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TMI BlogAmendments at a glance, Rate structure, Amendments to Income-tax Act, Amendments to Wealth-tax Act , Amendments to Companies (Profits) Surtax ActX X X X Extracts X X X X X X X X Extracts X X X X ..... ooks, etc., by a standard deduction 13-15 36(1)(viii) Higher deduction of profits transferred to special reserve in the case of financial corporations or joint financial corporations established under the State Financial Corporations Act, 1951 26 74A(1)/(3), Carry forward and set off of losses from horse 75(2), 77(2)(b), races 34-37 80, 139(3), 141A(2)(iv), 143(1)(b)(iv), 155(4) and 157 80MM (1), (2) Discontinuance of the exemption in respect of royalties, commission, fees, etc., received by resident non-corporate taxpayers for provision of technical know-how or technical services to Indian concerns 28 80N and its Modification of the provision relating to exemption of dividends received by Expln., 155 (11) Indian companies and resident non-corporate taxpayers on shares allotted to them in a foreign company for the provision of technical "know-how" or technical services to the foreign company 29 80-O (1)/(2), Modifications in the provision relating to concessional taxation of royalties, 155 (12) commission, fees, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "salaries" and retirement annuities payable to partners of registered firms engaged in specified professions, are set forth in Part II of the First Schedule to the Finance Act, 1974. The main features of the rate schedule for deduction of tax at source are the following : 1 . In the case of resident non-corporate taxpayers, income-tax will be deducted from their winnings from lotteries and crossword puzzles at the rate of 33 per cent (income-tax 30 per cent + surcharge 3 per cent) as against 34.5 per cent (income-tax 30 per cent + surcharge 4.5 per cent) during the financial year 1973-74. The rate at which surcharge will be deductible has been reduced from 4.5 per cent to 3 per cent in view of the position that rate of surcharge on income-tax for the purpose of computation of "advance tax", etc., payable during the financial year 1974-75, has been specified at a uniform rate of 10 per cent in the case of all categories of non-corporate taxpayers ( vide paragraph 7 of this circular). The rate for deduction of income-tax at source from interest (other than interest on securities), as also insurance commission has been retained at the existing level of 10 per cent and no surcharge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to partners of registered firms engaged in certain professions (chartered accountants, solicitors, lawyers and architects) and for charging income-tax during 1974-75 on current incomes in special cases where accelerated assessments have to be made. These special cases are : calculation of income-tax on undisclosed income represented by seized assets [section 132(5)]; levy of tax on provisional basis on the income of non-residents from shipping of cargo or passengers from Indian ports [section 172(4)]; assessment of persons leaving India [section 174(2)]; assessment of persons likely to transfer property to avoid tax [section 175]; and assessment of profits of a discontinued business [section 176(2)]. Finance Act, 1974 7. The rates specified in Part III of the First Schedule to the Finance Act, 1974 in the case of non-corporate taxpayers are materially different from those specified in Part I of the First Schedule for the assessment of income liable to tax for the assessment year 1974-75. The main differences are as follows : 1 . In the case of individuals, Hindu undivided families, unregistered firms, associations of persons, bodies of individuals and artificial juri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax, the rates of basic income-tax applicable in the case of registered firms are different from the rates specified in Part I of the First Schedule to the Finance Act, 1974. 5. In the case of local authorities, the rate of income-tax remains at the existing level of 50 per cent but the rate of surcharge on income-tax has been reduced from15 per cent to 10 per cent. 6 . In the case of Life Insurance Corporation of India and companies, the rates of income-tax and surcharge thereon specified in Part III of the First Schedule to the Finance Act, 1974 are the same as those specified in Part I of that Schedule. Finance Act, 1974 Partially integrated taxation of non-agricultural income with income derived from agriculture 8. The Finance Act, 1973 provided that in the case of individuals, Hindu undivided families, unregistered firms or other associations of persons or bodies of individuals and artificial juridical persons, the net agricultural income would be taken into account for determining the rate of income-tax to be applied to the total income for the purposes of computing "advance tax" payable during the financial year 1973-74 and for charging income-tax on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red in the previous year relevant to the assessment year 1974-75 will be allowed to be set off against agricultural income of the previous year relevant to the assessment year 1975-76. The result will, therefore, be that in computing the net agricultural income for purposes of determining "advance tax" payable during the financial year 1974-75 and for charging income-tax in special cases, losses incurred in agriculture in the previous year relevant to the assessment year 1974-75 will be set off against the agricultural income of the previous year. In the case of an unregistered firm having agricultural income, share of agricultural loss of a partner who has retired or died, will, however, not be set off against income of the firm. For this purpose, the share of a retired or deceased partner in the agricultural loss of the firm will be calculated in the manner laid down in sub-sections (1), (2) and (3) of section 67. Further, a person succeeding another person will not be allowed to set off the loss of the predecessor against his own agricultural income unless the successor inherited the source of the agricultural income of the deceased. The set off of losses in agriculture will, ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ications necessary for the purposes of his duties. 2. Deduction in respect of expenditure incurred by a taxpayer in respect of taxes on professions, trades, callings or employments levied under any State or Provincial Act. 3 . Where the taxpayer is not in receipt of a conveyance allowance, deduction in respect of expenditure on travelling for the purposes of employment is calculated as under : (a) where the taxpayer owns a motor car which is used for the purposes of his employment Rs. 200 p.m.; (b) where the taxpayer owns a motor cycle, scooter or other moped which is used for the purposes of his employment Rs. 75 p.m.; (c) in any other case Rs. 50 p.m. 4. Deduction in respect of other expenditure incurred by the taxpayers, which, by the conditions of his service, he is required to spend out of his remuneration wholly, exclusively and necessarily in the performance of his duties. 5. Deduction in respect of any allowance in the nature of entertainment allowance specifically granted to the taxpayer by his employer within the limits specified in this behalf. Finance Act, 1974 14. With a view to simplifying the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to Rs. 1,000 only. Finance Act, 1974 15. The amendment will take effect from 1-4-1975 and will accordingly apply in relation to the assessment year 1975-76 and subsequent years. [Section 4 of the Finance Act] Finance Act, 1974 Filing of returns of income by certain salaried taxpayers to be optional 16. Under section 139(1), every person having a taxable income is required to voluntarily furnish the return of his income before the date specified in the law in this behalf. In the case of salaried taxpayers, the return is required to be furnished before 30th June of the relevant assessment year. In view of the position that appropriate tax due on salary income is required to be deducted at source by the employer, the taxpayers having only salary income do not ordinarily have to pay any further tax on filing the return of income. The existing requirement of law whereunder such salaried taxpayers are obliged to voluntarily file their returns of income before the due date does not result in any particular benefit to the revenue and, on the other hand, adds infructuous work-load on the staff and officers of the Income-tax Department and also imposes an unnecessary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of the position that the value of the benefits or amenities provided to such taxpayers in kind has to be determined by the Income-tax Officer. Finance Act, 1974 18. Where a salaried taxpayer has any net agricultural income during the previous year, it cannot be said that his income consists only of income chargeable under the head "Salaries" or of income chargeable under that head and also income of the nature referred to in clauses (i) to (ix) of sub-section ( 1 ) of section 80L. Accordingly, such a person will have to furnish his return of income voluntarily under section 139 ( 1 ) if his taxable income exceeds the minimum amount not chargeable to tax. Finance Act, 1974 19. The aforesaid amendment will take effect from 1-4-1975 and will accordingly apply for the assessment year 1975-76 and subsequent years. Salaried taxpayers will have to furnish their returns of income voluntarily for the assessment year 1974-75 if their total income exceeds Rs. 5,000 even though tax has been fully deducted at source. [Section 10( a ) of the Finance Act] Finance Act, 1974 Tax treatment of gratuities 20. Under section 10( 10 ), as it stood prior to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( 10 ) so as to include a reference to the new rules from the date on which they came into force. 3. Under the Payment of Gratuity Act, 1972, gratuity is payable to low-paid employees on a somewhat more liberal scale than the exempt amount of gratuity under the Income-tax Act. Under the first-mentioned Act, gratuity is payable to persons drawing wages not exceeding Rs. 1,000 per mensem. For this purpose, "wages" means all cash emoluments including dearness allowance, but excluding any bonus, commission, house rent allowance, overtime wages and any other allowance. Persons employed in managerial or supervisory capacity and Government employees are outside the purview of that Act. Under sub-sections (2) and (3) of section 4 of the Payment of Gratuity Act, gratuity is payable at the rate of 15 days' wages (based on the rate of wages last drawn by the employee) for every completed year of service or part thereof in excess of 6 months, subject to a maximum of 20 months' wages. In the case of employees working in a seasonal establishment, gratuity is calculated at the rate of seven days' wages for each season, subject to the overall limit of 20 months' wages. Section 10( 10 ) has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same year, the maximum amount of gratuity exempt from income-tax will not exceed Rs. 30,000. In cases where an employee who has received gratuity in an earlier year from a former employer or employers receives gratuity from another employer in a later year, the ceiling limit of Rs. 30,000 will be reduced by the amount of gratuity which has been exempted in any earlier year or years. The overall monetary ceiling limit of Rs. 30,000 will apply in relation to all gratuities whether received from the Government statutory corporations or private employers. This amendment will also take effect from 1-4-1975 and will accordingly apply for the assessment year 1975-76 and subsequent years. Finance Act, 1974 21. It may be noted that under the amended provisions, complete exemption in the case of Government servants will be available only in respect of death- cum -retirement gratuity received under the revised Pension Rules of the Central Government or under the Central Civil Services (Pension) Rules, 1972, or under any similar scheme applicable to the Central or State Government employees. Gratuities other than the death- cum -retirement gratuities payable to Central and State Gove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -1962, i.e., the date of commencement of the Income-tax Act, to secure that payments in commutation of pension received by all categories of Central Government and State Government employees will be completely exempt from income-tax. [Section 3( c ) of the Finance Act] Finance Act, 1974 Relaxation of the provisions relating to recognized provident funds to enable transfer of amounts from the account of an employee in one recognized provident fund to another 24. Under clause ( e ) of rule 4 of Part A of the Fourth Schedule, as it stood prior to its amendment by the Finance Act, 1974, recognized provident funds could consist of contributions by the employee and the employer (including accumulations thereof), interest credited in respect of such contributions and accumulations, securities purchased therewith and any capital gains arising from the transfer of capital assets of the fund, and of no other sums. These provisions did not, therefore, permit the transfer of the accumulated balance due and becoming payable to an employee participating in a recognized provident fund maintained by his former employer to the credit of the individual account of the employee in ano ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this provision is that the tax relief allowed to an employee is withdrawn in cases where the amount of the accumulated balance due to him is transferred from the recognized provident fund maintained by the former employer to an recognized provident fund maintained by the new employer. In view of the position that an employee does not receive any immediate benefit by the mere transfer of the amounts to his credit from one account to another and remains in virtually the same position as he would have been had the amounts continued to remain in the provident fund maintained by his former employer, the withdrawal of the tax relief in such cases results in hardship to the employees. With a view to avoiding this hardship, the Finance Act, 1974 has made a specific provision in the aforesaid rule 8 to secure that exemption from income-tax is not withdrawn in such cases. Further, it has also been provided that in cases where the accumulated balance due and becoming payable to an employee includes any amount transferred from any other recognized provident fund maintained by his former employer, then, in computing the period of continuous service of 5 years for the purposes of the aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trial Investment Corporation) is, under a notification issued by the Central Government, deemed to be a financial corporation established by the Government of Tamil Nadu for that State within the meaning of the State Financial Corporations Act, 1951 and will, accordingly, qualify for higher deduction under the amended provision. This amendment will take effect from 1-4-1975 and will accordingly apply in relation to the assessment year 1975-76 and subsequent years. [Section 5 of the Finance Act] Finance Act, 1974 Exemption from income-tax of profits of institutions established for development of khadi and village industries 27. A large number of public charitable trusts and societies registered under the Societies Registration Act, 1860, are doing commendable work for the development of khadi and village industries under the direct supervision and control of the Khadi and Village Industries Commission. With a view to providing encouragement and support to these institutions, the Finance Act, 1974 has made a specific provision in new clause ( 23B ) of section 10 for exempting from income-tax, income derived by such institutions from production, sale or marketing of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non-corporate taxpayers. This amendment will take effect from 1-4-1975 and will accordingly apply for the assessment year 1975-76 and subsequent years. [Section 7 of the Finance Act] Finance Act, 1974 Modification of the provision relating to exemption of dividends received by Indian companies and resident non-corporate taxpayers on shares allotted to them in a foreign company for the provision of technical "know-how" or technical services to the foreign company 29. Under section 80N, Indian companies or resident non-corporate taxpayers deriving income by way of dividends on shares allotted to them in a foreign company in consideration of the provision of technical "know-how" or technical services to such foreign company, are entitled to a deduction of the whole of such income by way of dividends in the computation of their taxable income. This tax concession is available only if the agreement under which the technical "know-how" or technical services are provided to the foreign company is approved by the Central Board of Direct Taxes. The Finance Act, 1974 has made the following changes in the scheme of tax exemption of such dividends : 1. Section 80N has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income otherwise qualifying for exemption may not be received in India before the assessment is made. In order to obviate these difficulties, the Finance Act, 1974 has made a specific provision in new sub-section (11) of section 155 to secure that in cases where the deduction under section 80N was not allowed in any year in respect of the whole or any part of the income by way of dividends on the ground that such income had not been received in convertible foreign exchange in India, or having been received in convertible foreign exchange outside India, or having been converted into convertible foreign exchange outside India, had not been brought into India by or on behalf of the taxpayer in accordance with the foreign exchange regulations and subsequently such income or part thereof is received in or brought into India in accordance with these regulations, it will be open to the Income-tax Officer to rectify the original assessment so as to allow the deduction in respect of income so received in, or brought into, India. The rectification will be permissible within the period of four years from the date on which such income is received in, or brought into, India. [Sections 8, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia, shall be deemed to have been brought into India in accordance with the foreign exchange regulations on the date on which such permission is given. 3. A new sub-section (12) has also been inserted in section 155 to enable rectification of an assessment where exemption under section 80-O was denied on the ground that income otherwise qualifying for deduction had not been received in convertible foreign exchange outside India, or having been converted into convertible foreign exchange outside India, had not been brought into India by or on behalf of the taxpayer in accordance with the foreign exchange regulations. The provision in new sub-section (12) of section 155 is in pari materia with the provision in sub-section (11) of that section relating to tax exemption of dividends received from foreign companies. [Sections 9, 13(1) (part) and 17 (part) of the Finance Act] Finance Act, 1974 Ancillary provisions for computing "advance tax" in certain cases 31. Under the Income-tax Act, "advance tax" is to be paid during every financial year in instalments on specified dates on the taxpayers' income (other than capital gains and certain casual and non-recurring inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis of the net agricultural income as returned by the assessee in the return of income for that year. In cases where an estimate of "advance tax" is sent by taxpayer under section 212, the taxpayer will have to compute the "advance tax" payable by him by taking into account his estimated net agricultural income for the period which would be the previous year for the immediately following assessment year. Finance Act, 1974 33. In cases where the order of the Income-tax Officer under section 210 requiring a Hindu undivided family to pay "advance tax" is made on the basis of the total income of the family for the latest previous year for which the family has been assessed by way of regular assessment, the separate rates of tax prescribed for Hindu undivided families will apply to the family if the total income of any member of the family for the assessment year relevant to that latest previous year exceeds the maximum amount not chargeable to tax in his case. In cases where the order of the Income-tax Officer under section 210 is made on the basis of the total income of the families for a previous year for which the family had paid tax on self-assessment under section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me by way of stake money in the relevant year, the amount of loss incurred by him in the activity of owning and maintaining race horses, will be the amount by which the stake money falls short of the revenue expenditure laid out or expended by him wholly and exclusively for the purposes of maintaining such horses. The loss incurred by the taxpayer in the activity of owning and maintaining race horses will be set off against his winnings, if any, from races, in the same previous year and the balance, if any, will be carried forward to be set off against income from the same source in subsequent years. It should be noted that no deduction will be made in respect of the actual cost of the race horses nor will any depreciation be allowed in respect of such horses. Further, the loss computed for any previous year will be allowed to be set off in a subsequent year not only against the stake money received in the relevant subsequent year but also other winnings, if any, from races. The set off will, however, be allowed only if the taxpayer carries on the activity of owning and maintaining race horses in the previous year relevant to the subsequent assessment year. For the purposes of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A. Section 143(1)( b )( iv ) has likewise been amended to enable similar adjustment in making a summary assessment under section 143(1). 6. Section 155(4) has been amended to enable rectification of assessments, within an extended period in cases where it becomes necessary to do so due to reassessment of income of the taxpayer under section 147 for an earlier year and such rectification is called for in order to recompute the loss relating to the activity of owning and maintaining race horses carried forward and set off in a subsequent year. 7. Section 157 has been amended so as to provide for intimation by the Income-tax Officer in respect of losses computed by him in respect of the activity of owning and maintaining race horses by the taxpayer. The above amendments will take effect from 1-4-1975 and will accordingly apply in relation to the assessment year 1975-76 and subsequent years. Losses incurred in the activity of owning and maintaining race horses in the previous year relevant to the assessment year 1974-75 or any earlier previous year will not, therefore, be carried forward to be set off against income of subsequent years. [Sections 6, 10( b ) and 13(2) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nery or plant installed after 31-5-1974 development rebate will continue to be allowed in respect of ships and machinery and plant where the conditions specified above and those in the Income-tax Act are fulfilled. [Section 16 of the Finance Act] Amendments to Wealth-tax Act Finance Act, 1974 Increase in the rates of wealth-tax in the case of individuals and Hindu undivided families 39. The rate schedules of wealth-tax relating to individuals and Hindu undivided families contained in the Schedule to the Wealth-tax Act have been amended on the following lines : 1. In the case of individuals and Hindu undivided families (other than Hindu undivided families having one or more members with independent net wealth exceeding Rs. 1 lakh), the rate of wealth-tax on the net wealth slab of Rs. 5,00,001 - Rs. 10,00,000 has been raised from 2 per cent to 3 per cent and on the next slab of Rs. 10,00,001 - Rs. 15,00,000 from 3 per cent to 4 per cent. The rates of wealth-tax on the initial slab up to Rs. 5,00,000 and on the slab over Rs. 15,00,000 have been retained at the existing levels. 2. In the case of Hindu undivided families having one or more members with independ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance will also be exempt to the extent explained in paragraph 41. 2. Section 5(1)( vi ) has been amended so as to secure that the value of the taxpayer's right or interest in a policy of insurance will be completely exempt from wealth-tax only if the premia thereon are payable over a period of ten years or more. In cases where premia are payable over a period of less than ten years, only a proportionate amount of the value of the taxpayer's right or interest in the policy of insurance will be exempt from wealth-tax. Thus, where premia on a policy are payable over a period of eight years, only 8/10th of the value of taxpayer's right in the insurance policy will be exempt and the balance will be included in his net wealth. Finance Act, 1974 41. Under the Insurance Act, 1938, contracts for granting of annuities upon human lives are regarded as "life insurance business" and, accordingly, a contract for life annuity will be regarded as life insurance policy. Annuities payable in respect of contracts with the Life Insurance Corporation of India, approved by the Commissioners of Income-tax under section 80E of the Income-tax Act, provide for life annuities in old age and, acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovable assets referred to above, a taxpayer is also entitled to an exemption in respect of certain financial assets up to an aggregate value of Rs. 1,50,000. Finance Act, 1974 44. The Finance Act, 1974 has made the following modifications, in section 5 : 1. The separate exemption available under section 5(1)( ivb ) in respect of one building or one group of buildings owned by a cultivator or receiver of rent or revenue of agricultural land and used by him as dwelling house has been withdrawn. The existing exemption will, however, continue in respect of any one building or one group of buildings owned by a cultivator or receiver of rent or revenue of agricultural land where such building or group of buildings is required by him, by reason of his connection with the land, as store house or for keeping livestock. 2. The separate exemption in respect of agricultural land has been withdrawn and linked with the existing exemption in respect of specified financial assets. In other words, a taxpayer will be able to claim a deduction up to Rs. 1,50,000 in the aggregate in respect of the specified financial assets and agricultural land. The aforesaid amendments will take ef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Hindu undivided families which have at least one member having taxable income/wealth - Avoidance of mistakes in applying higher rates The Revenue Audit have brought to the notice of the Board cases where in spite of Instruction No. 1118, dated 16-11-1977 and 1193, dated 5-7-1978 the prescribed higher rates have not been applied correctly. 2. While the Board would like to reiterate the above instructions, they further desire that the Assessing Officers dealing with the cases of Hindu undivided families must obtain a declaration in writing from the assessees whether any member has taxable wealth. The fact of higher rates being applied in respect of the specified Hindu undivided family should also be highlighted in the assessment order invariably to avoid mistake in calculation of tax. 3. These instructions may be brought to the notice of all concerned. Instruction : No. 1363, dated 22-10-1980 [Source : 85th Report of P.A.C. (1981-82) (Seventh Lok Sabha), p. 52]. Separate Rate Schedule for ordinary Wealth-tax in the case of certain Hindu undivided families Attention is invited to Paras 49 50 of the Board's Circular No. 126, dated the 28th November, 1973 (F ..... X X X X Extracts X X X X X X X X Extracts X X X X
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