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TMI BlogExplanatory Notes to the Provisions of the Finance Act, 2018X X X X Extracts X X X X X X X X Extracts X X X X ..... on" to include "Significant Economic presence", 6.1-6.9 10 Royalty and FTS payment by NTRO to a non-resident to be tax-exempt, 7.1-7.4; Extending the benefit of tax-free withdrawal from NPS to non-employee subscribers, 8.1-8.3; Tax deduction at source and manner of payment in respect of certain exempt entities, 11.1-11.5; New regime for taxation of long-term capital gains on sale of equity shares etc., 29.1-29.13; Exemption to specified income of class of body, authority, Board, Trust or Commission in certain cases, 9.1-9.4; Exemption of income of Foreign Company from sale of leftover stock of crude oil on termination of agreement or arrangement, 10.1-10.4 11 Tax deduction at source and manner of payment in respect of certain exempt entities, 11.1-11.5 16 Standard deduction on salary income, 12.1-12.4 17 Standard deduction on salary income, 12.1-12.4 28 Taxability of compensation in connection to business or employment, 13.1-13.3; Rationalisation of provision relating to conversion of stock-in-trade into Capital Asset, 14.1-14.4 36 Amendments in relation to notified Income Computation and Disclosure Standards, 39.1-39.3 40A Amendments in relation to not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic companies 31.1-31.4 115BBE Rationalisation of the provisions of section 115BBE, 32.1-32.4 115JB Relief from liability of Minimum Alternate Tax (MAT] for certain companies, 33.1-33.6 115JC Measures to promote International Financial Services Centre (IFSC], 18.1-18.6 115JF Measures to promote International Financial Services Centre (IFSC], 18.1-18.6 115-O Application of Dividend Distribution Tax to Deemed Dividend, 34.1-34.4 115Q Application of Dividend Distribution Tax to Deemed Dividend, 34.1-34.4 115R Dividend distribution tax on dividend pay-outs to unit holders in an equity oriented fund, 35.1-35.4 115T Dividend distribution tax on dividend pay-outs to unit holders in an equity oriented fund, 35.1-35.4 139A Entities to apply for Permanent Account Number in certain cases, 36.1-36.5 140 Benefit of carry forward and set off of losses for facilitating insolvency resolution, 21.1-21.6 143 Rationalisation of prima-facie adjustments during processing of return of income, 37.1-37.4; New scheme for scrutiny assessment, 38.1-38.4 145A Amendments in relation to notified Income Computation and Disclosure Standards, 39.1-39.3 145 B Amendments in relation to notif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80JJAA, 80TTA, 115AD, 115BA, 115BBE, 115JB, 115JC, 115JF, 115-O, 115Q, 115R, 115T, 139A, 140, 143, 145A, 193, 194A, 245-0, 245Q, 253, 271FA, 276CC, 286 of the Income-tax Act, 1961 ('the Income-tax Act'); (iii) inserted new sections 43AA, 43CB, 80PA, 80TTB, 112A, 145B in the Income-tax Act; (iv) amended section 97 of the Finance (No.2) Act, 2004; (v) amended sections 116, 117, 118, 128 of the Finance Act, 2013; (vi) amended sections 46, 55 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. 3. Rate structure 3.1 Rates of income-tax in respect of income liable to tax for the assessment year 2018-19. 3.1.1 In respect of income of all categories of assessees liable to tax for the assessment year 2018-19, the rates of income-tax have been specified in Part I of the First Schedule to the Act. These are the same as those laid down in Part Ill of the First Schedule to the Finance Act, 2017 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 2017-18. The main features of the rates specified in the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.3 Co-operative Societies. In the case of every co-operative society, the rates of income-tax have been specified in Paragraph B of Part I of the First Schedule to the Act. The rates are as follows:- Income chargeable to tax Rate Up to ₹ 10,000 10% ₹ 10,001 - ₹ 20,000 20% Exceeding ₹ 20,000 30% The amount of income-tax so computed shall be increased by a surcharge at the rate of twelve per cent of such income-tax in case of a co-operative society having a total income exceeding one crore rupees. However, marginal relief shall be available so that the total amount payable as income-tax and surcharge on total income exceeding one crore rupees shall not exceed the total amount payable as income-tax on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees. Education Cess on income-tax shall continue to be levied at the rate of two per cent on the amount of tax computed inclusive of surcharge. In addition, the amount of tax computed shall be further increased by an additional surcharge called Secondary and Higher Education Cess on income-tax at the rate of one per cent of such income-tax inclusive of surcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 a) twenty five per cent of the total income, if the total turnover or gross receipts of the company in the previous year 2015-16 does not exceed fifty crore rupees; b) twenty-five per cent of the total income at the option of the company, if it satisfies the conditions contained under section 115BA of the Income-tax Act; c) thirty per cent of the total income, in all other cases. The tax computed shall be enhanced by a surcharge of seven per cent where such domestic company has total income exceeding one crore rupees but not exceeding ten crore rupees. Surcharge at the rate of twelve per cent shall be levied if the total income of the company exceeds ten crore rupees. In the case of a company other than a domestic company, royalties received from Government or an Indian concern under an approved agreement made after 31.03.1961 but before 01.04.1976, shall be taxed at fifty per cent. Similarly, fees for technical services received by such company from Government or an I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t source at the rate of ten per cent on income by way of long-term capital gain referred to in section 112A of the Income-tax Act. 3.2.2 Surcharge. The tax deducted at source in the following cases shall be increased by a surcharge, as specified below, for purposes of the Union: (i) In case of an individual, Hindu undivided family, association of person, body of individual or artificial juridical person, where the income or aggregate of such incomes paid or likely to be paid and subject to the deduction exceeds- (a) fifty lakh rupees but does not exceed one crore rupees, the rate of surcharge is ten per cent of such income-tax; (b) one crore rupees, the rate of surcharge is fifteen per cent of such income-tax. (ii) In case of a firm or cooperative society, where the income or the aggregate of such incomes paid or likely to be paid and subject to the deduction exceeds one crore rupees, the rate of surcharge is twelve per cent of such income-tax. (iii) In case of payments made to foreign companies, the rate of surcharge is two per cent of such income-tax where the income or the aggregate of such incomes paid or likely to be paid and subject to the deduction exceeds one crore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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). The basic exemption limits, rates of tax and slabs of income for various categories remain the same as in financial year 2017-18. The rates of tax during the financial year 2018-19 are as follows:- Income chargeable to tax Rate of income- tax Individual (other than senior and very senior citizen), HUF, association of persons, body of individuals and artificial juridical person Individual, resident in India who is of the age of sixty years or more but less than eighty years (senior citizen) Individual. resident in India who is of the age of eighty years or more (very senior citizen) Up to ₹ 2,50,000 Nil Nil Nil ₹ 2,50,001- ₹ 3,00,000 5% ₹ 3,00,001- ₹ 5,00,000 5% ₹ 5,00,001 - ₹ 10,00,000 20% 20% 20% Exceeding ₹ 10,00,000 30% 30% 30% The amount of income-tax so computed shall be increased by a surcharge at the rate of ten per cent of such income-tax in case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Schedule to the Act. The amount of income-tax so computed shall continue to be increased by a surcharge at the rate of twelve per cent of such income-tax in case of a firm having a total income exceeding one crore rupees. However, marginal relief shall be available so that the total amount payable as income-tax and surcharge on total income exceeding one crore rupees shall not exceed the total amount payable as income-tax on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees. The amount of income-tax as increased by the applicable surcharge, shall be further increased by an additional surcharge called 'Health and Education Cess' at the rate of four per cent of such income-tax inclusive of surcharge. No marginal relief shall be available in respect of the Health and Education Cess. 3.3.5 Local Authorities. In the case of every local authority, the rate of income-tax has been specified at thirty per cent in Paragraph D of Part III of the First Schedule to the Act. The amount of income-tax so computed shall continue to be increased by a surcharge at the rate of twelve per cent of such income-tax in case of a local authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levied if the total income of such company exceeds ten crore rupees. However, marginal relief shall be allowed in the case of every company to ensure that,- (i) the total amount payable as income-tax and surcharge on total income exceeding one crore rupees shall not exceed the total amount payable as income-tax on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees; (ii) the total amount payable as income-tax and surcharge on total income exceeding ten crore rupees shall not exceed the total amount payable as income-tax and surcharge on a total income of ten crore rupees, by more than the amount of income that exceeds ten crore rupees. The amount of income-tax as increased by the applicable surcharge, shall be further increased by an additional surcharge called 'Health and Education Cess' at the rate of four per cent of such income-tax inclusive of surcharge. No marginal relief shall be available in respect of the Health and Education Cess. 3.4 Surcharge on Additional Income-tax. Where additional income-tax has to be paid under section 115-O or section 115-QA or subsection (2) of section 115R or section 115TA or section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... losses as the case may be, shall be increased by the accumulated profits, whether capitalised or not, of the amalgamating company on the date of amalgamation. 4.5 Applicability: This amendment takes effect from 1st April, 2018 and will, accordingly, apply in relation to assessment year 2018-19 and subsequent assessment years. 5. Aligning the scope of "business connection" with modified PE Rule as per Multilateral Instrument (MLI) 5.1 Before amendment by the Act, the provisions of Explanation 2 to clause (i) of subsection (1) of section 9 of the Income-tax Act specified that "business connection" includes business activities carried on by non-resident through dependent agents. The scope of "business connection" under the Income-tax Act is similar to the provisions relating to Dependent Agent Permanent Establishment (DAPE) in India's Double Taxation Avoidance Agreements (DTAAs). In terms of the DAPE rules in tax treaties, if any person acting on behalf of the non-resident is habitually authorised to conclude contracts for the non-resident, then such agent would constitute a Permanent Establishment (PE) in the source country. However, in many cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or habitually plays the principal role leading to conclusion of contracts by the non-resident. It is further amended that the contracts should be - (i) in the name of the non-resident; or (ii) for the transfer of the ownership of, or for the granting of the right to use, property owned by that non-resident or that the non-resident has the right to use; or (iii) for the provision of services by that non-resident. 5.5 Applicability: This amendment takes effect from 1st April, 2019 and will, accordingly, apply in relation to assessment year 2019-20 and subsequent assessment years. 6. "Business connection" to include "Significant Economic presence" "The oranges upon the trees in California are not acquired wealth until they are picked, not even at that stage until they are packed, and not even at that stage until they are transported to the place where demand exists and until they are put where the consumer can use them. These stages, upto the point where wealth reached fruition, may be shared in by different territorial authorities." (excerpts from a report on double taxation submitted to League of Nations in early 1920s) 6.1 Taxation of busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hnology and other automated tools. It further recommended that revenue factor may be used in combination with the aforesaid factors to determine 'significant economic presence'. 6.5 Before amendment by the Act, the scope of existing provisions of clause (i) of subsection (1) of section 9 of the Income-tax Act was restrictive in nature as it essentially provided for physical presence-based nexus rule for taxation of business income of a non-resident in India. Explanation 2 to the said section, which defines 'business connection', was also narrow in its scope since it applied to certain activities or transactions of non-resident, viz. the activities carried out through a dependent agent. Therefore, emerging business models such as digitized businesses, which do not require physical presence (whether of itself or any agent) in India, were not explicitly covered within the scope of the said section. 6.6 In view of the above, a new Explanation 2A has been inserted in clause (i) of sub-section (1) of section 9 of the Income-tax Act to provide that 'Significant Economic Presence' in India shall also constitute 'business connection' and that "Signific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t takes effect from 1st April, 2018 and accordingly applies in relation to assessment year 2018-19 and subsequent assessment years, 8. Extending the benefit of tax-free withdrawal from NPS to non-employee subscribers 8.1 Before amendment by the Act, clause (12A) of section 10 of the Income-tax Act provided that an employee contributing to the pension scheme referred to in section 80CCD of the Income-tax Act (NPS) shall be allowed exemption in respect of 40% of the total amount payable to him on closure of his account or on his opting out. However, this exemption is not available to non-employee subscribers. 8.2 In order to provide a level playing field, clause (12A) of section 10 of the Income-tax Act has been amended to extend the said benefit to all subscribers of NPS. 8.3 Applicability: This amendment takes effect from I sl April. 2019 and will, accordingly, apply in relation to the assessment year 2019-20 and subsequent assessment years. 9. Exemption to specified income of class of body, authority, Board, Trust or Commission in certain cases. 9.1 Clause (46) of section 10 of the Income-tax Act empowers the Central Government to exempt, by notification, specified income ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rangement is terminated in accordance with the terms mentioned therein. 10.4 Applicability: This amendment takes effect from 1st of April, 2019 and will, accordingly, apply in relation to assessment year 2019-20 and subsequent years. 11. Tax deduction at source and manner of payment in respect of certain exempt entities. 11.1 Section 11 of the Income-tax Act provides for exemption in respect of income from property held for charitable or religious purposes, where the person in receipt of the income applies or accumulates such income during the previous year in accordance with the relevant provisions. Similarly, the third proviso to clause (23C) of section 10 of the Income tax Act provides for exemption in respect of the income of certain persons where such income is applied or accumulated during the previous year for the specified purposes in accordance with the relevant provisions. 11.2 Before amendment by the Act, there were no restrictions on payments made in cash by the said persons. There were also no checks on whether such persons follow the provisions of deduction of tax at source under Chapter XVII-B of the Income-tax Act. Consequently, there was a lack of an audit trai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ince it did not cover a large segment of compensation receipts in connection with business and employment, leading to base erosion and revenue loss. 13.2 Accordingly, section 28 of the Income-tax Act has been amended to provide that any compensation received or receivable, by any person, whether revenue or capital, in connection with the termination or the modification of the terms and conditions of any contract relating to his business shall also be taxable under the head "Profits and gains of business or profession". Further, section 56 of the Income-tax Act has also been amended to provide that any compensation received or receivable by any person, whether in the nature of revenue or capital, in connection with the termination or the modification of the terms and conditions of any contract relating to his employment shall be taxable under the head "Income from other sources". Consequential amendment has also been made in clause (24) of section 2 of the Income-tax Act. 13.3 Applicability: These amendments takes effect from 1st April, 2019 and will, accordingly, apply in relation to assessment year 2019-20 and subsequent assessment years. 14. Rationalisation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction in commodity derivatives carried out in a recognised association, which is chargeable to commodities transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013), is a non-speculative transaction. 15.2 Commodity transaction tax (CTT) was introduced vide Finance Act, 2013 to bring transactions relating to non-agricultural commodity derivatives under the tax net while keeping the agricultural commodity derivatives exempt from CTT. Since no CTT is paid, the benefit of clause (e) of the proviso to clause (5) of the section 43 was not available to transaction in respect of trading of agricultural commodity derivatives and accordingly, such transactions were held to be speculative transactions. 15.3 In order to encourage participation in trading of agricultural commodity derivatives, a new proviso has been inserted to clause (5) of section 43 of the Income-tax Act to provide that a transaction in respect of trading of agricultural commodity derivatives, which is not chargeable to CTT, in a registered association or registered stock exchange, shall be treated as non-speculative transaction. 15.4 Applicability: This amendment takes effect from 1st April, 2019 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge capacity. The only condition which needs to be fulfilled is that the assessee should not have owned more than 10 goods carriages at any time during the previous year. Accordingly, a transporter who owns large capacity/size goods carriages can also avail the benefit of section 44AE so long as he owns less than 10 goods carriages. It is necessary to mention here that the legislative intent of introducing this provision was to give benefit to small transporters in order to reduce their compliance burden. However, in this case, it is evident that even though the profit margins of large capacity goods carriages are higher than small capacity goods carriages, the tax consequences were similar which was against the principle of tax equity. 17.4 In view of the above, section 44AE of the Income-tax Act has been amended to provide that in the case of heavy goods vehicle (more than 12M T gross vehicle weight), the profits and gains under this section would deemed to be an amount equal to one thousand rupees per ton of gross vehicle weight or unladen weight, as the case may be, for every month or part of a month for each goods vehicle or the amount claimed to be actually earned by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther conditions as specified in the said section. 19.2 The said section also provides that "long-term specified asset" for making any investment under the section on or after the 1st day of April, 2007 means any bond, redeemable after three years and issued on or after the I sl day of April, 2007 by the National Highways Authority of India or by the Rural Electrification Corporation Limited, or any other bond notified by the Central Government in this behalf. 19.3 In order to rationalise the provisions of section 54EC of the Income-tax Act and to restrict the scope of the section to only capital gains arising from long-term capital assets, being land or building or both, section 54EC has been amended to provide that capital gain arising from the transfer of a long-term capital asset, being land or building or both, invested in the long-term specified asset at any time within a period of six months after the date of such transfer, shall not be charged to tax subject to certain conditions specified in the said section, 19.4 Further, to make available funds at the disposal of eligible bond issuing companies for more than three years, it has also been provided that long-te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter affording a reasonable opportunity of being heard to the jurisdictional Principal Commissioner or Commissioner. 21.4 Applicability: This amendment takes effect from 1st April, 2018 and will, accordingly, apply in relation to assessment year 2018-19 and subsequent assessment years. 21.5 Section 140 of the Income-tax Act has also been amended so as to provide that during the resolution process of a company under the Insolvency and Bankruptcy Code, 2016, its return shall be verified by an insolvency professional appointed by the Adjudicating Authority under the said Code. 21.6 Applicability: This amendment takes effect from 1st April, 2018 and will, accordingly apply to return filed on or after the said date. 22. Deductions in respect of certain incomes not to be allowed unless return is filed by the due date 22.1 Before amendment by the Act, section BOAC of the Income-tax Act provided that no deduction would be admissible under section 80-1A or section 80-IAB or section 80-1B or section 80-1C or section 80-1D or section 80-IE, unless the return of income by the assessee is furnished on or before the due date specified under sub-section (1) of section 139 of the Income-tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 60,000 (in respect of a senior citizen) to an individual and Hindu undivided family with regard to amount paid for medical treatment of specified diseases in respect of a very senior citizen or a senior citizen, subject to certain specified conditions. 24.2 In order to provide relief to senior citizens for medical treatment for specified diseases, the provisions of section 80DDB of the Income-tax Act have been amended and this monetary limit of deduction has been raised to Rs, 1,00,000 for both senior citizens and very senior citizens. 24.3 Applicability: This amendment takes effect from 1st April, 2019 and will, accordingly, apply in relation to the assessment year 2019-20 and subsequent assessment years. 25. Measures to promote start-ups 25.1 Before amendment by the Act, section 80-IAC of the Income-tax Act provided that the deduction under this section shall be available to an eligible start-up for three consecutive assessment years out of seven years at the option of the assessee, if- (i) it is incorporated on or after the 1st day of April, 2016 but before the 1st day of April, 2019; (ii) the total turnover of its business does not exceed twenty-five crore rupee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdingly, apply in relation to the assessment year 2019-20 and subsequent assessment years. 27. Deduction in respect of income of Producer Companies 27.1 Section 80P of Income-tax Act provides for 100 per cent deduction in respect of profits and gains of cooperative society which provides assistance to its members engaged in primary agricultural activities. 27.2 A new section 80PA has been inserted in the Income-tax Act to extend similar benefits to Producer Companies, having a total turnover of less than ₹ 100 crore, whose gross total income includes any income from- (i) the marketing of agricultural produce grown by its members, or (ii) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or (iii) the processing of the agricultural produce of its members. The deduction shall be available for the previous year relevant to the assessment year 20192020 to 2024-25. 27.3 Applicability: This amendment takes effect from 1st April, 2019 and will, accordingly, apply in relation to the assessment year 2019-20 and subsequent assessment years. 28. Deduction in respect of interest i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g one lakh rupees. The tax on balance total income shall be computed after reducing the total amount of the said capital gains from the total income. 29.4 This concessional rate of 10 per cent will be applicable to said long term capital gains, (i) in a case where long term capital asset is in the nature of an equity share in a company, STT has been paid on both acquisition and transfer of such capital asset; and (ii) in a case where long term capital asset is in the nature of a unit of an equity oriented fund or a unit of a business trust, ST T has been paid on transfer of such capital asset. 29.5 Further, sub-section (4) of section 112A empowers the Central Government to specify by notification the nature of acquisition in respect of which the requirement of payment of STT shall not apply in the case of equity share in a company. Similarly, the requirement of payment of STT shall not apply if the transfer is undertaken on a recognised stock exchange located in any International Financial Services Centre (IFSC) and the consideration of such transfer is received or receivable in foreign currency. 29.6 The provisions of section 112A also provide for the following:- (i) The ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay of January, 2018, the fair market value shall be the highest price of such asset on such exchange on a date immediately preceding the 31st day of January, 2018 when such asset was traded on such exchange ; (b) in a case where the capital asset is a unit and is not listed on a recognised stock exchange as on the 31st day of January, 2018, the fair market value shall be the net asset value of such asset on the said date; and (c) the fair market value of a capital asset, being an equity share in a company, shall be determined after allowing inflation indexation of its cost of acquisition up to financial year 2017-18 in the following cases: (i) where the share is not listed on a recognised stock exchange as on the 31st day of January, 2018 but listed on such exchange as on the date of transfer; (ii) where the share is listed on a recognised stock exchange on the date of transfer and which became the property of the assessee in consideration of a share which is not listed on such exchange as on the 31st day of January, 2018 by way of transactions not regarded as transfer under section 47 of the Income-tax Act. 29.10 Consequential amendment has also been made in clause (42A) of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cent subject to conditions specified therein. This benefit is available from assessment year 2017-18. 31.2 However, there are certain incomes which are subject to a scheduler tax at a rate which is lower or higher than twenty five per cent. Consequently tax payers have been subjected to unintended hardship or unwarranted relief. 31.3 Accordingly, section 115BA of the Income-tax Act has been amended so as to clarify that the provisions of section 115BA are restricted to the income from the business of manufacturing, production, research or distribution referred to therein; and incomes which are at present taxed at a scheduler rate will continue to be so taxed. 31.4 Applicability: The amendment takes effect retrospectively from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent years. 32. Rationalisation of the provisions of section 115BBE 32.1 Section 115BBE of the Income-tax Act provides for tax on income referred to in section 68 or section 69 or section 69A or section 69B or section 69C or section 69D at a higher rate of sixty per cent. 32.2 Before amendment by the Act, sub-section (2) of the said section provided that no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofits and' gains from business referred to in section 44B or section 44BB or section 44BBA or section 44BBB of the Income-tax Act and such income has been offered to tax at the rates specified in the said sections. 33.6 Applicability: This amendment takes effect retrospectively from 1st April, 2001 and will, accordingly, apply in relation to the assessment year 2001-02 and subsequent assessment years. 34. Application of Dividend Distribution Tax to Deemed Dividend 34.1 Dividend distribute d by a domestic company is subject to dividend distribution tax payable by such company. However, before amendment by the Act, deemed dividend under sub-clause (e) of clause (22) of section of 2 the Income-tax Act was taxed in the hands of the recipient at the applicable marginal rate. The taxability of deemed dividend in the hands of recipient has posed serious problem of the collection of the tax liability and has also been the subject matter of extensive litigation. 34.2 With a view to bringing clarity and certainty in the taxation of deemed dividends, the Explanation to Chapter XII-D of the Income-tax Act, occurring after section 115Q, has been deleted so as to bring deemed dividends ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder to use PAN as Unique Entity Number (UEN) for non-individual entities, the provisions of section 139A of the Income-tax Act have been amended so as to provide that every resident, not being an individual, which enters into a financial transaction of an amount aggregating to two lakh and fifty thousand rupees or more in a financial year shall be required to apply to the Assessing Officer for allotment of PAN. 36.3 In order to link the financial transactions with the natural persons, it is further provided that the managing director, director, partner, trustee, author, founder, karta, chief executive officer, principal officer or office bearer or any person competent to act on behalf of such entities shall also apply to the Assessing Officer for allotment of PAN. 36.4 In order to enable issuance of e-PAN for ease of doing business, it is also provided that requirement of issuing PAN in a laminated card shall no longer be mandatory. 36.5 Applicability: This amendment takes effect from 1st April, 2018. 37. Rationalisation of prima-facie adjustments during processing of return of income 37.1 Sub-section (1) of the section 143 of the Income-tax Act provides for processing of ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of Parliament, as soon as may be. 38.4 Applicability: These amendments take effect from I SL April, 2018. 39. Amendments in relation to notified Income Computation and Disclosure Standards 39.1 Section 145 of the Income-tax Act empowers the Central government to notify Income Computation and Disclosure Standards (ICDS). In pursuance to the above, the Central Government has notified ten such Standards effective from 1st April, 2017 relating to Assessment Year 2017-18. These are applicable to all assesses (other than an individual or a Hindu undivided family who are not subject to tax audit under section 44AB of the Income-tax Act) for the purposes of computation of income chargeable to income-tax under the head "Profits and gains of business or profession" or "Income from other sources". 39.2 In order to bring certainty in the wake of recent judicial pronouncements on the issue of applicability of ICDS - (i) Section 36 of the Income-tax Act has been amended to provide that marked-to-market loss or other expected loss, as computed in the manner provided in the ICDS notified under sub-section (2) of section 145, shall be allowed deduction. (ii) Section 40A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied under sub-section (2) of section 145 after taking into account the extant guidelines of the Reserve Bank of India. (vi) A new section 145B has been inserted in the Income-tax Act to provide that- (a) interest received by an assessee on compensation or on enhanced compensation, shall be deemed to be the income of the year in which it is received; (b) the claim for escalation of price in a contract or export incentives shall be deemed to be the income of the previous year in which reasonable certainty of its realisation is achieved; (c) income referred to in sub-clause (xviii) of clause (24) of section 2 shall be deemed to be the income of the previous year in which it is received, if not charged to income tax for any earlier previous year; 39.3 Applicability: Recent judicial pronouncements have raised doubts on the legitimacy of the notified ICDS. However, a large number of taxpayers have already complied with the provisions of ICDS for computing income for assessment year 2017-18. In order to regularise the compliance with the notified ICDS by a large number taxpayers so as to prevent any further inconvenience to them, these amendments take effect retrospectively with effe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to avoid overlapping, it is also provided that where the Authority is dealing with an application seeking advance ruling in the matters of the Income-tax Act, the Revenue Member shall be the Member referred to in sub-clause (i) of clause (c) of sub-section (3) of the said section. 41.5 Applicability: These amendments take effect from 1st April, 2018. 42. Appeal against penalty imposed by Commissioner (Appeals) under section 271 J 42.1 Section 253 of the Income-tax Act provides inter alia that any assessee aggrieved by any of the orders mentioned in sub-section (1) of the said section may appeal to the Appellate Tribunal against such order. 42.2 Clause (a) of the said sub-section has been amended so as to also make an order passed by a Commissioner (Appeals) under section 27 IJ appealable before the Appellate Tribunal. 42.3 Applicability: This amendment takes effect from 1st April, 2018. 43. Penalty for failure to furnish statement of financial transaction or reportable account 43.1 Before amendment by the Act, section 271 FA of the Income-tax Act provided that if a person who is required to furnish the statement of financial transaction or reportable account under sub-sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic Co-operation and Development (OECD), and to improve the effectiveness and reduce the compliance burden of such reporting, section 286 of the Income-tax Act has been amended in the following manner:- (i) the time allowed for furnishing the Country-by-Country Report (CbCR), in the case of parent entity or Alternative Reporting Entity (ARE), resident in India, is extended to twelve months from the end of reporting accounting year; (ii) constituent entity resident in India, having a non-resident parent, shall also furnish CbCR in case its parent entity outside India has no obligation to file the report of the nature referred to in sub-section (2) in the latter's country or territory; (iii) the time allowed for furnishing the CbCR under sub-section (4) of the said section, in the case of constituent entity resident in India, having a non-resident parent, shall be separately prescribed; (iv) the due date for furnishing of CbCR by the ARE of an international group, the parent entity of which is outside India, with the tax authority of the country or territory of which it is resident, will be the due date specified by that country or territory; (v) "Agreement" means ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vative and chargeable under section 117 of the Finance Act, 2013. 46.7 The provisions of section 118 of the Finance Act, 2013 have been amended so as to include the value of taxable commodities transaction, being option on commodities, chargeable under section 117 of the Finance Act, 2013, in the said section. 46.8 Further, the provisions of section 128 of the Finance Act, 2013 have been amended so as to provide that the provisions of section 119 of the Income-tax Act shall apply, so far as may be, in relation to the commodities transaction tax, as they apply in relation to income-tax. 46.9 Applicability: These amendments take effect from 1st April, 2018. 47. Rationalisation of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 47.1 Section 46 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 ('the Black Money Act') provides for the procedure for imposing penalty. 47.2 Before amendment by the Act, sub-section (4) of the said section provided that an order imposing a penalty shall be made with the approval of the Joint Commissioner, in the circumstances specified therein. 47.3 The Assistant ..... X X X X Extracts X X X X X X X X Extracts X X X X
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