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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 ..... nce Act, 1993, in the sphere of direct taxes relate to the following matters : (i) Prescribing the rate of income-tax on incomes liable to 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) ; _ extendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 115AB and 115AC at the rates specified therein ; _ extending the facility for receipt of dividends by companies without deduction of tax at source in certain cases ; _ 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. Rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The salient features of the rates prescribed in the said Part III are indicated in the following paragraphs. IIIA. Individuals, Hindu undivided families, etc. 7. In the case of individuals, Hindu undivided 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cultural income will be taken into account for the computation of "advance tax" and charging of income-tax. The net agricultural income will be computed in accordance with the rules contained in Part IV of the First Schedule. These provisions are on the same lines as those in earlier years, except that the share of the partner in the income of the firm derived from agriculture will not be taken into account for computation of his tax liability. [Section 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to employees of certain authorities 16. Under the provisions of section 10(10C) of the Income-tax Act as these were prior to their substitution by the Finance Act, 1993, any payment received by an employee of a public sector company or any other company at the time of voluntary retirement, in accordance with any scheme or schemes of voluntary retirement, was exempt from income-tax. Representations had been received on behalf of the employees of statutory authorities, etc., that the benefit of the income-tax exemption under section 10(10C) should also be extended to them. The rationale for providing income-tax exemption on the amounts received under the schemes of voluntary retirement by the employees of the companies, i.e., making such schemes more attractive so that the companies can improve their efficiency, equally applies in the case of statutory authorities and local authorities. The scope of the income-tax exemption under section 10(10C) has, therefore, been extended to cover thereunder the employees of an 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duals or Hindu undivided families which are not ordinarily resident in India within the meaning of sub-section (6) of section 6 of the Income-tax Act. 17.2 This amendment takes effect from 1st April, 1993, and accordingly applies in relation to assessment year 1993-94 and subsequent years. [Section 3] Modification of the provisions of section 10(15)(v) 18. Section 10(15)(v) of the Income-tax Act provided income-tax exemption in respect of interest on securities held by the Registrar, Supreme Court, in Reserve Bank's SGL Account No. SL/DH 048. The amount of US $ 470 million paid by the Union Carbide Corporation and the Union Carbide India Limited on the directions of the Supreme Court as compensation for the victims of the Bhopal gas leak disaster stands deposited in the aforesaid account, in the form of certain Government securities. 18.1 On the directions of the Supreme Court, the name of the account-holder of the said account had been changed from the Regi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [Section 3] Extension of tax holiday under section 10A to Software Technology Parks and Electronic Hardware Technology Parks 20. The provisions of section 10A of the Income-tax Act provides for a five-year tax holiday during the period of the initial eight assessment years for new industrial undertakings set up in free trade zones. 20.1 The Act has amended section 10A in order to extend the five-year tax holiday to profits and gains derived from units set up in Software Technology Parks and Electronic Hardware Technology Parks approved by the Inter-Ministerial Standing Committee set up under schemes notified by the Ministry of Commerce and administered by the Department of Electronics. The term "produce" in respect of articles or things has been clarified to include production of computer programmes. 20.2 This amendment will take effect from 1st April, 1994, and will, accordingly, apply in relation to assessment year 1994-95 and subsequent years. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 6] Relief for salaried taxpayers 22. Under the existing provisions of section 16 of the Income-tax Act, a standard deduction of a sum equal to 33 per cent. of the salary or Rs. 12,000, whichever is less is allowed to a person having income from salary. A higher standard deduction of Rs. 15,000 is provided to working women whose gross total income is below Rs. 75,000. 22.1 Considering the high cost of expenditure incidental to the employment of salaried persons, the Act has amended section 16 of the Income-tax Act in order to enhance the general ceiling of standard deduction from Rs. 12,000 to Rs. 15,000. Correspondingly, the higher standard deduction provided to working women has been increased from Rs. 15,000 to Rs. 18,000. 22.2 This amendment will take effect from 1st April, 1994, and will, accordingly, apply in relation to assessment year 1994-95 and subsequent years. [Section 7] Rationalisation of provisions relating to exemption of medical perqu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [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 associations, etc. 24.1 The Act has inserted a new sub-section in section 35 which provides for weighted deduction of one and one-fourth times in respect of contributions to "National Laboratories", which will be such laboratories as are approved by the prescribed authority for carrying out approved programmes of scientific research. The prescribed authority has already been specified in the Income-tax Rules for the purposes of section 35. The Act envisages that the prescribed authority will firstly approve organisations as "National Laboratories" and thereafter further approve a programme for scientific research. Only if both these procedures are complied with then alone weighted deduction will be available. 24.2 These amendments have come into force with effect from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 business or profession of the assessee in India", as the case may be. This will ensure equal treatment to all non-resident assessees having branch offices in India. 26.2 The amendment takes effect from 1st April, 1993, and will, accordingly, apply in relation to the assessment year 1993-94 and subsequent years. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fect from 1st April, 1993, and will, accordingly, apply in relation to assessment year 1993-94 and subsequent 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve for promoting export of computer software, a new section 80HHE was inserted in the Income-tax Act by the Finance (No. 2) Act, 1991. Section 80HHE provides for 100 per cent. tax deduction for software exports. The tax concession is available with reference to export profits derived during the previous years relevant to assessment years 1991-92, 1992-93 and 1993-94, respectively. 31.1 With a view to encouraging the exporters of computer software and in order to give a further push to exports, the concession has been extended for one more year, i.e., for the assessment year 1994-95. 31.2 This amendment takes effect from the day the Act has received the assent of the President, i.e. 13th May, 1993, and will apply in relation to assessment year 1994-95. [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 profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... desh, Assam, Goa, Himachal Pradesh, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim and Tripura and the Union Territories of Andaman and Nicobar, Dadra and Nagar Haveli, Daman and Diu, Lakshadweep and Pondicherry. The above list corresponds to the existing list of industrially backward areas specified by the Ministry of Industry. 32.3 These amendments will take effect from 1st April, 1994, and will, accordingly, apply in relation to assessment year 1994-95 and subsequent years. [Sections 15 and 37] Tax holiday for the power sector 33. 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. 33.1 With a view to substantially increasing the power generation capacity in the country, a five-year full tax holiday and thereafter a partial tax holiday have been provided for in respect of profits and gains of industrial 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, 199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iling the return of income. 35.1 Under section 32(3) of the Unit Trust of India Act, 1963, the Unit Trust of India is deemed to be a company and any distribution of income received by a unit-holder from the Unit Trust of India is deemed to be dividend income for the purpose of the Income-tax Act. 35.2 With a view to providing a level playing field to all the mutual funds, the deduction under section 80M in respect of dividend income from the Unit Trust of India is being withdrawn in a phased manner. Accordingly, for the assessment year 1994-95, only four-fifths of the dividend from the Unit Trust of India will be eligible for deduction. For the assessment year 1995-96, two-fifths of the dividend from the Unit Trust of India will be eligible for deduction. The deduction will be subject to the existing conditions in section 80M. For the assessment year 1996-97 and subsequent years, dividend from the Unit Trust of India will not be eligible for deduction under section 80M. 35.3 This amendment 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 han ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anced from fifty thousand rupees to seventy-five thousand rupees. 37.2 This amendment will take effect from 1st April, 1994, and will, accordingly, apply in relation to assessment year 1994-95 and subsequent years. [Section 20] Tax incentive for Foreign Institutional Investors investing in securities 38. While presenting the Budget for 1992-93, the Finance Minister had stated that ways would be considered for allowing reputable foreign investors to invest in the country's capital markets. In pursuance of this announcement, guidelines had been issued through a Press Note dated 14th September, 1992*, for such investment by Foreign Institutional Investors. Income from such investment was to be taxed at concessional rates. Accordingly, a new section 115AD has been inserted in the Income-tax Act relating to tax on income of Foreign Institutional Investors from securities or capital gains arising from their transfer. 38.1 The income received in respect of securities (other than units referred to in section 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... procedure for small businessmen to transport operators 39. The Finance Act, 1992, had inserted a new Chapter XII-C in the Income-tax Act which provides for a simplified scheme for payment of income tax by small businessmen. The income in such cases is deemed to be Rs. 35,000. 39.1 In order to widen the base of the scheme further, the scheme has been extended to small road transport operators. This will include either persons who are carrying on the business of operating a transport vehicle or persons who own one transport vehicle and are earning income by hiring or leasing it. The transport vehicle will include a truck, a light commercial vehicle, a taxi, three-wheeler motor vehicle. 39.2 The deemed income of persons opting for the scheme has been enhanced from Rs. 35,000 to Rs. 37,000. 39.3 These amendments take effect from 1st April, 1993, and will, accordingly, apply in relation to assessment year 1993-94. Accordingly, small road transport operators can opt for the simplified procedure even in respect of the income earned 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 Jun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Income-tax Act provides that in the case of a non-resident, the income by way of interest or dividends in respect of bonds issued by or shares in an Indian company purchased in foreign currency in accordance with a scheme notified by the Central Government shall be taxed at the rate of ten per cent. thereof. Income by way of long-term capital gains arising on the transfer of such shares or bonds is also to be taxed at the rate of ten per cent. thereof. Section 196B of the Income-tax Act provided for deduction of income-tax at source from income in respect of units referred to in section 115AB at the rate of ten per cent. Similarly, section 196C provided for deduction of income-tax at source from income by way of interest or dividends on bonds and shares referred to in section 115AC at the rate of ten per cent. Thus, the income by way of long-term capital gains arising on the transfer of units referred to in section 115AB and the income by way of capital gains arising on the transfer of bonds and shares referred to in section 115AC did not 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 rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ority constituted by the Central Government and known as authority for advance rulings, of a question of law or fact in relation to a transaction which has been undertaken or is proposed to be undertaken by a non-resident. 43.2 The authority for advance rulings will consist of a Chairman who will be a retired Judge of the Supreme Court and two other members drawn from the Indian Revenue Service and Indian Legal Service. The headquarters of the Authority will be in Delhi. It has been provided that no proceeding of the Authority will be invalid merely on grounds of the existence of any vacancy or defect in the constitution of the Authority. Any non-resident desirous of obtaining an advance ruling can make an application in the form and manner to be prescribed by rules along with the payment of a fee of Rs. 2,500. Such an application can be withdrawn within thirty days. The Authority on receipt of an application will send a copy to the Commissioner concerned and, wherever considered necessary, also call upon the Commissioner to furnish relevant records. Such records will be returned to the Commissioner as soon as possible. The Authority may either allow or reject an application. How ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 253 of the Income-tax Act, 1961, from Rs. 200 to Rs. 1,500, where the total income of the assessee as computed by the Assessing Officer was more than Rs. 1 lakh and Rs. 250 in any other case. This amendment was made effective from 1st June, 1992. 44.1 For the removal of doubts, the Finance Act, 1993, has further amended the provisions of sub-section (6) of section 253 retrospectively with effect from 1st June, 1992, to provide that the enhanced fee will be applicable to all the appeals filed on or after 1st June, 1992, irrespective of the date of initiation of assessment proceedings in a case. [Section 32] Provisions relating to pre-emptive purchase of immovable property 45. The Supreme Court in its judgment in the case of C.B. Gautam v. Union of India and others, delivered on 17th November, 1992 (see [1993] 199 ITR 530), has upheld the constitutional validity of Chapter XX-C. While passing the judgment the Supreme Court has, inter alia, held as under : (i) A reasonable opportunity of being heard is to be given to the affected parties. (ii) The reasons recorded by the appropriate authority for making the order of pre-emptive purchase are to be communicated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effective retrospectively from 17th November, 1992. [Sections 33, 34 and 35] Modification of the provisions relating to power to reduce or waive penalty, etc., in certain cases 46. Under the provisions of section 273A of the Income-tax Act as these were prior to their amendment by the Finance Act, 1993, both the Chief Commissioner and Commissioner were empowered to reduce or waive (a) the amount of penalty imposed or imposable under section 271(1)(iii) or (b) the amount of any other penalty payable under the Act, subject to certain conditions. They could also stay or compound any proceeding for the recovery of the amount referred to in (b) above. It was further provided that where the amount of income in respect of which penalty is imposed or imposable under section 271(1)(c) exceeded five hundred thousand rupees and in other cases if the amount of penalty payable exceeded one hundred thousand rupees, no order reducing or waiving the amount of penalty or staying or compounding any proceeding for the recovery of such amount could be made without the previous approval of the Board. 46.1 Reference to both the Chief Commissioner and Commissioner as the authority empowered to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rein so that a co-operative society availing of deduction under the provisions of section 80P would get deduction on the gross total income as reduced by the deduction, inter alia, under section 80-IA. 47.2 The amendments will have retrospective effect from 1st April, 1991, the date from which the provision of section 80-IA came into operation. They will accordingly apply in relation to assessment year 1991-92 and subsequent years. [Sections 4, 5 and 18] Wealth-tax Exemption for urban land held as stock-in-trade 48. Under the existing provisions, urban land held as stock-in-trade is considered an asset, and is exigible to wealth-tax. The Act provides that urban land held as stock-in-trade will not be liable to wealth-tax for a period of three years from the date of its acquisition. It may be clarified that this exemption would be available only in such cases where the business activity of the person is such that he has to hold land as stock-in-trade. 48.1 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 38] Exemption for a house or part of a house 49. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y thousand. 52.1 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] Rules for determining the value of shares and debentures gifted 53. Schedule II of the Gift-tax Act provides that the value of any property other than cash will be determined in accordance with the provisions of Schedule III of the Wealth-tax Act. Under the scheme formulated by the Finance Act, 1992, shares and debentures in companies are not liable to levy of wealth-tax. The Finance Act, 1992, by way of consequential amendment omitted Part C of Schedule III, which specified the mode for valuation of these shares and debentures in companies. The deletion of these Rules has created difficulties under the Gift-tax Act as no mode has been specified for determining the value of these shares and debentures. The Act has revived Part C of Schedule III of the Wealth-tax Act in Schedule II of the Gift-tax Act to overcome this difficulty. 53.1 This amendment takes effect from 1st April, 1993, and will, accordingly, apply in relation to the assessment year 1993-94 and subsequent years. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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