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TMI BlogFinance Act, 2006 - Explanatory Notes on provisions relating to Direct TaxesX X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Act, 1961; (iii) inserted new sections 80AC, 90A, 115BBC, 139B, 271CA in the Income-tax Act, 1961; (iv) amended rule 3 and rule 4 of Part A of the Fourth Schedule to the Income-tax Act, 1961; (v) amended section 97 of the Finance (No. 2) Act, 2004; (vi) amended section 17A of the Wealth-tax Act, 1957. (vii) increased the rates for levy of securities transaction tax in Chapter VII of the Finance (No. 2) Act, 2004. 3. Rate structure 3.1 Rates of income-tax in respect of incomes liable to tax for the assessment year 2006-07 3.1-1 In respect of income of all categories of taxpayers liable to tax for the assessment year 2006-07, the rates of income-tax have been specified in Part I of the First Schedule to the Act. The rates specified in Part I of the First Schedule to the Act are the same as those laid down in Part III of the First Schedule to the Finance Act, 2005 for the purposes of computation of advance tax, deduction of tax at source from Salaries and charging of tax payable in certain cases during the financial year 2005-06. 3.1-2 The salient features of the rates specified in the said Part I are indicated in the following paragraphs: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elief is given to the extent of Rs. 11,600 in this case thereby providing that the additional tax liability cannot be more than the additional income. The total tax liability in this case will, therefore, be Rs. 2,70,000 instead of Rs. 2,81,000. 3.1-5 In the case of an artificial juridical person, surcharge would be levied at ten per cent of the income-tax payable on all levels of income. 3.1-6 EDUCATION CESS - An additional surcharge called the Education Cess on Income-tax is to be levied at the rate of two per cent on the amount of tax computed, inclusive of surcharge, in all cases. For instance, if the income-tax computed is Rs. 1,00,000 and the surcharge is Rs. 10,000, then the education cess of two per cent is to be computed on Rs. 1,10,000 which works out to be Rs. 2,200. No marginal relief shall be available in respect of the Education Cess. 3.1-7 CO-OPERATIVE SOCIETIES - In the case of every co-operative society, the rates of income-tax have been specified in Paragraph B of Part I of the First Schedule to the Act as under Income chargeable to tax Rate Up to Rs. 10,000 10% Rs. 10,001 - Rs. 20,000 20% Exceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x at source during the financial year 2006-07 from income by way of royalties or fees from technical services received from the Government or an Indian concern in pursuance of an agreement entered into by it with the Government or Indian concern after the 31-5-1997 but before the 1-6-2005 shall be twenty per cent and in pursuance of an agreement made on or after the 1-6-2005, shall be 10 per cent. In the case of all non-residents, the rate of deduction of tax at source during the financial year 2006-07 from income by way of short-term capital gains referred to in section 111A shall be ten per cent. 3.2-3 In all other cases to which this Part applies; rates for deduction of income-tax at source during the financial year 2006-07 will continue to be the same as those specified in Part II of the First Schedule to the Finance Act, 2005. 3.2-4 The tax deducted at source in each case shall be increased by a surcharge for purposes of the Union as follows: (i) in the case of every individual, Hindu undivided family, association of persons and body of individuals, at the rate of ten per cent, of such tax, where the income or the aggregate of such incomes paid or likely to be paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Individual (other than individual women resident in India and senior citizens resident in India), HUF, association of persons, body of individuals and artificial juridical person Individual woman, resident in India and below the age of sixty- five years Individual senior citizen, resident in India, who is of the age of 65 years or more Up to Rs. 1,00,000 Nil Nil Rs. 1,00,001 - Rs. 1,35,000 10% Nil Rs. 1,35,001 - Rs. 1,50,000 10% Rs. 1,50,001 - Rs. 1,85,000 20% 20% Rs. 1,85,001 - Rs. 2,50,000 20% Exceeding Rs. 2,50,000 30% 30% 30% 3.3-3 The tax payable would be enhanced by a surcharge for the purposes of the Union at the rate of ten per cent of the tax payable, as reduced by rebate under Chapter VIII-A, in the case of every individual, Hindu undivided family, association of persons or body of individuals having total income exceeding Rs. 10,00,000. No surcharge would be payable by persons having incomes of Rs. 10,00,000 or below. As illustrated in para 3.1.4, marginal relief would be provided to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the total income. The tax computed shall be enhanced by a surcharge of ten per cent. Education Cess is to be levied at the rate of two per cent on the amount of tax computed, inclusive of surcharge. In the case of a company other than a domestic company, royalty received from Government or Indian concern under an approved agreement made after 31-3-1961, but before 1-4-1976 is taxed at fifty per cent. Similarly, in the case of fees for technical services received by such company from Government or Indian concern under an approved agreement made after 29-2-1964, but before 1-4-1976, is taxed at fifty per cent. On the balance of the total income of such company, the tax rate is forty per cent. The tax computed shall be enhanced by a surcharge of two and one-half per cent. Education Cess is to be levied at the rate of two per cent on the amount of tax computed, inclusive of surcharge. [Section 2 and First Schedule] 4. Exemption on aircraft lease rentals extended 4.1 Under section 10(15A), any payment made by an Indian company engaged in the business of operation of aircraft to acquire an aircraft or an aircraft engine on lease from the Government of a foreign State or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 10(23C)(iv), (v), (vi) and (via), a fund, trust or institution or university or other educational institution or hospital or other medical institution is required to make an application for grant of exemption under the said clauses to the prescribed authority. 6.2 A new proviso has been inserted in section 10(23C) to provide that such application made on or after 1-6-2006 shall be made at any time during the financial year immediately preceding the assessment year from which the exemption is sought. 6.3 Applicability - Assessment year 2007-08 onwards. [Section 4] 7. Removal of exemption for certain income of Investor Protection Fund 7.1 Under the provisions of section 10(23EA), any income of an Investor Protection Fund set up by recognized stock exchanges in India, either jointly or separately and notified by the Central Government in the Official Gazette, is exempt from income-tax. 7.2 The section has been amended to provide that any income of such Investor Protection Fund by way of contributions received from recognized stock exchanges and the members thereof, alone, will be tax-exempt. All other income of the Fund will be taxable. 7.3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion under section 10B from their income, a proviso (fourth proviso) to sub-section (1) of section 10B has been inserted so as to provide that no deduction under section 10B shall be allowed to an assessee who does not furnish a return of his income on or before the due date specified in sub-section (1) of section 139. Similarly, with a view to enforce the compliance for furnishing the return of income by the due date by the assessees who are entitled for deductions under section 80-IA or section 80-IAB or section 80-IB or section 80-IC from their income, a new section 80AC has been inserted so as to provide that no deduction under section 80-IA or section 80-IAB or section 80-IB or section 80-IC shall be allowed to an assessee who does not furnish a return of his income on or before the due date specified in sub-section (1) of section 139. 10.2 This amendment takes effect retrospectively from 1-4-2006 and applies in relation to the assessment year 2006-07 and subsequent years. [Sections 5 and 15] 11. Method for allocating expenditure in relation to exempt income 11.1 Section 14A of the Income-tax Act, 1961, provides that for the purposes of computing the total income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nment. 12.2 Clause (iv) of the proviso to clause (2) of section 17 similarly exempts reimbursement of medical insurance premium of employees provided it is in accordance with the scheme approved by the Central Government for the purposes of section 80D. Section 80D, as amended by the Finance Act, 2001, provides that the scheme should be either a scheme framed by the General Insurance Corporation under the General Insurance Business (Nationalisation) Act, 1972 or it should be in accordance with the scheme framed by any other insurer which is approved by the Insurance Regulatory Development Authority under the Insurance Regulatory and Development Authority Act, 1999. 12.3 Section 36(1)(ib) provides that an employer is entitled to a deduction in the computation of his profits and gains from business or profession, in respect of the amount of any premium paid by cheque by him to keep in force an insurance on the health of his employees. However, the deduction is available only if the insurance is in accordance with a scheme framed by the General Insurance Corporation of India and approved by the Central Government for this purpose. 12.4 With a view to align the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Official Gazette and which fulfils the conditions as may be prescribed; (ii) an undertaking referred to in clause (ii) or clause (iii) or clause (iv) of sub-section (4) of section 80-IA; and (iii) an undertaking referred to in sub-section (10) of section 80-IB. 13.4 This amendment will take effect from 1-4-2007 and will, accordingly, apply in relation to assessment year 2007-08 and subsequent years. [Sections 3, 4 and 9] 13.5 Notification prescribing the conditions to be fulfilled by a public facility to be eligible for notification as infrastructure facility in accordance with the provisions of clause (d) of the Explanation to clause (viii) of sub-section (1) of section 36 has been issued vide S.O. 1152(E) dated 20-7-2006 through which rule 6ABAA has been inserted in the Income-tax Rules, 1962. By another notification vide S.O. 1153(E) dated 20-7-2006 certain public facilities have also been specified as infrastructure facility. 14. Reference to the definition of derivatives 14.1 Under the existing provisions of clause (5) of section 43, an eligible transaction in respect of trading in derivatives carried out in a recognised stock exchange is not deeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ligible for tax credit in respect of income-tax paid in a foreign country in accordance with the provisions of section 90, or as the case may be, section 91. 15.4 This amendment is clarificatory in nature and is inserted in the Income-tax Act on 1-4-2006. 15.5 Another Explanation has been inserted in the aforementioned clause (ii) as Explanation 2 to provide that any sum paid outside India and eligible for relief of tax under newly inserted section 90A will not be allowed as a deduction in the computation of profits and gains of business or profession. 15.6 This amendment will take effect from 1-6-2006. [Section 10] 16. Interest not actually paid not eligible for deduction under section 43B 16.1 Under the existing provisions contained in clause (d) of section 43B, any sum payable by the assessee as interest on any loan or borrowing referred to in that clause is allowed as deduction in the computation of income if the sum payable as interest is actually paid by the assessee. 16.2 It has come to notice that certain assessees were claiming deduction under section 43B on account of conversion of interest payable on an existing loan into a fresh loan on the gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection to mean any bond redeemable after three years issued (i) on or after 1-4-2000 by the National Bank for Agriculture and Rural Development, or by the National Highways Authority of India, (ii) on or after 1-4-2001 by the Rural Electrification Corporation Limited, (iii) on or after 1-4-2002 by the National Housing Bank or by the Small Industries Development Bank of India. 17.2 With a view to raise tax revenues and also to channelise funds towards focused development of roads, highways, and rural electrification infrastructure, the provisions of section 54EC have been amended so as to restrict the benefit of tax exemption, only in respect of long-term capital gains invested in those bonds which are redeemable after three years, and are issued by the National Highways Authority of India, or by the Rural Electrification Corporation Limited on or after 1-4-2006 and are notified by the Central Government for the purposes of the said section. Thus, under the amended provisions, the benefits of section 54EC shall be available only if the long-term capital gains are invested on or after 1-4-2006 in the notified bonds of National Highways Authority of India or Rural Electrification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section. To provide a level playing field amongst banks and other institutions like insurance companies, mutual funds, etc. a new clause (xxi) in a sub-section (2) of section 80C has been inserted so as to provide that investment in a term deposit for a fixed period of not less than 5 years with any scheduled bank, and which is in accordance with a scheme framed and notified by the Central Government, shall be eligible for deduction under the said section. The expression scheduled bank has also been defined for this purpose. The Bank Term Deposit Scheme, 2006 has been notified on 28-7-2006. 19.3 Clause (xi) of sub-section (2) refers to contribution in the name of any person specified in sub-section (4) of section 80C for participation in any such Unit-linked insurance plan of the LIC mutual fund notified under clause (23D) of section 10 as the Central Government may, by notification, specified. Clause (xiii) of the said sub-section refers to subscription to any units of any mutual fund notified under clause (23D) of section 10 or from the administrator or the specified company under any plan formulated in accordance with such scheme as may be notified by the Central Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India for generation or generation and distribution of power, if it begins to generate power during the period beginning on 1-4-1993 and ending on 31-3-2006; (b) starts transmission or distribution by laying a network of new transmission or distribution lines during the period beginning on 1-4-1999 and ending on 31-3-2006; (c) undertakes substantial renovation and modernisation of the existing network of transmission or distribution lines at any time during the period beginning on 1-4-2004 and ending on 31-3-2006. 21.2 Under the existing provisions, the deduction is not available to undertakings which start generation, or transmission or distribution by laying a network of new transmission or distribution lines after 31-3-2006, or undertake substantial renovation and modernisation of the existing network of transmission or distribution lines after the said date. With a view to fulfil the commitment of the Government to provide power to all by 2012, sub-clauses (a), (b) and (c) of clause (iv) of sub-section (4) of section 80-IA have been amended to extend the time limit from 31-3-2006 to 31-3-2010. 21.3 Similarly, clause (iii) of sub-section (4) of section 80-IA provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y adopting such agreement in order to implement or give effect to the same. 23.2 For this purpose, a new section 90A has been inserted to provide that any specified association in India may enter into an agreement for grant of double taxation relief, avoidance of double taxation, exchange of information or for recovery of income-tax, with any specified association in a specified territory outside India and that the Central Government may by notification in the Official Gazette, make necessary provisions for adopting and implementing such agreement. 23.3 Sub-section (2) of section 90A provides that in respect of such agreement and in relation to an assessee to whom such agreement applies, the provisions of the Income-tax Act will apply to the extent they are more beneficial to the assessee. Sub-section (3) of the said section provides that any term used but not defined in the Income-tax Act or in such agreement will have the same meaning as assigned to it in a notification issued by the Central Government unless the context otherwise requires and such meaning is not inconsistent with the provisions of the Act or the agreement, it has been clarified that the charge of tax in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25. Taxation of anonymous donations received by wholly charitable trusts or institutions including non-profit educational or medical institutions 25.1 Income of wholly charitable or religious trusts or institutions as well as partly charitable or religious trusts or institutions is exempt from income-tax under sections 11 and 12, subject to the fulfilment, inter alia, of certain conditions of application of income and investment in specified modes. Similarly, income of any university or other educational institution referred to in sub-clause (iiiad) or sub-clause (via) or any hospital or other medical institution referred to in sub-clause (iiiae) or sub-clause (via) or any fund or institution referred to in sub-clause (iv) or any trust or institution referred to in sub-clause (v) of clause (23C) of section 10, is exempt from income-tax subject to the fulfilment of conditions specified in the said clause. 25.2 With a view to prevent channelisation of unaccounted money to these institutions by way of anonymous donations, a new section 115BBC has been inserted to provide that any income of a wholly charitable trust or institution by way of anonymous donation shall be include ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision with regard to any amount of tax paid under section 115JB for the assessment year commencing on 1st April, 2006 and any subsequent year. Sub-section (2) of section 115JAA provides that the tax credit to be allowed under sub-section (1) shall be the difference of the tax paid for any assessment year under section 115JA or section 115JB and the amount of tax payable under the normal provisions of the Income-tax Act. Sub-section (3) of section 115JAA provides that the amount of credit determined under sub-section (2) shall be carried forward and set off in accordance with the provisions of sub-sections (4) and (5) of the said section, but such carry forward shall not be allowed beyond the fifth assessment year immediately succeeding the assessment year in which the tax credit becomes allowable under sub-section (1) of the said section. 26.2 To provide relief to assessees, being companies, who are required to pay MAT under section 115JB for any assessment year commencing on or after 1st April, 2006, the provisions of section 115JAA have been amended to provide that the amount of tax credit determined shall be allowed to be carried forward and set off for seven assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Explanation to section 115JB. The amendment is consequential to omission of clause (23G) of section 10 vide section 4 of the Finance Act, 2006. 27.5 Further clause (f) of the aforesaid Explanation has been amended to provide that the book profit shall be increased by the amount or amounts of expenditure relatable to any income referred to in section 10 [excluding the income referred to in clause (38) thereof] and clause (ii) of the said Explanation has also been amended to provide that the book profit shall be reduced by the amount of income referred to in section 10 [excluding the income referred to in clause (38) thereof]. 27.6 The provisions of sub-section (38) of section 10 have also been amended to provide that income by way of long-term capital gains of a company shall be taken into account in computing the book profit under section 115JB and for payment of Income-tax under that section. 27.7 Under the normal provisions of the Income-tax Act, claim of higher depreciation on account of revaluation of assets is not allowed. However, companies do resort to revaluation of assets to claim such higher depreciation. With a view to plug the leakage of revenue on acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her, in order to align the definition of equity-oriented fund given in the Explanation to section 115T with that given in SEBI guidelines, the said definition has been amended to, inter alia, provide that an equity-oriented fund means such fund where the investible funds are invested by way of equity shares in domestic companies to the extent of more than sixty five per cent of the total proceeds of such fund, in place of fifty per cent of such proceeds. 28.4 Similarly, in section 10(38) and in section 97(5)(i) of the Finance (No. 2) Act, 2004, equity-oriented fund has been defined as a fund where the investible funds are invested by way of equity shares in domestic companies to the extent of more than fifty per cent of the total proceeds of such fund. With the similar objective to align these definitions with the SEBI guidelines, section 10(38) and section 97(5)(i) of Finance (No. 2) Act, 2004 have been amended to provide that an equity-oriented fund means a fund where such investible funds are invested by way of equity shares in domestic companies to the extent of more than sixty-five per cent of the funds total proceeds instead of fifty per cent of such proceeds. 28.5 Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which shall be taken as fringe benefits for the purpose of levy of fringe benefit tax. 29.7 Clause (b) of sub-section (1) of section 115WC provides that the actual amount of contribution by the employer to an approved superannuation fund for employees shall be the value of fringe benefits. 29.8 The said clause (b) has been amended to provide that contribution by an employer to an approved superannuation fund to the extent it does not exceed rupees one lakh per employee in respect of whom contribution is made, shall not be liable to fringe benefit tax. For example, consider an employer who has three employees: A, B and C and he makes contribution to their, account in the approved superannuation fund in the following manner :- Employee Contribution to approved superannuation fund by the employer A Rs. 60,000 B Rs. 95,000 C Rs. 2,50,000 In the case of employees A and B, the value of fringe benefits shall be taken to be nil since contributions by the employer in respect of these employees does not exceed Rs. 1,00,000 in each case. However, in the case of employee C the value of fringe benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to sub-section (1) of the said section has been inserted so as to clarify that any income-tax authority, being an authority higher in rank, may exercise the powers and perform the functions of the income-tax authority lower in rank, if it is so directed by the Board under the said section. It has also been clarified that any such direction shall be deemed to be a direction issued by the Board under the said sub-section (1). 30.3 This amendment will have retrospective effect and will be effective from 1st April, 1988. [Section 30] 31. Modification of the return form 31.1 The existing provisions of sub-section (9) of section 139 provide that where the Assessing Officer considers that the return of income filed by an assessee is defective; he may intimate the assessee and give him an opportunity to rectify the same within fifteen days. The Explanation to the said sub-section provides that a return of income shall be regarded as defective unless, the conditions specified in clauses (a) to (f) of the explanation to the said sub-section are fulfilled. 31.2 A proviso to the Explanation to the said sub-section (9) has been inserted so as to confer power upon the Central B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rns through Tax Return Preparers 34.1 A new section 139B has been inserted in the Income-tax Act so as to provide that for the purpose of enabling any specified class or classes of persons to prepare and furnish returns of income, the Board may, by way of notification, frame a scheme providing that such persons may furnish their returns of income through a Tax Return Preparer authorized to act as such under the scheme. It has further been provided that the Scheme framed under the said section shall specify the manner in which the Tax Return Preparer shall assist the persons furnishing the return of income. A Tax Return Preparer shall affix his signature on the return prepared by him. It has also been provided that a person referred to in clause (ii) or clause (iv) of sub-section (2) of section 288 or an employee of the specified class or classes of persons shall not be authorised to act as a Tax Return Preparer. It has also been laid down that the Scheme to be notified under the said section may provide the manner in which and the period for which a Tax Return Preparer shall be authorized to act as such under the Scheme, the educational and other qualifications to be possessed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 148, on the assessee, requiring him to furnish his return of income or the income of any other person in respect of which he is assessable and the provisions of the Act shall apply as if the return furnished in response to such notice were a return required to be furnished under section 139. 36.2 A proviso to sub-section (1) of section 148 has been inserted so as to provide that where a return has been furnished during the period from 1-10-1991 to 30-9-2005 in response to a notice served under section 148 and, subsequently a notice has been served under sub-section (2) of section 143 after the expiry of twelve months specified in the proviso to sub-section (2) of section 143 as it stood immediately before the amendment of the said sub-section by the Finance Act, 2002. but before the expiry of the time limit for making the assessment, reassessment or re-computation as specified in sub-section (2) of section 153, such notice shall be deemed to be valid notice. 36.3 Further a proviso has been inserted in the said sub-section so as to provide that where a return has been furnished during the period from 1-10-1991 to 30-9-2005 in response to a notice served under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the return of income and for default in payment of advance tax respectively. Similarly under the existing provisions of section 234C in respect of deferment of advance tax, the assessee is held liable to pay simple interest at the rate of one per cent per month and if there is shortfall of tax paid before the 15th March, one per cent on the amount of the shortfall. While computing interest, credit for advance tax paid and tax deducted or collected at source is allowed. MAT credit under section 115JAA, relief of tax under section 90 and deduction from income-tax payable under section 91 are not taken into account while charging interest under the aforesaid sections. Under section 140A also, interest is required to be paid for any delay in furnishing the return or for any default or delay in payment of advance tax. 38.2 It has been represented from several quarters that the tax credit allowed under section 115JAA is no different from the tax paid in advance and credit for having paid the minimum alternate tax should be allowed against the tax liability determined on assessment. On a similar analogy, credit for taxes paid in a country outside India has also been recommended to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o issue TDS or TCS certificates to the deductee or, as the case may be, the collectee. As a consequence of doing away with the requirement of issuance of certificate, it was provided under sub-section (3) of section 199 and under the proviso to sub-section (4) of section 206C that the deductee or the collectee would not be required to enclose a TDS or TCS certificate to his return of income for claiming credit of tax deducted or collected. Under the new procedure not requiring issuance of TDS or TCS certificates, credit for TDS or TCS was to be given by the Assessing Officer on the basis of annual statement of taxes to be issued in accordance with the provisions introduced under section 203AA in respect of TDS or in accordance with the second proviso to sub-section (5) of section 206C in respect of TCS. It was also provided under sub-section (9) of section 139 that the return of income shall not be deemed defective if it was not accompanied by proof of tax deducted. 39.2 The above dematerialisation provisions were to come into force with effect from 1-4-2005 in respect of tax deducted or collected on or after 1-4-2005. Through the Finance Act, 2005, however, dematerialisation p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and will, accordingly, apply in relation to the assessment year 2007-08 and subsequent years. [Sections 31 and 39] 40. Payment of Interest for TDS or TCS default before furnishing TDS or TCS quarterly statements and deeming the person who fails to collect or pay the tax collected at source as an assessee in default 40.1 The existing provisions of sub-section (1A) of section 201 provide that if any person, principal officer or company, as referred to in sub-section (1) of that section, does not deduct the whole or any part of the tax or after deduction fails to pay the tax to the Central Government, such person is held liable to pay simple interest at the rate of twelve per cent per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid. Similar provisions exist in respect of tax collection at source under sub-section (7) of section 206C. The existing provisions of TDS and TCS, however, do not have a streamlined procedure or mode for payment of interest. 40.2 In order to require the payment of interest by the deductor of tax on a self-assessment basis, sub-section (1A) of section 201 has been amend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce in respect of taxes deducted or collected on or after 1-4-2005 has been dispensed with. Failure to furnish the annual return for tax deduction or collection at source before 1-4-2005 shall continue to attract penalty under section 272A of the Income-tax Act. 41.3 Since quarterly statements have substituted for the annual returns, penal provisions for failure to furnish quarterly statements have been suitably rationalised to provide that the penalty leviable for failure to deliver the statements under clause (k) of sub-section (2) of section 272A shall not exceed the amount of tax deductible or, as the case may be, collectible. 41.4 The existing provisions of sub-sections (5B) and (5D) of section 139A have also been amended to provide for the requirement of quoting of PAN in all quarterly statements prepared and delivered or caused to be delivered in accordance with the provisions of sub-section (3) of section 200 or the proviso to sub-section (3) of section 206C. The requirement of quoting the tax deduction account number or the tax collection account number or the tax deduction and collection account number in all quarterly statements has been separately provided under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r under section 272B. 43.3 The implications of quoting false TAN are as severe as quoting a false PAN. Quoting of false TAN as does the quoting of false PAN results in getting the tax deducted or collected posted to suspense account and not to the account of the deductee or the collectee. It has been learnt that certain bank branches having not applied for TAN, are quoting TAN allotted to other branches of the same bank. In such events, the computer system does not accept two different returns from the two branches bearing the common or same TAN. False quoting of PAN and TAN has been one of the reasons for tardy progress of dematerialisation of the paper based system. In order to make dematerialisation a reality, correct quoting of TAN by the deductors or collectors needs to be enforced. Until all taxes deducted or collected are matched in the On-Line Tax Accounting System (OLTAS) and complete information is populated in the deductees or collectees accounts, dematerialisation may not fully substitute for the existing paper based system. If past experience is any guide, mere existence of the provisions, requiring the deductors and the collectors to apply for TAN and quote the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee in any year shall not exceed the amount of contributions of the employee in that year; etc. 44.3 With a view to provide legislative synergy between the Income-tax Act and the Employees Provident Funds and Miscellaneous Provisions Act, 1952 to tackle the problems being faced by the small investors in the recognised provident funds, a new clause (ea) has been inserted in the said rule to provide that the fund shall be of an establishment to whom the provisions of sub-section (3) or sub-section (4) of section 1 of the Employees Provident Funds and Miscellaneous Provisions Act, 1952 are applicable and such establishment has been exempted under section 17 of the said Act from the operation of all or any of the provisions of any scheme referred to in that section. 44.4 Further, Rule 3 of Part A of Schedule IV provides that the Chief Commissioner or the Commissioner of Income-tax may accord recognition to any provident fund which satisfies the conditions prescribed in Rule 4 and the rules made by the Board in this behalf. He may, at any time, withdraw such recognition if the provident fund contravenes any of such conditions. There may be a number of provident funds recognised u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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