FINANCE ACT, 1989 - Income Tax - 550/1990

FINANCE ACT, 1989 Circular No. 550 Dated 1/1/1990 Rate Structure Finance Act, 1989 Rates of income-tax in respect of income liable to tax for the assessment year 1989-90 4.1 In respect of incomes of all categories of taxpayers (corporate as well as non-corporate) liable to tax for the assessment year 1989-90, the rates of income-tax have been specified in Part I of the First Schedule to the Finance Act, 1989. These rates are the same as those laid down in Part III of the First Schedule to the Finance Act, 1988. Finance Act, 1989 4.2 Accordingly, in the case of every person having income exceeding fifty thousand rupees, the amount of income-tax shall be increased by a surcharge for purposes of the Union calculated at the rate of 5 per cent of such income-tax. Finance Act, 1989 4.3 Further, in the case of profits and gains of life insurance business, the amount of tax computed in accordance with the provisions of section 115B of the Income-tax Act, shall be increased by a surcharge calculated at the rate of 5 per cent of income-tax. Also, the amount of income-tax computed in accordance with the provisions of section 115B of the Income-tax Act on any income from winnings from lotteries, etc., shall be increased by a surcharge calculated at the rate of 5 per cent of the income-tax. No surcharge shall, however, be payable by a non-resident. Finance Act, 1989 Rates for deduction of income-tax at source during the financial year 1989-90 from incomes other than "salaries" 5.1 The rates of deduction of income-tax at source during the financial year 1989-90 from incomes other than "salaries", have been specified in Part II of the First Schedule to the Finance Act, 1989. These rates apply to income by way of interest on securities, interest other than interest on securities, dividends, insurance commission, winnings from lotteries, crossword puzzles and horse races and income of non-residents (including non-resident Indian) other than salary income. These rates are basically the same as those specified in Part II of the First Schedule to the Finance Act, 1988 for purposes of deduction of tax at source during the financial year 1988-89. In respect of payments referred to above as also payments made to a contractor or a sub-contractor where tax is deducted at source, the amount of tax so deducted shall be increased by a surcharge calculated at the rate of 8 per cent of the amount of tax deducted. However, a deduction in respect of surcharge will not be made where the payment is made to a non-resident (including non-resident Indian) or to a foreign company. Finance Act, 1989 5.2 The Finance Act has also provided that the amount of tax collectible under section 206C of the Income-tax Act shall be increased by a surcharge calculated at the rate of 8 per cent of the income-tax. Finance Act, 1989 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 1989-90 6.1 The rates for deduction of tax at source from "Salaries" during the financial year 1989-90 and also for computation of advance tax payable during the year in the case of all categories of taxpayers have been specified in Part II of the First Schedule to the Finance Act. These rates are also applicable for charging income-tax during the financial year 1989-90 on current income 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 the financial year 1989-90, assessment of persons who are likely to transfer property to avoid tax or where an order has to be passed in a case of search and seizure for calculating the amount of tax on the estimated undisclosed incomes, etc. Finance Act, 1989 6.2 In the case of a person whose income exceeds fifty thousand rupees, the amount of income-tax deductible or advance tax payable or income-tax payable, as the case may be, shall be increased by a surcharge calculated at the rate of 8 per cent of the tax so deductible or advance tax or income-tax so payable. However, no such surcharge shall be levied in a case where payment is made to or advance tax or income-tax is payable on the income of a non-resident (including non-resident Indian) or a foreign company. Finance Act, 1989 Rates of tax applicable to individuals, Hindu undivided families, unregistered firms, associations of persons, etc., co-operative societies and local authorities 7.1 In the case of individuals, Hindu undivided families, associations of persons, etc., the rates of income-tax have been specified in Paragraph A of Part III of the First Schedule. In the case of co-operative societies, and local authorities the rates of income-tax have been specified in Paragraph B and Paragraph C respectively, of Part III of the First Schedule to the Act, which is the same as in Part I of the First Schedule to the Finance Act, 1988. The rate Schedule applicable in the case of individuals, Hindu undivided families (other than those having at least one member with independent total income exceeding the exemption limit), unregistered firms, associations of persons, bodies of individuals and artificial juridical persons has been restructured for reducing the rate of tax in the slab of income from Rs. 18,000 to Rs. 25,000 from 25 per cent to 20 per cent. The impact of this relief on income up to Rs. 50,000 is as under: TABLE Total income Tax relief Total income Tax relief Rs. Rs. Rs. Rs. 18,000 Nil 24,000 300 19,000 50 25,000 350 20,000 100 30,000 350 21,000 150 40,000 350 22,000 200 50,000 350 23,000 250 Finance Act, 1989 Rates of tax applicable to companies 8.1 In the case of companies, the rates of income-tax have been specified in Paragraph E of Part III of the First Schedule. These rates are the same as those specified in the corresponding paragraph of Part I of the Schedule to the Finance Act, 1988. Finance Act, 1989 8.2 The amount of tax so computed shall in the case of every company having income exceeding fifty thousand rupees be increased by a surcharge calculated at the rate of 8 per cent of the income-tax. Finance Act, 1989 Partially integrated taxation of non-agricultural income with income derived from agriculture 9. As in the past, the Finance Act provides that in the case of individuals, Hindu undivided families, unregistered firms, other association of persons, etc., the net agricultural income will be taken into account for computation of "advance tax" and charging of income-tax. These provisions are broadly on the same lines as those in the earlier years. Amendments to Income-tax Act Finance Act, 1989 Clarificatory amendment of provisions relating to agricultural income 10.1 Prior to 1st April, 1970, capital gains arising from transfer of agricultural land was not subjected to tax, as agricultural land was excluded from the definition of "capital asset" in section 2( 14 ) of the Income-tax Act. By virtue of amendment of sub-clause ( iii ) of clause ( 14 ) of section 2 with effect from 1st April, 1970, agricultural land situated in any area comprised within the jurisdiction of a Municipality or Cantonment Board (having a population of not less than ten thousand) or in any area outside the limits of any Municipality or Cantonment Board (having a population of not less than ten thousand) up to a maximum distance of 8 kms. from such limits as notified by the Central Government was included within the definition of "capital asset" and hence, any gain arising from the transfer of such agricultural land was brought within the purview of capital gains taxation. Certain Courts have, however, held that profits from the sale of agricultural land constitute "agricultural income" and, therefore, it is exempt from tax under section 10 of the Income-tax Act. Some Courts have held that such income is taxable. The settlement of the judicial controversy by a decision of the Supreme Court may take a long time. Finance Act, 1989 10.2 Therefore, as a measure of rationalisation, it has been clarified by way of insertion of an Explanation to clause ( 1A ) of section 2 that capital gains arising from the transfer of the aforesaid agricultural land will not constitute 'revenue' within the meaning of section 2( 1A )( a ) of the Income-tax Act. Finance Act, 1989 10.3 This amendment will take effect retrospectively from 1st April, 1970 and will, accordingly, apply in relation to the assessment year 1970-71 and subsequent years. [Section 3 of the Finance Act, 1989] Finance Act, 1989 Incentives under the Exchange Risk Administration Scheme 11.1 The Finance Minister, in his Budget Speech for 1988-89, had announced the framing of a Scheme for exchange risk protection to borrowers of foreign currency from the financial institutions. In accordance with the said announcement, a scheme known as the Exchange Risk Administration Scheme (ERAS) has been evolved. Finance Act, 1989 11.2 Under the ERAS, a separate fund known as the 'Exchange Risk Administration Fund' (ERAF) can be set up by the financial institutions which will make a suitable initial contribution to the corpus of the Fund. Finance Act, 1989 11.3 The benefit of coverage of exchange risk under the Scheme is available only to foreign currency loans provided by institutions out of their external commercial borrowings. For the foreign currency loans covered under ERAS, the principal repayment obligations of the borrowers will be 'rupee-tied' at the rates of exchange prevailing on the date of disbursement to them. On such 'rupee-tied' principal amounts,the borrowers will be required to pay a "composite cost" comprising— ( a ) interest which will be weighted average cost of the currency pool maintained by the concerned institution plus its usual spread, and ( b ) an exchange risk premium (ERP). Finance Act, 1989 11.4 With a view to help the growth of Exchange Risk Administration Fund in its initial stage, a number of tax concessions have been created. Finance Act, 1989 11.5 A new clause ( 23E ) has been inserted in section 10 of the Income-tax Act to exempt any income of such ERAF set up by a public financial institution as defined under section 4A of the Companies Act, whether jointly or separately, as the Central Government may, by notification in the Official Gazette, specify in this behalf. The proviso to the new clause specifies a condition in relation to the proposed exemption to say that where any amount standing to the credit of the Fund and not charged to income-tax during any previous year is shared either wholly or partly with a public financial institution, the whole of the amount so shared shall be deemed to be income of the previous year in which such amount is so shared, and shall, accordingly, be chargeable to income-tax. Finance Act, 1989 11.6 A new clause ( 14A ) has been inserted in section 10 of the Income-tax Act, to provide that the income in the nature of Exchange Risk Premium received by public financial institutions from the borrowers for being credited to the corpus of the fund will be exempt in their hands. Finance Act, 1989 11.7 A new clause ( x ) in sub-section (1) of section 36 of the Income-tax Act has been inserted to provide that any sum paid by public financial institutions by way of contribution to the Exchange Risk Administration Fund will be allowed as a deduction in computing their income under the head "Profits and gains of business or profession". Finance Act, 1989 11.8 The above amendments will take effect from 1st April, 1989 and will, accordingly, apply in relation to the assessment year 1989-90 and subsequent assessment years. [Sections 4 8 of the Finance Act, 1989] Finance Act, 1989 Tax concessions in respect of new deposit scheme for retiring employees 12.1 With a view to obviate the need for retiring Government employees to seek alternative sources for investment of their retirement benefits and also to maintain the level of funds in various employees welfare schemes, a new deposit scheme has been formulated in which a retiring Government employee may invest the whole or part of his retirement benefits for a lock-in period of three years. The scheme will apply to all Central or State Government employees. The following tax concessions are allowable in respect of the deposits made under the scheme: ( i ) the interest earned in respect of deposits shall be exempt from income-tax [Section 10( 15 )( iv )( i )]; and ( ii ) the deposits made shall be fully exempt from wealth-tax [Section 5(1)( xxviic )]. Finance Act, 1989 12.2 These amendments will come into force with effect from 1st April, 1990 and will, accordingly, apply in relation to the assessment year 1990-91 and subsequent years. [The relevant notifications and Press Note issued by the Ministry of Finance are at Annexures A-1 to A-5]. [Sections 4 and 27 of the Finance Act, 1989]. Finance Act, 1989 Measures to grant relief to Salaried Taxpayers 13.1 Under the existing provisions of clause ( i ) of section 16 of the Income-tax Act, in the case of an employee who is provided with a motor car, motor-cycle, scooter or other moped by his employer for his use, otherwise than wholly or exclusively, in the performance of his duties, or is allowed to use one or more motor cars owned or hired by the employer for any purpose otherwise than wholly and exclusively in the performance of his duties, the standard deduction in computing the income chargeable under the head "Salaries", was restricted to Rs. 1,000 only. Explanation 2 to this clause, however, provided that if such vehicle was provided only for journey from residence to office or any other place of work, the use of such vehicle will not be regarded as the use of such vehicle otherwise than wholly or exclusively in the performance of his duties. This restriction caused hardship to employees in the private sector who were also liable to tax on the value of perquisite free or the concessional use of employers' vehicles. Finance Act, 1989 13.2 To provide uniformity in the allowance of standard deduction to employees of public and private sectors, the proviso to clause ( i ) of section 16 and its relevant Explanation 2 have been deleted, thereby allowing the standard deduction in full even to those employees who are entitled to conveyance facilities. Further, as a consequential amendment, by amending clause ( iii ) of sub-section (2) of section 17, it has been provided that the use of any vehicle provided to an employee for journey by the employee, from his residence to his office or other place of work, or from office or such place to his residence, shall not be treated as any benefit or amenity granted or provided free of cost or at concessional rates. Finance Act, 1989 13.3 Further, under the existing provisions of section 16 relating to deduction from salaries, no separate deduction was allowed for professional tax paid by a salaried employee. Since the maximum amount payable by way of professional tax was Rs. 250 per annum, it was not considered proper to provide for a separate deduction in this regard. By the Constitution (Sixtieth Amendment) Act, 1988, article 276(2) has been amended to raise the ceiling of professional tax from Rs. 250 to Rs. 2,500 per annum with the object of enabling the State Government to raise additional resources. The payment of Rs. 2,500 per annum by way of professional tax would have caused hardship to salaried employees, if a separate deduction was not allowed to them. Persons deriving income from business or profession are allowed to claim deduction in respect of such tax as business expenses. Finance Act, 1989 13.4 With a view to providing relief to the salaried taxpayers, it has been provided by amending section 16 of the Income-tax Act that the tax on employment, by whatever name called, levied by a State under article 276 of the Constitution shall be allowed as a deduction in computing their income under the head "Salaries". Finance Act, 1989 13.5 These amendments will come into force with effect from 1st April, 1990 and will, accordingly, apply in relation to the assessment year 1990-91 and subsequent years. [Sections 5 and 6 of the Finance Act, 1989] Finance Act, 1989 Modification of provisions relating to Investment Deposit Account 14.1 Under the existing provisions of section 32AB of the Income-tax Act, a deduction of 20 per cent of the profits is allowed only to those assessees who carry on "eligible business or profession", which means ( i ) business or profession other than the business of construction, manufacture or production of any article or thing specified in the List in the Eleventh Schedule (in case it is not a small scale industrial undertaking), and ( ii ) the business of leasing or hiring of machinery or plant to a small scale industrial undertaking, or an industrial undertaking engaged in the business of construction, manufacture or production of any article or thing not specified in the List in the Eleventh Schedule. The provisions relating to Investment Deposit Account were enacted as a substitute to investment allowance, which was available to every assessee who purchased a new ship or a new aircraft or installed new machinery or plant in an industrial undertaking, for the purposes of business of construction, manufacture or production of any article or thing not specified in the Eleventh Schedule to the Income-tax Act. The emphasis for availing the benefit of investment allowance was on actual investment in plant and machinery installed to produce or manufacture items of high priority and not on the person who made the investment. However, under the Investment Deposit Account, a person can avail of the benefit even if the investment is made for low priority items. This is not in keeping with the object of development and growth of the priority sector. Finance Act, 1989 14.2 To remove this anomaly, by amending section 32AB of the Income-tax Act, it has been provided that the benefit under this section shall be available to any assessee, deriving income from business or profession, who acquires new machinery or plant or deposits and utilises the deposit for the purchase of new machinery or plant to be used in the manufacture or production of priority items, i.e. , items not specified in the Eleventh Schedule. For this purpose reference to and the concept of "eligible business or profession" has been deleted. Further, as a consequence, the provisions for the mode of computation of profits of "eligible business or profession" have also been amended and the amended sub-section (3) prescribes the mode for computation of profits of business or profession of an assessee for the purposes of sub-section (1). Finance Act, 1989 14.3 In order to give adequate notice to the taxpayers, these amendments have been made effective from 1st April, 1991 and will, accordingly, apply in relation to the assessment year 1991-92 and subsequent years. Finance Act, 1989 14.4 Sub-section (5A) of section 32AB of the Income-tax Act provides that the amounts deposited with the Development Bank in accordance with the Scheme, shall not be permitted to be withdrawn before the expiry of a period of five years from the date of deposit except in the case of ( a ) closure of business, ( b ) death of the taxpayer, ( c ) partition of Hindu undivided family, ( d ) dissolution of the firm, ( e ) liquidation of the company, and ( f ) in such other circumstances as may be specified in the Scheme. This sub-section is being interpreted in a manner that in a case withdrawal is made by a taxpayer of any amount standing to his credit in the deposit account after a period of five years from the date of deposit, the condition regarding the purposes for which a withdrawal can be made as specified in the Scheme do not have to be complied with, and no tax will be levied on the amount of withdrawal. Such an interpretation is against the legislative intent and may lead to protracted litigation. Finance Act, 1989 14.5 With a view to clarify the correct legislative intention in this regard, an amendment has been made in section 32AB, so as to provide that where any amount is released by the Development Bank even after a period of five years from the date of deposit and the same is not utilised in accordance with and within the time specified in the Scheme, the same shall be deemed to be the profits and gains of business or profession of the previous year in which such withdrawal is made and shall, accordingly, be chargeable to tax. Finance Act, 1989 14.6 Further, as the circumstances mentioned at clauses (a ) and ( b ) of sub-section (5A) may be used for tax avoidance purposes, it has been provided by inserting sub-section (5AA) that money withdrawn or obtained consequent to the closure of the account because of closure of business or dissolution of firm will be subjected to tax in the year of withdrawal or closure of account and shall be assessed in the hands of the same business or firm as if the business was not closed or the firm was not dissolved. Finance Act, 1989 14.7 These amendments will take effect retrospectively from 1st April, 1987 and will, accordingly, apply in relation to the assessment year 1987-88 and subsequent years. [Section 7 of the Finance Act, 1989] Finance Act, 1989 Amendment of provisions relating to certain deductions to be allowed only on actual payment 15.1 Under the existing provisions of section 43B of the Income-tax Act, a deduction for any sum payable by way of tax, duty, cess or fee, etc., is allowed on actual payment basis only. The objective behind these provisions is to provide for a tax disincentive by denying deduction in respect of a "statutory liability" which is not paid in time. The Finance Act, 1987 inserted a proviso to section 43B to provide that any sum payable by way of tax or duty, etc., liability for which was incurred in the previous year will be allowed as a deduction, if it is actually paid by the due date of furnishing the return under section 139(1) of the Income-tax Act, in respect of the assessment year to which the aforesaid previous year relates. This proviso was introduced to remove the hardship caused to certain taxpayers who had represented that since the sales tax for the last quarter cannot be paid within the previous year, the original provisions of section 43B will unnecessarily involve disallowance of the payment for the last quarter. Finance Act, 1989 15.2 Certain Courts have interpreted the provisions of section 43B in a manner which may negate the very operation of this section. The interpretation given by these Courts revolves around the use of the words "any sum payable". The interpretation given to these words is that the amount payable in a particular year should also be statutorily payable under the relevant statute in the same year. Thus, the sales tax in respect of sales made in the last quarter was held to be totally outside the purview of section 43B since the same is not statutorily payable in the financial year to which it relates. This is against the legislative intent and, therefore, by way of inserting an Explanation it has been clarified that the words"any sum payable", shall mean any sum, liability for which has been incurred by the taxpayer during the previous year irrespective of the date by which such sum is statutorily payable. Finance Act, 1989 15.3 This amendment will take effect retrospectively from 1st April, 1984 and will, accordingly, apply in relation to the assessment year 1984-85 and subsequent years. Finance Act, 1989 15.4 Unlike other payments referred to in section 43B of the Income-tax Act, the deduction regarding employer's contribution, if denied in a year, is not available as a deduction in any subsequent year also. On account of various reasons like postal delay, strikes or long holidays, the payment of employer's contribution to the respective authorities is delayed even though the payment by a cheque or draft is tendered before the due date. To avoid any hardship being caused in such cases, it has been provided by substituting the second proviso to section 43B that, if payment of any sum payable by an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees is made by a cheque, draft or any other mode, deduction shall be allowed if the cheque, etc., has been tendered by the due date, and the actual payment has been realised within fifteen days of the due date. Finance Act, 1989 15.5 This amendment will take effect from 1st April, 1989 and will, accordingly, apply in relation to the assessment year 1989-90, and subsequent years. [Section 9 of the Finance Act, 1989] Finance Act, 1989 New provision for computing profits and gains of foreign companies engaged in the business of civil construction, etc., in certain turnkey power projects 16.1 In the case of non-resident assessees, whose books of account are maintained abroad and whose accounts are prepared in the light of the tax and other laws of the country concerned, there is a real difficulty in verifying various expenses and computing their income for our tax purposes in India on the basis of their books of account which sometimes would not even be available for scrutiny. This is particularly so in the case of foreign companies engaged in the business of civil construction, etc. Therefore, as a measure of simplification, certain provisions have been incorporated in the Income-tax Act whereby the total income of certain non-resident assessees is computed on the basis of a certain percentage of their gross total receipts. In the series of such provisions, the Finance Act, 1989, has inserted a new section 44BBB for computing profits and gains of foreign companies engaged in the business of civil construction, etc., in certain turnkey power projects. Finance Act, 1989 16.2 The new section 44BBB provides that, notwithstanding anything to the contrary contained in sections 28 to 44AA of the Income-tax Act, the income of foreign companies as are engaged in the business of civil construction or erection or testing or commissioning of plant or machinery in connection with a turnkey power project shall be deemed at 10 per cent of the amount paid or payable to such assessee or to any person on his behalf, whether in or out of India. For this purpose, the turnkey power project should be approved by the Central Government and should be financed under any international aid programme. It is also clarified that erection of plant or machinery or testing or commissioning thereof will include laying of transmission lines and systems. Finance Act, 1989 16.3 This amendment will come into force with effect from 1st April, 1990 and will, accordingly, apply in relation to the assessment year 1990-91. [Section 10 of the Finance Act, 1989] Finance Act, 1989 Incentives for venture capital undertakings 17.1 The Finance Minister, in his Budget Speech for 1988-89 had referred to the difficulties faced by new entrepreneurs in raising equity capital and declared that "it has been decided to formulate a scheme under which Venture Capital Companies/Funds will be enabled to invest in new companies and be eligible for the concessional treatment of capital gains available to non-corporate entities". Finance Act, 1989 17.2 The Department of Economic Affairs has since issued guidelines for the setting up of the Venture Capital Companies/Fund (Annexure 'B'). Finance Act, 1989 17.3 Under the existing provisions of section 48 of the Income-tax Act, 1961, long-term capital gains arising to a company on sale of shares is allowed a deduction of 30 per cent of the capital gains in excess of Rs. 10,000. In the case of non-corporate taxpayers the deduction available is 60 per cent of the long-term capital gains in excess of Rs. 10,000. Accordingly, the capital gain arising on sale of shares of Venture Capital Undertakings by Venture Capital Companies would have been eligible for a statutory deduction of only 30 per cent of the amount of long-term capital gain in excess of Rs. 10,000. Finance Act, 1989 17.4 In view of Government's commitment to extend concessional treatment to capital gains arising on sale of shares of venture capital units by the Venture Capital Companies/Funds section 48 of the Income-tax Act has been amended to provide that the deduction available to non-corporate assessees would be allowed in their case also. Finance Act, 1989 17.5 Further, "Venture Capital Company" and "Venture Capital Undertaking" have been defined in the newly inserted Explanation to section 48. Finance Act, 1989 17.6 These amendments will come into force with effect from 1st April, 1990 and will, accordingly, apply in relation to the assessment year 1990-91 and subsequent years. [Section 11 of the Finance Act, 1989] Finance Act, 1989 Tax concessions in respect of deposits with National Housing Bank 18.1 In the Budget Speech for 1987-88, the Prime Minister and Minister of Finance had announced that a National Housing Bank would be set up. Necessary legislation in this regard has been passed and the National Housing Bank has become operational. In order to help the National Housing Bank to mobilise the resources, certain tax incentives have been provided in the Income-tax and Wealth-tax Acts. These are : ( i ) by amending section 80C of the Income-tax Act to provide that the deposits made in the Home Loan Account Scheme of the National Housing Bank will qualify for deduction from the gross total income of taxpayers subject to the existing ceiling and rates; ( ii ) by amending clause ( h ) of sub-section (2) of section 80C of the Income-tax Act to provide that the re-payment of loan to the National Housing Bank will qualify for deduction to the extent of Rs. 10,000 under the overall ceiling of Rs. 40,000. ( iii ) by amending section 54E of the Income-tax Act to provide that the taxpayers will now get tax exemption/concession on capital gains, if the net consideration is invested in the bonds and debentures issued by the National Housing Bank; ( iv ) by amending section 5 of the Wealth-tax Act to provide that the investment made in the National Housing Bank will be exempt from wealth-tax subject to the overall ceiling of Rs. 5 lakhs. Finance Act, 1989 18.2 The amendments will come into force with effect from 1st April, 1990 and will, accordingly, apply in relation to the assessment year 1990-91 and subsequent years. [Sections 12, 14 and 27 of the Finance Act, 1989] Finance Act, 1989 Providing standard deduction in respect of family pension 19.1 Under the existing provisions of the Income-tax Act, there was no provision for allowing standard deduction on family pension received by the widows and heirs of deceased employees. Finance Act, 1989 19.2 As a welfare measure and to remove their hardship, by an amendment of section 57 of the Income-tax Act it has been provided that in a case where a person is in receipt of family pension, he shall be allowed standard deduction of thirty-three and one-third per cent of the family pension subject to a maximum amount of Rs. 12,000. For this purpose, the term "family pension" shall mean a regular monthly amount payable by the employer to a person belonging to the family of an employee in the event of his death. Finance Act, 1989 19.3 This amendment will come into force with effect from 1st April, 1990 and will, accordingly, apply in relation to the assessment year 1990-91 and subsequent years. [Section 13 of the Finance Act, 1989] Finance Act, 1989 Modification of provisions relating to investment in certain new shares 20.1 Under the existing provisions of section 80CC of the Income-tax Act, a deduction of fifty per cent on a maximum investment of rupees twenty thousand is admissible, in respect of certain equity shares forming part of any eligible issue of capital as also in respect of investment in the units of any Mutual Fund set up by public sector banks or other financial institutions, if such funds subscribe only to eligible issue of capital. Finance Act, 1989 20.2 With a view to bring the Unit Trust of India at par with mutual funds set up by other public financial institutions and public sector banks, the provisions of section 80CC of the Income-tax Act have been amended, so as to extend its coverage to the investment in the units of any scheme of the Unit Trust of India, if the funds of such scheme are invested in the eligible issue of capital. Finance Act, 1989 20.3 Further, with a view to encourage investment in respect of hospitals in the corporate sector, the provisions of section 80CC of the Income-tax Act have been amended, so as to extend the scope of the provisions to investment in shares of companies which are incorporated for setting up hospitals. Finance Act, 1989 20.4 These amendments will come into force with effect from 1st April, 1990 and will, accordingly, apply in relation to the assessment year 1990-91 and subsequent years. [Section 15 of the Finance Act, 1989] Finance Act, 1989 Tax incentives for poultry farming 21.1 Section 80JJ of the Income-tax Act, which, inter alia, provided a deduction of Rs. 15,000 in respect of income from poultry farming was omitted by the Finance Act, 1985 with effect from 1st April, 1986. Lately, however, it has been brought to the notice of the Government that persons engaged in poultry farming have been facing hardship because of various adverse circumstances. Therefore, as a measure of fiscal support to persons engaged in poultry farming, a deduction at the rate of thirty-three and one-third per cent of the income from poultry farming is being provided by insertion of the new section 80JJ in the Income-tax Act. The deduction under this section would be available also to persons engaged in poultry breeding. Finance Act, 1989 21.2 This amendment will come into force with effect from 1st April, 1990 and will, accordingly, apply in relation to the assessment year 1990-91 and subsequent years. [Sections 16 and 25 of the Finance Act, 1989] Finance Act, 1989 Extending the tax concession available to totally blind or physically handicapped resident persons 22.1 Under section 80U of the Income-tax Act, totally blind or permanently handicapped persons are entitled to a deduction of Rs. 15,000 from their gross income. The deduction is allowed only if the permanent physical disability is such as to have the effect of reducing substantially the capacity of a person to engage in gainful employment or occupation. However, under the existing provisions of section 80U, tax concession is not available to mentally retarded persons. Finance Act, 1989 22.2 Since mental retardation is a disability more severe in nature and consequence than many other disabilities, and the mentally retarded persons face greater problems other than categories of disabled, section 80U of the Income-tax Act has been amended, so as to extend the tax concession presently available under this section to mentally retarded persons also. Finance Act, 1989 22.3 For availing of this deduction, the mental retardation should be to the extent specified in the rules made in this behalf by the Board and should have the effect of reducing substantially his capacity to engage in a gainful employment or occupation. It has also been provided that the Board shall, in making any rules for this purpose, have regard to the nature of mental retardation and the effect which it is likely to have on the capacity of a mentally retarded person to engage in a gainful employment or occupation. Further, an individual availing of this deduction will have to produce a certificate as to the mental retardation from a psychiatrist working in a Government hospital, in respect of the first assessment year for which this deduction is claimed. Finance Act, 1989 22.4 This amendment will take effect from 1st April, 1990 and will, accordingly, apply in relation to the assessment year 1990-91 and subsequent years. [Section 17 of the Finance Act, 1989] Finance Act, 1989 Extension of the provisions relating to tax on profits and gains of life insurance business 23.1 Under the existing provisions of section 115B of the Income-tax Act, the profits and gains of life insurance business is taxable at the rate of twelve and one-half per cent of the actuarial surplus. Sub-section (2) of section 115B provides that the profits and gains of life insurance business may be taxed at the rate of ten per cent, if two and one-half per cent of its profits and gains and thirty-three and one-third per cent of the income-tax so payable is deposited in the Social Security Fund notified by the Central Government. The provisions of sub-section (2) of section 115B were made applicable only in respect of the assessment year 1989-90. With a view to ensure continuity of flow of funds to the Social Security Fund, it has been provided that the assessee engaged in the life insurance business will be taxed at the rate of ten per cent of its actuarial surplus for another year, i.e. , assessment year 1990-91, if it deposits two and one-half per cent of its profits and gains and thirty-three and one-third per cent of the income-tax so payable during the relevant previous year, in the Social Security Fund set up and notified by the Government of India. Finance Act, 1989 23.2 This amendment will take effect from 1st April, 1990 and will be applicable only for one year, i.e. , for the assessment year 1990-91. [Section 18 of the Finance Act, 1989] Finance Act, 1989 Amendment of the provisions relating to levy of minimum tax on 'book profits' of certain companies 24.1 Under the existing provisions, where the total income of a company is less than 30 per cent of its book profits, the income chargeable to tax is deemed to be 30% of such book profits (section 115J). For the purposes of the aforesaid provision, "book profits" means the net profit as shown in the profit and loss account in the relevant previous year prepared in accordance with the provisions of Parts II III of the Sixth Schedule to the Companies Act,1956, subject to certain adjustments which increase or decrease the book profits. Finance Act, 1989 24.2 A large number of companies interpreted the provisions to mean that in case they were following an accounting year (under the Companies Act, 1956) which is different from the previous year under the Income-tax Act ( i.e. , period ending on 31st March) then the provisions of section 115J do not apply to them. This interpretation was based on the understanding that section 115J does not make it mandatory for a company to prepare its profit and loss account on 31st March of any year in case it is following an accounting year which ends on a different date. As this was against the legislative intent, the Amending Act has made it mandatory for all companies to prepare their profit and loss account for the previous year ending 31st March to determine "book profits" for the purposes of this section even if it is having a different accounting year for the requirements under the Companies Act. Finance Act, 1989 24.3 This amendment will come into force with effect from 1st April, 1988 and will, accordingly, apply in relation to assessment year 1989-90 and subsequent years. Finance Act, 1989 24.4 Further, under the existing provisions certain adjustments are made to the net profit as shown in the profit and loss account. One such adjustment stipulates that the net profit is to be reduced by the amount withdrawn from reserves or provisions, if any, such amount is credited to the profit and loss account. Some companies have taken advantage of this provision by reducing their net profit by the amount withdrawn from the reserve created or provision made in the same year itself, though the reserve when created had not gone to increase the book profits. Such adjustments lead to unintended lowering of profits and consequently the quantum of tax payable gets reduced. By amending section 115J with a view to counteract such a tax avoidance device, it has been provided that the "book profits" will be allowed to be reduced by the amount withdrawn from reserves or provisions only in two situations, namely :— ( i ) if the reserves have been created or provisions have been made in a previous year relevant to the assessment year commencing before 1st April, 1988; or ( ii ) if the reserves have been created or provisions have been made in a previous year relevant to the assessment year commencing on or after 1st April, 1988 and have gone to increase the book profits in any year when the provisions of section 115J of the Income-tax Act were applicable. Finance Act, 1989 24.5 This amendment will come into force with effect from 1st April, 1988 and will, accordingly, apply in relation to assessment year 1988-89 and subsequent years. [Section 19 of the Finance Act, 1989] Finance Act, 1989 Modification of provisions relating to time limit for completion of assessment and reassessment 25.1 Under the existing provisions of section 153 of the Income-tax Act, no order of assessment can be made at any time after the expiry of two years from the end of the assessment year in which income is first assessable. Under sub-section (4) of section 139 of the Income-tax Act, a return of income for the assessment year commencing on the first day of April, 1988 or any earlier assessment year can be filed up to two years from the end of the relevant assessment year. Similarly, under sub-section (5) of section 139, a return of income for an assessment year commencing on the 1st day of April, 1988 or any earlier assessment year can be revised at any time before the assessment is completed or up to two years from the end of the relevant previous year, whichever is earlier. An anomalous situation, therefore, arose where a return of income for the assessment year 1988-89 or any earlier assessment year is filed on the last day of the period allowed under section 139(4) or (5) of the Income-tax Act. In such a case, as per the existing provisions of section 153, the assessment would have to be completed on the same day. As a measure to correct this unintended situation, the Finance Act has inserted a proviso in section 153(1) of the Income-tax Act to provide a further time of one year for completion of assessment, from the end of the financial year in which such return is filed. Finance Act, 1989 25.2 A similar situation arose in the Wealth-tax and Gift-tax Acts. By the Amending Act it has been provided that in respect of a return of wealth/gifts relating to the assessment year commencing on the 1st day of April, 1987 or any earlier assessment year, the assessment may be completed by 31st March, 1991 and in respect of a return of wealth/gifts relating to assessment year commencing on the 1st day of April, 1988, the assessment may be completed by 31st March, 1992. Finance Act, 1989 25.3 Under the existing sub-section (1) of section 16A of the Gift-tax Act, the time limit for completion of assessment is one year from the end of the assessment year in which the gifts were first assessable. The time limit for filing a return of gifts or revising the same is also one year. Consequently, if a return of gifts is filed or revised on the last day, no time would be left for completing the assessment. The Finance Act has, therefore, provided that the period of one year for completing the assessment is enhanced to two years from the end of the assessment year in which the gifts were first assessable. Finance Act, 1989 25.4 These amendments will come into force with effect from 1st April, 1989. [Sections 20, 28 and 31 of the Finance Act, 1989] Finance Act, 1989 Modification of provisions relating to tax deduction at source 26.1 Under the existing provisions of sub-section (2A) of section 192, relating to deduction of tax at source on any income chargeable under the head "Salaries", the employer has been given power to deduct tax at source after taking into consideration relief allowable under sub-section (1) of section 89 of the Income-tax Act in respect of salary paid in arrears or in advance to employees of Government or public sector undertakings. Finance Act, 1989 26.2 With a view to reduce infructuous work in the Income-tax Department, sub-section (2A) of section 192 has been amended so as to give similar powers to other employers being a company, co-operative society, local authority, institution, association or body. Finance Act, 1989 26.3 Under the existing provisions of section 193 of the Income-tax Act, tax has to be deducted at source by the person responsible for making any payment in the nature of interest on securities at the time of payment. The liability to deduct tax at source was being postponed by making a provision for such payment. In order to prevent the postponement of liability to deduct tax and payment to the credit of the Central Government, the Finance Act has provided that tax will be deducted at source either at the time of credit to the account of the payee or at the time of payment thereof, whichever is earlier. For this purpose, credit to any suspense account or any other account, by whatever name called, shall be deemed to be a credit of such income to the account of the payee. Finance Act, 1989 26.4 Further, clause ( v ) of the proviso to section 193 of the Income-tax Act provides for non-deduction of tax at source from any interest payable to a resident, individual, on debentures issued by a company in which the public are substantially interested, if— ( a ) the interest is paid by the company by an account payee cheque; and ( b ) the amount of such interest or, as the case may be, the aggregate of the amounts of such interest paid or likely to be paid during the financial year by the company to such individual does not exceed one thousand rupees. Finance Act, 1989 26.5 With a view to avoid hardship to small investors, clause ( v ) of the proviso to section 193 has been amended so as to increase the monetary ceiling from one thousand rupees to two thousand five hundred rupees. This brings the monetary limit at par with those provided in sections 194 and 194A relating to tax deduction at source on dividends and interest other than interest on securities, respectively. Finance Act, 1989 26.6 These amendments will come into force with effect from 1st June, 1989. [Sections 21 and 22 of the Finance Act,1989] Finance Act, 1989 Amendment of provisions relating to revision of orders prejudicial to revenue 27.1 Under the existing provisions of section 263 of the Income-tax Act and corresponding provisions of the Wealth-tax Act and the Gift-tax Act, the Commissioner of Income-tax is empowered to call for and examine the record of any proceeding and if he considers that the order passed by the Assessing Officer is erroneous insofar as it is prejudicial to the interests of revenue, he may pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the same or directing a fresh assessment. By the Finance Act, 1988, an Explanation was substituted with effect from 1st June, 1988 to the relevant sections of the Income-tax Act, Wealth-tax Act and Gift-tax Act, to clarify that the term 'record' would include all records relating to any proceeding available at the time of examination by the Commissioner. Further, it was also clarified that the Commissioner is competent to revise an order of assessment passed by an Assessing Officer on all matters except those which have been considered and decided in an appeal. The above Explanation was incorporated in the Finance Act, 1988 to clarify this legal position to have always been in existence. Some appellate authorities have, however, decided that the Explanation will apply only prospectively, i.e., only to those orders which are passed by the Commissioner after 1-6-1988. Such an interpretation is against the legislative intent and section 263 of the Income-tax Act has been amended so as to clarify that the provisions of the Explanation shall be deemed to have always been in existence. Finance Act, 1989 27.2 Sections 24 and 25 of the Gift-tax and Wealth-tax Acts have also been amended on the above lines. [Sections 23, 30 and 32 of the Finance Act, 1989] Finance Act, 1989 Modification of the provisions relating to submission of statements by producers of cinematograph films 28.1 Under the existing provisions of section 285B of the Income-tax Act, a producer of cinematograph films has to file a statement with the Assessing Officer, giving particulars of all payments of over five thousand in the aggregate made by him to each such person as is engaged by him as employee or otherwise. The prescribed statement has to be furnished within thirty days from the end of the financial year or within thirty days from the date of completion of the production of the film. Some film producers have construed the provisions of section 285B in a very restricted manner, with the result that only payments made to employees are being disclosed in the requisite statement. The legislative intent behind the introduction of this provision is that the requisite statement should show payments not only to employees but to others also. To avoid any ambiguity and to eliminate any litigation in this regard, the words "as employee or otherwise", have been deleted by the Finance Act. The effect is that the statement to be filed shall now include payments made not only to employees but to others also. Finance Act, 1989 28.2 This amendment will come into force with effect from 1st June, 1989. [Section 24 of the Finance Act, 1989] Finance Act, 1989 Extension of Direct Tax Laws to the State of Sikkim 29.1 Hitherto the Income-tax Act, 1961, the Wealth-tax Act, 1957 and the Gift-tax Act, 1958 did not apply to the State of Sikkim. By a notification of the Government of India, Ministry of Home Affairs No. SO 1028(E), dated 7th November, 1988 and the Central Government's notification No. SO 148(E), dated 28th February, 1989 issued in pursuance thereof, the Income-tax Act, 1961, the Wealth-tax Act, 1957 and the Gift-tax Act, 1958 had been extended to the State of Sikkim. The Income-tax Act had been extended with effect from the 1st April, 1989, i.e., from the assessment year 1989-90. In view of certain difficulties pointed out by the Government of Sikkim, the Finance Act has provided that the Income-tax Act, 1961 will now stand extended to the State of Sikkim from the 1st day of April, 1990, and will, accordingly, apply in relation to the assessment year 1990-91 and subsequent years. Section 26 of the Finance Act, 1989 also provides that any law corresponding to the Income-tax Act, 1961 which was in force in the State of Sikkim will be deemed never to have ceased to have effect in relation to the previous year commencing on 1st April, 1988 and ending on the 31st of March, 1989. Such a provision became necessary as the earlier notification issued by the Ministry of Home Affairs had extended the Income-tax Act, 1961 to the State of Sikkim with effect from 1st April, 1989, i.e., from the assessment year 1989-90 and accordingly the law already in existence in the State of Sikkim stood repealed from 1-4-1988. Finance Act, 1989 29.2 The Wealth-tax Act, 1957 and the Gift-tax Act, 1958 stand extended to the State of Sikkim pursuant to the Central Government's notification No. SO 148(E), dated 23rd February, 1989. The Wealth-tax Act will, therefore, apply to the net wealth of the residents of Sikkim on the valuation date being 31st March, 1990 or thereafter. The Gift-tax Act, 1958 also will have effect from 1st April, 1990 so as to apply in respect of gifts made by a person residing in the State of Sikkim on or after the first day of April, 1989. Finance Act, 1989 29.3 A new clause has been inserted in section 10 of the Income-tax Act whereby winnings from lotteries in the hands of residents of Sikkim has been exempted in respect of payments received by them pursuant to agreements entered into up to 28th day of February, 1989 between the State Government of Sikkim and the organising agents of lotteries. Finance Act, 1989 Exemption from wealth-tax of the right or interest in any annuity plan of the Life Insurance Corporation of India referred to in section 80CCA of the Income-tax Act, 1961 30.1 Under the existing provisions of section 80CCA of the Income-tax Act, any deposit made under the National Savings Scheme or any amount paid to effect or to keep in force an annuity plan of the Life Insurance Corporation of India (as the Central Government may notify) is allowed as a deduction from the income of a taxpayer in the year of deposit or payment. There is a ceiling of rupees twenty thousand for the assessment year 1988-89 and rupees thirty thousand for the assessment year 1989-90 and subsequent years which can qualify for a deduction under this section. Under the Wealth-tax Act, whereas the right or interest in any of the annuity plans of the Life Insurance Corporation of India notified by the Central Government are taxable, the deposits under the National Savings Scheme are fully exempt. In order to place both the above saving schemes of the Government at par, it has been provided that the right or interest of taxpayer in any annuity plan of the Life Insurance Corporation of India referred to in section 80CCA of the Income-tax Act will be fully exempt from wealth-tax. Finance Act, 1989 30.2 This amendment will come into force retrospectively from 1st April, 1988 and will, accordingly, apply in relation to the assessment year 1988-89 and subsequent years. [Section 27 of the Finance Act, 1989] amendment to wealth-tax act Finance Act, 1989 Exemption from wealth-tax of societies registered under the Societies Registration Act, 1860 31.1 Under the existing provisions of section 21AA of the Wealth-tax Act, in the case of an association of persons including a society registered under the Societies Registration Act, 1860, wealth-tax is payable either at the normal rates or at the rate of three per cent, whichever is more beneficial to revenue. Under section 167B of the Income-tax Act, a society registered under the Societies Registration Act, has been excluded from the purview of that section which provides for taxation of association of persons at the maximum marginal rate. As a measure of rationalisation, the Finance Act has excluded societies registered under the Societies Registration Act, 1860 from the purview of section 21AA of the Wealth-tax Act. Finance Act, 1989 31.2 This amendment will come into force with effect from 1st April, 1989 and will, accordingly, apply in relation to the assessment year 1989-90 and subsequent years. [Section 29 of the Finance Act, 1989] EXPENDITURE TAX Finance Act, 1989 Enhancing the rate of tax 32.1 Under the provisions of section 4 of the Expenditure Tax Act, 1987, tax is chargeable at the rate of ten per cent of any chargeable expenditure incurred in a hotel to which the Act applies. By amendment, the rate of tax has been enhanced from ten per cent to twenty per cent. Finance Act, 1989 32.2 This amendment will take effect from 1st June, 1989. [Section 33 of the Finance Act, 1989] Finance Act, 1989 ANNEXURE A-1 NOTIFICATION The Government of India hereby notifies following Deposit Scheme with effect from 1st July, 1989 until further orders: Short title 2. This Scheme may be called Deposit Scheme for Retiring Government Employees, 1989. Definition 3. In this Scheme, unless the context otherwise requires: ( a ) 'Account' means an account opened under this Scheme. ( b ) 'Accounts Office' means any branch of State Bank of India or its subsidiaries or any other nationalised banks, as may be authorised to accept deposits under the Scheme. ( c ) 'Depositor' means a retired Central or State Govt. employee by whom or on whose behalf money is deposited in an account and deposit means money so deposited. ( d ) 'Retirement benefits' means any payment due to the depositor on account of his retirement whether on superannuation or otherwise and includes following payments:— ( i ) Balance at the credit of employee in any of the Government Provident Funds, ( ii ) Retirement/Superannuation gratuity. ( iii ) Commuted value of pension, ( iv ) Cash equivalent of leave, and ( v ) Savings element of Government insurance scheme payable to the employee on retirement Opening of account 4. ( a ) Any depositor may open an account with any accounts office within three months from the date of receiving the retirement benefits for depositing the amount not exceeding the total retirement benefits, by applying in Form 1, or as near thereto as possible, together with— ( i ) a locally executed cheque, pay order or demand draft, for the amount of deposit, and ( ii ) a certificate from the employer indicating retirement benefits provided that a depositor who has received the retirement benefits before the notification of this Scheme, may open an account within three months from the date of commencement of the scheme. ( b ) On receipt of an application under sub-paragraph ( a ) above, the accounts office shall open an account in the name of depositor and issue him a provisional receipt. ( c ) After realisation of the cheque, pay order or demand draft as the case may be, a pass book in Form 2, shall be issued in exchange of the provisional receipt indicating the name of the depositor, his address, the amount of deposit(s) made, and account number, duly initialled by an authorised official of the accounts office. ( d ) Date of realisation of the cheque, pay order or demand draft shall be the date of deposit and the deposit shall be deemed to be made on that date only. ( e ) A depositor may open only one account under this scheme, provided that where the retirement benefits have been received on different dates, more than one deposit can be made in this account. Such deposits shall be made within three months from the date of receiving that retirement benefit from the Government. Deposits and withdrawal 5. ( a ) The account shall be opened with a deposit of a minimum of one thousand rupees, and all deposits will be in the multiples of one thousand rupees. ( b ) All withdrawals shall be in the multiple of one thousand rupees. ( c ) A depositor may, at his option, withdraw by applying in Form 3 or as near thereto as possible, the entire balance or part thereof after the expiry of three years from the date of deposits. Where depositor elects to make part withdrawal, the balance amount will be held as a deposit in the account. ( d ) The depositor may also make premature withdrawal of principal amount subject to the conditions specified in paragraph 7. ( e ) There shall not, be more than one withdrawal in respect of a deposit in a calendar year. Interest on deposits 6. ( a ) All deposits made in accordance with this scheme shall carry interest at the rate of 9% per annum from the date of the respective deposits. The interest will be paid from the date of deposit to 30th June/31st December, as the case may be, and thereafter, interest will be paid half-yearly on the 30th June and 31st December. The interest in fraction of a rupee will be rounded off to the next higher rupee. ( b ) Where on expiry of three years, the account is continued, the balance amount in the account will earn interest at the same rate till the account is closed. ( c ) If so authorised, interest payable every six months may be deposited by accounts office in a separate savings account opened by depositor at that accounts office. ( d ) Interest due on the deposits but not drawn on due date will continue to earn interest at 9% as applicable to principal amount, so long as the interest remains in deposit. Premature withdrawal 7. ( a ) No withdrawal can be made by the depositor during the first year from the date of the deposit. ( b ) Where depositor makes a withdrawal of any amount after expiry of one year but before expiry of three years from the date of deposit, the interest on amount withdrawn will be payable at the rate of 4% from date(s) of deposit up to the date of withdrawal, interest at 9% if already paid, being adjusted at the time of withdrawal. Joint accounts and nomination 8. ( a ) The account may be opened by the depositor either in his name or jointly with his spouse. ( b ) Where the account is held in a single name: ( i ) The depositor may at the time of opening the account or any time thereafter, but before closure of the account, nominate in Form 4, a person or persons who in the event of his death shall receive the payment due on the account. ( ii ) A nomination made by depositor may be cancelled or varied by a fresh nomination in Form 5 by giving notice in writing to account office in which account stands. ( iii ) Every nomination and every cancellation or variation thereof shall be registered in the accounts office and shall be valid from the date of such registration, the particulars of which shall be entered in the Pass Book. Closure of account 9. ( a ) The account may be closed by the depositor on or after the expiry of three years from the date of initial deposit or last deposit where more than one deposit is made in the account. ( b ) If the depositor dies within the period of three years, or thereafter, the account shall be closed as soon as death is reported to the bank and the amount paid to the nominee. Where, however, the deposit account is held jointly with the spouse or where the sole nominee is the spouse of the depositor, the spouse may, at his/her option, request for continuance of the account and the account then shall be continued in the name of such spouse on same terms and conditions as applicable to account. Pass book 10. The pass book shall be presented to accounts office at the time of collecting interest and also at the time of withdrawal and closure. Transfer from one accounts office to another 11. A depositor may apply for transfer of his account from one accounts office to another accounts office due to change of his residence. Issue of duplicate pass book 12. In the event of loss or destruction of a pass book issued by an accounts office, the office may on an application made to it in this behalf, and on payment of rupee one by the depositor, issue a duplicate thereof to him. Power to relax 13. Where the Central Government is satisfied that the operation of any of the provisions of this Scheme causes undue hardship to a subscriber, it may, by order, for reasons to be recorded in writing relax the requirements of that provision. FINANCE ACT, 1989 FORM 1 [See para 4] Serial No........... Name and address of Bank Form of application for opening an account under Deposit Scheme for Retiring Government Employees, 1989 Name Agency No. of Agent introducing the account.........……………………………………………………………...…….............. ................................................................................................................ Signature of Agent..................................... To The Manager, Bank of................................... Sir, I hereby apply for opening an account under the Deposit Scheme for Retiring Government Employees, 1989, in my name and tender herewith Rs..(Rupees.......) through cheque/pay order/demand draft as the initial deposit. Permanent address of depositor..........................................................…………………………………………………..................... .................................................................................................................................................. 2. I agree to abide by the provisions of the above scheme. 3. I hereby declare that I am not maintaining any other account under the scheme. 4. A copy of certificate from employer indicating retirement benefits is enclosed. 5. I nominate the persons mentioned below to whom to the exclusion of all other persons, in the event of my death, the amount standing to my credit in the account would be payable: Serial No. Name(s) of the nominee(s) Full address Date of birth of nominee(s) in the case of minor Proportionate amount for each nominee As the nominee(s).........at Serial No.(s)........specified above is/are minor(s), I appoint Shri/Smt./Kumari...................... ..........……………………........................................................ Address................................................................................................................................... ............................................................................................................................................…to receive the sum due under the said account in the event of my death during the minority of the nominee(s). Date.................... Depositor Signature of witness: Name and address : FOR THE USE OF ACCOUNTS OFFICE The account has been opened on...................with Rs................under Deposit Scheme for Retiring Government Employees, 1989 Account No....................... Pass Book No.................. has been issued. Date.......................... Authorised Officer FINANCE ACT, 1989 FORM 2 [ See para 4( c )] Form of Pass Book to be issued to the depositor under Deposit Scheme for Retiring Government Employees, 1989 Cover page Obverse DEPOSIT SCHEME FOR RETIRING GOVERNMENT EMPLOYEES, 1989 PASS BOOK Serial No .................. Name address of Bank................ Name of the Account Holder................ Account No............... Ledger No.............. Folio No.............. Cover Page Reverse Account No........................................................................................................................................... Name............................................................ ......................................................................... Address.................................................................................................................................. Date of Issue........................................................................................................................ Particulars regarding nomination: Sl. Name of the nominee Permanent address Date of birth No. of nominee in case of minor (Signature of issuing authority) Manager (Name of the bank) Form of pages inside the book : Date Particulars Amount Amount Amount Interest Balance Signature deposited with draw paid _______________________________________________________________________ 1 2 3 4 5 6 7 8 _______________________________________________________________________ FINANCE ACT, 1989 FORM 3 [ See para 5( c )] Name and address of Bank Application for withdrawal under the Deposit Scheme for Retiring Government Employees, 1989 The Manager, Bank of................................. I wish to withdraw from the Deposit Scheme for Retiring Government Employees, 1989 Account No.....................a sum of Rs.......................................(Rupees............................). A period of.........................................................years have expired from the date of deposit. 2. The Pass Book No...............................................................................is enclosed. Date: Place: Signature or Thumb Impression of Depositor TO BE USED BY THE ACCOUNTS OFFICE Date of initial deposit.................................................................................................. Amount available in the account Rs........................................................................ Date on which last withdrawal was allowed........................................................... Amount available for withdrawal in accordance with para............................ of the Scheme. Withdrawal of a sum of Rs.....................................................................sanctioned. Signature of Official........................................................................................................... RECEIPT Received a sum of Rs.......................................... (Rupees............................................) by way of withdrawal from Deposit Scheme for Retiring Government Employees, 1989. Date: Place: Signature or Thumb Impression of Depositor FINANCE ACT, 1989 FORM 4 [ See para 8] Nomination under the deposit scheme for retiring Government Employees, 1989 To The Manager, Bank of................................. I...............................hereby nominate the person(s) mentioned below to whom, to the exclusion of all other persons, in the event of my death, the amount standing to my credit in the account under Deposit Scheme for Retiring Government Employees, 1989 Account No................at the time of my death would be payable. _______________________________________________________________________ Sl. Name(s) of Full address(es) Date of birth Propertionate No. the nominee(s) nominee(s) in amount for cases of minor each nominee _______________________________________________________________________ *As the nominee(s) at............................Serial No.(s) ...............................specified above is/are minor(s), I appoint Shri/Smt./Kumari..................................................... address...............................................................................................................................................…………………to receive the sum due under the said account in the event of my death during the minority of the nominee(s). Signature of witness: Name and address: Signature/Thumb Impression of Depositor Date: *Delete if not applicable. FOR THE USE OF ACCOUNTS OFFICE The above nomination has been registered on.........................and an entry made in the pass book. Date............ Signature of Authorised Officer FINANCE ACT, 1989 FORM 5 [ See para 8] Cancellation or variation of nomination previously made in respect of Account No....................... under Deposit Scheme for Retiring Government Employees, 1989. To The Manager, Bank of....................... ........................................ I, ..........................the depositor under Deposit Scheme for Retiring Government Employees, 1989 Account No............................ hereby cancel the nomination dated............................... made by me in respect of the aforesaid account. *In place of the cancelled nomination, I hereby nominate the person(s) mentioned below who shall on my death, become entitled to the payment of the sum due on the above account, to the exclusion of all other persons. _______________________________________________________________________ Sl. Name(s) of Full address(es) Date of birth Propertionate No. the nominee(s) nominee in amount for cases of minor each nominee _______________________________________________________________________ *To be filled in case of variation only. %As the nominee(s) at Serial No.(s).................………………………….......................................is/are minor(s), I appoint Shri/Smt./Kumari............................ (Name full address) as the person to receive the sum due on the account in the event of my death during the minority of the nominee(s). % Delete if not applicable. Signature / Thumb Impression of Depositor Depositor's Address: (1) Witness : Name : Address : (2) Witness : Name : Address : For the use of accounts office The above cancellation/variation of the nomination has been registered in the ledger and entered in the pass book. Date......................... Signature of the Authorised Officer FINANCE ACT, 1989 Annexure A2 Press Note Finance Minister in his Budget Speech on 28-2-1989 had proposed a new Savings Scheme for Retiring Govt. Employees with certain tax concessions. The Government has since notified the Deposit Scheme for the Retiring Central/State Government Employees. The Deposit Scheme will be implemented from 1st July, 1989 by selected branches of the Public Sector Banks. 2. The Schemes will be open for investment by retired/retiring Central/State Government employees and the investments may be made up to the maximum of total of the retirement benefits received. The Scheme provides for a period of three months from the date of receiving the retirement benefits for deposit, in case of the employees retiring in future and for those who have already retired, investment up to the maximum of retirement benefits already received may be deposited within three months from 1st July, 1989. 3. Retirement benefits which can be deposited in the Scheme will include:— ( i ) Balance at the credit of the employees in any of the Government Provident Funds. ( ii ) Retirement/Superannuation gratuity. ( iii ) Commuted value of pension. ( iv ) Cash equivalent of leave, and ( v ) Savings element of Government Insurance Scheme payable to employee on retirement. Any employee desiring to open an account under this Scheme will be required to produce a certificate from employer indicating the retirement benefits. 4. No withdrawals will be permitted for a period of three years from the date of deposit although premature withdrawal may be made at any time after one year from the deposit subject to the special provisions made in the Scheme regarding such premature withdrawals. After expiry of three years from the date of deposit, depositor will have an option to either withdraw the entire balance amount thereof or part thereof and if depositor makes a part withdrawal, the balance amount will be held as a deposit in the account. 5. All deposits made under the Scheme shall carry interest at the rate of 9% per annum and the interest will be paid every six months on 30th June and 31st December. The interest due on the deposits if not drawn on the due date will continue to earn interest at the same rate. 6. Nomination facility will be available. 7. The account under the Scheme may be opened by depositor either in his name or jointly with his/her spouse. If the depositor dies within a period of three years or thereafter, the account shall be closed and amount paid to the nominee. If the account is held jointly with his/her spouse or the spouse of the depositor is sole nominee, the spouse will be permitted to continue accounts on the same terms and conditions. 8. Depositors will be provided with the pass book indicating the amount deposited, amount withdrawn, interest, etc. 9. The whole of the interest earned on the deposits under the Scheme is exempt from income-tax. 10. The whole of the amount of deposits under this Scheme is exempt from wealth-tax. The ceiling of exemption of wealth up to Rs. 5 lakhs will not apply to the deposits made in this Scheme. 11. The Scheme which will be known as Deposit Scheme for Retiring Government Employees, 1989, will be initially operated through the selected branches of the State Bank of India/Associate Banks and other Nationalised Banks in all State Capitals and Union territories. Depending upon the demand the facility of opening an account under this Scheme will be extended to other cities/towns. FINANCE ACT, 1989 ANNEXURE A3 NOTIFICATION The following amendments may be made in the Government of India, Ministry of Finance (Department of Economic Affairs) Notification No. F2/14/89-NS.II, dated 7th June, 1989 : ( i ) In para 4, in sub-paragraph ( a ), the following proviso may be added at the end, namely:— "Provided further that where the amount of deposit does not exceed Rs. five lakhs, an affidavit on stamped paper signed by the depositor indicating the amount of retirement benefits received by him shall be accepted in lieu of a certificate from the employer." ( ii ) In Form 1— ( a ) for paragraph (4), the following paragraph shall be substituted, namely:— "4. A copy of certificate from employer indicating retirement benefits is enclosed*/An affidavit on stamped paper indicating retirement benefits is enclosed (applicable for deposits not exceeding Rupees Five lakhs)." ( b ) The following footnote may be added at the end, namely:— "*Delete whichever is not applicable" 2. These amendments shall take effect from the date of publication of the notification in the Official Gazette. FINANCE ACT, 1989 ANNEXURE A4 NOTIFICATION Deposit Scheme for Retiring Government Employees, 1989 The following amendments shall be made in the Government of India, Ministry of Finance (Department of Economic Affairs) Notification No. F. 2/14/89-NS.II, dated 7th June, 1989: 1 . In para 4, in sub-paragraph ( a ), after the words "within three months from the date of receiving the retirement benefits", the words and figures "or up to 31st December, 1989, whichever is later", shall be added; ( b ) for the words "three months" in the first proviso, the words "six months" shall be substituted. 2. These amendments shall take effect from 1-10-1989. Note : The Deposit Scheme was notified vide Notification No. F.2/14/89-NS.II, dated 7-6-1989 and amended vide Notification No. F.2/14/89-NS.II, dated 10th August, 1989. FINANCE ACT, 1989 ANNEXURE A5 To The Secretary, Small Savings, Finance Department, Government of Gujarat, Sachivalaya Complex, Sardar Bhavan, Block-4, Gandhinagar-382010. Subject: Deposit Scheme for Retiring Government Employees, 1989 - Tax liability of nominee - Clarification regarding Sir, I am directed to refer to your Letter No. NBY-RGS-1589-GOI-46/B/90 dated 15th July, 1989 on the subject cited and to state that it has been clarified by CBDT that no tax liability under the Income-tax Act and the Wealth-tax Act will arise on the amount payable to the nominee on the death of the depositor under the Deposit Scheme for Retiring Government Employees, 1989. FINANCE ACT, 1989 ANNEXURE B PRESS RELEASE Venture capital guidelines In his Budget Speech for 1988-89, the Finance Minister had referred to the difficulties faced by a new entrepreneurs in raising equity capital, and declared that "it has been decided to formulate a scheme under which Venture Capital Companies/Funds will be enabled to invest in new companies and be eligible for the concessional treatment of capital gains available to non-corporate entities". 2. Venture Capital Companies/Funds which went to avail of concessional treatment of capital gains referred to in the Budget Speech and for which necessary legislative measures will be taken, would be required to comply with the following guidelines:— Establishment 1. ( i ) Funds, Companies or Schemes wishing to undertake venture capital finance activities may be established using the term "Venture Capital" if they come within, and agree to abide by, these guidelines. ( ii ) Approvals would be given for the establishment of the Venture Capital Companies/Funds by the Department of Economic Affairs, Ministry of Finance, or such authority as may be nominated by the Government, and applications for such approvals should be made with a suitable explanatory note and details of the proposal and addressed to CCI/Jt. Secretary (Investments) in Department of Economic Affairs. ( iii ) Applications for issue of capital by companies should be made under the Capital Issues (Control) Act to the CCI, composite applications for approval to establish the Fund and for the issue of capital can also be made. ( iv ) All India Public Sector Financial Institutions, SBI and other scheduled banks, including foreign banks operating in India, and the subsidiaries of the above would be eligible to start Venture Capital Funds/Companies, subject to such approval as may be required from the Reserve Bank of India in respect of banking companies. Joint ventures between them, or between non-institutional promoters and them would be permitted, but the equity holding of such promoters shall not exceed a total of 20% and must not be the largest single holding. Management 2. ( i ) It is required that the Venture Capital Funds/Companies are managed by professionals such as bankers, Managers and administrators and persons with adequate experience of industry, finance, accounts, etc. If established by subsidiaries of banks/institutions, or in-house schemes, they should maintain their independence and an arm's length relationship. They would, however, be free to draw upon the professional expertise and infrastructure of the parent organisation in the interests of their shareholders and clients, and minimising costs. ( ii ) No person would be permitted to be the full time Chairman/President, Chief Executive, M.D. or Executive Director or a wholetime Director of a VCC/VCF if he holds any of the above positions in any other company, except that he may hold such a position in an assisted company by virtue of his position in the VCC/VCF. Venture Capital Assistance 3. ( i ) It is intended that Venture Capital Assistance should go mainly to enterprises where the risk element is comparatively high due to the technology involved being relatively new, untried or very closely held, and/or the entrepreneurs being relatively new and not affluent though otherwise qualified; and the size being modest. For successful units, the possibility of high returns would exist, but the projects would initially find it difficult to raise equity from the market, especially when public issues are no longer readily available for small, grainfield companies. The assistance should mainly be for equity support, though loan support to supplement this may also be done. Venture Capital Assistance, therefore, should cover those enterprises which fulfil the following parameters:— ( a ) Size : Total investment not to exceed Rs. 10 crores. ( b ) Technology : New or relatively untried or very closely held or being taken from pilot to commercial stage, or which incorporates some significant improvement over the existing ones in India. ( c ) Promoters/entrepreneurs : Relatively new, professionally or technically qualified, with inadequate resources or backing to finance the project. Investment in enterprises engaged in trading, broking investment or financial services, agency or liaison work, shall not be permitted. Further investment in assisted units for their expansion or strengthening, or investment for the revival of sick units, would be permitted as a part of venture capital activity, and the above parameters will not apply. The recipient venture should be established as a limited company and must employ professionally qualified persons to maintain its accounts. ( ii ) The VCP/VCC should invest at least 75% of its funds into venture capital activity as explained in para 3( i ). ( iii ) During the first 12 months, any permissible investments may be made (including leasing up to 15% of the funds), but a level of 30% should be reached for venture capital activity by the end of the second year, and 60% by the end of the third year, and 75% by the end of the fifth year of operations. The balance amounts may be invested in any new issue, by an existing or a new company, of equity, CCPS debentures, bond or other securities approved for this purpose by CCI. A part of this may also be employed for leasing but this should not, at any stage, exceed 15% of the total funds deployed, including in the first year. Activities such as money market operations, bill re-discounting, broking, portfolio investments and fund management, financial services and consultancy, intercorporate lending would not be permitted to VCC/VCF. Specific approval of CCI should be taken for activities not prohibited, but also not included in the permitted list above. Size 4. The minimum size of a VCC/VCF would be Rs. 10 crores. If it desires to raise funds from the public, the promoters' share shall not be less than 40%. Capital issues 5. ( i ) Funds may be raised through public issues and/or private placements to finance VCF/VCCs. ( ii ) Foreign equity up to 25% multilateral/international financial organisations, development finance institutes, reputed mutual funds, etc., would be permitted, provided these are management-neutral and are for medium to long-term investments. ( iii ) NRI investment would be permitted up to 74% on a non-repatriable basis and up to 25%/40% on a repartriable basis. ( iv ) An application should be addressed to Ministry of Finance, Investment Division, North Block, New Delhi, with a copy to Chairman, Securities Exchange Board of India for foreign/NRI participation in capital issues. Debt-equity ratio 6. Debt-equity ratio may be maximum 1 : 1.5. Underwriting/listing 7. ( i ) The VCC/VCF may be listed according to the prescribed norms. Its issue may be underwritten at the discretion of the promoters. ( ii ) For assisted units also, listing guidelines would apply. Investment by widely held VCF would be treated as public participation for this purpose. Exit 8. Pricing of the shares at the time of disinvestment by a public issue of general offer of sale by the VCC/VCF, may be done by them, subject to this being calculated on objective criteria like book value, profit-earning capacity, etc., and the basis is adequately disclosed to the public. Eligibility for tax concession 9. The preferential tax treatment would be available to the approved venture capital company/fund only in respect of financing of such assisted units as are eligible to be treated as venture capital units as defined in paragraph 3. For this purpose, the unit seeking equity support from the VCC/VCF should obtain a letter of eligibility from IDBI/ICICI, or any such agency that may be nominated by the Government.