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TMI BlogTax Rates and TDS Rates under Income-taxX X X X Extracts X X X X X X X X Extracts X X X X ..... d for deduction at source in the case of individuals (for income above Rs. 60,000), companies, firms, co-operative societies and local authorities (except foreign companies) will be enhanced by a surcharge calculated at the rate of two per cent of such tax. 4.2.2 These rates are broadly the same as those specified in Part II of the First Schedule to the Finance Act, 2000, for the purposes of deduction of income-tax at source during the financial year 2000-2001 except that the rate of tax to be deducted from winnings from lotteries or crossword puzzles and winnings from horse races has been reduced from forty per cent to thirty per cent. Rates for deduction of income-tax at source from "Salaries" computation of "advance tax" and charging of income-tax in special cases during the financial year 2001-2002. 4.3 The rates for deduction of income-tax at source from "Salaries" during the financial year 2001-2002 and also for computation of "advance tax" payable during that year in the case of all categories of tax payers have been specified in Part III of the First Schedule to the Act. These rates are also applicable for charging income-tax durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g tax New Tax Tax saving Tax saving liability liability (Rs.) (Rs.) (Rs.) (Rs.) (%) 50,000 Nil Nil Nil Nil 55,000 500 500 Nil Nil 60,000 1,000 1,000 Nil Nil 60,010 1,010 1,010 Nil Nil 60,020 1,020 1,020 Nil Nil 60,050 1,050 1,030 20 1.90 60,100 1,100 1,040 60 5.45 60,120 1,120 1,045 75 6.70 60,130 1,130 1,047 83 7.35 60,150 1,150 1,051 99 8.61 60,170 1,156 1,054 102 8.82 61,200 1,165 1,061 104 8.93 65,000 2,240 2,040 200 8.93 75,000 4,480 4,080 400 8.93 1,50,000 21,280 19,380 1,900 8.93 1,50,100 21,290 19,411 1,900 8.93 1,50,500 21,780 19,533 2,247 10.32 1,51,000 22,280 19,686 2,594 11.64 1,51,500 22,757 19,839 2,918 12.82 1,52,000 22,932 19,992 2,940 12.82 2,00,000 39,780 34,680 5,100 12.82 3,00,000 74,880 65,280 9,600 12.82 4,00,000 1,09,980 95,880 14,100 12.82 5,00,000 1,45,080 1,26,480 18,600 12.82 10,00,000 3,20,580 2,79,480 41,000 12.82 4.3.3 Co-operative societies - In the case of co-operative societies the rates of income-tax have been specified in Paragraph B of Part III of the First Schedule to the Act. These rates are the same as those s ..... 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Account' and 'Document' so as to include electronic records, etc. 5.1 With the passing of the Information Technology Act, 2000, the Act has provided definitions of 'books of account' and 'document' in section 2 of the Income-tax Act, so as to include electronic records within the meaning of these terms. 5.2 A new clause (12A) has been inserted in section 2 to define "books of account" as including ledgers, day-books, cash books, account-books and other books whether kept in written form or as print-outs of data stored in a floppy disc, tape or any other form of electro-magnetic data storage device. 5.3 Another new clause (22AA) has been inserted in the section to define the expression "document" as including an electronic record as defined in clause (t) of section 2 of the Information Technology Act, 2000, as per which electronic record means data, record or data generated, image or sound stored, received or sent in an electronic form or micro film or computer generated micro fiche. 5.4 These amendments take effect from 1st June, 2001. [Sections 3(a) & 3(b)] Definition of lottery and card game and other game of any sort 6.1 Sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he amounts referred to in section 44BB, that is, profits and gains arising from the business of exploration etc., of mineral oils. 7.4 This amendment will take effect with effect from 1st April, 2002, and will accordingly, apply in relation to the assessment year 2002-2003 and subsequent assessment years. [Section 4] Exemption of amount received under VRS extended to Central and State Government employees 8.1 Under the existing provisions contained in clause (10C) of section 10, any amount received by an employee of a public sector company or any other company or an authority established under a Central, State or Provincial Act or a local authority or a co-operative society or a University or an Indian Institute of Technology or a notified Institute of management, at the time of his voluntary retirement/separation is not included in computing his total income. The exemption is available for amounts received upto Rupees five lakhs and if the payment is in accordance with a scheme of voluntary retirement/separation framed by the employer as per the prescribed guidelines. 8.2 Clause (10C) of section 10 has been amended through Finance Act, 2001, so as to extend the exemption to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by way of interest payable by specified financial institutions on money borrowed from sources outside India to interest related to such moneys borrowed or debts owed before 1st June, 2001. (v) Part (e) of sub-clause (iv) of clause (15) of section 10 has been amended so as to limit the exemption in respect of income by way of interest payable by financial institutions on money borrowed from sources outside India on or after 1st June, 2001 under an approved loan agreement for specified purposes. (vi) Part (f) of sub-clause (iv) of clause (15) of section 10 has been amended so as to limit the exemption in respect of income by way of interest payable by an industrial undertaking in India on moneys borrowed from sources outside India under a loan agreement approved by the Central Government on or before 1st June, 2001. 9.2 After withdrawal of income tax exemption on interest payable on ECBs, the interest received by foreign entities on ECBs which are payable by Indian entities has now become taxable if such interest relates to moneys borrowed on or after 1st June, 2001 or if the agreements for the loan have been entered into or approved on or after 1st June, 2001, as the case may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opment Authority Act, 1999. 12.2 This amendment will take effect from 1st April, 2002, and will, accordingly, apply in relation to the assessment years 2002-2003 and subsequent assessment years. [Section 5(d)] Educational and medical institutions not required to invest their funds being part of corpus before 1st day of June, 1998 in specified securities. 13.1 Through Finance Act, 1999, the blanket exemptions available under sections 10(22) and 10(22A) to educational or medical institutions established for educational or philanthropical purposes were withdrawn. Sections 10(22) and 10(22A) provided that the income of a University or other educational institution or a hospital or other medical institution is not includible while computing the total income. Such institutions are now required to maintain a discipline similar to trusts under section 11. The exemption is available if the institution applies its income or accumulates it for application, wholly and exclusively for the objective for which it is established. The income so accumulated is required to be invested in securities as specified under sub-section (5) of section 11. 13.2 The sixth proviso to section 10(23C) furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year, if such income is accumulated after the 1st day of April, 2001, by any such fund or trust or institution or any university or other educational institution or any hospital or other medical institutions, as the case may be, will be five years only. If, however, the income accumulated is less than twenty-five per cent of the income earned during the year by these educational and medical institutions, there is no limitation on the period of accumulation. 14.3 This amendment will take effect from 1st April, 2002, and will accordingly, apply in relation to the assessment year 2002-2003 and subsequent assessment years. [Section 5(e)] Exemption to continue for a Venture Capital Company or Venture Capital Fund if the shares of venture capital undertaking get listed 15.1 A new section 10(23FB) was introduced in the Income-tax Act through the Finance Act, 2000, with effect from 1.4.2001, with respect to the taxation of Venture Capital. The section provides that any income of a Venture Capital Company (VCC) or a Venture Capital Fund (VCF) set up to raise funds for investment in a Venture Capital Undertaking (VCU) shall not be included in computing the total income for the previous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of interest, dividend (other than dividends referred to in section 115-O) and long term capital gains from investment made by way of equity or long-term finance in an approved enterprise wholly engaged in the business of (i) developing, (ii) maintaining and operating, or (iii) developing, maintaining and operating an infrastructure facility shall not be included in computing the total income. 17.2 Fiscal incentives for development of infrastructure have been provided in the Income-tax Act as a package, so that tax holiday is allowed under section 80-IA to the infrastructure enterprise and income from long-term investment made by the Infrastructure Capital Company or Infrastructure Capital Fund in the approved enterprise is exempt under section 10(23G). Thus, whenever a decision is taken to revise the scope of fiscal incentives to infrastructure by amending section 80-IA, necessary amendments are required to be made in sections 10(23G) as well. 17.3 Thus, as a measure of rationalisation, Finance Act, 2001, has amended section 10(23G) so as to provide that income by way of interest, dividend or long term capital gains of an infrastructure capital fund or an infrastructure capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inancial institution from an approved enterprise. 19.3 This amendment will take effect from 1st April, 2002, and will, accordingly, apply in relation to the assessment year 2002-2003 and subsequent assessment years. [Section 5(g)] Exemption in respect of income received in respect of units of UTI and Mutual Fund not to include income arising on transfer of such units 20.1 The Finance Act, 1999, amended clause (33) of section 10 so as to provide that any income by way of income received in respect of units from the Unit Trust of India and units of a Mutual Fund specified in section 10(23D) shall not be included while computing the total income. 20.2 While making this amendment, the intention of the legislature was to tax the income received in respect of the units of the UTI and the Mutual Fund on lines similar to dividends distributed by a domestic company. The income received in respect of units from UTI and Mutual Funds was exempted simultaneously with the insertion of the provisions of Chapter XII-E which provided that the UTI and MFs shall be liable to pay additional income-tax on such income distributed by them. However, the provisions of sub-clauses (ii) and (iii) of cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d amendment will take effect from the assessment year 2002-03. 21.3 Sub-section (9) provides that where during any previous year, the ownership or beneficial ownership interest in the undertaking is transferred, the benefit of the deduction would not be allowed for that year and subsequent years. An explanation applicable in cases of companies further provides that where 51% of shares are not beneficially held by persons, who held these shares at the time of setting up of the unit, it will be deemed to be a transfer of ownership. 21.4 Owing to difficulties in monitoring change in shareholding pattern in listed companies in which the public are substantially interested, the amendment provides that the provisions of sub-section (9) would not be applicable in the case of a company where its shareholding undergoes any change as a result of its becoming a company in which public are substantially interested. The proviso would also not be applicable to a company in which public are substantially interested at the time of setting up of the undertaking. In other words, the proviso will not apply to companies in which public are substantially interested either at the time of setting up or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oney is accumulated or set apart for application for charitable or religious purposes. If the trust does not apply 75% of its income for charitable purposes, then the exemption is available only if the unapplied income is accumulated for application to charitable purposes subject to the conditions specified in section 11(2). These conditions, inter alia specify that the maximum period for which such income can be accumulated is ten years. 23.2 Sub-section 2 of section 11 has been amended so as to reduce the maximum period for which accumulation is permitted to five years in respect of any income accumulated or set apart after the 1st day of April, 2001. 23.3 These amendments will take effect from 1st April, 2002, and will accordingly, apply in relation to the assessment year 2002-2003 and subsequent assessment years. [Section 9] Charitable Trusts, etc., to publish their abridged accounts in a local newspaper 24.1 Under the provisions contained in section 11, income from property held under a trust and used wholly and exclusively for charitable or religious purposes is not includible while computing their total income. Under the existing provisions contained in sub-clauses (iv) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non-exempt income by debiting the expenses incurred to earn the exempt income against taxable income. This is against the basic principles of taxation whereby only the net income, i.e., gross income minus the expenditure, is taxed. On the same analogy, the exemption is also in respect of the net income. Expenses incurred can be allowed only to the extent they are relatable to the earning of taxable income. 25.2 Through Finance Act, 2001, a new section 14A has been inserted so as to clarify the intention of the legislature since the inception of the Income-tax Act, 1961, that no deduction shall be made in respect of any expenditure incurred by the assessee in relation to income which does not form part of the total income under the Income-tax Act. 25.3 It is also being clarified that the assessments where the proceedings have become final before the first day of April, 2001 should not be re-opened under section 147 of the Act to disallow expenditure relatable to the exempt income by applying the provisions of section 14A of the Act. 25.4 This amendment takes effect retrospectively from 1st April, 1962, and accordingly, applies in relation to the assessment year 1962-1963 and subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ued to such employees under the Employees Stock Option Plan or Scheme. Since these provisions did not specify the nature of such plan or scheme, the provision has been suitably modified to provide that such shares, debentures or warrants are to be issued to employees in accordance with the guidelines issued by the Central Government in this regard. Detailed guidelines governing such stock options have been issued by the Central Government, vide Notification No.1021(E), dated 11-10-2001. 27.2 The Finance Act, 2001, also clarifies that in those cases, where tax has been levied under section 17 of the Income-tax Act as perquisite at the time of the exercise of the option by the employees, the fair market value at the time of exercise of such shares shall be the cost of the share for working out the capital gains. This clarificatory amendment will take care of shares issued during the previous year relevant to the assessment year 2000-01 to avoid double taxation. 27.3 The amendment will take effect w.e.f., 1st April, 2001, and will, accordingly apply in relation to the assessment year 2001-02 and subsequent years. [Sections 17, 47 and 49] Changes in taxation of perquisites and prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has substituted section 23 so as to provide for a simplified determination of annual value after allowing deductions in computing the annual value itself on account of vacancy and unrealized rent. 29.2 The substituted section 23 retains the existing concept of annual value as being the sum for which the property might reasonably be expected to be let from year to year i.e., annual letting value (ALV). However, in case of let out property, the concept of "annual rent" has been removed. The new section provides that where the property or any part of the property is let and the actual rent received or receivable is in excess of the ALV, the amount so received or receivable shall be the annual value. This will be the case even if the property (or part of the property) was vacant for a part of the year, but the actual rent received or receivable during the year is still higher than the ALV. Where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy, the actual rent received or receivable is less than the ALV, the sum so received or receivable shall be the annual value. In case the actual re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital is borrowed on or after 1st April, 1999. In other cases, the existing limit of Rupees thirty thousand shall continue. 29.7 A new section 25AA has been introduced to provide that in cases where unrealised rent has not been included in the actual rent receivable (and consequently the annual value) for any previous year, and subsequently any amount in respect of such rent is realised by the assessee, the amount so realised shall be charged to tax as income from house property for the previous year in which it is realised, even if the assessee is no longer the owner of the house property in that previous year. 29.8 Consequential amendments have been made by amending sections 25, 25A, 25B, 27 and 80GG of the Income-tax Act. 29.9 These amendments will take effect from 1st April, 2002, and will, accordingly, apply in relation to the assessment year 2002-2003 and subsequent years. [Sections 14 to 20 and 40] Modification of provisions relating to depreciation 30.1 Under the existing provisions of section 32 of the Income-tax Act, carry forward and set off of unabsorbed depreciation is allowed for 8 assessment years. 30.2 With a view to enable the industry to conserve sufficient ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iversity or an Indian Institute of Technology for carrying out approved programme of scientific research. Sub-section (2AB) allows a deduction of a sum equal to one and one-half times of the expenditure incurred on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research and development facility, as approved by the prescribed authority, to a company engaged in the business of manufacture or production of any drugs, pharmaceuticals, electronic equipments, computers, telecommunication equipments, chemicals or any other article or thing notified by the Board. 32.2 With a view to give further boost to research and development activities and to provide impetus to economic growth, the Act has amended sub-sections (2AA) and (2AB) of section 35. 32.3 As per the amended provisions, the weighted deduction under sub-section (2AA) will also be available in respect of any sum paid to specified persons, approved by the prescribed authority, for carrying out scientific research undertaken under a programme approved by the prescribed authority. Rule 6 of the Income-tax Rules, 1962 has accordingly been modified and the Prescribed Authority for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransfer of capital assets of a Stock Exchange under an approved scheme of corporatisation 35.1 Stock exchanges in India are generally mutual associations of stock brokers, who hold not only trading rights but also an undivided interest in the ownership of the exchange. The exchanges are managed mainly by the brokers. Corporatisation of such stock exchanges could ensure professional management and better regulation, by delinking the trading rights from ownership rights and providing a more diversified ownership. It could also help the exchanges in raising capital, attracting skilled manpower, and in economic growth through mergers or other forms of corporate restructuring. 35.2 With a view to encouraging such corporatisation of stock exchanges in the country, the Act has provided a one-time exemption from capital gains tax in respect of capital assets of a recognised stock exchange transferred under a scheme of corporatisation, subject to certain conditions. 35.3 The Act has amended clause (xiii) of section 47 of the Income-tax Act to provide that any transfer of a capital asset from an association of persons or body of individuals to a company, under a scheme of corporatisation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts audited, it shall be sufficient compliance with the provisions of the said section if such person gets his accounts audited under such other law before the specified date and furnishes by that date the report of the audit as required under such other law and a further report in the form prescribed under the said section. 37.2 The Act has amended the said section to provide that in the cases where the accounts are required to be audited by or under any other law, it shall be sufficient compliance with the provisions of the said section if the person gets the accounts audited under such law before the specified date and furnishes by that date, the report of the audit under such other law and a further report from an accountant in the form prescribed under the said section. 37.3 The amendment takes effect from 1st April, 2001, and will, accordingly, apply in relation to the assessment year 2001-2002 and subsequent years. [Section 28] Specified date for getting accounts audited and furnishing report of such audit to be rationalised 38.1 Under the existing provisions contained in sub-clause (ii) of the Explanation below section 44AB of the Income-tax Act, the "specified dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax to the extent such capital gain is invested in equity shares forming part of an eligible issue of capital, made by a public company, and offered for subscription to public. 40.2 The newly acquired shares are subject to a lock-in period of one year and if they are sold or transferred during this period, the capital gains from the original asset will be charged to tax in the year of sale or transfer. 40.3 The new section also provides that where the cost of the new equity shares has been taken into account for the purposes of this section, no tax rebate with reference to such cost shall be allowed under section 88. 40.4 This amendment will take effect from 1st day of April, 2002, and will, accordingly, apply in relation to the assessment year 2002-2003 and subsequent years. [Section 32] Consequential Amendment of section 54H 41.1 Under the existing provisions of section 54H of the Income-tax Act, where the transfer of the original asset is by way of compulsory acquisition, and the amount of compensation is not received on the date of transfer, the period available to the assessee under sections 54, 54B, 54D and 54F for depositing or investing the amount is reckoned from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ship with another company. However, the term "industrial undertaking" has not been defined in the provision while different definitions of the term are provided in certain other sections. The interpretation of this term could therefore become the subject matter of litigation. With a view to avoid such disputes, and consistent with the intention underlying section 72A, the Act has inserted a definition of the term "industrial undertaking" in the section to mean any undertaking engaged in the manufacture or processing of goods, or the manufacture of computer software or the business of generation or distribution of electricity or any other form of power or mining or the construction of ships, aircrafts or rail systems. 43.2 This amendment takes effect retrospectively from 1st April, 2000, and will, accordingly, apply in relation to the assessment year 2000-2001 and subsequent years. [Section 35] Amendment for providing level playing field to private insurers 44.1 Under sections 80CCC, 80D, 80DD of the Income-tax Act, deduction in respect of contributions to certain pension funds, in respect of medical insurance premia, and for maintenance of handicapped depend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 2005-2006 and onwards. 46.2 To cushion the impact of difficulties induced by competition on the one hand and infrastructural bottlenecks faced by exporters on the other, Finance Act, 2001, has amended the rate of phasing out of these deductions. The deduction from profits shall now be reduced to 70% for assessment year 2002-2003, 50% for assessment year 2003-2004 and 30% for assessment year 2004-2005. The deduction would however cease to be available from the assessment year 2005-2006 and onwards. 46.3 The amendments will take effect from 1st April, 2002, and will, accordingly, apply in relation to the assessment year 2002-03 and subsequent years. [Sections 41, 42 and 43] Tax holiday for infrastructure rationalised 47.1 Under the provisions of section 80-IA, roads, highways, bridges, airports, ports and rail systems are regarded as infrastructure facility and the enterprises engaged in developing or operating and maintaining or developing, operating and maintaining such infrastructure are entitled to a tax holiday for five years and a deduction of 30% of profits for the next five years. This benefit is applicable in respect of such specified infrastructural facility becoming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer may relate to services, the provision has been accordingly amended to clarify that this would include services. Such services may include marketable services of operation and maintenance (O&M) in case of infrastructure facilities, marketable services for distribution of electricity and specified marketable services in telecom. Instead of the words "industrial undertaking" occurring in section 80-IA, the word "undertaking" has also been substituted in the provision for the same reason. 47.6 These amendments will take effect from the 1st day of April, 2002, and will, apply in relation to the assessment years 2002-03 and subsequent years. [Section 44] Tax holiday to broadband networks and internet services 48.1 Under the existing provisions of section 80-IA, in respect of profits and gains of an undertaking set up on or before 31st March, 2000, and engaged in providing telecommunication services whether basic or cellular, including radio paging, domestic satellite service or network of trunking and electronic data interchange, is allowed a five year tax holiday with further deduction of 25% of profits (30% in case of companies) of such business in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt year 2002-03 and subsequent years. [Section 44] Tax holiday to developers of Special Economic Zones and Industrial Parks 50.1 Under the provisions of section 80-IA, any undertaking which develops, develops and operates or operates and maintains an industrial park during the period beginning on the 1st day of April, 1997, and ending on the 31st day of March, 2002, is entitled to a five year tax holiday and a deduction of 30% of profits in the subsequent five years. The two-tier benefit may be availed of within a period of any ten consequent assessment years out of fifteen years beginning from the year in which the undertaking develops an industrial park. 50.2 As part of a medium term strategy to provide an export thrust by creating new infrastructure, the benefit has been extended to developers of Special Economic Zones. This benefit will be available to the developers of new special economic zones and also to developers of industrial parks, if such economic zones and industrial parks are notified by the Central Government in accordance with the schemes framed and notified by that Government and are developed on or before 31.3.2006. The existing two-tier benefit has also been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment years 2002-03 and subsequent years. [Section 46] Relief in rebate for low category of salaried employees 53.1 Section 88 of the Income-tax Act provides relief on life insurance premia, contribution to provident fund, etc., to individuals or Hindu undivided families. The rebate is twenty per cent of the aggregate amount or twenty five per cent in the case of an author, playwright, artist, musician or sportsman, of the amount specified in the provision. 53.2 The Act amends the provision to provide that in the case of a taxpayer having a gross salary of up to Rs.1 lakh and where not less than 90% of his gross total income is from the head "Salaries", the amount of rebate under this section would be thirty per cent. 53.3 The amendment will take effect from the 1st April, 2002, and will, accordingly, apply in relation to the assessment year 2002-03 and subsequent years. [Section 47] Amendment in section 90 relating to agreement with foreign countries 54.1 Through Finance Act, 2001, an Explanation has been inserted in section 90 of the Income-tax Act to clarify that the charge of the tax in respect of a foreign company at a rate higher than the rate at wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble profits and tax in India, in the case of such multinational enterprises, the Act has substituted section 92 with a new section, and has introduced new sections 92A to 92F in the Income-tax Act, relating to computation of income from an international transaction having regard to the arm's length price, meaning of associated enterprise, meaning of international transaction, computation of arm's length price, maintenance of information and documents by persons entering into international transactions, furnishing of a report from an accountant by persons entering into international transactions and definitions of certain expressions occurring in the said sections. 55.4 The newly substituted section 92 provides that income arising from an international transaction between associated enterprises shall be computed having regard to the arm's length price. Any expense or outgoing in an international transaction is also to be computed having regard to the arms length price. Thus in the case of a manufacturer, for example, the provisions will apply to exports made to the associated enterprise as also to imports from the same or any other associated enterprise. The provision i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must be a non-resident. The definition also covers a transaction between two non-residents, where for example, one of them has a permanent establishment whose income is taxable in India. 55.8 Sub-section (2) of section 92B extends the scope of the definition of international transaction by providing that a transaction entered into with an unrelated person shall be deemed to be a transaction with an associated enterprise, if there exists a prior agreement in relation to the transaction between such other person and the associated enterprise, or the terms of the relevant transaction are determined by the associated enterprise. An illustration of such a transaction could be where the assessee, being an enterprise resident in India, exports goods to an unrelated person abroad, and there is a separate arrangement or agreement between the unrelated person and an associated enterprise which influences the price at which the goods are exported. In such a case the transaction with the unrelated enterprise will also be subject to transfer pricing regulations. 55.9 The new section 92C provides that the arm's length price in relation to an international transaction shall be determined b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns (1) and (2), or information and documents relating to the international transaction have not been kept and maintained by the assessee in accordance with the provisions contained in sub-section (1) of section 92D and the rules made thereunder; or the information or data used in computation of the arm's length price is not reliable or correct; or the assessee has failed to furnish, within the specified time, any information or document which he was required to furnish by a notice issued under sub-section (3) of section 92D. If any one of such circumstances exists, the Assessing Officer may reject the price adopted by the assessee and determine the arm's length price in accordance with the same rules. However, an opportunity has to be given to the assessee before determining such price. Thereafter, as provided in sub-section (4) of section 92C, the Assessing Officer may compute the total income on the basis of the arm's length price so determined by him. 55.12 The first proviso to section 92C(4) recognizes the commercial reality that even when a transfer pricing adjustment is made under that sub-section, the amount represented by the adjustment would not actually have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee by the specified date defined in section 92F and should be retained for a period of 8 years. During the course of any proceedings under the Act, an Assessing Officer or Commissioner (Appeals) may require any person who has undertaken an international transaction to furnish any of the information and documents specified under the rules within a period of thirty days from the date of receipt of a notice issued in this regard, and such period may be extended by a further period not exceeding thirty days. 55.15 The new section 92E provides that every person who has entered into an international transaction during a previous year shall obtain a report from an accountant and furnish such report on or before the specified date in the prescribed form and manner. Rule 10E and Form No. 3CEB have been notified in this regard. The accountant's report only requires furnishing of factual information relating to the international transaction entered into, the arm's length price determined by the assessee and the method applied in such determination. It also requires an opinion as to whether the prescribed documentation has been maintained. 55.16 The new section 92F defines the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son fails to furnish a report from an accountant as required by section 92E, the Assessing Officer may direct that such person shall pay by way of penalty, a sum of one lakh rupees. 55.21 The new section 271G provides that if any person who has entered into an international transaction fails to furnish any information or documents as required under sub-section (3) of section 92D, the Assessing Officer or the Commissioner (Appeals) may direct that such person shall pay, by way of penalty, a sum equal to two per cent of the value of the international transaction. 55.22 The Act has also amended section 273B to provide that the above mentioned penalties under section 271AA, 271BA and 271G shall not be imposable if the assessee proves that there was reasonable cause for such failures. 55.23 These amendments will take effect from 1st April, 2002 and will accordingly apply to the assessment year 2002-2003 and subsequent years. [Sections 49, 86, 88, 89, 91 & 94] Measures to curb creation of short-term losses by certain transactions in securities and units 56.1 Under the existing provisions contained in section 94, where the owner of any securities enters into transactions of sale and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any public sector bank or public financial institution or a Mutual Fund specified under clause (23D) of section 10 and such arrangement is approved by the Central Government for this purpose. 57.2 As the Securities and Exchange Board of India (SEBI) is the regulatory authority under section 115AB, presently, any application received by the Government for the approval of the above-mentioned arrangement is being referred to it. With a view to simplify the procedure, it is provided through the Finance Act, 2001, that the SEBI will be the authority to grant approval in respect of arrangement entered into by the above-mentioned fund, etc., with any public sector bank or public financial institution or Mutual Fund for investment in India. 57.3 This amendment will take effect with effect from 1st June, 2001. [Section 51] Concessional rate of tax under section 115AC extended to other notified schemes 58.1 Under the existing provisions contained in section 115AC, in the case of an assessee who is a non-resident, income by way of interest or dividends (other than dividends referred to in section 115-O) and long-term capital gains arising from bonds or shares of an Indian company issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years. [Sections 29, 52 and 76] GDRs issued to employees under ESOPs extended to subsidiary companies and other knowledge-based industries 59.1 Under the existing provisions contained in section 115ACA, income by way of dividends or long term capital gains in respect of Global Depository Receipts (GDRs) of an Indian company purchased by a resident employee of such company engaged in information technology software and information technology services, in accordance with a notified Employees' Stock Option Scheme (ESOP), is liable to income-tax at the rate of ten per cent. 59.2 Finance Act, 2001, has amended section 115ACA so as to extend this concessional rate of taxation to income in respect of GDRs purchased by employees of companies engaged in other knowledge based sectors also, viz., entertainment service, pharmaceuticals, bio-technology and other industry or service notified by the Central Government. The concessional rate of taxation is also extended to income from the GDRs purchased by employees of subsidiary companies, whether domestic or foreign, of the above-mentioned companies. 59.3 This amendment takes effect retrospectively with effect from 1st April, 2001, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distributed by Unit Trust of India and Mutual Funds 63.1 Under the existing provisions of section 115R, any amount of income distributed by the Unit Trust of India or by Mutual Funds to their unit holders is chargeable to tax and the Unit Trust of India or Mutual Funds are liable to pay tax on such distributed income at the rate of twenty per cent. 63.2 This rate was increased from 10% to 20% through Finance Act, 2000. To provide a boost to the capital market, section 115R has been amended through Finance Act, 2001, so as to reduce the tax on income distributed by the Unit Trust of India or by a Mutual Fund from twenty per cent to ten per cent. 63.3 This amendment will take effect from the 1st day of June, 2001. [Section 57] Rationalisation of due dates for filing of returns 64.1 Under the existing provisions contained in section 139(1), the due date for filing ofreturn of income was specified to be 30th November of the assessment year in the case of a company, and where the assessee is a person other than a company, the due date was specified to be-- (a) 31st October of the assessment year in a case where accounts of the assessee are required to be audited or where a repor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... escribed for delivering such returns or issuing such certificates contain columns for mentioning the permanent account number of the persons from whose income the tax is deducted, or from whom the tax is collected. However, in many cases, such number is not so mentioned. With a view to enable processing of the information contained in such returns or certificates for the purposes of matching of information and discovering new taxpayers, the Act has inserted new sub-sections (5A), (5B), (5C) & (5D) in section 139A of the Income-tax Act to make it obligatory for every person receiving income from which tax has been deducted or from whom tax is collectible, to furnish his PAN to the person responsible for deducting or collecting such tax, and also to make it obligatory for the person deducting or collecting tax to quote the PAN of such persons in the returns of tax deducted or collected at source prescribed under sections 206 and 206C respectively and in the certificates issued under sections 203 and 206C(5) respectively. Such number will also be required to be quoted in statements of perquisites required to be furnished under section 192 of the Income-tax Act. The requirement under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 149(1) of the Income-tax Act, a notice under section 148 for assessment, reassessment or recomputation of income of any year can be issued within a period of four, seven or ten years from the end of the relevant assessment year, depending on whether an assessment was made earlier for the relevant year, and the amount of income escaping assessment. In order to provide certainty of finalisation of assessment within a smaller period, the Act has amended sub-section (1) of section 149 to provide that the notice under section 148 can be issued only within four years from the end of the relevant assessment year, or within six years from the end of the relevant assessment year in cases where the amount of income chargeable to tax which has escaped assessment amounts to or is likely to amount to rupees one lakh or more for that year. 68.3 Sub-section (2) of section 153 of the Income-tax Act provided for a time-limit of two years for completion of an assessment, re-assessment or re-computation of income under section 147. Similarly, sub-section (2A) of the section provided for a time-limit of two years for making of fresh assessment in cases where the original assessment had been set a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in which the search was conducted under section 132 or any requisition was made under section 132A, and includes, in the year in which the search was conducted or requisition was made, the period upto the date of commencement of such search or as the case may be, the date of such requisition. 69.2 In line with the amendment proposed in section 149, to reduce the maximum time period for issue of notice under section 148 for initiating reassessment proceedings, etc., from ten years to six years, the Act has amended the definition of "block period" to mean the period comprising the previous years relevant to six assessment years preceding the previous year in which the search was conducted or any requisition was made and including the period upto the date of commencement of such search, or as the case may be, the date of such requisition, in the year of search or requisition. 69.3 The amendment takes effect from 1st June, 2001, and will apply in relation to searches initiated or requisitions made on or after that date. [Section 66] Person responsible for paying income under the head "Salaries" to furnish statement of perquisites or profits in lieu of salary 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome by way of commission (not being insurance commission referred to in section 194D) and brokerage. 73.2 Under this section, the person responsible for paying any income by way of commission or brokerage for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing (not being securities), shall deduct income-tax thereon at the rate of ten per cent. However, no such deduction will be made where the amount of payment or the aggregate amount of payments, in a financial year, does not exceed two thousand five hundred rupees. The new section will not apply when payments are made by individuals or Hindu undivided families. The expressions "commission or brokerage", "professional services" and "securities" have been defined in the Explanation to the section. 73.3 The Act has also amended section 197 so as to enable the recipient of the commission or brokerage to obtain certificate for no deduction of tax at source or deduction at a lower rate from the Assessing Officer if his total income so justifies. 73.4 These ame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion if the grant of refund is likely to adversely affect the revenue. 76.2 As a measure of simplification, the Act has omitted the said section so as to withdraw the powers conferred upon the Assessing Officers to withhold the refund. 76.3 This amendment will take effect from 1st June, 2001. [Section 81] Modifications of the provisions relating to interest payable to the assessee 77.1 Under the existing provisions of the Income-tax Act, interest is payable to the assessee at the rate of 1% for every month or part of a month or 12% per annum. 77.2 The Act has reduced the aforesaid rate of interest from one per cent to three-fourth per cent for every month or part of a month and from 12% to 9% per annum, as the case may be. Accordingly, section 244A and sub-rule (3) of rule 68A of the Second Schedule to the Income-tax Act have been amended. 77.3 The amendments will take effect from 1st June, 2001. [Sections 82 and 95] Powers of the Commissioner (Appeals) not to include powers to set aside the assessment 78.1 Under the existing provision contained in sub-section (1) of section 251 of the Income-tax Act, in an appeal filed before a Commissioner (Appeals) against an order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise any order passed by an authority subordinate to him. Sub-section (5) of the said section provides that every application by an assessee for revision under this section shall be accompanied by a fee of twenty-five rupees. With a view to discourage the filing of frivolous revision applications before the Commissioner, and to align the fees payable for filing such applications with the fees prescribed in respect of appeals to the Commissioner (Appeals), the Act amends section 264 to provide that every application by an assessee for revision under this section shall be accompanied by a fee of rupees five hundred. 80.2 This amendment takes effect from 1st June, 2001. [Section 85] Rationalization of quantum of penalties - sections 271, 271A, 271F, 272A and 272BB 81.1 Penalties are prescribed under the Income-tax Act for failure to comply with certain procedural requirements. In some of these provisions, the minimum and the maximum amounts of penalty which may be levied are prescribed, and the actual amount of penalty to be levied is left to the discretion of the Assessing Officer. With a view to eliminate such discretion and rationalise the quantum, the Act has amended the range ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Act has amended section 17 (1A) of the Wealth-tax Act to modify the present provisions contained in section 17(1A) to provide that the notice under section 17(1) can be issued only within four years from the end of the relevant assessment year or within six years from the end of the relevant assessment year in cases where the amount of wealth chargeable to tax which has escaped assessment amounts to or is likely to amount to rupees ten lakhs or more for that year. 82.3 The Act has amended section 17A of the Wealth-tax Act to provide that an intimation under section 17A(2) shall be sent within one year from the end of the financial year in which the return of wealth is made. The existing time-limit of two years, will however continue to apply in respect of returns already filed for the assessment year 1999-2000. Sub-section (3) of section 17A has been amended to reduce the time-limit for making orders of assessment, re-assessment or re-computation of wealth in different circumstances to one year. However, where any such order mentioned in section 17A(3) has been received or passed, as the case may be, on or after 1st April, 1999, but before 1st April, 2000, the existing time-li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment of income-tax and other taxes on any income, profits or gains derived or any amount received by it, under section 55 of the National Bank for Agriculture and Rural Development Act, 1981. National Housing Bank (NHB) is exempted from payment of income-tax and other taxes on any income, profits or gains derived or any amount received by it, under section 48 of the National Housing Bank Act, 1987. Small Industries Development Bank of India (SIDBI) and Small Industries Development Assistance Fund is exempted from payment of income-tax and other taxes on any income, profits or gains derived or any amount received by it, under section 50 of the Small Industries Development Bank of India Act, 1989. 86.3 These institutions are in existence for a considerable period and are working on commercial basis and there is no rationale for providing them tax exemption while similar institutions are paying taxes. Finance Act, 2001, has amended these Acts by omitting section 55 of the National Bank for Agriculture and Rural Development Act, 1981, section 48 of the National Housing Bank Act, 1987, and section 50 of the Small Industries Development Bank of India Act, 1989. 86.4 These amendments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the Act through which these bodies were set up. These entities are claiming exemption not through the provisions of the Direct Tax statutes but by a non obstante clause in the Act under which they were set up. 86.2 National Bank for Agriculture and Rural Development (NABARD) is exempted from payment of income-tax and other taxes on any income, profits or gains derived or any amount received by it, under section 55 of the National Bank for Agriculture and Rural Development Act, 1981. National Housing Bank (NHB) is exempted from payment of income-tax and other taxes on any income, profits or gains derived or any amount received by it, under section 48 of the National Housing Bank Act, 1987. Small Industries Development Bank of India (SIDBI) and Small Industries Development Assistance Fund is exempted from payment of income-tax and other taxes on any income, profits or gains derived or any amount received by it, under section 50 of the Small Industries Development Bank of India Act, 1989. 86.3 These institutions are in existence for a considerable period and are working on commercial basis and there is no rationale for providing them tax exemption while similar institutions are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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