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TMI BlogExplanatory notes on the provisions relating to direct taxesX X X X Extracts X X X X X X X X Extracts X X X X ..... o tax for the assessment year 1993-94 ; the rates at which tax will be deductible at source during the financial year 1993-94 from interest (including interest on securities), dividends, salaries, winnings from lotteries or crossword puzzles, winnings from horse-race, insurance commission and other categories of income liable to deduction of tax at source under the Income-tax Act ; rates for computation of "advance tax" and charging of income-tax on current incomes in certain cases for the financial year 1993-94. (ii) Retaining the provisions for levy of surcharge at the rate of 15 per cent. in the case of companies and at the rate of 12 per cent. in the case of other tax payers as provided by the Finance Act, 1992, but in the case of non-corporate persons providing for levy of surcharge only where the total income exceeds one lakh rupees (it may be clarified that the surcharge does not apply in the case of all non-resident taxpayers). (iii) Amendment of the Income-tax Act, 1961, with a view to _ _ omitting section 10(6)(vii) ; _ extending the tax concession under section 10(6)(viia) to non-resident technicians holding Indian citizenship ; _ extending the tax exemption on paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... _ setting up the authority for advance rulings for the benefit of non-residents ; _ providing for hike in fees for filing appeals to the Income-tax Appellate Tribunal ; _ amending the provisions relating to pre-emptive purchase of immovable property ; _ modifying the provisions relating to power to reduce or waive penalty, etc., in certain cases ; _ consequential amendments in sections 10A, 10B and 80P. (iv) Amendment of the Wealth-tax Act, 1957, with a view to, _ reviving the exemption in respect of one house ; _ modifying the provisions relating to power to reduce or waive penalty, etc., in certain cases. (v) Amendment of the Gift-tax Act, 1958, with a view to,_ _ raising of basic exemption limit ; _ providing exemption for gifts made from Non-resident (Non-repatriable) Rupee Deposit Scheme, 1992 ; _ raising of exemption limit for gifts made to dependent relatives ; _ prescribing rules for determining the value of shares and debentures gifted. Income-tax Rate structure I. Rates of income-tax in respect of incomes liable to tax for the assessment year 1993-94 4. In respect of incomes of all categories of taxpayers (corporate as well as non-corporate) liable to ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivided families (other than those having at least one member whose total income exceeds the exemption limit), associations of persons, etc., the rates of income-tax have been specified in Sub-Paragraph I of Paragraph A of Part III of the First Schedule to the Finance Act. The exemption limit in the case of the aforesaid persons has been raised from Rs. 28,000 to Rs. 30,000. Except this, there has been no change in the rates of tax or slabs of income. 7.1 The rates of income-tax as per Finance Act, 1992, and Finance Act, 1993, are indicated in the Table below : TABLE Finance Act, 1992 Finance Act, 1993 Income slab Marginal rate of tax Income slab Marginal rate of tax Up to Rs. 28,000 Nil Up to Rs. 30,000 Nil Rs. 28,001 - 50,000 20 per cent Rs. 30,001 - 50,000 20 per cent Rs. 50,001 - 1,00,000 30 per cent Rs. 50,001 - 1,00,000 30 per cent Above Rs. 1,00,000 40 per cent Above Rs. 1,00,000 40 per cent 7.2 In the case of Hindu undivided families having at least one member whose total income exceeds the exemption limit, i.e., Rs. 30,000, the rates of income-tax have been specified in Sub-Paragraph II of Paragraph A of Part III of the First Schedule to the Financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 and the First Schedule] Extending the tax concession under section 10(6)(viia) to non-resident technicians holding Indian citizenship 14. Under the provisions of section 10(6)(viia) of the Income-tax Act, the perquisite represented by the income-tax paid by an employer on the salary of its employee, who is not a citizen of India and is engaged as a technician and his services, as such, commence from a date after 31st March, 1988, is exempt from income-tax. It is further provided therein that such individual should not have been resident in India in any of the four financial years immediately preceding the financial year in which he arrived in India. This condition can be waived by the Central Government in specified cases. The term "technician" has been defined for the purposes of section 10(6)(viia). 14.1 It had been represented that the condition of being a foreign citizen in order to avail of the tax concession under section 10(6)(viia) discriminated against non-resident technicians who were Indian citizens. The Act, therefore, inserts a new clause (5B) in section 10 of the Income-tax Act to provide that the tax concession, at present available under section 10(6)(viia) to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authority established under a Central, State or Provincial Act or of a local authority. 16.1 The guidelines prescribed by the Board specify that the amount receivable on account of voluntary retirement of an employee should not exceed five hundred thousand rupees. The intention was to restrict the benefit of income-tax exemption under section 10(10C) to the aforesaid amount in the case of an employee. The Finance Act incorporates the aforesaid intention in the law itself by providing that the amount exempt under section 10(10C) shall not exceed five lakh rupees. 16.2 The guidelines prescribed by the Board for framing the schemes of voluntary retirement further specify that the employee should not have availed of the benefit of any other voluntary retirement scheme in the past. It may be difficult for the employers to comply with this requirement where the employees do not disclose the fact of their having availed of such benefit in the past. It has, therefore, been provided that where exemption has been allowed to an employee under section 10(10C) for any assessment year, no exemption shall be allowed to him thereunder in relation to any other assessment year. 16.3 These amendm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l" in section 10(15)(iv) of the Income-tax Act. 18.3 This amendment takes effect from 2nd November, 1992. [Section 3] Exemption of certain incomes of the European Economic Community 19. The European Economic Community has proposed co-operation in the industrial sector by providing financial assistance for setting up joint ventures between small and medium scale companies. It has entered into agreements with the Export-Import Bank of India, the Industrial Development Bank of India and the Industrial Credit and Investment Corporation of India under the European Community International Investment Partners Scheme. Under this Scheme, the European Economic Community would provide grants, interest-free loans and equity participation. The funds brought in for the purpose of being invested in projects approved under the scheme are not proposed to be repatriated. All dividend income accruing in India out of investments made under the scheme is proposed to be utilised for further investments in India. In order to facilitate investment by the European Economic Community in India under the European Community International Investment Partners Scheme, it had been decided to exempt its income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s provided in clause (a) of section 11(2). 21.1 Section 11(3) of the Income-tax Act provides, inter alia, that where the income accumulated or set apart is not utilised for the purpose for which it is so accumulated or set apart during the period mentioned in clause (a) of section 11(2), it shall be deemed to be the income of the person of the previous year immediately following the expiry of the aforesaid period. Representations had been received to the effect that the aforesaid provisions created hardship in cases where the income accumulated or set apart could not be applied for the purpose for which it was accumulated or set apart during the said period due to an order or injunction of any court. 21.2 As a measure of rationalisation, the Act amends section 11(2) of the Income-tax Act to provide that in computing the period referred to in clause (a) thereof, the period during which the income could not be applied for the purpose for which it is so accumulated or set apart, due to an order or injunction of any court, shall be excluded. 21.3 This amendment takes effect retrospectively from 1st April, 1962, and, accordingly, applies in relation to the assessment year 1962-63 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by them. 23.2 In view of the above, the provisions in clause (vi) of the proviso to clause (2) of section 17 of the Income-tax Act relating to exemption of perquisite in the form of medical treatment abroad have been rationalised in order to provide that expenditure on stay and treatment abroad will be allowed to the extent permitted by the Reserve Bank of India. The provision relating to prescribing conditions by the Central Board of Direct Taxes regarding expenditure on travel abroad has also been removed. The only restriction on the exemption of perquisite value of travel cost that will now remain will be that the employee's gross total income does not exceed two lakhs rupees. 23.3 These amendments take effect from 1st April, 1993, and will, accordingly, apply in relation to assessment year 1993-94 and subsequent years. [Section 8] Enhanced tax concession for scientific research 24. Under section 35 of the Income-tax Act, deduction is allowed, from the business income in respect of expenditure incurred by the assessee for scientific or social or statistical research either directly by the assessee or by way of payments to a university, college, scientific research associa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the "adjusted total income" of the taxpayer for the relevant year ; or (ii) the annual average of the head office expenditure allowed during a base period of three previous years, namely, the previous years relevant to the assessment years 1974-75 to 1976-77 ; or (iii) the actual amount of head office expenditure attributable to the business in India, whichever is the least. 26.1 While the amount of "adjusted total expenditure" and the amount of "expenditure in the nature of head office expenditure attributable to the business or profession of the assessee in India" has increased in monetary terms the "average head office expenditure" has remained constant. This has enabled the companies which have set up branches subsequent to 1976 to be placed on a better footing than those which had set up branches prior to 1976. The Act has deleted the limiting condition relating to "average head office expenditure". Thus, now in case of non-residents the ceiling limits for the deduction of head office expenses in computing the taxable profits will be limited to the lesser amount of "adjusted total expenditure" or the "expenditure in the nature of head office expenditure attributable to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years. [Section 13] Tax concession in respect of contributions to the National Foundation for Communal Harmony 29. Under the provisions of section 80G, deduction is allowed in computing the total income of a person in respect of donations made to certain trusts and institutions. The deduction normally allowed is at the rate of 50 per cent. of the amount of donation made. However, in the case of donations made to the Prime Minister's National Relief Fund, the Prime Minister's Armenia Earthquake Relief Fund, the Africa Fund, the Government, local authority or certain approved associations, etc., carrying on promotion of family planning the deduction is allowed at the rate of 100 per cent. of the donation. 29.1 Considering the importance of the National Foundation for Communal Harmony in acting as a catalyst for communal harmony and also considering the nature of its activity in providing assistance to the children of families affected by communal riots, the Finance Act extends the benefit of 100 per cent. deduction to donations made to the Foundation. Section 10(23C) of the Income-tax Act has also been amended in order to include the National Foundation for Communal Harmony as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -95. [Section 14] Tax holiday to new industrial undertakings set up in backward States. 32. Under section 80-IA of the Income-tax Act, 1961, deduction is allowed, in computing the taxable income, in respect of profits derived from a new industrial undertaking or a ship or the business of a hotel. The deduction under this section is allowed in the case of companies, at 30 per cent. of profits in respect of the assessment year relevant to the previous year in which the hotel starts functioning or the industrial undertaking starts manufacture or ship is first brought to use and nine assessment years immediately succeeding the initial assessment year. In the case of taxpayers being a co-operative society, similar deduction is allowed for the initial assessment year and eleven succeeding years. The deduction is allowed at the rate of 25% in the case of non-corporate assessees. Likewise, in the case of new hotels set up in hilly area or a rural area or a place of pilgrimage or such other place as the Central Government may specify, the deduction is admissible at the rate of 50 per cent. of the profits. 32.1 With a view to give substantial thrust for encouraging the industrialisation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dustrial undertakings set up anywhere in India for generation or generation and distribution of power. Such undertakings which begins to generate power during the period beginning on the 1st day of April, 1993, and ending on the 31st day of March, 1998, will be allowed deduction under section 80-IA, at the rate of 100 per cent. of profits in respect of the first five assessment years starting from the assessment year relevant to the previous year in which the undertaking begins generation of power. For the subsequent assessment years, the deduction from the profits from such undertakings will be allowed at the normal rate of 30 per cent. in the case of companies and 25 per cent. in the case of non-corporate assessees. The deduction, at the enhanced rate and the normal rate together, will be limited to twelve assessment years in the case of co-operative societies and ten assessment years in the case of other assessees, as in the existing provisions. 33.2 These amendments will take effect from 1st April, 1994, and will, accordingly, apply in relation to assessment year 1994-95 and subsequent years. [Section 15] Enhancement of the quantum of deduction under section 80L 34. Under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt will come into effect from 1st April, 1994, and will, accordingly, apply in relation to assessment year 1994-95 and subsequent years. [Section 17] Relief in cases where income of a handicapped minor is clubbed with that of one of the parents 36. The Finance Act, 1992, had introduced a provision in section 64 of the Income-tax Act whereby all income of a minor child, except from wages or as a result of the child's own talent or skill, is to be taxed in the hands of that parent whose total income (excluding income to be included) is greater. Under the provision of section 80U, a deduction of twenty thousand rupees is allowed in the case of an individual who is suffering from a permanent physical disability (including blindness) or mental retardation. The existing provision, deduction under section 80U, being person-related and not income-related, may be interpreted as not allowable in the hands of the parent in whose hand the income of the minor, suffering from permanent physical or mental disability, has been clubbed. 36.1 With a view to providing relief in cases where income of a handicapped minor is clubbed with that of one of the parents, a new section 80V has been introdu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 115AB) listed in a recognised stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956, is to be taxed at the rate of twenty per cent. Income by way of long-term capital gains arising from the transfer of the said securities is to be taxed at the rate of ten per cent. Income by way of short-term capital gains arising from the transfer of the said securities is to be taxed at the rate of thirty per cent. However, these rates of tax will apply on the gross income of the nature specified above without allowing for any deduction under sections 28 to 44C, 57 and Chapter VI-A. The first and second provisos of section 48 relating to computation of capital gains will not apply in the case of transfer of the aforesaid securities by the Foreign Institutional Investors. 38.2 The expression "Foreign Institutional Investor" has been defined to mean such investor as the Central Government may, by notification in the Official Gazette, specify in this behalf. The expression "securities" is to have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956. Section 2(h) of the said Act defines securities as under. "Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d during the previous year 1992-93. For such transport operators, time for filing the statement and for paying the tax has been extended up to 30th June, 1993. [Sections 22 and 23] Modification of the provisions relating to levy of additional income-tax 40. The provisions of section 143(1A) of the Income-tax Act provided for levy of twenty per cent. additional income-tax where the total income, as a result of the adjustments made under the first proviso to section 143(1)(a), exceeded the total income declared in the return. These provisions sought to cover cases of returned income as well as returned loss. Besides its deterrent effect, the purpose of the levy of the additional income-tax was to persuade all the assessees to file their returns of income carefully to avoid mistakes. 40.1 In two recent judicial pronouncements, it had been held that the provisions of section 143(1A) of the Income-tax Act, as these were worded, were not applicable in loss cases. 40.2 The Act, therefore, amends section 143(1A) of the Income-tax Act to provide that where as a result of the adjustments made under the first proviso to section 143(1)(a), the income declared by any person in the return i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fall within the ambit of sections 196B and 196C respectively. In order that deduction of tax at source on such income is made at the rates of income-tax specified in sections 115AB and 115AC respectively, the Act amends sections 196B and 196C of the Income-tax Act to include the said income within the ambit of the aforesaid sections. 41.1 These amendments take effect from 1st June, 1993. [Sections 26 and 27] Extending the facility for receipt of dividends by companies without deduction of tax at source in certain cases 42. Section 197 of the Income-tax Act provides that the Assessing Officer can give a certificate to any person for deduction of income-tax at rates lower than the rates in force or for no deduction of income-tax at source, if he is satisfied that the total income of such person so warrants. The provisions of this section did not cover income by way of dividends from which income-tax is required to be deducted at source under section 194. On the other hand, under the second proviso to section 194, the Assessing Officer could give a certificate in the case of a non-corporate shareholder for no deduction of income-tax at source if he was satisfied that the total in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ords will be returned to the Commissioner as soon as possible. The Authority may either allow or reject an application. However, it has been provided specifically that the Authority shall not allow an application where the question of law or fact raised is already pending in the case of the applicant, either before any income-tax authority, the Appellate Tribunal or any court. Applications are also not to be allowed where the transaction, in relation to which the question is raised, is designed for the avoidance of income-tax or where the question raised relates to the determination of the fair market value of any property. The applicant can, on request, appear either in person or can be represented through a duly authorised representative. A time limit of six months has been provided for the pronouncement of advance ruling after the receipt of the application by the Authority. 43.3 The advance ruling is to be binding only on the applicant who had sought it and in respect of the specific transaction in relation to which such advance ruling was sought. It is also to be binding on the Commissioner and the income-tax authorities subordinate to the Commissioner who have jurisdiction o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s recorded by the appropriate authority for making the order of pre-emptive purchase are to be communicated to the affected parties. (iii) The expression "free from all encumbrances" as contained in sub-section (1) of section 269UE has been struck down. Bona fide lessees or encumbrance holders can continue to be in possession of the property if provided for in the terms of the agreement for sale. Appropriate legal provisions may be made to tackle cases of bogus encumbrance or lease holders, created for defeating the purpose of Chapter XX-C. 45.1 In order to give legislative shape to the above mentioned rulings of the Supreme Court, amendments in the provisions of Chapter XX-C have been made. For enabling a reasonable opportunity of being heard to the affected parties, the time limit for passing the order has been extended from two months to three months from the end of the month in which Form No. 37-I is filed. The intending transferor and transferee are now required to enter into an agreement for sale in writing at least four months before the intended date of transfer. The appropriate authority is now required to give the reasons for making pre-emptive purchase in the order its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 46.1 Reference to both the Chief Commissioner and Commissioner as the authority empowered to reduce or waive penalty, in section 273A could create problems. Further, to streamline the functioning of the Income-tax Department, it was decided that the Board's power to grant approval to an order of waiver/reduction of penalty where the amount of income or penalty exceeded the monetary limits specified in section 273A should be vested in the concerned Chief Commissioner or Director-General, as the case may be. 46.2 The Act, therefore, omits reference to the Chief Commissioner as the authority empowered to reduce or waive the amount of penalty, etc. It also provides that where the amount of income or penalty exceeds the monetary limits specified in section 273A, no order reducing or waiving the amount of the penalty or staying or compounding any proceeding for the recovery of such amount shall be made except with the previous approval of the Chief Commissioner or Director-General, as the case may be. 46.3 Similar amendment has been made to the corresponding provisions of section 18B of the Wealth-tax Act. 46.4 These amendments take effect from 1st June, 1993. 46.5 The proposals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt years. [Section 38] Exemption for a house or part of a house 49. The Finance Act, 1992, had withdrawn exemptions in relation to certain assets which were earlier available under section 5 of the Wealth-tax Act. The Finance Act, 1993, has revived the exemption in respect of one house or part of a house belonging to an assessee. This exemption will be available only to individuals and Hindu undivided families. 49.1 This amendment will take effect from 1st April, 1994, and will, accordingly, apply in relation to the assessment year 1994-95 and subsequent years. [Section 39] Gift-tax Raising of basic exemption limit 50. Under the existing provisions of section 5(2) of the Gift-tax Act, tax is not charged in respect of gifts made up to a maximum of rupees twenty thousand during any previous year. Considering the increase in prices since the present limit was fixed, the Act has raised the aforesaid limit to rupees thirty thousand. 50.1 This amendment will take effect from 1st April, 1994, and will, accordingly, apply in relation to the assessment year 1994-95 and subsequent years. [Section 41] Providing exemption for gifts made from Non-resident (Non-repatriable) Rupee Depo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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