The Finance Act, 1982--Explanatory notes on provisions relating to direct taxes - Income Tax - 346/1982

The Finance Act, 1982--Explanatory notes on provisions relating to direct taxes Circular No. 346 Dated 30/6/1982 Introduction 1. The Finance Bill, 1982, as passed by Parliament, received the assent of the President on May 11, 1981 and has been enacted as Act No. 14 of 1982. This circular explains the substance of the provisions relating to income-tax and other direct taxes contained in the Finance Act, 1982. 2.1 Amendments to, and insertion of, certain sections made by the Finance Act - The Finance Act, 1982 has amended section 6, section 10, section 13, section 16, section 23, section 32A, section 36, section 54, section 80C, section 80CC, section 80G, section 80GG, section 80GGA, section 80L, section 80M, section 80T, section 155, section 193, section 245B, section 245D, section 272A and section 279 of the Income-tax Act. 2.2 The Finance Act has also inserted new section 35CCB, section 54F, section 80HHB, section 89A, section 197A and new Twelfth Schedule in the Income-tax Act. Certain amendments of a consequential nature have also been made in section 45, section 80A, section 80F and section 139 of the Income-tax Act. 2.3 Amendments have been made by the Finance Act to section 2, section 5, section 6, section 22B and section 22D of the Wealth-tax Act; section 5 and section 18A of the Gift-tax Act; and section 2 of the Interest-tax Act and section 6 and section 7 of the Hotel-Receipts Tax Act. 2.4 The Finance Act has amended section 30 of the Deposit Insurance and Credit Guarantee Corporation Act, 1961 and section 32 of the Unit Trust of India Act, 1963. 2.5 The Finance Act has also exempted the interest income of the Bank of Bhutan for the period January 1, 1972 to December 31, 1986 on the deposits made by that Bank with the State Bank of India. 3. Provisions in brief - The provisions of the Finance Act, 1982 (hereinafter referred to as "the Finance Act") in the sphere of direct taxes relate to the following matters: 1. Prescribing the rates of income-tax (including surcharge thereon) on incomes liable to tax for the assessment year 1982-83; the rates at which income-tax will be deductible at source during the financial year 1982-83 from interest (including interest on securities), dividends, salaries, insurance commission, winnings from lotteries and crossword puzzles, winnings from horse races and other categories of income liable to such deduction under the Income-tax Act and the rates for computation of "advance tax" and charging of income-tax on current incomes in certain cases for the financial year 1982-83. 2 Amendment of the Income-tax Act, 1961 with a view to providing tax concessions for promoting savings and investment; providing relief to salaried taxpayers; encouraging larger foreign exchange remittances into India; relaxation of the test of "residence" in India to relieve hardship to Indian citizens working abroad; providing incentives for encouraging house building activity; providing tax incentives for increased exports and tax relief to Indian contractors undertaking building contracts outside India; continuing existing tax concession for promoting scientific and technological self-reliance; promoting inter-corporate investment in certain industries; providing tax concession for donations for programmes for conservation of natural resources; providing for deduction in respect of specified percentage of total income carried to special reserve account in the case of approved Indian banks; liberalising the provisions relating to capital gains and modifying the provisions relating to deduction of tax at source and providing for a few other matters. 3. Amendment of the Wealth-tax Act, 1957 with a view of abolishing the levy of wealth-tax on agricultural property comprised in specified plantations; providing for exemption of the value of Capital Investment Bonds; raising the exemption limit for wealth-tax in respect of conveyances, and of tools and instruments used by professionals; providing exemption in respect of notified savings certificates in the case of non-resident Indians and foreigners of Indian origin; and providing for a few other matters. 4. Amendment of the Gift-tax Act, 1958 with a view to providing for exemption up to a specified monetary limit in respect of gifts of Capital Investment Bonds; providing for exemption for gifts made by non-resident Indians and foreign nationals of Indian origin out of moneys in the non-resident (External) Accounts and of gifts out of foreign funds, or in the form of notified savings certificates, to relatives in India and for liberalising the provision relating to credit for stamp duty paid on instruments of transfer. 5. Amendment of the Interest-tax Act, 1974 with a view to providing for exemption of interest on deferred credit for export of capital plant and machinery and interest on loans in foreign currency for import of capital plant and machinery. 6. Amendment of the Hotel-Receipts Tax Act, 1980 with a view to discontinuing the levy of hotel-receipts tax and providing for retrospective exemption in respect of payments made by diplomatic personnel. 7 Amendment of the Deposit Insurance and Credit Guarantee Corporation Act, 1962 so as to extend the Corporation's period of exemption from income-tax by five years. 8. Amendment of the Unit Trust of India Act, 1963 so as to raise the exemption limit for income-tax in respect of income from units, as also the exemption from wealth-tax in respect of the value of such units, and to modify the provisions relating to deduction of tax at source from dividends on units paid to non-residents. RATE STRUCTURE Rates of income-tax for the assessment year 1982-83 4.1 The rates of income-tax for the assessment year 1982-83 in the case of all categories of assessees (corporate as well as non-corporate) are specified in Part I of the First Schedule to the Finance Act. These rates are the same as those specified in Part III of the First Schedule to the Finance Act, 1981 for the purposes of computation of "advance tax", deduction of tax at source from "salaries" and retirement annuities payable to partners of registered firms engaged in specified professions and computation of tax payable in certain cases where accelerated assessments were required to be made during the financial year 1981-82. 4.2 As in the past, the Finance Act provides that in the case of individuals, Hindu undivided families, unregistered firms or other associations of persons or bodies of individuals and artificial juridical persons, the net agricultural income will be taken into account for determining the rates of income-tax on incomes liable to tax for the assessment year 1982-83 [vide section 2(2) of the Finance Act]. The mode of computation of the net agricultural income in such cases is set out in Part IV of the First Schedule to the Finance Act. These provisions are practically the same as those contained in the Finance Act, 1981 except for certain minor modifications as explained in paragraph 6.2 of this circular. Rates for deduction of income-tax at source during the financial year 1982-83 from income other than "salaries" and "retirement" annuities" 5.1 The rates for deduction of income-tax at source during the financial year 1982-83 from incomes other than "salaries" and "retirement annuities" payable to partners of registered firms engaged in specified professions have been specified in Part II of the First Schedule to the Finance Act. These rates apply to income by way of interest on securities, other categories of interest, dividends, insurance commission, winnings from lotteries and crossword puzzles, winnings from horse races and other categories of non-salary income of non-residents. The rates for deduction of income-tax at source during the financial year 1982-83 are the same as the rates specified in Part 11 of the First Schedule to the Finance Act, 1981 for the purposes of deduction of tax at source from such income during the financial year 1981-82. Rates for deduction of tax at source from "salaries", computation of "advance tax" and charging of Income-tax in special cases during the financial year 1982-83. 6.1 The rates for deduction of income-tax at source from "salaries" in the case of individuals during the financial year 1982-83 and for computation of "advance tax" payable during that year in the case of all categories of assessees have been specified in Part Ill of the First Schedule to the Finance Act. These rates are also applicable for deduction of income-tax at source during the financial year 1982-83 from retirement annuities payable to partners of registered firms which render professional services as Chartered Accountants, Solicitors, Lawyers, etc., and for charging income-tax during the financial year 1982-83 on current incomes in special cases where accelerated assessments have to be made. These special cases are as under: i calculation of income-tax on undisclosed income represented by seized assets [section 132(5)]; ii levy of tax on provisional basis on the income of non- residents from shipping of cargo or passengers from Indian ports [section 172(4)]; iii assessment of persons leaving India [section 174(2)]; iv. assessment of persons likely to transfer property to avoid tax [section 175]; v. assessment of profits of a discontinued business or profession [section 176(2)]. These rates are the same as those specified in Part I of the First Schedule to the Finance Act for the assessment of incomes liable to tax for the assessment year- 1982-83 except for certain modifications. The modifications in the rate schedule, read with section 2 of the Finance Act relate to the following matters: 1. Modification in the rate schedule applicable to individuals, Hindu undivided families (other than those with one or more members having separate income exceeding the exemption limit), unregistered firms, associations of persons, etc. 2. Modification of the provision for calculating income-tax in cases where the assessee has any non-agricultural income in addition to the total income. The modifications in regard to the above matters are explained in paragraphs 6.2 and 6.3 of this circular. 6.2 Modification in the rates of income-tax - The Finance Act has modified the rates of income-tax applicable in the case of individuals, Hindu undivided families (other than those with one or more members having separate income exceeding the exemption limit), unregistered firms, associations of persons, etc., in respect of slabs of incomes exceeding Rs.50,000. The pre-existing slabs of incomes, namely, Rs.50,001 to Rs. 70,000 and Rs. 70,001 to Rs. 1 lakh have been further spilt up into four income slabs. While the rate of income-tax applicable to the income slab of Rs. 50,001 to Rs.60,000 has been retained at 50 per cent the rate of income-tax on the new stab of Rs. 60,001 to Rs.70,000 will be 52.5 per cent as against 50 per cent hitherto. While the rate of income-tax on the slab of Rs. 70,001 to Rs. 85,000 has been retained at 55 per cent as hitherto, the rate of income-tax on the slab of Rs. 85,001 to Rs. 1 lakh has been fixed at 57.5 per cent as against 55 per cent hitherto. There is no change in the maximum marginal rate of income-tax of 60 per cent (excluding surcharge) applicable to total income exceeding Rs. 1 lakh. It may also be noted that there is no change in the rates of income-tax applicable in the slabs of total income-tax to Rs. 50,000. The rate of surcharge on income- tax applicable to all categories of non-corporate assessees has also been kept unchanged at 10 per cent. 6.3 Modification in the provisions for calculating income-tax in cases where the assessee has net agricultural income in addition to total income- The net agricultural income is to be computed in accordance with the rules contained in Part IV of the First Schedule to the Finance Act. The mode of computation of the net agricultural income is the same as under the provisions of the Finance Act, 1981 except for the following modifications: 1. The unabsorbed loss in agriculture incurred during the previous year relevant to the assessment year 1981-82 will be set off against the agricultural income for the previous year relevant to the assessment year 1982-83. 2. Any unabsorbed loss incurred during the previous year relevant to the assessment year 1982-83 will be set off in determining the net agricultural income for the purpose of payment of advance tax during the financial year 1982-83. [Section 2 of the First Schedule to the Finance Act] AMENDMENTS TO INCOME-TAX ACT Relaxation of tests of "residence" in India- Section 6 7.1 Under the existing provisions, an individual is said to be "resident" in India in any year, if: a. he is in India in that year for a period or periods amounting in all to 182 days or more; or b. he maintains or causes to be maintained for him a dwelling place in India for a period or periods amounting in all to 182 days or more in that year and has been in India for 30 days or more in that year; or c. he, having within the four years preceding that year been in India for a period or periods amounting in all to 365 days or more, is in India for a period or periods amounting in all to 60 days or more in that year. 7.2 In the case of an Indian citizen who is rendering service outside India, and who is on leave or vacation in India, the period of 30 days and 60 days referred to in (b) and (c) above is taken as 90 days. 7.3 With a view to avoiding hardship in the case of Indian citizens, who are employed or engaged in other avocations outside India, the Finance Act has made the following modifications in the tests of "residence" in India: 1. The provision relating to maintenance of a dwelling place coupled with stay in India of 30 days or more referred to in (b) above has been omitted. 2.In the case of Indian citizens who come on a visit to India, the period of "60 days or more" referred to in (c) above will be raised to "90 days or more". 3. Where an individual who is a citizen of India leaves India in any year for the purposes of employment outside India, he will not be treated as resident in India in that year unless he has been in India in that year for 182 days or more. The effect of this amendment will be that the test of residence in (c) above will stand modified to that extent in such cases. 7.4 These amendments will take effect from April 1, 1983 and will, accordingly, apply in relation to the assessment year 1983-84 and subsequent years. [Section 3 of the Finance Act] Exemption from income-tax of Interest accruing on credit balance in Non-resident (External) Account - Section 10(4A) 8.1 Under clause (4A) of section 10 of the Income-tax Act, in the case of a non-resident, any income from interest on moneys standing to his credit in a Non-resident (External) Account in any bank in India in accordance with the Foreign Exchange Regulation Act and the rules made thereunder is not included in computing his total income. The benefit of this exemption is available only to a "non-resident" as defined in the Income-tax Act. Under the Foreign Exchange Regulation Act, 1973, a person resident outside India" within the meaning of this expression as defined in section 2(q) of that Act can open a Non-resident (External) Account; but if he does not satisfy the test of being a "non-resident" under the Income- tax Act, he does not qualify for this exemption. 8.2 With a view to removing this anomaly, the Finance Act has substituted the present clause (4A) by a new clause to provide that exemption from income-tax in respect of interest on Non-resident (External) Account shall be available in the case of a "person resident outside India" as defined in section 2(q) of the Foreign Exchange Regulation Act, 1973. 8.3 Clause (q) of section 2 of the Foreign Exchange Regulation Act provides that a "person resident outside India" means a person who is not resident in India. The expression "person resident in India" has been defined in clause (q) of section 2 of the Foreign Exchange Regulation Act. An extract from the definition is reproduced below: "(q) "person resident in India" means- (i) a citizen of India, who has, at any time after the 25th day of March, 1947, been staying in India, but does not include a citizen of India who has gone out of, or stays outside, India, in either case- (a) for or on taking up employment outside -India, or (b) for carrying on outside India a business or vocation outside India, or (c) for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period; (ii) a citizen of India, who having ceased by virtue of paragraph (a) or paragraph (b) or paragraph (c) of sub-clause (1) to be resident in India, returns to, or stays in, India, in either case- (a) for or on taking up employment in India, or (b) for carrying on in India a business or vocation in India, or (c) for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period; (iii) a person, not being a citizen of India, who has come to, or stays in, India, in either case- (a) for or on taking up employment in India, or (b) for carrying on in India a business or vocation in India, or (c) for staying with his or her spouse, such spouse being a person resident in India, or (d) for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period; (iv) a citizen of India, who, not having stayed in India at any time after the 25th day of March, 1947, comes to India for any of the purposes referred to in paragraphs (a), (b) and (c) of sub-clause (iii) or for the purpose and in the circumstances referred to in paragraph (d) of that sub-clause or having come to India stays in India for any such purpose and in such circumstances. Explanation,- A person, who has, by reason only of paragraph (a) or paragraph (b) or paragraph (d) of sub-clause (iii) been resident in India, shall, during any period in which he is outside India, be deemed to be not resident in India." 8.4 This provision takes effect from April 1, 1982 and will, accordingly, apply in relation to the assessment year 1982-83 and subsequent years. [Section 4(a) of the Finance Act] Exemption of interest income of non-residents from specified savings certificates - Section 10(4B) 9.1 With a view to encouraging the flow of foreign exchange remittances into India, the Finance Act has inserted a new clause (4B) in section 10 of the Income-tax Act to provide exemption from income-tax in the case of non-resident Indian citizens and foreign nationals of Indian origin, in respect of income by way of interest on savings certificates issued by the Central Government which that Government may by notification in the Official Gazette specify in this behalf. This exemption will apply only if such savings certificates have been subscribed to by the assessee in convertible foreign exchange" remitted from a country outside India in accordance with the Foreign Exchange Regulation Act, 1973 and any rules made thereunder. The exemption will be available only to the original subscriber of the savings certificates. 9.2 For the purpose of this exemption, a person will be deemed to be of Indian origin if he or either of his parents or any of his grandparents was born in undivided India. Further, the expression "convertible foreign exchange" means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973 and the rules made thereunder. 9.3 This provision will take effect from April 1, 1983 and will, accordingly, apply in relation to the assessment year 1983-84 and subsequent years. [Section 4(b) of the Finance Act] Exemption of amounts received by way of encashment of unutilised earned leave by retiring employees - Section 10(10AA) 10.1 Under the existing provisions of the Income-tax Act, any amount received on retirement from service by way of cash equivalent of unutilised earned leave is chargeable to income-tax under the head "Salaries". With a view to avoiding hardship to retiring employees, the Finance Act has inserted a new clause (10AA) in section 10 of the lncome-tax Act to exempt such payment from income-tax in the case of employees of the Central Government or a State Government. In the case of other employees, the exemption will be determined with reference to the leave to his credit at the time of retirement, subject to a maximum of 6 months' leave. For this purpose, the entitlement to leave, shall not exceed 30 days for every year of service. The exemption will be limited to the amount payable for such unutilised leave on the basis of the average salary of the employee for 6 months or Rs. 30,000, whichever is less. In the case of employees retiring before January 1, 1982, the monetary ceiling limit will be Rs.25,500. The average salary shall be determined on the basis of the salary drawn for the 10 immediately preceding months. In relation to non-Government employees, who retire on superannuation or otherwise after December 31, 1981, the Central Government is being empowered by notification in the Official Gazette, to raise the aforesaid monetary ceiling of Rs. 30,000 keeping in view the maximum amount which will qualify for exemption in the case of Government servants. 10.2 Where the cash equivalent of unutilised earned leave is received by an employee from two or more employers in the same year, the maximum amount exempt from tax will not exceed Rs. 30,000 or, as the case may be, Rs. 25,500. In cases where an employee, who has received any cash equivalent of unutilised earned leave in any year from his former employer or employers, receives cash equivalent of unutilised earned leave from his present employer in a later year, the ceiling limit specified above will be reduced by the amount of cash equivalent of unutilised earned leave which has been exempted in any earlier year or years. 10.3 The new provision has been given retrospective effect from April 1, 1978, and will, accordingly, apply in relation to the assessment year 1978-79 and subsequent years. Where an assessee has included the amount received by way of encashment of unutilised earned leave in a return for the assessment year 1978-79, or any subsequent years, he can file an application before the Income-tax Officer for rectification of his assessment for claiming the exemption of the amount so received and the Income-tax Officer will pass an order of rectification under section 154 of the Income-tax Act to give exemption in respect of such amount. Similarly, other appellate authorities or the Appellate Tribunal can grant the relief in view of the retrospective amendment made by the new clause (10AA) in section 10 in this behalf. The Income-tax Officer will dispose of such applications for rectification expeditiously and grant refunds wherever due. [Section 4(c) of the Finance Act] Exemption from income-tax In respect of Interest on new Capital Investment Bonds - Section 10(15)(Ilb) 11.1 With a view to providing a stimulus for increased savings by assessees, the Finance Act has inserted a new sub-clause (iib) in clause (15) of section 10 of the Income-tax Act to provide for exemption from income- tax of the interest on such Capital Investment Bonds as the Central Government may, by notification in the Official Gazette, specify in this behalf. It may be noted that the interest on the Capital Investment Bonds will be exempted from income-tax without any ceiling limit. 11.2 This provision will take effect from April 1, 1983 and will, accordingly, apply in relation to the assessment year 1983-84 and subsequent years. [Section 4(a) of the Finance Act] Extension of time limit for religious or charitable trusts and Institutions for compliance with specified Investment pattern - Section 13(1)(d) 12.1 Under section 11 of the Income-tax Act, a charitable or religious trust or institution qualifies for exemption from income-tax, subject to certain conditions laid down in sections 12, 12A and 13. One of the conditions laid down in this behalf is that such charitable or religious trust or institution should invest or deposit its funds in the modes or forms specified in sub- section (5) of section 13 of the Income-tax Act with effect from an accounting year commencing on or after April 1, 1981. 12.2 In other words, if the funds of charitable or religious trusts or institutions are not invested or deposited in conformity with the investment pattern laid down in section 13(5) of the Income-tax Act, at any time during any previous year commencing on or after April 1,1981, the trust will lose exemption from income-tax for the assessment year 1982-83 onwards. The Finance Act has amended clause (a) of sub-section (1) of section 13 to provide that exemption from income-tax in such cases will not be denied for the assessment year 1982-83. 12.3 This amendment takes effect from April 1, 1982. [Section 5(a) of the Finance Act] Modification of the provisions relating to Investment pattern of charitable or religious trusts or institutions - Section 13(5) 13.1 As stated in paragraph 12.1 above, charitable or religious trusts and institutions are required to invest their funds in certain forms and modes. For this purpose, the funds of charitable or religious trusts or institutions have been divided into the following four types: a. funds represented by corpus (including original corpus) of any charitable or religious trust or institution existing immediately before June 1, 1973; b. funds represented by corpus coming into existence on or after June 1, 1973 and being either the original corpus or contributions with a specific direction to form part of the corpus, but not in the form of cash; c. funds represented by corpus coming into existence on or after June 1, 1973 and being either original corpus or contributions made with specific direction, to form part of the corpus, in the form of cash; d. funds other than those represented by the corpus referred to in (a), (b) and (c) above. 13.2 Funds of the type mentioned at (a) and (b) in paragraph 13.1 above have been grouped into one category and clause (b) of section 13(5) provides that they may be invested or deposited in any form or mode except in equity shares of a company which is neither a Government company nor a statutory corporation. In other words, in respect of these funds there is no restriction regarding their investment except that they should not be in the form of equity shares of a company which is neither a Government company nor a statutory corporation. 13.3 The funds of the type mentioned at (c) in paragraph 13.1 above fall in another category and clause (a) of section 13(5) provides the following forms and modes for their deposit or investment: (a) investment in Government savings certificates; (b) deposit in any Post Office Savings Bank Account; (c) deposit in any account with any scheduled bank; (d) investment in units of the Unit Trust of India; (e) investment in any Central Government or State Government securities; (f) investment in debentures of any corporate body, the principal whereof and the interest whereon are guaranteed by the Central or a State Government; and (g) investment or deposit in any Government company. 13.4 The funds of the type mentioned at (a) in paragraph 13.1 above fall in the third category and clause (c) of section 13(5) provides that they can be invested or deposited only in any of the four forms and modes mentioned at (a) to (a) of paragraph above. 13.5 Investment in immovable property is not one of the specified forms of investment of trust funds referred to in paragraphs 13.3 and 13.4. With a view to enlarging the specified forms of investments, the Finance Act has amended sub-section (5) of section 13 to provide that investment in "immovable property" will also constitute an approved form or mode of investment of funds by all categories of charitable or religious trusts or institutions. For this purpose, the term "immovable property" will not include any machinery or plant even though attached. to, or permanently fastened to anything attached to, the earth. 13.6 This amendment takes effect from April 1, 1982. [Section 5(b) of the Finance Act] Raising the rate of standard deduction admissible in the case of salaried assessees - Section 16(1) 14.1 Under section 16(i) of the Income-tax Act, assessees deriving income under the head "Salaries" are entitled to a standard deduction in the computation of the taxable salary. The standard deduction is allowed in an amount equal to 20 per cent of the salary subject to a ceiling limit of Rs. 5,000. With a view to providing a large deduction to taxpayers having salary income below Rs. 25,000, the Finance Act has raised the rate of standard deduction to 25 per cent of the salary subject to the existing ceiling limit of Rs. 5,000. 14.2 This provision will take effect from April 1, 1983 and will, accordingly, apply in relation to the assessment year 1983-84 and subsequent years. [Section 6 of the Finance Act] Liberalisation of the "tax holiday" for newly constructed residential units and raising of the monetary limit of deduction in respect of self -occupied house property - Section 23(1) and (2) 15.1 Under section 23(1) of the Income-tax Act, income from a newly constructed house property, the construction of which is completed after March 31, 1978, which is let out on rent is charged to tax on a concessional basis for an initial period of 5 years. During this period, the annual letting value of the house property is reduced by an amount up to Rs. 2,400 in respect of each residential unit for a total period of 5 years from the date of completion of the property [vide clause (c) of the second proviso to sub-section (1) of section 23 read with the Explanation below sub-section (2) of that section]. With a view to encouraging the construction of houses, particularly for persons with relatively lower incomes, the Finance Act, 1982 has inserted a new clause (d) in the second proviso to section 23(1) to provide that in the case of a house property comprising one or more residential units, the erection of which is completed after march 31,1982, the annual letting value of the house property will be reduced by an amount up to Rs. 3,600 in respect of each residential unit for a total period of 5 years from the date of completion of the property. 15.2 Under section 23(2) of the Finance Act, the income from self- occupied house property is computed in a concessional manner. The annual value of the self-occupied house is first determined in the same manner as if the property had been let out and then it is reduced by one- half of the amount so determined or Rs. 1,800, whichever is less. Where, however, the sum so arrived at exceeds 10 per cent of the assessees total income as computed without including the income from such property and without making any deduction under Chapter VIA of the Income-tax Act, the excess is disregarded. Where more than one house is in the occupation of the owner, this deduction is available only in respect of One house which may be specified by the assessee. 15.3 With a view to providing some relief in cases where the annual letting value of the house does not exceed 10 per cent of the other income of the assessee, the Finance Act has raised the monetary limit of Rs. 1,800 to Rs. 3,600. 15.4 These provisions will take effect from April 1, 1983 and will, accordingly, apply in relation to the assessment year 1983-84 and subsequent years. [Section 7 of the Finance Act] Deduction in respect of payments to associations and institutions carrying out programmes of conservation of natural resources - Section 35CCB and section 80GGA 16.1 With a view to encouraging liberal donation to associations or institutions engaged in programmes of conservation of natural resources, the Finance Act has inserted a new section 35CCB in the Income-tax Act to provide that sums paid by an assessee carrying on business or profession to any association or institution which has as its object the undertaking of programmes of conservation of natural resources to be used for such programmes will be allowed as deduction in the computation- of taxable profits. The deduction under this provision will not be allowed unless the association or institution, as also the programme of conservation of natural resources for which sums are paid, have been approved by the prescribed authority to be notified by the Central Board of Direct Taxes. In other words, the benefit of the deduction under this provision will be available only where at the time of incurring the expenditure, the institution, association, etc., as also the programme of conservation of natural resources have been approved by the prescribed authority. It is proposed to notify the Secretary, Department of Environment, as the prescribed authority for the purposes of this section. The prescribed authority will not approve an association or institution for this purpose for more than 3 years at a time. 16.2 Section 80GGA of the Income-tax Act provides that in the case of assessees, other than those carrying on business or profession, sums paid during the previous year to approved scientific research associations or approved associations or institutions which have as their object the undertaking of any programme of rural development to be used for the purposes of carrying out any approved programme of rural development, etc., will qualify for deduction in the computation of the total income. The Finance Act has inserted a new clause (c) in sub-section (2) of section 80GGA of the Income-tax Act to provide that sums paid to any association or institution which is approved by the prescribed authority for the purposes of section 35CCB, to be used for carrying out any programme of conservation of natural resources, approved for the purpose of that section will qualify for deduction under section 80GGA in the computation of taxable income. 16.3 These provisions take effect from June 1, 1982 and will, accordingly, apply in relation to the assessment year 1983-84 and subsequent years. [Sections 9 and 17 of the Finance Act] Deduction in respect of provisions for bad and doubtful debts relating to advance made by rural branches of non-scheduled commercial banks - Section 36(1)(viia) 17.1 Under the existing provisions of the Income-tax act, a mere provision for bad and doubtful debts is not allowed as deduction in computing the taxable profits of a business or profession. In order to qualify for deduction, the assessee has to establish that the debt had become "bad" during the accounting year. Further, the debt must be written off in the books of account of the assessee. 17.2 By an amendment made by the Finance Act, 1979, a deduction is allowed in the case of all scheduled commercial banks in respect of provisions made by them for bad and doubtful debt's relating to advances made by their rural branches. The deduction is limited to 1.5 per cent of the aggregate average advances made by their rural branches. For this purpose, a branch situated in a place with a population not exceeding 10,000 is regarded as a rural branch. The aggregate average advances for this deduction are computed in the manner prescribed in the Income-tax Rules. 17.3 As non-scheduled commercial banks are also engaged in providing rural credit and promoting rural banking, the Finance Act has amended clause (viia) of sub-section (1) of section 36 of the Income-tax Act to extend the provision relating to deduction in respect of provisions made by scheduled commercial banks for bad and doubtful debts relating to advances by rural branches to non-scheduled commercial banks as well. For this purpose, the expression "non-scheduled bank" means a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 but which is not a scheduled bank. 17.4 This provision will take effect from April 1, 1983 and will, accordingly, apply in relation to the assessment year 1983-84 and subsequent years. [Section 10(a) of the Finance Act] Deduction in respect of profits transferred to special reserves in the case of scheduled banks having operations abroad - Section 36(1)(viiia) 18.1 Under section 36(1)(viii) of the Income-tax Act, approved financial corporations engaged in providing long-term finance for industrial or agricultural development in India and approved public housing finance companies are entitled to a deduction, in the computation of the taxable profits, in respect of the amount transferred by them out of such profits to a special reserve account, up to 40 per cent of their taxable income. In view of the important role being placed by scheduled commercial banks in expanding banking operations outside India, the Finance Act has inserted a new clause (viiia) in sub-section (1) of section 36 to provide for a similar tax concession to scheduled banks, other than foreign banks, which are engaged in banking operations outside India. Under. this provision, such scheduled banks will be entitled to a deduction, in the computation of the taxable profits, up to 40 per cent of the total income computed before making any deduction under Chapter VIA carried by them to a special reserve account. However, this concession will be available only where such scheduled bank is approved by the Central Government for the purposes of this clause, taking into account the capital structure, the extent of its operations outside India, its need for resources for operations outside India and other relevant factors. For this purpose, the expression " scheduled bank" will have the same meaning as in the Explanation at the end of clause (b) of sub-section (2) of section 11. Accordingly, the expression "scheduled bank" means the State Bank of India, the subsidiary banks of the State Bank of India, the nationalised banks or any other bank included in the Second Schedule to the Reserve Bank of India Act, 1934. 18.2 These provisions will take effect from April 1, 1983 and will, accordingly, apply in relation to the assessment year 1983-84 and subsequent years. [Section 10(a) and (b) of the Finance Act] Modification of the provisions relating to exemption of capital gains on transfer of self-occupied house property on Investment in other house property for self-occupation - Section 54 19.1 Under section 54 of the Income-tax Act, capital gains arising on the transfer of a house property which in the two years immediately preceding the date of its transfer was used by the assessee or a parent of his for self-residence is exempted from income-tax if the assessee, within a period of one year before or after that date, purchases or within a period of two years after the date of such transfer constructs a house property for the purposes of his own residence. The exemption of capital gains is restricted to the amount of such capital gain utilised for the purchase or construction of the new house property. Where the amount of capital gain is greater than the cost of the house property so purchased or constructed, the balance amount of the capital gains is charged to tax. If, however, the amount of the capital gain is equal to or less than the cost of the house property purchased or constructed, the capital gain is completely exempted from income-tax. If such house property purchased or constructed is transferred within a period of three years of its purchase or construction, the capital gain on the property so transferred is calculated by reducing the cost of its acquisition by the amount of the capital gain exempted from income-tax. 19.2 The conditions of self -occupation of the property by the assessee or his parent before its transfer and the purchase or construction of the new property to be used for the residence of the assessee for the purposes of exemption of capital gains created hardship for assessees. This was usually due to the fact of employment or business of the assessee at a place different from the place where such property was situated. 19.3 The Finance Act has made the following modifications in section 54 of the Income-tax Act, namely: 1. The conditions of residence by the assessee or his parent in the property which was transferred, as also residence by the assessee in the new property purchased or constructed by him, have been removed., 2. The period for construction of a new property has been raised from two years to three years since assessees sometimes experience difficulty in complying with the existing time limit of two years for the construction of a house property. 3. It is clarified that this exemption will be allowed only in the case of individual assessees. 4. It has been provided that this exemption will apply only in relation to long-term capital gains, that is gains arising from the transfer of a house property which had been held by the assessee for a period exceeding 36 months. 19.4 This provision will take effect from April 1, 1983 and will, accordingly, apply in relation to the assessment year 1983-84 and subsequent years. [Sections 11 and 23(a) and (b) of the Finance Act] Exemption from tax on capital gains in certain cases on of the consideration in residential house - Section 54F 20.1 Under the existing provisions of the Income-tax Act, any profits and gains arising from the transfer of a long-term capital asset are charged to tax on a concessional basis. For this purpose, a capital asset which is held by an assessee for a period of more than 36 months is treated as a "long- term" capital asset. 20.2 With a view to encouraging house construction, the Finance Act, 1982 has inserted a new section 54F to provide that where any capital gain arises from the transfer of any long-term capital asset, other than a residential house, and the assessee purchases within one year before or after the date on which the transfer took place or constructs within a period of three years after the date of transfer, a residential house, the capital gain arising from the transfer will be treated in a concessional manner as under: 1. If the cost of the house that has been purchased or constructed is not less than the net consideration in respect of the capital asset transferred, the entire capital gain arising from the transfer will be exempt from tax. 2 If the cost of the newly acquired house is less than the net consideration in respect of the capital asset transferred, the exemption from long-term capital gain will be granted proportionately on the basis of investment of net consideration either for purchase or construction of the residential house. This concession will not be available in a case where the assessee owns on the date of the transfer of the original asset any residential house, or purchases within the period of one year after such date, or constructs, within the period of three years after such date, any other residential house. Where the assessee purchases or constructs any other residential house within the period aforesaid, the exemption under the proposed provision, if allowed, shall stand forfeited and the amount of capital gain arising from the transfer of the original asset, which was not charged to tax, shall be allowed to be the income chargeable under the head "Capital gains" relating to long-term capital assets of the previous year in which such residential house is so purchased or constructed. "Net consideration" in respect of the transfer of a capital asset means the full value of the consideration received or accruing as a result of the transfer of the capital asset after deduction of any expenditure incurred wholly and exclusively in connection with the transfer. 20.3 If the assessee transfers the newly acquired residential house within three years of its purchase or construction, then the amount of capital gain arising from the transfer of the original asset which was not charged to tax shall be deemed to be the income of the year in which the new asset is transferred and such income shall be charged to tax under the head "Capital gains" relating to long-term capital assets. 20.4 This provision will become effective from April 1, 1983 and will, accordingly, apply in relation to the assessment year 1983-84 and subsequent years. [Sections 12, 23(c) and 32(t) of the Finance Act] Deduction in respect of long-term specified media - Section 80C 21.1 Under section 80C of the Income-tax Act, tax relief is allowed in respect of long-term savings effected by certain categories of assessees out of their income chargeable to tax. In the case of an individual, long-term savings through life insurance or deferred annuity policies (without cash option) on the life of the individual, his spouse or child, certain provident funds and superannuation funds, unit-linked insurance plan and 10-year and 15-year cumulative time deposit accounts qualify for tax relief. In the case of Hindu undivided families, long-term savings effected through insurance policies on the life of any member of the family qualify for tax relief. In the case of an assessee being an association of persons or a body of individuals, consisting only of husband and wife governed by the system of community of property in force in the Union territories of Dadra and Nagar Haveli and Goa, Daman and Diu, long-term savings of such association or body or on the life of any child of either member, as also through the public provident fund, unit-linked insurance plan, 10-year and 15-year cumulative time deposit accounts qualify for tax relief. 21.2 The tax relief, in all cases, is allowed by deducting, in the computation of the taxable income of the assessee, the whole of the first Rs. 5,000 of the qualifying savings plus 50 per cent of the next Rs. 5,000 plus 40 per cent of the balance of such savings. Long-term savings qualify for the tax relief only to the extent of such savings do not exceed the ceiling limits laid down in this behalf. In the case of individuals, Hindu undivided families and specified associations of persons, the ceiling limits applicable is 30 per cent of the gross total income or Rs. 30,000, whichever is less. A higher ceiling limit is laid down in the case of authors, playwrights, artists, musicians, actors, sportsmen and athletes. The ceiling limit in their case is 40 per cent of the professional income of the author, playwright, artist, musician, actor, sportsman and athlete plus 30 per cent of the remaining part of the gross total income or Rs. 50,000, whichever is less. 21.3 With a view to providing further incentive for effecting long-term savings the Finance Act, 1982 has made the following modifications in the relevant provisions: 1. The quantum of deduction in respect of long-term savings has been increased to allow deduction of the whole of the first Rs. 6,000 of the qualifying savings as against Rs. 5,000 at present. The second slab of deduction will be from Rs. 6,001 to Rs. 12,000 as against the existing slab of Rs. 5,001 to Rs. 10,000 and the quantum of deduction in respect of the revised slab will be 50 per cent as at present. The qualifying savings in excess of Rs. 12,000 will qualify for deduction at 40 per cent as at present. 2. The monetary limit of the savings qualifying for the deduction has been raised to Rs. 40,000 as against the existing limit of Rs. 30,000 iii the case of the generality of assessees. In the case of authors, playwrights, artists, musicians, actors, sportsmen and athletes, the monetary limit has been increased to Rs. 60,000 as against the existing limit of Rs.50,000. The Income-tax Rules have been amended to secure this objective. 3. Apart from existing modes of savings through life insurance, certain provident funds and superannuation funds, unit-linked insurance plan and cumulative time deposits, it is proposed to provide an additional savings medium. The Central Government has been empowered to notify in the Official Gazette any Central Government security the subscription to which will also qualify for deduction under section 80C of the Income- tax Act. 21.4 Under the existing provisions, payments of life insurance premia qualify for deduction irrespective of the time for which the policy is maintained. It was observed that a large number of policies are terminated in a year or two of commencement after deduction of premia is allowed in respect of these policies. With a view to discouraging this trend, the Finance Act has provided that where an assessee discontinues a policy of life insurance before premiums for two years have been paid, no deduction will be allowed in respect of any premium paid in the year in which the policy is terminated. Further, the amount of deduction allowed in respect of the premium paid in the year or years preceding that year will be deemed to be the income of the assessee of the year in which the policy is terminated. 21.5 These provisions will take effect from April 1, 1983 and will, accordingly, apply in relation to the assessment year 1983-84 and subsequent years. [Section 13 of the Finance Act] Deduction in respect of investment in equity shares of new industrial companies and public housing finance companies - Section 80CC 22.1 Under section 80CC of the Income-tax Act, individuals, Hindu undivided families and associations of persons or bodies of individuals consisting only of husband and wife governed by the system of community of property in force in the Union territories of Dadra, Nagar Haveli and Goa, Daman and Diu, who acquire any equity shares forming part of an eligible issue of capital of new industrial companies or public housing finance companies are entitled to a deduction, in the computation of their taxable income, of an amount equal to 50 per cent, of the cost of such shares, subject to a maximum amount of investment of Rs.I0,000. With a view to stimulating investment in equity shares of such companies, the Finance Act has raised the maximum amount of investment qualifying for deduction under this provision from Rs. 10,000 to Rs. 20,000. 22.2 This provision will take effect from April 1, 1983 and will, accordingly, apply in relation to the assessment year 1983-84 and subsequent years. [Section 14 of the Finance Act] Donations to National Children's Fund to be put on par with donations to other funds of national character - Section 80G 23.1 Under section 80G of the Income-tax Act, an assessee is entitled to a deduction, in the computation of his taxable income, of an amount equal to 50 per cent of the donations made by him to certain funds and charitable institutions, or for the repair or renovation of any temple, mosque, gurdwara, church or any other place which is notified by the Central Government for this purpose to be of historic, archaeological or artistic importance or to be a place of public worship of renown throughout any State or States. Donations made to the Government or any approved local authority, institution or association to be utilised for the purpose of promoting family planning, are eligible for 100 per cent deduction. The amount of donations qualifying for deduction under section 80G is, however, limited to 10 per cent of the gross total income of the donor, subject to a further monetary limit of Rs. 5 lakhs. The aforesaid ceiling limits, however, do not apply in relation to the donations made to the National Defence Fund, the Jawaharlal Nehru Memorial Fund, the Prime Minister's Drought Relief Fund and the Prime Minister's National Relief Fund. 23.2 The National Children's Fund was established with a view to implementing programmes for the welfare of children, including rehabilitation of destitute children, particularly pre-school age children and other programmes envisaged ii) the National Plan of Action for the International Year of Child. The programmes for welfare of children belonging to Scheduled Castes and Scheduled Tribes and other backward classes receive primary consideration from the fund. 23.3 In view of the importance of this Fund and its programmes, the Finance Act has put the National Children's Fund at par with other funds of national character, such as, the National Defence Fund and the Prime Minister's National Relief Fund. In other words, there will be no monetary ceiling on the amount of the qualifying amount of donations to the National Children's Fund for the purposes of the aforesaid concession. 23.4 This provision will take effect from April 1, 1983 and will, accordingly, apply in relation to the assessment year 1983-84 and subsequent years. [Section 15 of the Finance Act] Raising of monetary limit of deduction in respect of rents paid - Section 80GG 24.1 Under section 10(13A) of the Income-tax Act, any house rent allowance granted to an employee to meet expenditure actually incurred on payment of rent is exempted from income-tax up to a maximum of Rs.400 per month. Under section 80GG of the Income-tax Act, an assessee not in receipt of house rent allowance is 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 15 per cent thereof, or Rs.300 per month, whichever is less. The Finance Act has raised the monetary ceiling of Rs.300 per month to Rs.400 per month. This would place the ceiling under this provision on par with the ceiling for exemption of house rent allowance under section 10(13A) of the Act. 24.2 This provision will take effect from April 1,1983 and will, accordingly, apply in relation to the assessment year 1983-84 and subsequent years. [Section 16 of the Finance Act] Deduction in respect of profits and gains from projects outside India - Section 80HHB 25.1 With a view to encouraging contractors to undertake construction and engineering contracts outside India, the Finance Act has provided tax relief on the profits derived by them from foreign contracts. The new section 80HHB in the Income-tax Act accordingly provides that where an Indian company or a non-corporate assessee, resident in India derives any profits and gains from the business of execution of a foreign project under a contract entered into by him with the Government of a foreign State or any statutory or other public authority or agency in a foreign State or with a foreign enterprise, he will be entitled to a deduction, in the computation of his taxable income of 25 per cent of such profits and gains, subject to certain conditions. This concession will also be available where the assessee undertakes the execution of any work in connection with any foreign project undertaken by any other person. 25.2 The benefit of this concession will be available in respect of projects for the construction of any building, road, dam, bridge or other structure outside India, the assembly or installation of any machinery or plant outside India and the execution of such other work outside India of whatever nature as may be prescribed by the Board. The assessee will not be eligible for this concession unless the consideration for the execution of such project or work is payable in convertible foreign exchange. 25.3 The deductions under the new provision will be admissible subject to the fulfilment of the following conditions, namely: 1. The assessee will have to maintain separate accounts in respect of the profits and gains derived from the business of execution of the project or work forming part of the project. Where the assessee is a person other than a company or cooperative society, the accounts relating to such project or work should be audited by a Chartered Accountant or other qualified accountant as defined in the Explanation below section 288(2) of the Act. The assessee will be required to furnish along with his return of income, the report of such audit in a form to be prescribed for this purpose which will have to be signed and verified by a Chartered Accountant or such qualified accountant 2. The assessee will be required to debit to the profit and loss account of the accounting year in respect of which the deduction under this provision is to be allowed and credited to a "Foreign Projects Reserve Account" a sum equal to 25 per cent of the profits and gains from such project or work. The reserve will be required to be utilised by the assessee during a period of 5 immediately succeeding assessment years for the purpose of his business and not for distribution by way of dividends or profits. 3. The assessee will be required to remit into India in convertible foreign exchange an amount equal to 25 per cent of such profits and gains within a period of 6 months from the end of the relevant accounting year, or within such extended period as the Commissioner of Income-tax may allow on being satisfied that the assessee was prevented from complying with this provision for reasons beyond his control. 25.4 Where, however, the amount credited by the assessee to the Foreign Projects Reserve Account or the amount so remitted into India by him or either of these amounts is less than 25 per cent of such profits and gains, the deduction under this provision will be restricted to the amount so credited to the Foreign Projects Reserve Account or the amount actually brought into India, whichever, is less. 25.5 If, at any time, before the expiry of 5 years from the end of the relevant accounting year, the assessee utilises the amount credited to the Foreign Projects Reserve Account for the purpose of distribution by way of dividends or by way of profits or for any other non-business purpose, the deduction which has been originally allowed to him under this provision will be deemed to have been wrongly allowed. Consequent rectification of the relevant assessment to withdraw the tax benefit granted to the assessee can be made by the Income-tax Officer within a period of 4 years from the end of the accounting year in which the Foreign Projects Reserve Account is utilised by the assessee for any prohibited purpose. 25.6 This provision will take effect from April 1, 1983 and will, accordingly, apply in relation to the assessment year 1983-84 and subsequent years. [Sections 18 and 32(ii) and (iii) of the Finance Act] Deduction in respect of income from specified financial assets - Section 80L 26.1 Under section 80L of the Income-tax Act, income derived by an assessee being an individual, a Hindu undivided family or an association of persons or a body of individuals consisting only of husband and wife governed by the system of community of property in force in the Union territories of Dadra and Nagar Haveli and Goa, Daman and Diu, from investments in specified categories of financial assets is exempt up to an aggregate amount of Rs. 3,000 which is deducted from the gross total income. In addition, under a separate provision contained in the Unit Trust of India Act, 1963, a further deduction of Rs.2,000 is allowed in respect of income received on units. The investments covered by this provision are: (i) Government securities; (ii) notified debentures; (iii) deposits under notified schemes of the Central Government; (iv) shares in Indian companies; (v) units in the Unit Trust of India; (vi) deposits with banking companies, cooperative banks, land mortgage banks and land development banks; (vii) deposits with approved financial corporations engaged in providing long-term finance for industrial development in -India or with a public company registered in India with the main object of providing long-term finance for construction or purchase of house in India for residential purposes; (viii) deposits with any authority constituted in India by or under any law enacted either for satisfying the need for housing accommodation or for planning, development or improvement of cities, towns and villages, or for both; (ix) deposits with a cooperative society; and (x) shares in any cooperative society. 26.2 With a view to stimulating larger savings and investment in the specified assets the Finance Act has raised the aforesaid monetary ceiling under section 80L from Rs. 3,000 to Rs. 4,000. Further the newly inserted proviso to section 80L provides for an additional exemption of Rs. 2,000 in respect of interest on any Government security referred to in clause (i) of sub-section (1) or interest on bank deposits referred to in clause (vi) of sub-section (1) being deposits for a period of one year or more. The effect of this amendment is that the maximum deduction available to an assessee under section 80L in respect of income from specified financial assets including interest on Government securities and interest on fixed deposits with banks for one year or more will be Rs. 6,000. 26.3 The Finance Act has also amended section 32(1) of the Unit Trust of India Act, 1963 to raise the monetary ceiling in respect of exemption in relation to dividends on units of the Unit Trust of India from Rs. 2,000 to Rs. 3,000. 26.4 These provisions will take effect from April 1, 1983 and will, accordingly, apply in relation to the assessment year 1983-84 and subsequent years. [Sections 19 and 56 of the Finance Act] Inclusion of synthetic rubber and rubber chemicals (including carbon black) and basic drugs industries for purposes of concession under section 80M - Section 80M 27.1 Under section 80M of the Income-tax Act, full deduction is granted in respect of income by way of dividends received by a domestic company from an Indian company formed and registered under the Companies Act, 1956, after February 28, 1975, and engaged exclusively or almost exclusively in the manufacture or production of specified articles or things. 27.2 With a view to encouraging larger inter-corporate investment in the manufacture of synthetic rubber and rubber chemicals (including carbon black) and basic drugs, the Finance Act has amended section 80M of the Income-tax Act to provide that dividends declared by Indian companies manufacturing synthetic rubber and rubber chemicals (including carbon black) and basic drugs would also qualify for full exemption in the hands of domestic companies. 27.3 This provision will take effect from April 1, 1983 and will, accordingly, apply in relation to the assessment year 1983-84 and subsequent years. [Section 20 of the Finance Act] Modifications of the provisions relating to deduction in respect of long-term capital gains in the case of non-corporate assessees - Section 80T 28.1 Under section 80T of the Income-tax Act, in the case of a non-corporate assessee, long-term capital gains are exempted from income-tax up to Rs. 5,000. Where the long-term capital gains exceed Rs. 5,000, a deduction is given of Rs. 5,000 plus 25 per cent of the long-term capital gains relating to buildings or lands or any rights in buildings or lands as reduced by Rs. 5,000. The deduction in respect of other long-term capital gains is given in an amount equal to Rs. 5,000 plus 40 per cent of the long-term capital gains exceeding Rs. 5,000. 28.2 The Finance Act has modified the provisions relating to deduction in respect of long-term capital gains in the case of non-corporate assessees in the following manner, namely: I. In respect of long-term capital gains relating to all capital assets, a deduction of first Rs. 5,000 will be given as at present. Thereafter, the deduction will be based on the number of years for which the relevant long-term capital asset has been held by the assessee. For this purpose, a two-fold classification has been made as at present and the rate of deduction is provided as under: Period of holding of capital assets Rate of deduction in respect of long- term capital gains relating to buildings or lands or any rights therein Rate of deduction of long-term capital gains relating to other capital assets More than 3 years but not exceeding 5 years 25% 40% More than 5 years but not exceeding 10 years 28% 45% More than 10 years but not exceeding 15 years 33% 50% More than 15 years but not exceeding 20 years 37% 55% Over 20 years 40% 60% 2. Where the long-term capital gains relate to gold, bullion or jewellery, the maximum deduction admissible will be restricted to Rs. 50,000. 3. Where the assessee has long-term capital gains relating to buildings or lands or rights in buildings or lands, as also gains relating to other capital assets, the initial deduction of Rs. 5,000 will be given first in respect of long-term capital gains relating to buildings or lands and if the amount of such capital gains is less than Rs. 5,000, the balance will be adjusted against long-term capital gains relating to gold, bullion or jewellery and the balance, if any, against the long-term capital gains relating to any other capital assets. 28.3 These provisions will take effect from April 1, 1983 and will, accordingly, apply in relation to the assessment year 1983-84 and subsequent years. [Sections 21 and 31 of the Finance Act] Tax relief in relation to incremental addition to the export turnover - Section 89A 29.1 With a view to encouraging larger exports of certain goods, the Finance Act has provided tax relief to Indian companies and non-corporate assessees resident in India whose export turnover for a year exceeds the export turnover for the immediately preceding year by more than 10 per cent thereof. The tax relief will be calculated at a specified rate with reference to such excess turnover. For this purpose, "export turnover" will mean the sale proceeds of specified goods or merchandise exported outside India but will not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962. 29.2 The benefit of this tax concession will be available in relation to the assessment-year 1983-84 and four immediately succeeding assessment years. 29.3 The goods or merchandise in relation to which the tax concession will be provided and the rate at which the amount of deduction is to be calculated will be notified by the Central Government in the Official Gazette. In specifying the goods or merchandise, as also the destination of their export and the rate at which the deduction will be calculated, the Central Government will have regard to the following factors, namely: a. the cost of manufacture or production of such goods or merchandise and the prices of similar goods or merchandise in the foreign market; b. the need to develop foreign markets for such goods or merchandise c. the need to earn foreign exchange; and d. any other relevant factors. 29.4 The maximum amount of deduction to which an assessee will be entitled under this provision will not exceed 10 per cent of the amount of "income-tax otherwise payable by the assessee on the profits and gains" from the exports of such goods or merchandise outside India. Where the total income of the assessee consists only of such profits and gains, the income-tax chargeable (without any deduction under this section) on the total income will be the income-tax otherwise payable by the assessee on the profits and gains from such exports. Where the total income of the assessee includes other income besides such profits and gains, the income-tax payable on such profits and gains shall be the amount which bears to the income-tax chargeable (without any deduction under this section) on the total income, the same proportion as the amount of such profits and gains bear to the total income. The amount of profits and gains derived from the export of any goods or merchandise outside India will be computed in accordance with the rules to be prescribed by the Central Board of Direct Taxes. 29.5 This provision takes effect from June 1, 1982 and will, accordingly, apply in relation to the assessment year 1983-84 and subsequent years. [Section 22 of the Finance Act] Amendments of provisions relating to rectification of mistakes 30.1 Section 23 of the Finance Act has amended section 155 of the Income- tax Act dealing with other amendments relating to rectification of mistakes. Clause (a) has amended sub-section (8) of section 155. This amendment is consequential to the amendment of section 54 by section 11 of the Finance Act. 30.2 Clause (b) has amended sub-section (8A) of section 155. This amendment is also consequential to the amendment of section 54 of the Income-tax Act by section 11 of the Finance Act. 30.3 Clause (c) has inserted a new sub-section (10C) in section 155 of the Income-tax Act. The effect of these amendments is that where any capital gain arising from the transfer of any such capital asset referred to in section 54F is charged to tax and the assessee has within one year purchased or within a period of 3 years constructed a residential house, the Income-tax Officer will amend the order of assessment to exclude the amount of capital gain not chargeable to tax. For this purpose, the period of 4 years will be reckoned from the date of assessment. [Section 23 of the Finance Act] Exemption from the provision relating to deduction of income-tax at source from interest on securities - Section 193 31.1 Under section 193 of the Income-tax Act, income-tax is deductible at source on payment of any income chargeable under the head "lnterest on securities". The Finance Act has inserted a new clause (iiia) in the proviso to section 193 to provide that income-tax will not be deducted at source from interest paid on such securities of the Central Government or any State Government to such class of persons, and subject to such conditions as the Central Government may, by notification in the Official Gazette, specify in this behalf. 31.2 This provision takes effect from June 1, 1982. [Section 24 of the Finance Act] Raising of monetary limit for payments to contractors without deduction of tax at source - Section 194C 32.1 Under section 194C of the Income-tax Act, income-tax is deductible at source from income comprised in payments made by the Central Government or any State Government or a local authority, statutory corporation or company to contractors engaged for carrying out any work or for supplying labour for carrying out such work. Income-tax is deductible at the rate of 2 per cent of such payments. Similarly, income-tax is deductible from payments made by contractors, other than individuals or Hindu undivided families, to sub-contractors at the rate of I per cent of the payment. No deduction is, however, required to be made if the consideration for the contract or the sub-contract does not exceed Rs. 5,000. This limit was fixed in 1972. In view of the increase in cost of materials and labour, the Finance Act has enhanced the aforesaid monetary ceiling from Rs. 5,000 to Rs. I 0,000. 32.2 This provision takes effect from June 1, 1982. [Section 25 of the Finance Act] Relaxation of provisions relating to deduction of tax on payment of Interest on securities, dividends and interest other than interest on securities - Section 197A 33.1 Under section 193 of the Income-tax Act, income-tax is deductible at source on payment of any income chargeable under the head "lnterest on securities". Further under section 194 of the Income-tax Act, income-tax is deductible at source on income by way of dividends paid by an Indian company or a company which has made the prescribed arrangements for the declaration and payment of dividends within India. Further, section 194A of the Income-tax Act provides that any person who is responsible for paying to a resident any income by way of interest other than interest chargeable under the head "Interest on securities" is required to deduct income-tax thereon at the time of credit of such income to the account of the payee or at the time of payment. thereof, whichever is earlier. The provisions of these sections as also section 197(1)(a) provide for certain circumstances in which this requirement of deduction of tax at source can be dispensed with, subject to the fulfilment of the conditions laid down in this behalf. With a view to enabling persons with income below the taxable limit to receive these categories of income without deduction of income-tax at source, the Finance Act has inserted a new section 197A in the Income-tax Act to provide that a person who is resident in India may receive such income without deduction of income-tax on his furnishing a declaration in writing (in duplicate) in the prescribed form and verified in the prescribed manner to the person responsible for making the payment. The declaration will have to be to the effect that the estimated total income of the declarant of the previous year including such interest on securities, dividend or other interest will be less than the minimum liable to income-tax. On the receipt of this declaration, the person responsible for making the payment will be required to deliver or cause to be delivered to the Commissioner of Income-tax who exercises the jurisdiction over him, one copy of the declaration on or before the 7th day of the month following the month in which the declaration is furnished. 33.2 The Finance Act has also amended section 272A of the Income-tax Act to provide that in a case where the person responsible for making payment fails to deliver or cause to be delivered such declaration to the Commissioner of Income-tax within the specified time limit, a penalty of up to Rs.I0 will be leviable for every day for which the default continues. 33.3 These amendments take effect from June 1, 1982. [Sections 26 and 29 of the Finance Act] Rationalisation of procedure for functioning of Settlement Commission - Section 245B and section 245D 34.1 Section 245B(2) of the Income-tax Act provides that the Settlement Commission shall consist of a Chairman and two other Members. The effect of this provision is that the Settlement Commission cannot function if the vacancy of any of its Members is not filled immediately. With a view to overcoming this difficulty, the Finance Act has amended the relevant provisions to secure that the Settlement Commission shall be competent to function even if the post of one of the Members (other than the Chairman) is vacant. Where in any case, the Chairman and the other Member differ on any point or points, such point or points will be referred to the new Member and the matter will be decided according to his opinion. 34.2 These provisions have taken effect from April 1, 1982. [Sections 27 and 28 of the Finance Act] Modification of provision relating to prosecution in certain matters connected with acquisition of immovable properties - Section 279 35.1 Sub-section (1) of section 279 of the Income-tax Act provides that a person shall not be proceeded against for an offence under section 275A, section 276A, section 276B, section 276C, section 276CC, section 276D, section 276E, section 277, section 278 or section 278A except at the instance of the Commissioner. The Finance Act has amended sub-section (1) of section 279 to provide that no person shall be proceeded against for an offence under section 276AA of the Income-tax Act except at the instance of the Commissioner. It may be mentioned that section 276AA which relates to the failure to comply with the provisions of section 269AB or section 269-I was inserted in the Income-tax Act by the Income-tax (Amendment) Act, 198 1. The said Amendment Act has extended the provisions of Chapter XXA of the Income-tax Act to cover transfers of immovable property made through the medium of cooperative societies, part performance as visualised in section 53A of the Transfer of Property Act, 1882 and long-term leases. 35.2 This provision will take effect from July 1, 1982 [vide Notification No. GSR 472(E), June 26,1982 which is the same date as has been notified by the Central Government for the commencement of the provision of the aforesaid amendment Act in pursuance of section 1(2) of the said Act]. [Section 30 of the Finance Act]