |
Rs. 1,05,000 |
|||
|
(b) |
Perq. for hotel |
|
|||
|
|
Lower of (24% of salary of 2 Months = 33,600) and (actual payment =
l,00,000) |
Rs. 33,600 |
|||
|
(c) |
Perq. for furniture @ 10% of cost |
Rs. 20,000 |
|||
|
|
|
Rs. 1,58,600 |
|||
|
|
Less: Rent recovered from employee |
Rs. 60,000 |
|||
|
|
|
Rs. 98,600 |
|||
|
(d) |
Add : Perq. for free gas, elec., water |
Rs. 40,000 |
|||
|
|
Total perquisites: |
Rs. 1,38,600 |
|||
|
|
Gross Total Income (8,40,000+1,38,600) |
Rs. 9,78,600 |
|||
|
|
Less: Deduction under section 80C: |
|
|||
|
|
Provident Fund |
42,000 |
|
|
|
|
|
LIC |
10,000 |
|
|
|
|
|
Subscription to Unit |
50,000 |
|
|
|
|
|
Linked Insurance Plan |
|
|||
|
Total |
|
Rs. 1,02,000 |
|
|
|
|
|
|
Rs. 1,00,000 |
|||
|
|
Total Income |
Rs. 8,78,600 |
|||
|
|
Tax Payable |
Rs. 1,68,580 |
|||
|
Add: |
|
|
|||
|
|
Surcharge |
Nil |
|||
|
|
Education Cess @ 2% |
3,372 |
|||
|
|
Secondary and Higher Education Cess @ 1% |
1,686 |
|||
|
|
Total Income-tax payable |
Rs. 1,73,638 |
|||
|
|
Rounded off to |
Rs. 1,73,640 |
|||
|
|
|
|
|
|
|
Example
6
For assessment year 2009-10
Illustrating Valuation of perquisite and calculation of tax
in the case of a female employee of a Private Company posted at
Particulars:
|
1. |
Salary |
Rs. 3,00,000 |
|
2. |
Dearness Allowance |
Rs. 1,00,000 |
|
3. |
House Rent Allowance |
Rs. 1,80,000 |
|
4. |
Special Duties Allowance |
Rs. 12,000 |
|
5. |
Provident Fund |
Rs. 60,000 |
|
6. |
LIP |
Rs. 10,000 |
|
7. |
Deposit in NSC VIII issue |
Rs. 30,000 |
|
8. |
Rent Paid by the employee for house hired by her |
Rs. 1,20,000 |
|
9. |
Repayment of |
Rs. 60,000 |
|
10. |
Tuition Fees for three children (Rs.10,000 per child) |
Rs. 30,000 |
Computation of
total income and tax payable thereon
|
1. |
Gross salary |
|
|
5,92,000 |
|
|
(Basic+DA+HRA+SDA) |
|
|
|
|
|
Less: House rent allowance exempt |
|
|
|
|
|
u/s 10(13A) |
|
|
|
|
|
Least of: |
|
|
|
|
|
a. Actual amount of HRA received |
1,80,000 |
|
|
|
|
b. Expenditure on rent in excess of 10% of salary (Including D.A.) assuming
D.A. is including for retirement benefits (1,20,000-40,000) |
80,000 |
|
|
|
|
c. 50% of salary (including D.A) |
2,00,000 |
|
(-) 80,000 |
|
|
Gross Total Taxable Income |
|
|
5,12,000 |
|
|
Less: Deduction under section 80C: |
|
|
|
|
|
i. Provident Fund |
60,000 |
|
|
|
|
ii. LIP |
10,000 |
|
|
|
|
iii. NSC VIII Issue |
30,000 |
|
|
|
|
iv. Repayment of HBA |
60,000 |
|
|
|
|
v. Tuition Fees (Restricted to two children) |
20,000 |
|
|
|
|
Total |
1,80,000 |
|
|
|
|
Restricted to |
|
|
1,00,000 |
|
|
Total Income |
|
|
4,12,000 |
|
|
Tax Payable |
|
|
34,400 |
|
|
Add: |
|
|
|
|
|
Surcharge |
|
|
Nil |
|
|
Education Cess @ 2% |
|
|
688 |
|
|
Secondary and Higher Education Cess @1% |
|
|
344 |
|
|
Total Income Tax payable |
|
|
Rs. 35,432 |
|
|
|
Rounded off to Rs. 35,430 |
||
Note: Part of the
dearness allowance merged with the basic pay and shown as Dearness Pay is also
included in the definition of salary for working out the amount of exemption
under section 10(13A).
Example
7
For assessment year 2009-10
Income-tax calculation in the case of a male employee who
claims loss under the head Income from self-occupied house property.
|
|
Particulars: |
|
|
1. |
Gross salary |
4,00,000 |
|
2. |
Housing Loan repaid (Principal) |
50,000 |
|
3. |
Interest payable on housing loan |
|
|
|
(Loan taken after 1-4-1999) |
1,60,000 |
|
4. |
Donation paid to National Children Fund |
5,000 |
|
5. |
NSC Purchased |
10,000 |
|
6. |
GPF |
30,000 |
Computation of taxable income and tax
thereon
|
1. |
Salary Income |
|
|
|
Rs. 4,00,000 |
||
|
2. |
Income from house property Annual value |
|
Nil |
|
|
||
|
|
Interest payable on loan u/s 24 |
|
1,50,000 |
|
|
||
|
|
(Maximum allowable) |
|
|
|
(-) Rs. 1,50,000 |
||
|
|
Gross total income |
|
|
|
Rs. 2,50,000 |
||
|
|
Less: Deduction u/s 80G |
|
|
|
|
||
|
|
50% of Rs. 5,000 |
|
Rs. 2,500 |
|
|
||
|
|
Less: Deduction u/s 80C: |
|
|
|
|
||
|
|
GPF |
30,000 |
|
|
|
|
|
|
|
NSC |
10,000 |
|
|
|
|
|
|
|
Housing Loan repaid |
50,000 |
|
|
|
|
|
|
|
Total |
|
Rs. 90,000 |
|
|
||
|
|
Total Deductions under Chapter VI-A |
|
|
|
Rs. 92,500 |
||
|
|
Total Income |
|
|
|
Rs. 1,57,500 |
||
|
|
Tax Payable |
|
|
|
Rs. 750 |
||
|
|
Add: |
|
|
|
|
||
|
|
Surcharge |
|
|
|
Nil |
||
|
|
Education Cess @ 2% |
|
|
|
15 |
||
|
|
Secondary and Higher Education Cess @ 1% |
|
|
|
8 |
||
|
|
Total Income-tax payable |
|
|
|
Rs. 773 |
||
|
|
|
|
Rounded off to Rs. 770 |
||||
EXAMPLE - 8
For assessment year 2009-10
Income-tax calculation in the case of a male employee who
claims loss under the head Income from self-occupied house property, and has
taken house building loan before 1-4-1999.
Particulars
|
1. |
Gross Salary |
4,00,000 |
|
2. |
Housing Loan repaid (Principal) |
30,000 |
|
3. |
Interest payable on housing loan (Loan taken before 1-4-1999) |
1,00,000 |
|
4. |
Donation paid to National Childrens Fund |
6,000 |
|
5. |
N.S.C. purchased |
10,000 |
|
6. |
G.P.F. |
20,000 |
Computation of Taxable Income and tax
thereon
|
1. |
Salary Income |
|
|
Rs. 4,00,000 |
|
2. |
Income from House Property |
|
|
|
|
|
Annual value |
Nil |
|
|
|
|
Interest payable on loan under section 24 |
30,000 |
|
|
|
|
(Maximum allowable for loans taken before 1-4-1999) |
|
|
(-)Rs. 30,000 |
|
|
Gross total income |
|
|
Rs. 3,70,000 |
|
|
Less: Deduction u/s 80G |
|
|
|
|
|
50% of Rs. 6,000 |
Rs. 3,000 |
|
|
|
|
Less: Deduction u/s 80C |
|
|
|
|
|
G.P.F. |
20,000 |
|
|
|
|
N.S.C. |
10,000 |
|
|
|
|
Housing Loan repaid |
30,000 |
|
|
|
|
Total: |
60,000 |
|
|
|
|
Total Deductions under Chapter VI-A |
|
|
Rs. 63,000 |
|
|
Total Income |
|
|
Rs. 3,07,000 |
|
|
Tax payable |
|
|
Rs. 16,400 |
|
|
Add: |
|
|
|
|
|
Surcharge |
|
|
Nil |
|
|
Education Cess @2% |
|
|
328 |
|
|
Secondary and Higher Education Cess @1% |
|
|
164 |
|
|
Total Income-tax payable |
|
|
Rs. 16,892 |
|
|
|
Rounded off to Rs. 16,890 |
||
EXAMPLE - 9
For assessment year 2009-10
Income Tax calculation
in the case of a male pensioner who is more than 65 years of age.
(Rupees)
Particulars
|
Service Pension |
2,40,000 |
|
Infrastructure Bond |
30,000 |
|
N.S.C. purchased |
20,000 |
Computation of
Taxable Income and Tax thereon
|
Income from Salary (Pension) |
|
|
2,40,000 |
|
Less: Deduction under section 80C |
|
|
|
|
Infrastructure Bond |
30,000 |
|
|
|
N.S.C. |
20,000 |
|
|
|
Total |
50,000 |
|
|
|
Total Income |
|
|
1,90,000 |
|
Tax payable |
|
|
Nil |
Note: Taxpayers of sixty
five years of age or above do not have to pay tax up to a total income of Rs. 2,25,000
ANNEXURE-II
Form for sending
particulars of income under section 192(2B) for the year ending 31st March,
2002
|
1. |
Name and address of the
employee |
............................ |
|
2. |
Permanent Account Number |
............................ |
|
3. |
Residential status |
............................ |
4. Particulars of income under any head of
income other than salaries (not being a loss under any such head other than the
loss under the head Income from house property) received in the financial year.
|
|
(i) |
Income from house property |
............................ |
|
|
|
(in case of loss, enclose computation thereof) |
|
|
|
(ii) |
Profits and gains of business or profession |
............................ |
|
|
(iii) |
Capital gains |
............................ |
|
|
(iv) |
Income from other sources |
|
|
|
|
(a) Dividends |
|
|
|
|
(b) Interest |
|
|
|
|
(c) Other incomes (specify) |
|
|
|
|
Total |
............................ |
5. Aggregate of sub-items (i) to (iv) of item 4
6. Tax deducted at source (enclose
certificates) issued under section 203
Place ............................
Date ............................
............................................................
Signature of the
employee
Verification
I,
..............................................................................,
do hereby declare that what is stated above is true to the best of my knowledge
and belief.
Verified today, the
............................day of........................................
2002.
Place ............................
Date ............................
............................................................
Signature of the
employee
Annexure -III
Form
No. 12BA : Statement showing particulars of perquisites, other fringe benefits
or amenities and profits in lieu of salary with value thereof - See [2002]
124 Taxman 64 (St.)
Annexure IV
Form
No. 16AA : Certificate for tax deducted at source from income chargeable under
the head Salaries-cum-Return of income - See [2004] 134
Taxman 128 (St.)
Annexure V
Notification
No. SO 974(E), dated 26-8-2003 - See [2003] 131 Taxman 34 (St.)
Annexure VA
Notification
[F.No. 5/7/2003-ECB & PR], dated 22-12-2003
The Government approved
on 23rd August, 2003 the proposal to implement the Budget announcement of
2003-04 relating to introducing a new restructured defined contribution pension
system for new entrants to Central Government service, except to Armed Forces,
in the first stage, replacing the existing system of defined benefit pension
system :
(i) The
system would be mandatory for all new recruits to the Central Government
service from 1st of January, 2004 (except the armed forces in the first stage).
The monthly contribution would be 10 per cent of the salary and DA to be paid
by the employee and matched by the Central Government. However, there will be
no contribution from the Government in respect of individuals who are not
Government employees. The contribution and investment returns would be
deposited in a non-withdrawable pension tier-I
account. The existing provisions of defined benefit pension and GPF would not
be available to the new recruits in the Central Government service.
(ii) In addition to the above pension account,
each individual may also have a voluntary tier-II withdrawable
account at his option. This option is given as GPF will be withdrawn for new
recruits in Central Government service. The Government will make no
contribution into this account. These assets would be managed through exactly
the above procedures. However, the employee would be free to withdraw part or
all of the second tier of his money any time. This withdrawable
account does not constitute pension investment, and would attract no special
tax treatment.
(iii) Individuals can normally exit at or after
age 60 years for tier-I of the pension system. At the exit the individual would
be mandatorily required to invest 40 per cent of
pension wealth to purchase an annuity (from an IRDA-regulated life insurance
company). In case of Government employees the annuity should provide for
pension for the lifetime of the employee and his dependent parents and his
spouse at the time of retirement. The individual would receive a lump sum
of the remaining pension wealth, which he would be free to utilize in any
manner. Individuals would have the flexibility to leave the pension system
prior to age 60. However, in this case, the mandatory annuitisation
would be 80 per cent of the pension wealth.
Architecture of the new Pension System
(iv) It will have a Central Record Keeping and
Accounting (CRA) infrastructure, several Pension Fund Managers (PFMs) to offer three categories of schemes, viz.,
options A, B and C.
(v) The participating entities (PFMs and CRA) would give out easily understood information
about past performance, so that the individual would be able to make informed
choices about which scheme to choose.
2. The effective date for operationalization of the new pension system shall be from
1st of January, 2004.
Annexure-VIA
Notification
No. S.O. 1048(E), dated 24-11-2000 : See [2000] 113 Taxman 52 (St.)
Annexure -VIB
Notification
No. S.O. 81(E), dated 29-1-2001 : See [2001] 115 Taxman 183 (St.)
Annexure-VII
Form
No. 10BA : Declaration to be filed by the assessee
claiming deduction under section 80GG - Income-tax (Nineteenth Amendment)
Rules, 1998 - See [1998] 100 Taxman 110 (St.).
Clarification regarding the meaning of the expression
'fish or fish products' used in sub-clause (iii) of clause (f) of rule 6DD of the Income-tax Rules, 1962
CIRCULAR
NO. 10/2008, DATED 05-12-2008
Representations
have been received from various quarters regarding problems being faced by the
seafood exporters mainly on account of provisions of Section 40A (3) of the
Income-tax Act, 1961.
2. Disallowance of expenditure under the
provisions of sub-section (3) of Section 40A of the I.T. Act, 1961 is made in
the computation of income in a case where a payment or aggregate of payments
exceeding twenty thousand rupees is made to a person in a day, otherwise than
by an account payee cheque drawn on a bank or an
account payee bank draft. However, payment otherwise than by an account payee cheque drawn on a bank or by an account payee bank draft
exceeding twenty thousand rupees does not attract the aforesaid disallowance in
certain circumstances as prescribed under rule 6DD of the Income-tax Rules,
1962. Such exceptions, inter-alia, refer to
payment made to the producer for the purchase of fish or fish products' under
sub-clause (iii) of clause (e) of rule 6DD. [Clause (f) of
rule 6DD prior to coming into effect of the I.T. (Eighth Amendment) Rules, 2007
w.e.f. A.Y. 2008-09].
3. The following clarifications are,
therefore, being issued for proper implementation of rule 6DD of the Income-tax
Rules, 1962:
(i) The
expression fish or fish products' used in rule 6DD(e)(iii) would
include 'other marine products such as shrimp, prawn, cuttlefish, squid, crab,
lobster etc.'.
(ii) The 'producers' of fish or fish
products' for the purpose of rule 6DD(e) of I.T. Rules, 1962 would
include, besides the fishermen, any headman of fishermen, who sorts the catch
of fish brought by fishermen from the sea, at the sea shore itself and then
sells the fish or fish products to traders, exporters etc.
4. It is further clarified that the above
exception will not be available on the payment for the purchase of fish or fish
products from a person who is not proved to be a 'producer' of these goods and
is only a trader, broker or any other middleman, by whatever name called.
[F. No.
225/48/2008-ITA-II]
Exemption under section 11 in case
of assessee claiming both to be charitable
institutions as well as mutual organisations
Definition of Charitable purpose under section 2(15) of the
Income-tax Act, 1961
Section
2(15) of the Income Tax Act, 1961 (Act) defines charitable purpose to include
the following:-
(i) Relief of the poor
(ii)
Education
(iii)
Medical relief, and
(iv)
the advancement of any other object of general public utility.
An entity with a charitable object
of the above nature was eligible for exemption from tax under section 11 or
alternatively under section 10(23C) of the Act. However, it was seen that a
number of entities who were engaged in commercial activities were also claiming
exemption on the ground that such activities were for the advancement of
objects of general public utility in terms of the fourth limb of the definition
of charitable purpose. Therefore, section 2(15) was amended vide Finance Act,
2008 by adding a proviso which states that the advancement of any other object
of general public utility shall not be a charitable purpose if it involves the
carrying on of
(a) any activity in the nature of trade,
commerce or business; or
(b) any activity of rendering any service in
relation to any trade, commerce or business;for a cess or fee or any other consideration, irrespective of the
nature of use or application, or retention of the income from such activity.
2. The following implications arise from
this amendment
2.1 The newly inserted proviso to section
2(15) will not apply in respect of the first three limbs of section 2(15), i.e.,
relief of the poor, education or medical relief. Consequently, where the
purpose of a trust or institution is relief of the poor, education or medical
relief, it will constitute charitable purpose even if it incidentally involves
the carrying on of commercial activities.
2.2. Relief of the poor encompasses a wide range
of objects for the welfare of the economically and socially disadvantaged or
needy. It will, therefore, include within its ambit purposes such as relief to
destitute, orphans or the handicapped, disadvantaged women or children, small
and marginal farmers, indigent artisans or senior citizens in need of aid.
Entities who have these objects will continue to be eligible for exemption even
if they incidentally carry on a commercial activity, subject, however, to the
conditions stipulated under section 11(4A) or the seventh proviso to section
10(23C) which are that
(i) the
business should be incidental to the attainment of the objectives of the entity,and
(ii) separate books of account should be
maintained in respect of such business.
Similarly, entities whose object is
education or medical relief would also continue to be eligible for exemption as
charitable institutions even if they incidentally carry on a commercial
activity subject to the conditions mentioned above.
3. The newly inserted proviso to section
2(15) will apply only to entities whose purpose is advancement of any other
object of general public utility i.e. the fourth limb of the definition of
charitable purpose contained in section 2(15). Hence, such entities will not be
eligible for exemption under section 11 or under section 10(23C) of the Act if
they carry on commercial activities. Whether such an entity is carrying on an
activity in the nature of trade, commerce or business is a question of fact
which will be decided based on the nature, scope, extent and frequency of the
activity.
3.1. There are industry and trade associations
who claim exemption from tax u/s 11 on the ground that their objects are for
charitable purpose as these are covered under any other object of general
public utility. Under the principle of mutuality, if trading takes place
between persons who are associated together and contribute to a common fund for
the financing of some venture or object and in this respect have no dealings or
relations with any outside body, then any surplus returned to the persons
forming such association is not chargeable to tax. In such cases, there must be
complete identity between the contributors and the participants.
Therefore, where industry or trade
associations claim both to be charitable institutions as well as mutual
organizations and their activities are restricted to contributions from and
participation of only their members, these would not fall under the purview of
the proviso to section 2(15) owing to the principle of mutuality. However, if
such organizations have dealings with non-members, their claim to be charitable
organizations would now be governed by the additional conditions stipulated in
the proviso to section 2 (15).
3.2. In the final analysis, however, whether
the assessee has for its object the advancement of
any other object of general public utility is a question of fact. If such assessee is engaged in any activity in the nature of trade,
commerce or business or renders any service in relation to trade, commerce or
business, it would not be entitled to claim that its object is charitable
purpose. In such a case, the object of general public utility will be only a
mask or a device to hide the true purpose which is trade, commerce or business
or the rendering of any service in relation to trade, commerce or business.
Each case would, therefore, be decided on its own facts and no generalization
is possible. Assessees, who claim that their object is charitable purpose
within the meaning of Section 2(15), would be well advised to eschew any
activity which is in the nature of trade, commerce or business or the rendering
of any service in relation to any trade, commerce or business.