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TMI BlogIncome-tax Explanatory Notes to the provisions of the Finance Act, 2010X X X X Extracts X X X X X X X X Extracts X X X X ..... TDS provisions , 10.1.1-10.2.3 44AB, 44AD Limit of turnover or gross receipts for the purpose of audit of accounts and for presumptive taxation, 11.1-11.5 32, 47, 35DDA , 43, 47A, 49, 72A, 115JAA Conversion of a private company or an unlisted public company into a limited liability partnership (LLP), 12.1-12.9 56 Taxation of certain transactions without consideration or for inadequate consideration, 13.1-13.7 80C Deduction in respect of long-term infrastructure bonds, 14.1-14.2 80D Deduction in respect of contribution to the Central Government Health Scheme (CGHS), 15.1-15.4 80-IB(10) Deduction for developing and building housing projects , 16.1-16.5 80-ID Deduction of profits of a hotel or a convention centre in the National Capital Territory (NCT), 17.1-17.3 115JB Minimum Alternate Tax under Section 115JB, 18 .1-18.3 143 Centralised Processing of Returns , 19.1-19.4 194B, 194BB, 194C, 194D, 194H, 194-I, 194J Rationalisation of provisions relating to Tax Deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specified in the said Part I are as follows: 3.1-2 INDIVIDUAL, HINDU UNDIVIDED FAMILY, ASSOCIATION OF PERSONS, BODY OF INDIVIDUALS OR ARTIFICIAL JURIDICAL PERSON. - Paragraph A of Part I of the First Schedule specifies the rates of income-tax in the case of every individual, Hindu undivided family, association of persons, body of individuals or artificial juridical person (other than a co-operative society, firm, local authority and company) as under :- Income chargeable to tax Rate of income-tax Individual (other than individual woman resident in India and senior citizen resident in India), HUF, association of persons, body of individuals and artificial juridical person Individual woman, resident in India and below the age of sixty-five years Individual senior citizen, resident in India, who is of the age of sixty- five years or more Up to Rs. 1,60,000 Nil Nil Nil Rs. 1,60,001 - Rs. 1,90,000 10% Nil Nil Rs. 1,90,001 - Rs. 2,40,000 10% 10% Nil Rs. 2,40,001 - Rs. 3,00,000 10% 10% 10% Rs. 3,00,000 - Rs.5,00,000 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess on Income-tax and Secondary and Higher Education Cess on income-tax shall be levied at the rate of two per cent and one per cent respectively of the amount of tax computed. No marginal relief shall be available in respect of Education Cess. 3.1-6 COMPANIES - In the case of a company, the rate of income-tax has been specified in Paragraph E of Part I of the First Schedule to the Act. In case of a domestic company, the rate of income-tax is thirty per cent of the total income. The tax computed shall be enhanced by a surcharge of ten per cent in a case where such domestic company has total income exceeding one crore rupees. In the case of a company other than a domestic company, royalties received from Government or Indian concern under an approved agreement made after 31-3-1961, but before 1-4-1976 shall be taxed at fifty per cent. Similarly, fees for technical services received by such company from Government or Indian concern under an approved agreement made after 29-2-1964, but before 1-4-1976, shall be taxed at fifty per cent. On the balance of the total income of such company, the tax rate shall be forty per cent. The tax computed shall be enhanced by a surcharge o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The additional surcharge, called the Education Cess on income-tax shall continue to be levied for the purposes of the Union at the rate of two per cent of income-tax and surcharge, if any, in the case of salary payments to residents and in the case of all payments to non-residents. For instance, if such tax is Rs. 1, 00,000 and the surcharge is Rs. 10,000, then the education cess of two per cent is to be computed on Rs. 1,10,000 which works out to be Rs. 2,200. In addition, the amount of tax deducted and surcharge shall be further increased by an additional surcharge called Secondary and Higher Education Cess on income-tax at the rate of one per cent in all such cases. Thus in the earlier illustration, where the amount of tax deducted is Rs. 1,00,000, the surcharge is Rs. 10,000, the Education Cess of two per cent is Rs. 2,200, the said Secondary and Higher Education Cess will be computed on Rs. 1,10,000 which works out to be Rs. 1,100. The total cess in this case will amount to Rs. 3,300 (i.e., Rs. 2,200 + Rs. 1,100). 3.3 Rates for computation of advance tax, deduction of income-tax at source from Salaries and charging of income-tax in certain cases during the financial year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20% Rs.8,00,000 and above 30% 30% 30% No surcharge shall be levied in such cases. The Education Cess on income-tax shall continue to be levied at the rate of two per cent on the amount of tax computed. In addition, the amount of tax computed shall also be increased by an additional cess called Secondary and Higher Education Cess on income-tax at the rate of one per cent of such income-tax. No marginal relief shall be available in respect of Education Cess. 3.3-3 CO-OPERATIVE SOCIETIES - In the case of every co-operative society, the rates of income-tax have been specified in Paragraph B of Part III of the First Schedule to the Act. The rates are as follows- Income chargeable to tax Rate Up to Rs. 10,000 10% Rs. 10,001 - Rs. 20,000 20% Exceeding Rs. 20,000 30% No surcharge shall be levied. Education Cess on income-tax and Secondary and Higher Education Cess on income-tax shall be levied at the rate of two per cent and one per cent respectively of the amount of tax computed. No marginal relief shall be available in respect of Education Cess. 3.3-4 FIRMS - In the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rupees. However, Education Cess on Income-tax and Secondary and Higher Education Cess on income-tax shall be levied at the rate of two per cent and one per cent respectively of the amount of tax computed including surcharge. No marginal relief shall be available in respect of Education Cess. 4. Change in the Definition of charitable purpose 4.1 For the purposes of the Income-tax Act, charitable purpose has been defined in section 2(15) which, among others, includes the advancement of any other object of general public utility . 4.2 However, the advancement of any other object of general public utility is not a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity. 4.3 The absolute restriction on any receipt of commercial nature may create hardship to the organizations which receive sundry considerations from such activities. Therefore, section 2(15) has been amend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... low sub-section (2) of section 9 with retrospective effect from 1st June, 1976 vide Finance Act, 2007. The Explanation sought to clarify that where income is deemed to accrue or arise in India under clauses (v), (vi) and (vii) of sub-section (1) of section 9, such income shall be included in the total income of the non-resident, regardless of whether the non-resident has a residence or place of business or business connection in India . However, the Karnataka High Court, in its judgement in the case of Jindal Thermal Power Company Ltd. vs DCIT (TDS), [2009 - TMI - 75526 - KARNATAKA HIGH COURT], has held that the Explanation, in its present form, does not do away with the requirement of rendering of services in India for any income to be deemed to accrue or arise to a non-resident under section 9. It has been held that on a plain reading of the Explanation, the criteria of rendering services in India and the utilization of the service in India laid down by the Supreme Court in its judgment in the case of Ishikawajima-Harima Heavy Industries Ltd.(supra) remains untouched and unaffected by the Explanation. 5.3 In order to remove any doubt about the legislative intent of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The power of cancellation of registration is inherent and flows from the authority of granting registration. However, judicial rulings in some cases have held that the Commissioner does not have the power to cancel the registration which was obtained earlier by any trust or institution under provisions of section 12A as it is not specifically mentioned in section 12AA. 7.3 Therefore, section 12AA has been amended to provide that the Commissioner can also cancel the registration obtained under section 12A as it stood before amendment by Finance (No.2) Act, 1996. 7.4 Applicability - This amendment has been made applicable with effect from 1st June, 2010 and shall accordingly apply for assessment year 2011-12 and subsequent assessment years. 8. Weighted deduction for scientific research and development 8.1 The existing provisions of section 35(1)(ii ) of the Income-tax Act provide for a weighted deduction from the business income to the extent of 125 per cent of any sum paid to an approved scientific research association that has the object of undertaking scientific research or to an approved university, college or other institution to be used for scientific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f cost of any land or building) incurred on scientific research on an approved in-house research and development facility. In order to further incentivise the corporate sector to invest in in-house research, the Act has been amended to increase this weighted deduction from 150 per cent to 200 per cent. 8.8 Applicability - These amendments have been made effective from 1st April 2011 and will, accordingly, apply in relation to the assessment year 2011-12 and subsequent years. 9. Investment-linked deduction for specified businesses 9.1.1 Investment-linked tax incentive, which was introduced by the Finance (No. 2) Act, 2009, allows 100 per cent deduction in respect of the whole of any expenditure of capital nature (other than on land, goodwill and financial instrument) incurred wholly and exclusively, for the purposes of the specified business during the previous year in which such expenditure is incurred. Such specified business includes the business of setting up and operating cold chain facilities, warehousing facilities for storage of agricultural produce and laying and operating a cross-country natural gas or crude or petroleum oil pipeline network. 9.1.2 Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e deduction of tax is made during the last month of the previous year, no disallowance is made if the tax is deposited on or before the due date of filing of return. 10.1.2 The said section has been amended to provide that no disallowance will be made if after deduction of tax during the previous year, the same has been paid on or before the due date of filing of return of income specified in sub-section (1) of section 139. 10.1.3 Applicability - This amendment takes effect retrospectively from 1st April, 2010 and will, accordingly, apply in relation to the assessment year 2010-11 and subsequent years. 10.2.1 Under the existing provisions of section 201(1A) of the Act, a person is liable to pay simple interest at one per cent for every month or part of month in case of failure to deduct tax or payment of tax after deduction. 10.2.2 In order to discourage the practice of delaying the deposit of tax after deduction, the Act has been amended to increase the rate of interest for non-payment of tax after deduction from the present one per cent to one and one-half per cent for every month or part of month. 10.2.3 Applicability - This amendment takes effect fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the company by a shareholder on conversion of a company into an LLP in accordance with section 56 and section 57 of the Limited Liability Partnership Act, 2008 shall not be regarded as a transfer for the purposes of capital gains tax under section 45, subject to certain conditions. These conditions are as follows: (i) all assets and liabilities of the company become the assets and liabilities of the LLP; (ii) the shareholders of the company become partners of the LLP in the same proportion as their shareholding in the company; (iii) no consideration other than share in profit and capital contribution in the LLP arises to partners; (iv) the erstwhile shareholders of the company continue to be entitled to receive at least 50 per cent of the profits of the LLP for a period of 5 years from the date of conversion; (v) the total sales, turnover or gross receipts in business of the company [which are taxable under the head Profits and gains of the business or profession ] do not exceed sixty lakh rupees in any of the three preceding previous years; and (vi) no amount is paid, either directly or indirectly, to any partner out of the accumulated profit of the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y an individual or an HUF is chargeable to income tax in the hands of recipient under the head income from other sources . However, receipts from relatives or on the occasion of marriage or under a will are outside the scope of this provision. The existing definition of property for the purposes of section 56(2)(vii) includes immovable property being land or building or both, shares and securities, jewellery, archeological collection, drawings, paintings, sculpture or any work of art. 13.2 These are anti-abuse provisions which were applicable only if an individual or an HUF is the recipient. Therefore, transfer of shares of a company to a firm or a company, instead of an individual or an HUF, without consideration or at a price lower than the fair market value was not attracted by the anti-abuse provision In order to prevent the practice of transferring unlisted shares at prices much below their fair market value, section 56 was amended to also include within its ambit transactions undertaken in shares of a company (not being a company in which public are substantially interested) either for inadequate consideration or without consideration where the recipient is a firm or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... July, 2010 and accordingly, apply in relation to the assessment year 2011-12 and subsequent years. 14. Deduction in respect of long-term infrastructure bonds 14.1 In tune with the policy thrust of promoting investment in the infrastructure sector, a new section 80CCF was inserted in the Income-tax Act to provide that subscription during the financial year 2010-11 made to long-term infrastructure bonds (as may be notified by the Central Government), to the extent of Rs. 20,000, shall be allowed as deduction in computing the income of an individual or a Hindu undivided family. This deduction will be over and above the existing overall limit of tax deduction on savings of upto Rs.1 lakh under section 80C, 80CCC and 80CCD of the Act. 14.2 Applicability - This amendment has been made applicable with effect from 1 st April, 2011 and will apply only to the assessment year 2011-12. 15. Deduction in respect of contribution to the Central Government Health Scheme (CGHS) 15.1 Under the earlier provisions of section 80D , deduction in respect of premium paid towards a health insurance policy upto a maximum of Rs. 15,000 is available for self, spouse and dependent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ops and other commercial establishments which can be included in the eligible housing project is increased to three per cent of the aggregate built-up area of the housing project or 5000 sq. ft., whichever is higher. This benefit will be available to projects approved on or after 1.4.2005 but before 31.3.2008, which are pending for completion. 16.4 Applicability - These amendments have been made applicable with retrospective effect from 1 st April, 2010 and will accordingly apply to the assessment year 2010-11 and subsequent assessment years. 16.5 Vide Instruction No.4/2009 dated 30.6.2009, the Board has already clarified regarding deduction under section 80-IB(10) in respect of undertakings developing and building housing projects. It was clarified that the deduction can be claimed on a year-to-year basis where the assessee is showing profit from partial completion of the project in every year. In case it is found that the condition of completing the project within the specified time limit of 4 years as stated in section 80-IB(10) has not been satisfied, the deduction granted to the assessee in the earlier years should be withdrawn. The conditions regarding the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n made applicable with effect from 1 st April, 2011 and accordingly apply to the assessment year 2011-12 and subsequent assessment years. 19. Centralised Processing of Returns 19.1 Section 143 of the Income Tax Act, 1961 was amended vide Finance Act, 2008 and concept of Centralised Processing of Returns was introduced, so that all the returns are expeditiously processed and tax payable or refund due to assessee are determined in a definite frame. Under the existing provisions of section 143(1B), the Central Government was empowered, for the purposes of giving effect to the scheme of centralised processing of returns, to issue a notification relating to such processing of returns. Such a notification could be issued up to 31st March, 2010. 19.2 A Centralised Processing Centre has been set up where returns are being processed in batches. However, some more functionalities in the processing of returns may need to be added to make it a complete end-to-end process. Therefore, it is proposed to extend the time limit for issue of such notification under section 143 (1B) from 31st March, 2010 to 31st March 2011. 19.3 Consequential amendments on similar lines a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equirement of furnishing of TDS certificates by the deductor to the deductee on or after 1st April, 2010. Similarly, under section 206C(5) of the Act, a collector of tax at source will also not be required to issue tax collection certificate to the person from whom tax has been collected on or after 1st April, 2010. 21.2 Considering the fact that the TDS/TCS certificate constitutes an important document for the deductee/collectee, the Act has been amended that the deductor/collector will continue to furnish TDS/TCS certificates to the deductee/collectee even after 1st April, 2010. 21.3 Applicability - These amendments take effect retrospectively from 1st April, 2010. 22. Settlement Commission The conditions for filing of an application before the Settlement Commission and the time for disposal of an application by the Settlement Commission have been modified. The changes are as under:- 22.1 Under the existing provisions of section 245A (b), the term case , in relation to which an application can be made is defined as any proceeding for assessment of any person in respect of any assessment year or assessment years which may be pending before an Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion shall, in respect of an application made on or after 1st June, 2010, pass an order within eighteen months from the end of the month in which the application is made. 22.4 Consequential amendments have been made in section 22A and section 22D of the Wealth-tax Act to give effect to the above mentioned changes. 22.5 Applicability - These amendments have been made effective from 1st June, 2010. 23. Power of the High Court to condone delay in filing of appeals 23.1 The existing provisions of section 260A(2) provide that an appeal against the order of Income-tax Appellate Tribunal can be filed before the High Court within a period of one hundred and twenty days from the date of the receipt of the order by the assessee or the Commissioner. Sub-section (7) of section 260A of the Income-tax Act provides that the provisions of Code of Civil Procedure, 1908 (5 of 1908) shall, as far as may be, apply in the case of an appeal filed under this section before the High Court. 23.2 The Delhi High Court, while interpreting provisions of section 260A , has held that the High Court has the power to condone delay in filing of an appeal. However, Allahabad, Bombay, Kolk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e requisite infrastructure and facilities in place. Section 282B has been amended so as to provide that Document Identification Number will be required to be issued on or after 1st July, 2011. 24.2 Applicability - The amendment has been made effective from 1st October, 2010. 25. Taxation of income of non-life insurance business 25.1 Section 44 read with the First Schedule to the Income-tax Act provides the scheme of computation of income of insurance companies. According to Rule 5 of the said Schedule, the income of non-life insurance business is taken as profit before tax and appropriations as per the profit and loss account of the company, prepared in accordance with the regulations made by the Insurance Regulatory Development Authority (IRDA), subject to certain adjustments. 25.2 The Finance (No. 2) Act, 2009 amended the First Schedule to provide that in case of non-life insurance business, appreciation of or gains on realisation of investments taken credit for in the accounts shall be treated as income and be included in the computation of the total income. 25.3 The appreciation in the value of investments, being in the nature of unrealized ..... X X X X Extracts X X X X X X X X Extracts X X X X
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