Finance Act, 2011 - Explanatory notes to the provisions of the Finance Act, 2011
Circular No. 02/2012 [F. No.142/01/2012-SO(TPL)], dated 22-5-2012
Explanatory notes to the provisions of the Finance Act, 2011
Amendments at a Glance
| Section/Schedule | Particulars/Paragraph number |
| Finance Act, 2011 | |
| First Schedule | Rate Structure, 3.1 - 3.3.6 |
| Income-tax Act, 1961 | |
| 2(15) | Definition of "charitable purpose" 4.1 - 4.4 |
| 10(45) | Exemption of certain perquisites of chairman and members of Union Public Service Commission 5.1 - 5.3 |
| 10(46), 139(4C)(g) | Provision relating to exemption of a specified income of certain bodies or authorities or trust or board or commission 6.1 - 6.2 |
| 10(47), 139(4C)(h), 115A, 194LB | Infrastructure Debt Fund 7.1 - 7.4 |
| 35(2AA) | Weighted deduction for contribution made for approved scientific research programme 8.1 - 8.3 |
| 35AD | Investment-linked deduction in respect of specified business 9.1.1 - 9.3 |
| 80CCE, 36(1),40A(9) | Tax benefits for New Pension System (NPS) 10.1 - 10.6 |
| 80CCF | Deduction for investment in long-term infrastructure bonds 11.1 - 11.3 |
| 80-IA(4)(iv) | Extension of sunset clause for tax holiday for power sector 12.1 - 12.3 |
| 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 condition for filing an application before the Settlement Commission 25.1 - 25.6 |
| 245D(4) | Power of the Settlement Commission to rectify its orders 26.1 - 26.6 |
| 282B | Omission of the requirement of quoting of Document Identification Number 27.1-27.3 |
| 285 | Reporting requirement by certain non-residents 28.1 - 28.3 |
| Fourth Schedule | Recognition to Provident Funds - Extension of time-limit for obtaining Exemption from EPFO 29.1.1 - 29.3 |
| Wealth-tax Act, 1957 | |
| 22D | Procedure on receipt of an application for settlement of cases 26.5 |
| Special Economic Zones Act, 2005 | |
| Second Schedule | Modifications to the Income-tax Act 19.2.2 - 19.3.2 |
1. Introduction
1.1 The Finance Act, 2011 (hereafter referred to as
the Act) as passed by the Parliament, received the assent of the
President on the 8th day of April, 2011 and has been enacted as Act No.
08 of 2011. This circular explains the substance of the provisions of
the Act relating to direct taxes.
2. Changes made by the Act
2.1 The Act has-
(i) specified the rates of income-tax for the
assessment year 2011-12 and the rates of income-tax on the basis of
which tax has to be deducted at source and advance tax has to be paid
during financial year 2011 -12.
(ii) amended
sections 2(15), 10(34), 35(2AA), 35AD, 36, 40A(9), 80CCE, 80CCF,
80-IA(4)(iv). 80-IB, 92C, 92CA, I ISA, 115JB(1), 115JB(6), 115-0(6),
115R(2), 131, 133, 139, 143, 153, 153B, 245C( 1), 245D, 296 in the
Income-tax Act, 1961;
(iii) inserted new sections / clauses 10(45), 10(46), 10(47), 94A, 115BBD,
139(1C), 139(4C)(g), 139(4C)(h), 194LB, 285 in the Income-tax Act, 1961;
(iv) inserted a new chapter XII-BA consisting of sections 115JC, 115JD, 115JE, 115JF, in the Income-tax Act, 1961;
(v) omitted section 282B of the Income tax Act, 1961;
(vi) amended rule 3 of Part A of the Fourth Schedule to the Income-tax Act, 1961;
(vii) amended section 22D of the Wealth-tax Act, 1957;
(viii) amended the Second Schedule to the Special Economic Zones Act, 2005.
3. Rate structure
3.1 Rates of income-tax in respect of incomes liable to tax for the assessment year 2011-12
3.1.1 In respect of income of all categories of
taxpayers liable to tax for the assessment year 2011-12, the rates of
income-tax have been specified in Part 1 of the First Schedule to the
Finance Act, 2011. These rates are the same as those laid down in Part
III of the First Schedule to the Finance Act, 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% | ||
| Rs. 5,00,001 - Rs. 8,00,000 | 20% | 20% | 20% |
| Exceeding Rs. 8,00,000 | 30% | 30% | 30% |
In the case of every individual, Hindu undivided family, association of persons or body of individuals, no surcharge is levied.
An additional surcharge called 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 all cases. For instance, if the income-tax
computed is Rs. 1,00,000 then the education cess of two per cent is to
be computed on Rs. 1,00,000 which works out to Rs. 2,000. In addition,
the amount of tax computed shall also be 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. Thus in the earlier
illustration, where the amount of tax computed is Rs. 1,00,000, the
Education Cess of two per cent is Rs. 2,000, the said Secondary and
Higher Education Cess will be computed on Rs. 1,00,000 which works out
to be Rs. 1,000. The total cess in this case will amount to Rs. 3,000 (i.e., Rs. 2,000 + Rs. 1,000).
3.1.3 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 Finance Act, 2011.
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.
3.1.4 Firms - In the case of every firm, the rate
of income-tax of thirty per cent has been specified in Paragraph C of
Part I of the First Schedule to the Finance Act, 2011. No surcharge
shall be levied in the case of a firm.
Additional surcharge called 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, such amount of tax shall be
further increased by an additional surcharge called Secondary and Higher
Education Cess on income-tax computed at the rate of one per cent on
the amount of tax, in all cases.
3.1.5 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 I of the First Schedule to the Finance Act,
2011. 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 computed shall be
enhanced by a surcharge of two and one-half per cent only in the cases
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. Also, in the case of every company having total income
chargeable to tax under section 115JB of the Income-tax Act, 1961 (the
Act) and where such income exceeds one crore rupees, marginal relief
shall be provided.
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 the case of every company. Also, such amount of tax 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 of the amount of tax computed, inclusive of surcharge. No marginal
relief shall be available in respect of Education Cess and Secondary
and Higher Education Cess.
3.2 Rates for deduction of income-tax at source from certain incomes during the financial year 2011-12.
3.2.1 In every case in which tax is to be deducted
at the rates in force under the provisions of sections 193, 194, 194A,
194B, 194BB, 194D and 195 of the Act, the rates for deduction of
income-tax at source during the financial year 2011-12 have been
specified in Part II of the First Schedule to the Finance Act 2011. The
rates for deduction of income-tax at source during the financial year
2011 -12 will continue to be the same as those specified in Part II of
the First Schedule to the Finance Act, 2010 except in the case were
income by way of interest is payable to non-resident, not being a
company, or to a foreign company by an infrastructure debt fund referred
to in section 10(47) of the Income-tax Act, 1961 where the rate of
deduction of income-tax at source shall be five per cent as mentioned in
the newly inserted section 194LB of the Income-tax Act, 1961.
3.2.2 Surcharge - The tax deducted at source in each case shall be increased by a surcharge for purposes of the Union as follows:-
(i) In the case of every individual, Hindu
undivided family, association of persons and body of individuals, no
surcharge shall be levied.
(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 the amount of
tax deducted is Rs. 1.00,000, the surcharge is Rs. 2,000, the Education
Cess of two per cent is Rs. 2,040, the said Secondary and Higher
Education Cess will be computed on Rs. 1,02,000 which works out to be
Rs. 1,020. The total cess in this case will amount to Rs. 3,060 (i.e.,
Rs. 2,040 + Rs. 1,020).
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 2011-12.
3.3.1 The rates for deducting income-tax at source
from Salaries and computing advance tax during the financial year
2011-12 have been specified in Part III of the First Schedule to the
Finance Act, 2011. These rates are also applicable for charging
income-tax during the financial year 2011-12 on current incomes in cases
where accelerated assessments have to be made,
e.g., provisional assessment of shipping profits arising in India
to non-residents, assessment of persons leaving India for good during
that financial year, assessment of persons who are likely to transfer
property to avoid tax, assessment of bodies formed for short duration,
etc. The rates are as follows:-
3.3.2 Individual, Hindu Undivided Family,
Association of Persons, Body of Individuals or Artificial Juridical
Person - Paragraph A of Part III 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), in the case of individuals, the basic exemption
limit has been enhanced from Rs. 1,60,000 to Rs. 1,80,000. The
qualifying age for senior citizen has been reduced to sixty years from
sixty-five years. Further a new category for individual, resident
taxpayers have been created who is of the age of eighty years or more.
Accordingly, the exemption limit for every woman resident in India and
below the age of 60 years of age is Rs. 1,90,000. Further, the exemption
limit for every individual resident in India and of the age of 60 years
or more but less than eighty years at any time during the previous year
has been raised from Rs. 2,40,000 to Rs. 2,50,000. The exemption limit
for every individual resident in India and of the age of 80 years or
more is Rs. 5,00,000 and thereafter tax rate of 20% shall be applicable
for income 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 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 Finance Act, 2011.
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.
3.3.4 FIRMS - In the case of every firm, the rate
of income-tax of thirty per cent has been specified in Paragraph C of
Part III of the First Schedule to the Finance Act, 2011. No Surcharge
shall be levied. 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, such amount of tax shall be further increased by an additional
cess called Secondary and Higher Education Cess on income-tax computed
at the rate of one per cent on the amount of tax, in all cases.
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 Finance
Act, 2011. 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.
3.3.6 COMPANIES - In the case of a company, the
rate of income-tax has been specified in Paragraph E of Part III 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 five per cent only 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, 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 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 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, if receipts from such
activities is above the specified limit in the previous year.
4.3 Second proviso to section 2(15) of the Act has
been amended to provide that the specified monetary limit in respect of
receipts from such activities shall be 25 lakh rupees instead of 10 lakh
rupees.
4.4 Applicability - This amendment
has been made effective from 1st April, 2012 and will, accordingly,
apply in relation to the assessment year 2012-13 and subsequent years.
5. Exemption of certain perquisites of chairman and members of Union Public Service Commission
5.1 The existing provisions of the Act provide for
the taxation of any perquisites or allowances received by an employee
under the head 'salary' unless it is specifically exempt under the Act.
5.2 Section 10 of the Act excludes certain incomes
from the ambit of total income. A new section 10(45) has been inserted
in the Act to provide specific exemption to the both serving as well as
retired Chairmen and Members of the Union Public Service Commission in
respect of specified perquisites and allowances, which shall be notified
by the Central Government.
5.3 Applicability - This amendment
has been made effective retrospectively from 1st April, 2008 and will,
accordingly, apply in relation to the assessment year 2008-09 and
subsequent years.
6. Provision relating to exemption of a specified income of certain bodies or authorities or trust or board or commission
6.1 Section 10 of the Act excludes certain incomes
from the ambit of total income. A new section 10(46) has been inserted
in the Act, to provide exemption from income-tax to any specified income
of body, authority, board, trust or commission which is set up or
constituted by Central, State or Provincial Act or constituted by the
Central Government or a State Government with the object of regulating
or administering an activity for the benefit of general public, which is
not engaged in any commercial activity, and is notified by the Central
Government in this behalf. Such notified entities shall also file its
return of income under section 139(4C)(g) of the Act.
6.2 Applicability - This amendment has been made effective 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 effective from 1st June, 2011.
8. Weighted deduction for contribution made for approved scientific research programme
8.1 Under the existing provisions of section
35(2AA) of the Income-tax Act, weighted deduction to the extent of 175
per cent is allowed for any sum paid to a National Laboratory or a
university or an Indian Institute of Technology (IIT) or a specified
person for the purpose of an approved scientific research programme.
8.2 In order to encourage more contributions to
such approved scientific research programme. section 35(2AA) has been
amended to increase this weighted deduction from 175 per cent to 200 per
cent.
8.3 Applicability - This amendment
takes effect from 1st April, 2012 and will, accordingly, apply in
relation to the assessment year 2012-13 and subsequent years.
9. Investment-linked deduction in respect of specified business
9.1.1 Under the existing provisions of section
35AD, investment-linked tax incentive is provided by way of allowing
hundred 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. Prior to the enactment of the Finance Act, 2011. the following
"specified businesses" were eligible for availing the aforesaid
investment-linked deduction:-
(i) Setting up and operating a cold chain facility;
(ii) setting up and operating a warehousing facility for storage of agricultural produce;
(iii) laying and
operating a cross-country natural gas or crude or petroleum oil pipeline
network for distribution, including storage facilities being an
integral part of such network.
(iv) building and operating, anywhere in India, a new hotel of two-star or above category as classified by the Central Government:
(v) building and operating, anywhere in India, a new hospital with at least one hundred beds for patients;
(vi) developing and
building a housing project under a scheme for slum redevelopment or
rehabilitation, framed by the Central Government or a State Government,
as the ease may be, and notified by the Board in this behalf in
accordance with the guidelines as may be prescribed.
9.1.2 Two new businesses have been added as "specified business" under section 35AD, namely.-
(a) developing and building a housing 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
section 35AD provided it began operation on or after 1-4-2010. The loss
of this new hotel claiming investment-linked deduction was allowed
set-off against profit of another specified business. Thus, this loss
could be set off against the profit of another new hotel (whether
eligible for deduction under section 35AD or not) but not against an old
hotel. First, it was difficult to specify what is 'new' or 'old' unless
a date is specified. Second, there was no real incentive if loss of the
new hotel business was not allowed set-off against the profit of old
hotel of the same taxpayer, which was otherwise allowable if no
investment-linked deduction was claimed.
9.2.3 Therefore, section 35AD has been amended to
allow set-off of loss of a specified business against a similar
business/like activity by removing the word "new'' from the definition
of 'specified business' in the case of hotels and hospitals under
section 35AD(8)(c). With this amendment, under section 73A. the loss of
specified business claiming deduction under section 35AD would be
allowed for set-off against the profit of another specified business
whether or not the latter is eligible deduction under section 35AD. It
would, therefore, allow balance sheet financing in the case of a person
who runs a hospital or a hotel. The person would be able to set off the
profits of such an entity with the losses of a new hospital or hotel
which begins to operate after 1-4-2010 and which is eligible for
deduction of expenditure under section 35AD.
9.3 Applicability - This amendment
has been made effective retrospectively from 1st April, 2011 and will,
accordingly, apply in relation to the assessment year 2011-12 and
subsequent years.
10. Tax benefits for New Pension System (NPS)
10.1 Section 80CCD of the Income-tax Act provides, inter alia, a
deduction under section 80CCD(1), in respect of contribution made by an
employee, and a deduction under section 80CCD(2) in respect of the
contribution made by the employer on behalf of the employee, to the New
Pension System (NPS) account. In view of the existing provisions of
section 80CCE, the aggregate deduction under sections 80C, 80CCC and
80CCD cannot exceed one lakh rupees.
10.2 Section 80CCE has been amended so as to
provide that deduction under section 80CCD(2) in respect of the
contribution made by the employer, on behalf of the employee, to the New
Pension System (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 or
profession", to the extent it does not exceed ten per cent, of the
salary of the employee in the previous year.
10.5 Section 40A deals with expenses or payments
not deductible in certain circumstances. Section 40A(9) has been amended
to provide that a contribution made for the purposes and to the extent
provided under section 36(1)(iva) would not be disallowed as a deduction in the hands of the employer.
10.6 Applicability - These amendments
take effect from 1st April, 2012 and will, accordingly, apply in
relation to the assessment year 2012-13 and subsequent years.
11. Deduction for investment in long-term infrastructure bonds
11.1 Under the existing provisions of section
80CCF, a sum of Rs. 20,000 (over and above the existing, limit of Rs. 1
lakh available under section 80CCE for tax savings on account of
specified investments), is allowed as deduction in computing the total
income of an individual or a Hindu undivided family if that sum is paid
or deposited during the previous year relevant to the assessment year
2011-12 in long-term infrastructure bonds as notified by the Central
Government.
11.2 The availability of this deduction has been
extended to the year 2011-12 (assessment year 2012-13) also, if the sum
is paid or deposited during the F.Y 2011-12 in the aforesaid bonds.
11.3 Applicability - This amendment takes effect from
1st April, 2012 and will accordingly apply in relation to the assessment year 2012-13.
12. Extension of sunset clause for tax holiday for power sector
12.1 Under the existing provisions of clause (iv)
of sub-section (4) of section 80-IA, a deduction of profits and gains is
allowed to an undertaking which,-
(a) is set up for the generation and
distribution of power if it begins to generate power at any time during
the period beginning on 1st April, 1993 and ending on 31st March, 2011;
(b) starts
transmission or distribution by laying a network of new transmission or
distribution lines at any time during the period beginning on 1st April,
1999 and ending on 31st March, 2011:
(c) undertakes
substantial renovation and modernization of existing network of
transmission or distribution lines at any time during the period
beginning on 1st April, 2004 and ending on 31st March, 2011.
12.2 The above terminal date has been extended for a further period of one year, i.e., up to 31st March, 2012.
12.3 Applicability - This amendment
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 production of natural gas on or after 1st
April, 2009;
(v) is engaged in
commercial production of natural gas in blocks licensed under the IV
Round of bidding for award of exploration contracts for Coal Bed Methane
blocks and begins commercial production of natural gas on or after 1st
April, 2009.
13.2 For the purposes of claiming this deduction,
all blocks licensed under a single contract, which has been awarded
under the New Exploration Licencing Policy announced by the Government
of India vide Resolution No. O-19018/22/95-ONG.DO.VL, dated 10th
February, 1999 or in pursuance of any law for the time being in force or
by the Central or a State Government in any other manner, are treated
as a single "undertaking".
13.3 Thus, an undertaking which is located in any
part of India and is engaged in commercial production of mineral oil is
eligible for the above-mentioned deduction if it has begun or begins
commercial production of mineral oil at any time after 1st April, 1997
and no sunset date has been provided.
13.4 The deduction available for commercial
production of mineral oil mentioned at Para 13.1(ii) will now not be
available for blocks licensed under a contract awarded after 31st March,
2011. These blocks are licensed under a contract awarded under the New
Exploration Licencing Policy announced by the Government of India
vide Resolution No. O-19018/22/95-ONG.DO.VL, dated 10th February,
1999 or in pursuance of any law for the time being in force or by the
Central or a State Government in any other manner.
13.5 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.
14. Rationalization of provisions relating to Transfer Pricing
The provisions related to transfer pricing have been rationalized in the following way:-
14.1.1 Section 92C of the Act provides the
procedure for computation of the Arm's Length Price (ALP). The section
provides the methods of computing the ALP and mandates that the most
appropriate method should be chosen to compute ALP. It is also provided
that if more than one price is determined by the chosen method, the ALP
shall be taken to be arithmetical mean of such prices. The second
proviso to section 92C(2) of the Act has been amended to provide that if
the variation between the actual price of the transaction and the ALP
(i.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 him. These
international transactions would be in addition to the international
transactions referred to the TPO by the Assessing Officer. Further,
section 92CA(7) of the Act has also been amended enabling TPO to conduct
on-the-spot enquiry and verification by exercise of power conferred
under section 133A of the Act.
14.2.2 Applicability - These amendments have been made effective from
1st June, 2011.
14.3.1 In addition to filing of return of income,
assessees who have undertaken international transactions are also
required (under the provisions of section 92E of the Act) to prepare and
file a transfer pricing report in Form 3CEB before the due date of
filing return of income. Section 139 of the Act has been amended to
provide 30th November of the assessment year as the due date for filing
of return of income in cases of corporate assessees who are required to
prepare and file transfer pricing report. Prior to this amendment the
date of filing of return of income was 30 September of the assessment
year.
14.3.2 Applicability - This amendment
has been made effective from 1st April, 2011 and it shall accordingly
apply in relation to the Assessment Year 2011-I2 and subsequent
assessment years.
15. Tool box of counter measures in respect of transactions with persons located in a non-cooperative jurisdiction.
15.1 In order to discourage transactions by a
resident assessee with persons located in any country or jurisdiction,
which does not effectively exchange information with India, a set of
anti-avoidance measures have been provided.
15.2 A new section 94A has been inserted in the Act
to specifically apply to transactions undertaken with persons located
in such country or area. The section provides-
(i) an enabling power to the Central
Government to notify any country or territory outside India. having
regard to the lack of effective exchange of information by it with
India, as a notified jurisdictional area;
(ii) that if an
assessee enters into a transaction, where one of the parties to the
transaction is a person located in a notified jurisdictional area, then
all the parties to the transaction shall be deemed to be associated
enterprises and the transaction shall be deemed to be an international
transaction and accordingly, transfer pricing regulations shall apply to
such transactions;
(iii) that no
deduction in respect of any payment made to any financial 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 effective from 1st June, 2011.
16. Taxation of certain foreign dividends at a reduced rate
16.1 A new section 115BBD has been introduced in
the Act to provide that where total income of an Indian company for the
previous year relevant to assessment year 2012-13 includes any income by
way of dividends received from the specified foreign company, then such
dividends shall be taxable at the rate of fifteen per cent (plus
applicable surcharge and cess) on the gross amount of dividends. No
expenditure in respect of such dividends shall be allowed under the Act.
Prior to this amendment such dividends were taxed at applicable
corporate tax rate subject to allowable deductions. The total income of
the company, as reduced by the gross dividends, shall be chargeable at
the corporate tax rate (plus applicable surcharge and cess).
16.2 A specified foreign company with reference to
this new section 115BBD shall be a foreign company in which the Indian
company holds 26% or more in nominal value of the equity share capital
of the foreign company.
16.3 Applicability - This amendment has been
made effective from 1st April, 2012 and will accordingly apply in
relation to the assessment year 2012-13.
17. Tax on Distributed Income to unit holders
17.1 Section 115R(2) of the Act has been amended to
provide levy of additional income-tax at a higher rate of 30% on income
distributed by a debt fund to a person other than an individual or a
HUF. The amended section provides that a Mutual Fund shall be liable to
pay additional income-tax on distributed income at the rate of-
(a) 25% if the recipient is an individual or a HUF in case of distribution by money market mutual fund or liquid fund;
(b) 30% if the recipient is any other person in case of distribution by money market mutual fund or liquid fund:
(c) 12.5% if the recipient is an individual
or a HUF in case of distribution by debt fund other than money market
mutual fund or a liquid fund; and
(d) 30% if the recipient is any other person
in case of distribution by a fund other than money market mutual fund
or a liquid fund.
17.2 There is no change in the rate of income-tax
in case of distribution of income to any individual or HUF. Distribution
by an equity oriented fund shall continue to be exempt from tax.
17.3 Applicability - This amendment has been made effective from 1st June 2011.
18. Minimum Alternate Tax
18.1.1 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 downward adjustments is the amount
of profits eligible for deduction under section 80HHC or section 80HHE
or section 80HHF in relation to exports of the company.
18.2.2 The deductions under these sections have
been phased out and no deduction is allowable for the assessment year
beginning on or after 1-4-2005.
18.2.3 As the legislative intent was to exclude
export profits from the levy of MAT only during the period of
availability of deductions under section 80HHC, 80HHE and 80HHF, the
amount of eligible profits are not allowable as a deduction while
computing book profit under section 115JB after the phase out of the
deductions,
i.e., after 1-4-2005.
18.2.4 Accordingly, section 1I5JB has been amended by omitting clauses (iv), (v) and (vi) of Explanation 1 with
retrospective effect from 1-4-2005 so that profits eligible for
deductions under section 80HHC, 80HHE and 80HHF cannot be reduced from
the net profit as shown in the profit and loss account, in computing
book profit for the purpose of levy of MAT for assessment years
beginning on or after 1-4-2005.
18.2.5 Applicability - This amendment has
been made effective retrospectively from 1st April, 2005 and will,
accordingly, apply in relation to the assessment year 2005-06 and
subsequent years.
19. Provisions relating to Minimum Alternate Tax (MAT) and Dividend Distribution Tax (DDT) in case of Special Economic Zones
19.1.1 Under the existing provisions of section
10AA, a deduction of hundred per cent is allowed in respect of profits
and gains derived by a unit located in a Special Economic Zone (SEZ)
from the export of articles or things or from services for the first
five consecutive assessment years; of fifty per cent for further five
assessment years; and thereafter, of fifty per cent of the ploughed back
export profit for the next five years.
19.1.2 Further, under section 80-IAB. a deduction
of hundred per cent is allowed in respect of profits and gains derived
by an undertaking from the business of development of an SEZ notified on
or after 1st April, 2005 from the total income for any ten consecutive
assessment years out of fifteen years beginning from the year in which
the SEZ has been notified by the Central Government.
19.1.3 Under the existing provisions of sub-section
(6) of section 115JB, an exemption is allowed from payment of minimum
alternate tax (MAT) on book profit in respect of the 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 case of an undertaking or enterprise engaged
in developing or developing and operating or developing, operating and
maintaining an SEZ.
19.2.2 The availability of exemption from minimum
alternate tax in the case of SEZ Developers and units in SEZs has now
been sunset in the Income Tax Act as well as the SEZ Act and the
provisions of section 115JB(6) will cease to have effect from 1-4-2012.
19.2.3 Applicability - These
amendments take affect from 1st April, 2012 and will accordingly apply
in relation to the assessment year 2012-13 and subsequent years.
19.3.1 Further, the availability of exemption from
dividend distribution tax in the case of SEZ Developers has been
discontinued under the Income-tax Act as well as the SEZ Act for
dividends declared, distributed or paid on or after 1st June, 2011.
19.3.2 Applicability - These
amendments take effect from 1st June, 2011. Corresponding amendments to
clause (34) of section 10 of the Income-tax Act by omitting the Explanation and to the SEZ Act have been made effective from 1st June, 2011.
20. Alternate Minimum Tax for certain Limited Liability Partnerships:
20.1 The Limited Liability Partnership Act, 2008
(LLP) has come into effect in 2009. The LLP has features of both a body
corporate, as well as a traditional partnership. The Income-tax Act
provides for the same taxation regime for a limited liability
partnership as is applicable to a partnership firm.
20.2 A Limited Liability Partnership, being treated
as a firm for taxation, has the following tax advantage over a company
under the Income-tax Act:-
(i) it is not subject to Minimum Alternate Tax;
(ii) it is not subject to Dividend Distribution Tax; and
(iii) it is not subject to surcharge.
20.3 In order to preserve the tax base vis-a-vis
profit-linked deductions, a new Chapter XII-BA containing special
provisions relating to certain limited liability partnerships has been
inserted in the Act.
20.4 As per the provisions of new Chapter XII-BA,
where the regular income-tax payable for a previous year by a limited
liability partnership is less than the alternate minimum tax payable for
such previous year, the adjusted total income shall be deemed to be the
total income of such limited liability partnership and it shall be
liable to pay income-tax on such total income at the rate of eighteen
and one-half per cent.
20.5 For the purpose of the above,
(i) "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 exceeds the alternate minimum tax
to the extent of the excess of the regular income-tax over the alternate
minimum tax.
20.7 Applicability - This amendment
take effect from 1st April, 2012 and will, accordingly, apply in
relation to the assessment year 2012-13 and subsequent years.
21. Collection of information on requests received from tax authorities outside India
21.1 Under the existing provisions of section
131(1) of the Income-tax Act, certain income-tax authorities have been
conferred the same powers as are available to a Civil Court while trying
a suit in respect of discovery and inspection, enforcing the attendance
of any person, including any officer of a banking company and examining
him on oath, compelling production of books of account and other
documents and issuing summons.
21.2 In order to facilitate prompt collection of
information on requests received from tax authorities outside India in
relation to an agreement for exchange of information under section 90 or
section 90A of the Act, section 131 was amended and new sub-section (2)
was inserted. The new sub-section provides that for the purpose of
making an enquiry or investigation in respect of any person or class of
persons in relation to an agreement referred to in section 90 or 90A, it
shall be competent for any income-tax authority, not below the rank of
Assistant Commissioner of Income Tax, as notified by the Board in this
behalf, to exercise the powers currently conferred on income-tax
authorities referred to in section 131(1). The authority so notified by
the Board shall be able to exercise the powers under section 131(1)
notwithstanding that no proceedings with respect to such person or class
of persons are pending before it or any other income-tax authority.
21.3 Further section 131(3) of the Act was amended
to empower the aforesaid authority, as notified by the Board, to impound
and retain books of account and other documents produced before it in
any proceedings under the Act.
21.4 Similar amendments have also been made to the provisions of section 133 of the Act.
21.5 Applicability - These amendments take effect from 1st June, 2011.
22. Exemption to a class or classes of persons from furnishing a return of income
22.1 Under the existing provisions contained in
section 139(1) of the Income-tax Act, every person, if his total income
during the previous year exceeds the maximum amount 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, 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 processing of returns.
23.2 A Centralised Processing Centre has been set
up where returns are being processed in batches. However, some more
functionalities in the processing of returns need to be added.
Therefore, it is proposed to extend the time-limit for issue of such
notification under section 143(1B) from 31st March, 2011 to 31st March,
2012.
23.3 Applicability - This amendment takes effect retrospectively from 1st April, 2011.
24. Extension of time-limit for assessments in case of exchange of information
24.1 Section 153 of the Income-tax Act provides for the timelimits for completion of assessments and reassessments. In
Explanation 1 to section 153 of the Income-tax Act, certain
periods specified therein are to be excluded while computing the period
of limitation for completion of assessment or reassessments.
24.2 In order to exclude the time taken in
obtaining information from the tax authorities in jurisdictions situated
outside India, under an agreement referred to in section 90 or 90A,
from the statutory time limit prescribed for completion of assessment or
reassessment, a new clause (viii) was inserted in Explanation 1 to section 153.
24.3 It provides that the period commencing from
the date on which a reference for exchange of information is made by an
authority competent under an agreement referred to section 90 or 90A and
ending with the date on which the information so requested is received
by the Commissioner, or a period of six months, whichever is less, shall
be excluded.
24.4 Similar amendments have also been made to the provisions of section 153B of the Act.
24.5 Applicability - These amendments take effect from 1st June, 2011.
25. Modification in the condition for filing an application before the Settlement Commission
25.1 The existing provisions contained in the
proviso to section 245C(1) allow an application to be made before the
Settlement Commission, if-
(i) the proceedings have been initiated
against the applicant under 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-matter of a search would be allowed to file an application for
settlement if additional income-tax payable on the income disclosed in
the application exceeds fifty lakh rupees. Entities related to such a
taxpayer, who are also the subject-matter of search, would now be
allowed to file an application for settlement, if additional income-tax
payable in their application exceeds ten lakh rupees.
25.5 The relationship between the person who makes
an application under clause (ia) of the proviso to section 245C(1) and
the person mentioned in clause (i) of the proviso is defined by
inserting an
Explanation in the section.
25.6 Applicability - This amendment takes effect from 1st June, 2011.
26. Power of the Settlement Commission to rectify its orders
26.1 Section 245D(4) of the Income-tax Act provides
that the Settlement Commission may pass an order, as it thinks fit, on
the matters covered by the application received by it, after giving an
opportunity of being heard to the applicant and to the Commissioner.
26.2 Further under section 245F(1) the Settlement
Commission has been conferred all the powers which are vested in an
income-tax authority under the Act. An Income-tax authority has the
power under section 154 to amend any order passed by it for the purpose
of rectifying any mistake apparent from the record.
26.3 A new sub-section (6B) has been inserted in
section 245D so as to specifically provide that the Settlement
Commission may, at any time within a period of six months from the date
of its order, with a view to rectifying any mistake apparent from the
record, amend any order passed by it under section 245D(4).
26.4 It is further provided that a rectification
which has the effect of modifying the liability of the applicant shall
not be made unless the Settlement Commission has given notice to the
applicant and the Commissioner of its intention to do so and has allowed
the applicant and the Commissioner an opportunity of being heard.
26.5 Consequential amendments have also been made in section 22D of the Wealth Tax Act.
26.6 Applicability - These amendments take effect from 1st June, 2011.
27. Omission of the requirement of quoting of Document Identification Number
27.1 Under section 282B of the Income-tax Act,
every income-tax authority shall, on or after the 1st day of July, 2011,
allot a computer-generated Document Identification Number (DIN) 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 be required to be filed within sixty days from the end of the
financial year to which it pertains.
28.3 Applicability -These amendments have been made effective from 1st June, 2011.
29. Recognition to Provident Funds - Extension of time-limit for obtaining Exemption from EPFO
29.1.1 Rule 4 in Part A of the Fourth Schedule to
the Income-tax Act provides for conditions which are required to be
satisfied by a Provident Fund for receiving or retaining recognition
under the Income-tax Act. One of the requirements of rule 4 [clause
(ea)] is that the establishment shall obtain exemption under section 17
of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952
(EPF & MP Act).
29.1.2 Rule 3 in Part A of the Fourth Schedule
provides that the Chief Commissioner or the Commissioner of Income-tax
may accord recognition to any provident fund which, in his opinion,
satisfies the conditions specified under the said rule 4 and the
conditions which the Board may specify by rules.
29.1.3 The first proviso to sub-rule (1) of rule 3, inter alia,
specifies that in a case where recognition has been accorded to any
provident fund on or before 31st March, 2006, and such provident fund
does not satisfy the conditions set out in clause (ea) of rule 4 and any
other conditions which the Board may specify by rules in this behalf,
the recognition to such fund shall be withdrawn if such fund does not
satisfy such conditions on or before 31st December, 2010.
29.2 In order to provide further time to Employees'
Provident Fund Organization (EPFO) to process the applications made by
establishments seeking exemption under section 17 of the EPF & MP
Act. the proviso has been amended so as to extend the time-limit from
31st December, 2010 to 31st March, 2012.
29.3 Applicability - This amendment takes effect retrospectively from 1st January, 2011.
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