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TMI BlogFinance Act, 2011 - Explanatory notes to the provisions of the Finance Act, 2011.X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.3 80-IB(9) Deduction in respect of profits and gains from undertakings engaged in commercial production of mineral oil 13.1 - 13.5 92C, 92CA, 92CA(7), 139 Rationalisation of provision relating to Transfer Pricing 14.1 - 14.3.2 94A Tool box of counter measures in respect of transactions with persons located in a Non-co-operative jurisdiction 15.1 - 15.2 115BBD Taxation of certain foreign dividends at a reduced rate 16.1-16.3 115R(2) Tax on Distributed Income to unit holders 17.1 - 17.3 115JB Minimum Alternate Tax 18.1.1 - 18.2.5 115JB(6), 115-0(6), 10(34) Provisions relating to Minimum Alternate Tax (MAT) and Dividend Distribution Tax (DDT) in case of Special Economic Zones 19.1.1 -19.3.2 115JC, 115JD, 115JE, 115JF Alternate Minimum Tax for certain Limited Liability Partnerships 20.1 -20.7 131,133 Collection of information on requests received from tax authorities outside India 21.1 -21.5 139, 296 Exemption to a class or classes of persons from furnishing a return of income 22.1 -22.5 143 Centralised Processing of Returns 23.1 -23.3 153,153B Extension of time-limit for assessments in case of exchange of information 24.1 - 24.5 245C(1) Modification in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 2010 for the purposes of computation of advance tax, deduction of tax at source from Salaries and charging of tax payable in certain cases during the financial year 2010-11. The major features of the rates 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% Rs. 1,90,001 - Rs. 2,40,000 10% Rs. 2,40,001 - Rs. 5,00,000 10% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 011. No surcharge shall be levied. 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. 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 Finance Act, 2011. 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 seven and one-half per cent of such income tax only where the 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, in the case of 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 comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) In the case of every artificial juridical person, no surcharge shall be levied. (iii) No surcharge shall be levied on the amount of income-tax deducted in the case of a co-operative society and local authority. (iv) In the case of every firm and domestic company, no surcharge shall be levied. (v) The surcharge on TDS shall be levied only on payments made to foreign companies. The rate of surcharge in such cases is two per cent of such income tax. 3.2.3 Education Cess - 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. 2,000. then the education cess of two per cent is to be computed on Rs. 1,02,000 which works out to be Rs. 2,040. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... less than Rs. 8,00,000. The rates of tax during the financial year 2011-12 in the case of persons mentioned above are as follows:- 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 years. Individual, resident in India. who is of the age of sixty years or more but less than eighty years. Individual resident in India, who is of the age of eighty years or more. Up to Rs. 1 ;80,000 Nil Nil Nil Nil Rs. 1,80,001 -Rs. 1,90,000 10% Rs. 1,90,001 -Rs. 2,50,000 10% Rs. 2,50,001 -Rs. 5,00,000 10% Rs. 5,00,001 -Rs. 8,00,000 20% 20% 20% 20% Exceeding Rs. 8,00,000 30% 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. 3.3.3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax rate shall be forty per cent. The tax computed shall be enhanced by a surcharge of two per cent only where such company has total income exceeding one crore rupees. However, marginal relief shall be allowed in the case of every company to ensure that the additional amount of income-tax payable, including surcharge, on the excess of income over one crore rupees is limited to the amount by which the income is more than one crore 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 and Secondary and Higher Education Cess. 4. Definition of "charitable purpose" 4.1 To the purposes of the Act; "charitable purpose'' has been defined in section 2(15) which. among others, include "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 considered as a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive from lst June, 2011. 7. Infrastructure Debt Fund 7.1 In order to augment long-term, low cost funds from abroad for the infrastructure sector, incentives have been introduced in the Act to facilitate setting up of dedicated debt funds. 7.2 Section 10 of the Act excludes certain incomes from the ambit of total income. A new section 10(47) has been inserted in the Act, so as to provide enabling power to the Central Government to notify any infrastructure debt fund which is set up in accordance with prescribed guidelines. Once notified, the income of such debt fund would be exempt from tax. It will, however, be required to file a return of income under section 139(4C)(h) of the Act. 7.3 Section 115A of the Act has also been amended to provide that any interest received by a non-resident from such notified infrastructure debt fund shall be taxable at the rate of five per cent on the gross amount of such interest income. Similarly section 194LB has been inserted in the Act to provide that tax shall be deducted at the rate of five per cent by such notified infrastructure debt fund on any interest paid by it to a non-resident. 7.4 Applicability - This amendment has been made effec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... using project under a scheme for affordable housing framed by the Central Government or a State Government, as the case may be. and notified by the Board in this behalf in accordance with the guidelines as may be prescribed; and (b) production of fertilizer in India. 9.1.3 The date of commencement of operations for eligibility under section 35AD, in the case of the two "specified businesses'' of affordable housing projects and production of fertilizer in a new plant or in a newly installed capacity in an existing plant shall be on or after lst April, 2011. 9.1.4 Applicability - These amendments take effect from 1st April, 2012 and will accordingly apply in relation to the assessment year 2012-13 and subsequent years. 9.2.1 A reading of section 73A implies that a specified business operating under section 35AD will be able to set off its losses only against profits and gains of any other specified business. As discussed in Para 9.1.1, "specified business" in the case of hotels and hospitals has been defined as "new" hotel or "new" hospital under section 35AD. 9.2.2 Thus, 'a new hotel' was defined as "specified business" and was eligible for investment-linked deduction under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em (NPS) account, shall be excluded from the limit of one lakh rupees provided under section 80CCE.The contribution of the employer therefore will be available as a further deduction to the assessees over and above the deduction of Rs one Lakh under section 80CCE. 10.3 Under the existing provisions of the Act, the contribution made by an employer towards a recognised provident fund, an approved superannuation fund or an approved gratuity fund is allowable as a deduction from business income under clauses (iv) and (v) respectively, of section 36(1), subject to certain limits. However, section 36 does not provide for a similar deduction from business income in respect of the contribution made by the employer, on behalf of the employee, to the New Pension System (NPS) account. 10.4 Section 36 has been amended by insertion of a new clause (iva) in sub-section (1), to provide that any sum paid by the assessee as an employer by way of contribution towards a pension scheme on the behalf of an employee to the New Pension System (NPS) account, as referred to in section 80CCD shall be allowed as deduction in computing the income of the employer under the head "Profits and gains of business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndment takes effect from 1st April, 2012 and will accordingly apply in relation to the assessment year 2012-13 and subsequent years. 13. Deduction in respect of profits and gains from undertakings engaged in commercial production of mineral oil 13.1 Under the existing provisions of sub-section (9) of section 80-IB of the Income-tax Act, 1961, a seven-year profit-linked deduction of hundred per cent, is available to an undertaking if it fulfils any of the following, namely:- (i) is located in North-Eastern Region and has begun or begins commercial production of mineral oil before 1st April, 1997; (ii) is located in any part of India and has begun or begins commercial production of mineral oil on or after 1st April, 1997; (iii) is engaged in refining of mineral oil and begins such refining on or after 1st October, 1998 but not later than 31st March, 2012; (iv) is engaged in commercial production of natural gas in blocks licensed under the VIII Round of bidding forward of exploration contracts (NELP-VIII) under the New Exploration Licencing Policy announced by the Government of India vide Resolution No. 19018/22/95-ONG.DO.VL, dated 10th February, 1999 and begins commercial prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .e. allowable variation), as determined above, does not exceed such percentage, as may be notified by Central Government in this behalf, of the actual price, then, no adjustment will be made and the actual price shall be treated as the ALP. 14.1.2 Applicability - This amendment has been made effective from 1st April, 2012 and it shall accordingly apply in relation to the Assessment Year 2012-13 and subsequent assessment years. 14.2.1 Section 92CA of the Act provides that the Transfer Pricing Officer (TPO) can determine the arm's length price in relation to an international transaction, which has been referred to the TPO by the Assessing Officer. Further, Section 92CA(7) provides that for the purpose of determining the ALP, the TPO can exercise powers available to an Assessing Officer under section 131(1) and section 133(6) of the Act. These are powers of summoning or calling for details for the purpose of inquiry or investigation into the matter. 14.2.2 Section 92CA of the Act has been amended to enable the Transfer Pricing Officer to determine the ALP in respect of any other international transactions, which are noticed by him subsequently, in the course of proceedings before h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncial institution shall be allowed unless the assessee furnishes an authorization, in the prescribed form, authorizing the Board or any other Income-tax authority acting on its behalf, to seek relevant information from the said financial institution; (iv) that no deduction in respect of any other expenditure or allowance (including depreciation) arising from the transaction with a person located in a notified jurisdictional area shall be allowed under any provision of the Act unless the assessee maintains such other documents and furnishes the information as may be prescribed: (v) that if any sum is received from a person located in the notified jurisdictional area, then, the onus is on the assessee to satisfactorily explain the source of such money in the hands of such person or in the hands of the beneficial owner, and in case of his failure to do so, the amount shall be deemed to be the income of the assessee; (vi) that any payment made to a person located in such area shall be liable to deduction of tax at the higher of the rates specified in the relevant provision of the Act or rate or rates in force or a rate of 30 per cent. Applicability - These amendments have been made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.1 Under the existing provisions of sub-section (1) of section 1 I5JB, a company is required to pay a minimum alternate tax (MAT) at the rate of 18% on its book profit, if the income-tax payable on the total income, as computed under the Act in respect of any previous year relevant to the assessment year commencing on or after 1st April, 2011, is less than such minimum tax. The amount of tax paid under the said section is allowed to be carried forward and set off against tax payable up to the tenth assessment year immediately succeeding the assessment year in which the tax credit becomes allowable under the provisions of section 115JAA. 18.1.2 The rate of MAT has been increased to eighteen and one-half per cent (18.5%) from the existing rate of eighteen per cent of such book profit. 18.1.3 Applicability - This amendment takes effect from 1st April, 2012 and will accordingly apply in relation to the assessment year 2012-13 and subsequent assessment years. 18.2.1 The book profit of a company under section 115JB for the purposes of computing MAT is determined as net profit as per profit and loss account with upward and downward adjustments as specified in the section. One of the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income accrued or arising on or after 1st April, 2005 from any business carried on, or services rendered, by an entrepreneur or a Developer, in a Unit or Special Economic Zone (SEZ), as the case may be. 19.1.4 Further, under the existing provisions of sub-section (6) of section 115-O, an exemption is allowed from payment of tax on distributed profits [Dividend Distribution Tax (DDT)] in respect of the total income of an undertaking or enterprise engaged in developing or developing and operating or developing, operating and maintaining a Special Economic Zone for any assessment year on any amount declared, distributed or paid by such Developer or enterprise, by way of dividends (whether interim or otherwise) on or after 1st April, 2005 out of its current income. Such distributed income, in the hands of the recipient, is also exempt from tax under sub-section (34) of section 10 of the Act. 19.1.5 The above provisions were inserted in the Income-tax Act by the Special Economic Zones Act, 2005 (SEZ Act) with effect from 10th February, 2006. 19.2.1 There was no sunset date provided for exemption from MAT in the case of an entrepreneur or a Developer, in a Unit or SEZ or from DDT in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "adjusted total income" shall be the total income before giving effect to this newly inserted Chapter XII-BA as increased by the deductions claimed under any section included in Chapter VI-A under the heading "C - Deductions in respect of certain incomes" and deduction claimed under section 10AA; (ii) "alternate minimum tax" shall be the amount of tax computed on adjusted total income at a rate of eighteen and one-half per cent; and (iii) "regular income-tax" shall be the income-tax payable for a previous year by a limited liability partnership on its total income in accordance with the provisions of the Act other than the provisions of this newly inserted Chapter XII-BA. 20.6 It is further provided that the credit for tax (tax credit) paid by a limited liability partnership under this newly inserted Chapter XII-BA shall be allowed to the extent of the excess of the alternate minimum tax paid over the regular income-tax. This tax credit shall be allowed to be carried forward up to tenth assessment year immediately succeeding the assessment year for which such credit becomes allowable. It shall be allowed to be set off for an assessment year in which the regular income-tax exceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount which is not chargeable to income-tax, is required to furnish a return of his income. 22.2 In the case of a salaried taxpayer, entire tax liability is discharged by the employer through deduction of tax at source. Complete details of such taxpayers are also reported by the employer through Tax Deduction at Source (TDS) statements. Therefore, in cases where there is no other source of income, filing of a return is a duplication of existing information. 22.3 In order to reduce compliance burden on small taxpayers, a new sub-section (1C) is inserted in section 139. This provision empowers the Central Government to exempt, by notification in the Official Gazette, any class or classes of persons from the requirement of furnishing a return of income, having regard to such conditions as may be specified in that notification. 22.4 Consequential amendments are also made to the provisions of section 296 to provide that any notification issued under section 139(1 C) shall be laid before Parliament. 22.5 Applicability - These amendments take effect from 1st June, 2011. 23. Centralised Processing of Returns 23.1 Section 143 of the Income Tax Act, 1961 was amended vide Finance Act, 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 153A or under section 153C as a result of search or a requisition of books of account, as the case may be, and the additional amount of income-tax payable on the income disclosed in the application exceeds fifty lakh rupees; (ii) in other cases, if the additional amount of income-tax payable on the income disclosed in the application exceeds ten lakh rupees. 25.2 In order to expand the criteria for filing an application for settlement by a taxpayer in whose case proceedings have been initiated as a result of search or requisition of books of account, a new clause (ia) has been inserted in the proviso to section 245C(1). 25.3 The new clause stipulates that an application can also be made, where the applicant- (a) is related to the person [referred to in clause (i) above] in whose case proceedings have been initiated as a result of search and who has filed an application; and (b) is a person in whose case proceedings have also been initiated for assessment or reassessment of income as a result of search. the additional amount of income-tax payable on the income disclosed in his application exceeds ten lakh rupees. 25.4 As a consequence, a taxpayer who is the subject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of every notice, order, letter or any correspondence issued by him to any other income-tax authority or assessee or any other person and such number shall be quoted thereon. 27.2 Considering the practical difficulties due to non-availability of requisite infrastructure on an all India basis, the aforesaid section was omitted. 27.3 Applicability - This amendment takes effect from 1st April, 2011. 28. Reporting requirement by certain non-residents 28.1 Foreign companies or firms or associations of individuals operate in India through a branch or a liaison office after approval by Reserve Bank of India. The branch constitutes a permanent establishment of the entity and is, therefore, required to file a return of income along with requisite details. A non-resident does not file a return of income with regard to its liaison office on the ground that no business activity is allowed to be carried out in India. 28.2 A new section 285 has been inserted in the Act providing that a non-resident would be required to file an annual information statement in respect of activities of its Liaison Office in India. in prescribed form providing the prescribed details. The form would b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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