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TMI BlogThe Finance Act, 1982--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 ..... ature have also been made in section 45, section 80A, section 80F and section 139 of the Income-tax Act. 2.3 Amendments have been made by the Finance Act to section 2, section 5, section 6, section 22B and section 22D of the Wealth-tax Act; section 5 and section 18A of the Gift-tax Act; and section 2 of the Interest-tax Act and section 6 and section 7 of the Hotel-Receipts Tax Act. 2.4 The Finance Act has amended section 30 of the Deposit Insurance and Credit Guarantee Corporation Act, 1961 and section 32 of the Unit Trust of India Act, 1963. 2.5 The Finance Act has also exempted the interest income of the Bank of Bhutan for the period January 1, 1972 to December 31, 1986 on the deposits made by that Bank with the State Bank of India. 3. Provisions in brief - The provisions of the Finance Act, 1982 (hereinafter referred to as "the Finance Act") in the sphere of direct taxes relate to the following matters: 1. Prescribing the rates of income-tax (including surcharge thereon) on incomes liable to tax for the assessment year 1982-83; the rates at which income-tax will be deductible at source during the financial year 1982-83 from interest (including interest on securities), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for stamp duty paid on instruments of transfer. 5. Amendment of the Interest-tax Act, 1974 with a view to providing for exemption of interest on deferred credit for export of capital plant and machinery and interest on loans in foreign currency for import of capital plant and machinery. 6. Amendment of the Hotel-Receipts Tax Act, 1980 with a view to discontinuing the levy of hotel-receipts tax and providing for retrospective exemption in respect of payments made by diplomatic personnel. 7 Amendment of the Deposit Insurance and Credit Guarantee Corporation Act, 1962 so as to extend the Corporation's period of exemption from income-tax by five years. 8. Amendment of the Unit Trust of India Act, 1963 so as to raise the exemption limit for income-tax in respect of income from units, as also the exemption from wealth-tax in respect of the value of such units, and to modify the provisions relating to deduction of tax at source from dividends on units paid to non-residents. RATE STRUCTURE Rates of income-tax for the assessment year 1982-83 4.1 The rates of income-tax for the assessment year 1982-83 in the case of all categories of assessees (corporate as well as non-co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... source from "salaries" in the case of individuals during the financial year 1982-83 and for computation of "advance tax" payable during that year in the case of all categories of assessees have been specified in Part Ill of the First Schedule to the Finance Act. These rates are also applicable for deduction of income-tax at source during the financial year 1982-83 from retirement annuities payable to partners of registered firms which render professional services as Chartered Accountants, Solicitors, Lawyers, etc., and for charging income-tax during the financial year 1982-83 on current incomes in special cases where accelerated assessments have to be made. These special cases are as under: i calculation of income-tax on undisclosed income represented by seized assets [section 132(5)]; ii levy of tax on provisional basis on the income of non- residents from shipping of cargo or passengers from Indian ports [section 172(4)]; iii assessment of persons leaving India [section 174(2)]; iv. assessment of persons likely to transfer property to avoid tax [section 175]; v. assessment of profits of a discontinued business or profession [section 176(2)]. These rates are the same a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in accordance with the rules contained in Part IV of the First Schedule to the Finance Act. The mode of computation of the net agricultural income is the same as under the provisions of the Finance Act, 1981 except for the following modifications: 1. The unabsorbed loss in agriculture incurred during the previous year relevant to the assessment year 1981-82 will be set off against the agricultural income for the previous year relevant to the assessment year 1982-83. 2. Any unabsorbed loss incurred during the previous year relevant to the assessment year 1982-83 will be set off in determining the net agricultural income for the purpose of payment of advance tax during the financial year 1982-83. [Section 2 of the First Schedule to the Finance Act] AMENDMENTS TO INCOME-TAX ACT Relaxation of tests of "residence" in India- Section 6 7.1 Under the existing provisions, an individual is said to be "resident" in India in any year, if: a. he is in India in that year for a period or periods amounting in all to 182 days or more; or b. he maintains or causes to be maintained for him a dwelling place in India for a period or periods amounting in all to 182 days or more i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng a "non-resident" under the Income- tax Act, he does not qualify for this exemption. 8.2 With a view to removing this anomaly, the Finance Act has substituted the present clause (4A) by a new clause to provide that exemption from income-tax in respect of interest on Non-resident (External) Account shall be available in the case of a "person resident outside India" as defined in section 2(q) of the Foreign Exchange Regulation Act, 1973. 8.3 Clause (q) of section 2 of the Foreign Exchange Regulation Act provides that a "person resident outside India" means a person who is not resident in India. The expression "person resident in India" has been defined in clause (q) of section 2 of the Foreign Exchange Regulation Act. An extract from the definition is reproduced below: "(q) "person resident in India" means- (i) a citizen of India, who has, at any time after the 25th day of March, 1947, been staying in India, but does not include a citizen of India who has gone out of, or stays outside, India, in either case- (a) for or on taking up employment outside -India, or (b) for carrying on outside India a business or vocation outside India, or (c) for any other purpose, in such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtificates have been subscribed to by the assessee in convertible foreign exchange" remitted from a country outside India in accordance with the Foreign Exchange Regulation Act, 1973 and any rules made thereunder. The exemption will be available only to the original subscriber of the savings certificates. 9.2 For the purpose of this exemption, a person will be deemed to be of Indian origin if he or either of his parents or any of his grandparents was born in undivided India. Further, the expression "convertible foreign exchange" means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973 and the rules made thereunder. 9.3 This provision will take effect from April 1, 1983 and will, accordingly, apply in relation to the assessment year 1983-84 and subsequent years. [Section 4(b) of the Finance Act] Exemption of amounts received by way of encashment of unutilised earned leave by retiring employees - Section 10(10AA) 10.1 Under the existing provisions of the Income-tax Act, any amount received on retirement from service by way of cash equivalent of unu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is assessment for claiming the exemption of the amount so received and the Income-tax Officer will pass an order of rectification under section 154 of the Income-tax Act to give exemption in respect of such amount. Similarly, other appellate authorities or the Appellate Tribunal can grant the relief in view of the retrospective amendment made by the new clause (10AA) in section 10 in this behalf. The Income-tax Officer will dispose of such applications for rectification expeditiously and grant refunds wherever due. [Section 4(c) of the Finance Act] Exemption from income-tax In respect of Interest on new Capital Investment Bonds - Section 10(15)(Ilb) 11.1 With a view to providing a stimulus for increased savings by assessees, the Finance Act has inserted a new sub-clause (iib) in clause (15) of section 10 of the Income-tax Act to provide for exemption from income- tax of the interest on such Capital Investment Bonds as the Central Government may, by notification in the Official Gazette, specify in this behalf. It may be noted that the interest on the Capital Investment Bonds will be exempted from income-tax without any ceiling limit. 11.2 This provision will take effect fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the corpus, in the form of cash; d. funds other than those represented by the corpus referred to in (a), (b) and (c) above. 13.2 Funds of the type mentioned at (a) and (b) in paragraph 13.1 above have been grouped into one category and clause (b) of section 13(5) provides that they may be invested or deposited in any form or mode except in equity shares of a company which is neither a Government company nor a statutory corporation. In other words, in respect of these funds there is no restriction regarding their investment except that they should not be in the form of equity shares of a company which is neither a Government company nor a statutory corporation. 13.3 The funds of the type mentioned at (c) in paragraph 13.1 above fall in another category and clause (a) of section 13(5) provides the following forms and modes for their deposit or investment: (a) investment in Government savings certificates; (b) deposit in any Post Office Savings Bank Account; (c) deposit in any account with any scheduled bank; (d) investment in units of the Unit Trust of India; (e) investment in any Central Government or State Government securities; (f) investment in debentures o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal basis for an initial period of 5 years. During this period, the annual letting value of the house property is reduced by an amount up to Rs. 2,400 in respect of each residential unit for a total period of 5 years from the date of completion of the property [vide clause (c) of the second proviso to sub-section (1) of section 23 read with the Explanation below sub-section (2) of that section]. With a view to encouraging the construction of houses, particularly for persons with relatively lower incomes, the Finance Act, 1982 has inserted a new clause (d) in the second proviso to section 23(1) to provide that in the case of a house property comprising one or more residential units, the erection of which is completed after march 31,1982, the annual letting value of the house property will be reduced by an amount up to Rs. 3,600 in respect of each residential unit for a total period of 5 years from the date of completion of the property. 15.2 Under section 23(2) of the Finance Act, the income from self- occupied house property is computed in a concessional manner. The annual value of the self-occupied house is first determined in the same manner as if the property had been let out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years at a time. 16.2 Section 80GGA of the Income-tax Act provides that in the case of assessees, other than those carrying on business or profession, sums paid during the previous year to approved scientific research associations or approved associations or institutions which have as their object the undertaking of any programme of rural development to be used for the purposes of carrying out any approved programme of rural development, etc., will qualify for deduction in the computation of the total income. The Finance Act has inserted a new clause (c) in sub-section (2) of section 80GGA of the Income-tax Act to provide that sums paid to any association or institution which is approved by the prescribed authority for the purposes of section 35CCB, to be used for carrying out any programme of conservation of natural resources, approved for the purpose of that section will qualify for deduction under section 80GGA in the computation of taxable income. 16.3 These provisions take effect from June 1, 1982 and will, accordingly, apply in relation to the assessment year 1983-84 and subsequent years. [Sections 9 and 17 of the Finance Act] Deduction in respect of provisions for b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fits to a special reserve account, up to 40 per cent of their taxable income. In view of the important role being placed by scheduled commercial banks in expanding banking operations outside India, the Finance Act has inserted a new clause (viiia) in sub-section (1) of section 36 to provide for a similar tax concession to scheduled banks, other than foreign banks, which are engaged in banking operations outside India. Under. this provision, such scheduled banks will be entitled to a deduction, in the computation of the taxable profits, up to 40 per cent of the total income computed before making any deduction under Chapter VIA carried by them to a special reserve account. However, this concession will be available only where such scheduled bank is approved by the Central Government for the purposes of this clause, taking into account the capital structure, the extent of its operations outside India, its need for resources for operations outside India and other relevant factors. For this purpose, the expression " scheduled bank" will have the same meaning as in the Explanation at the end of clause (b) of sub-section (2) of section 11. Accordingly, the expression "scheduled bank" mea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of residence by the assessee or his parent in the property which was transferred, as also residence by the assessee in the new property purchased or constructed by him, have been removed., 2. The period for construction of a new property has been raised from two years to three years since assessees sometimes experience difficulty in complying with the existing time limit of two years for the construction of a house property. 3. It is clarified that this exemption will be allowed only in the case of individual assessees. 4. It has been provided that this exemption will apply only in relation to long-term capital gains, that is gains arising from the transfer of a house property which had been held by the assessee for a period exceeding 36 months. 19.4 This provision will take effect from April 1, 1983 and will, accordingly, apply in relation to the assessment year 1983-84 and subsequent years. [Sections 11 and 23(a) and (b) of the Finance Act] Exemption from tax on capital gains in certain cases on of the consideration in residential house - Section 54F 20.1 Under the existing provisions of the Income-tax Act, any profits and gains arising from the transfer of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ouse within three years of its purchase or construction, then the amount of capital gain arising from the transfer of the original asset which was not charged to tax shall be deemed to be the income of the year in which the new asset is transferred and such income shall be charged to tax under the head "Capital gains" relating to long-term capital assets. 20.4 This provision will become effective from April 1, 1983 and will, accordingly, apply in relation to the assessment year 1983-84 and subsequent years. [Sections 12, 23(c) and 32(t) of the Finance Act] Deduction in respect of long-term specified media - Section 80C 21.1 Under section 80C of the Income-tax Act, tax relief is allowed in respect of long-term savings effected by certain categories of assessees out of their income chargeable to tax. In the case of an individual, long-term savings through life insurance or deferred annuity policies (without cash option) on the life of the individual, his spouse or child, certain provident funds and superannuation funds, unit-linked insurance plan and 10-year and 15-year cumulative time deposit accounts qualify for tax relief. In the case of Hindu undivided families, long-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30,000 iii the case of the generality of assessees. In the case of authors, playwrights, artists, musicians, actors, sportsmen and athletes, the monetary limit has been increased to Rs. 60,000 as against the existing limit of Rs.50,000. The Income-tax Rules have been amended to secure this objective. 3. Apart from existing modes of savings through life insurance, certain provident funds and superannuation funds, unit-linked insurance plan and cumulative time deposits, it is proposed to provide an additional savings medium. The Central Government has been empowered to notify in the Official Gazette any Central Government security the subscription to which will also qualify for deduction under section 80C of the Income- tax Act. 21.4 Under the existing provisions, payments of life insurance premia qualify for deduction irrespective of the time for which the policy is maintained. It was observed that a large number of policies are terminated in a year or two of commencement after deduction of premia is allowed in respect of these policies. With a view to discouraging this trend, the Finance Act has provided that where an assessee discontinues a policy of life insurance before prem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proved local authority, institution or association to be utilised for the purpose of promoting family planning, are eligible for 100 per cent deduction. The amount of donations qualifying for deduction under section 80G is, however, limited to 10 per cent of the gross total income of the donor, subject to a further monetary limit of Rs. 5 lakhs. The aforesaid ceiling limits, however, do not apply in relation to the donations made to the National Defence Fund, the Jawaharlal Nehru Memorial Fund, the Prime Minister's Drought Relief Fund and the Prime Minister's National Relief Fund. 23.2 The National Children's Fund was established with a view to implementing programmes for the welfare of children, including rehabilitation of destitute children, particularly pre-school age children and other programmes envisaged ii) the National Plan of Action for the International Year of Child. The programmes for welfare of children belonging to Scheduled Castes and Scheduled Tribes and other backward classes receive primary consideration from the fund. 23.3 In view of the importance of this Fund and its programmes, the Finance Act has put the National Children's Fund at par with other funds of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the execution of any work in connection with any foreign project undertaken by any other person. 25.2 The benefit of this concession will be available in respect of projects for the construction of any building, road, dam, bridge or other structure outside India, the assembly or installation of any machinery or plant outside India and the execution of such other work outside India of whatever nature as may be prescribed by the Board. The assessee will not be eligible for this concession unless the consideration for the execution of such project or work is payable in convertible foreign exchange. 25.3 The deductions under the new provision will be admissible subject to the fulfilment of the following conditions, namely: 1. The assessee will have to maintain separate accounts in respect of the profits and gains derived from the business of execution of the project or work forming part of the project. Where the assessee is a person other than a company or cooperative society, the accounts relating to such project or work should be audited by a Chartered Accountant or other qualified accountant as defined in the Explanation below section 288(2) of the Act. The assessee will be r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d subsequent years. [Sections 18 and 32(ii) and (iii) of the Finance Act] Deduction in respect of income from specified financial assets - Section 80L 26.1 Under section 80L of the Income-tax Act, income derived by an assessee being an individual, a Hindu undivided family or an association of persons or a body of individuals consisting only of husband and wife governed by the system of community of property in force in the Union territories of Dadra and Nagar Haveli and Goa, Daman and Diu, from investments in specified categories of financial assets is exempt up to an aggregate amount of Rs. 3,000 which is deducted from the gross total income. In addition, under a separate provision contained in the Unit Trust of India Act, 1963, a further deduction of Rs.2,000 is allowed in respect of income received on units. The investments covered by this provision are: (i) Government securities; (ii) notified debentures; (iii) deposits under notified schemes of the Central Government; (iv) shares in Indian companies; (v) units in the Unit Trust of India; (vi) deposits with banking companies, cooperative banks, land mortgage banks and land development banks; (vii) deposits with approved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the manufacture of synthetic rubber and rubber chemicals (including carbon black) and basic drugs, the Finance Act has amended section 80M of the Income-tax Act to provide that dividends declared by Indian companies manufacturing synthetic rubber and rubber chemicals (including carbon black) and basic drugs would also qualify for full exemption in the hands of domestic companies. 27.3 This provision will take effect from April 1, 1983 and will, accordingly, apply in relation to the assessment year 1983-84 and subsequent years. [Section 20 of the Finance Act] Modifications of the provisions relating to deduction in respect of long-term capital gains in the case of non-corporate assessees - Section 80T 28.1 Under section 80T of the Income-tax Act, in the case of a non-corporate assessee, long-term capital gains are exempted from income-tax up to Rs. 5,000. Where the long-term capital gains exceed Rs. 5,000, a deduction is given of Rs. 5,000 plus 25 per cent of the long-term capital gains relating to buildings or lands or any rights in buildings or lands as reduced by Rs. 5,000. The deduction in respect of other long-term capital gains is given in an amount equal to Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urnover for a year exceeds the export turnover for the immediately preceding year by more than 10 per cent thereof. The tax relief will be calculated at a specified rate with reference to such excess turnover. For this purpose, "export turnover" will mean the sale proceeds of specified goods or merchandise exported outside India but will not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962. 29.2 The benefit of this tax concession will be available in relation to the assessment-year 1983-84 and four immediately succeeding assessment years. 29.3 The goods or merchandise in relation to which the tax concession will be provided and the rate at which the amount of deduction is to be calculated will be notified by the Central Government in the Official Gazette. In specifying the goods or merchandise, as also the destination of their export and the rate at which the deduction will be calculated, the Central Government will have regard to the following factors, namely: a. the cost of manufacture or production of such goods or merchandise and the prices of similar goods or merchandise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the order of assessment to exclude the amount of capital gain not chargeable to tax. For this purpose, the period of 4 years will be reckoned from the date of assessment. [Section 23 of the Finance Act] Exemption from the provision relating to deduction of income-tax at source from interest on securities - Section 193 31.1 Under section 193 of the Income-tax Act, income-tax is deductible at source on payment of any income chargeable under the head "lnterest on securities". The Finance Act has inserted a new clause (iiia) in the proviso to section 193 to provide that income-tax will not be deducted at source from interest paid on such securities of the Central Government or any State Government to such class of persons, and subject to such conditions as the Central Government may, by notification in the Official Gazette, specify in this behalf. 31.2 This provision takes effect from June 1, 1982. [Section 24 of the Finance Act] Raising of monetary limit for payments to contractors without deduction of tax at source - Section 194C 32.1 Under section 194C of the Income-tax Act, income-tax is deductible at source from income comprised in payments made by the Central ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in writing (in duplicate) in the prescribed form and verified in the prescribed manner to the person responsible for making the payment. The declaration will have to be to the effect that the estimated total income of the declarant of the previous year including such interest on securities, dividend or other interest will be less than the minimum liable to income-tax. On the receipt of this declaration, the person responsible for making the payment will be required to deliver or cause to be delivered to the Commissioner of Income-tax who exercises the jurisdiction over him, one copy of the declaration on or before the 7th day of the month following the month in which the declaration is furnished. 33.2 The Finance Act has also amended section 272A of the Income-tax Act to provide that in a case where the person responsible for making payment fails to deliver or cause to be delivered such declaration to the Commissioner of Income-tax within the specified time limit, a penalty of up to Rs.I0 will be leviable for every day for which the default continues. 33.3 These amendments take effect from June 1, 1982. [Sections 26 and 29 of the Finance Act] Rationalisation of procedure ..... X X X X Extracts X X X X X X X X Extracts X X X X
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