Tuesday, January 27, 2015

For Asst Year 2015-16 Explanatory notes to the Finance Act, 2014 by CBDT

CBDT has issued Circular 01/2015 on 21st January 2015 as explanatory notes to the Provisions of Finance Act , 2014 Applicable for Asst Year 2015-16. Important Changes are here under:

Rates of Income Tax as per Finance Act, 2014

Income-tax is required to be deducted for the financial year 2014-15 (i.e. Assessment Year 2015-16) at the following rates

1.    In the case of every individual, Hindu undivided Family, AOP, Body of individuals or artificial juridical person ( other than a co-operative society, firm, local authority and company):-  

A. Normal Rates of Tax:


Total Income                                                                              
For Individual, HUF and AOP
For Senior Citizen Age Above 60but less than 80 years
For Super Senior above the Age of 80 Years
Up to Rs.2.5 Lakhs
More than Rs.2.5 lakhs & Upto Rs. 3 Lakhs
More than Rs 3 lakhs & Upto Rs 5 lakhs
More than Rs 5 lakhs & Upto Rs 10 lakhs
More than Rs 10 lakhs

2.    Co-operative Societies:-
The rates of Income Tax are as follows:-
Income Chargeable to Tax
Up to Rs 10000
Rs 10000-Rs 20000
Exceeding Rs 20000

3.  Firms and Local Authorities  : Income Tax is @ 30%

Surcharge of Income Tax

The amount of income-tax shall be increased by a surcharge @10% of the income-tax on payments to an individual taxpayer, if the total income exceeds Rs 1 crore during FY 2014-15 (AY 2015-16).
However the amount of Surcharge shall not exceed the amount by which the total income exceeds Rs 1 crore and if surcharge so arrived at, exceeds such amount (assessee‘s total income minus one crore) then it will be restricted to the amount of total income minus Rupees one crore.

Eg. In case of a resident individual age below 60 years, calculation of Tax liability:-
                Total Income                     Income Tax and Surcharge
ü  Rs 10000000                        Rs 28,25,000
ü  Rs 10100000                        Rs 28,55,000 + Rs 285500=Rs 3140500 Restricted to Rs 2925000
ü  Rs 10200000                        Rs 28,85,000 + Rs 288500=Rs 3173500 Restricted to Rs 3025000
ü  Rs 10400000                        Rs 29,45,000 + Rs 294500=Rs 3239500 Restricted to Rs 3225000
ü  Rs 10500000                        Rs 29,75,000 + Rs 297500=Rs 3272500 No Restriction

E. Cess & SHE Cess on Income tax:  2% and 1% of the income-tax respectively. No marginal relief shall be available in respect of E. Cess and SHE Cess.

4.    Companies:-                                           Domestic      Other Than Domestic
Income Tax                                                         30%              40%
Taxable income
Exceeding Rs 1 crore but > Rs 10 crores                  5%               2%
Exceeding Rs 10 crores                                          10%               5%                                                        
Surcharge on Additional Income-tax :-
Where additional income-tax has to be paid u/s 115-O or 115-QA or 115R (2) or 115TA of the Act, that is to say, on distribution of dividend by domestic companies or distribution of income by a
·        -  company on buy-back of shares from shareholders or
·        - mutual fund to its unit holders or
·        - securitization trust to its investors
 the additional tax so payable shall be increased by a surcharge of 10% of such tax.

Certain Amendments with their explanations:-

Raising the limit of deduction under section 80C of the Income-tax Act

The limit of deduction U/s 80C has been raised from  Rs.1 lakh to Rs.1.5 lakh. So, consequential amendment made in section 80CCE (the payments / contributions made u/s 80C, 80CCC and 80CCD) of the Act. The limit of employer’s contribution to a pension scheme is retained at Rs. 1 lakh u/s 80CCD.

Deduction from income from house property
There has been appreciation in the value of house property and cost of finance has also gone up so, section 24(b)  has provided  to increase the limit of deduction on account of interest in respect of property referred to  section 23(2) of the Income-tax Act from Rs.1.50 Lac to Rs 2.00 Lac  .

Roll back provision in Advance Pricing Agreement Scheme

For solving the issues relating to the calculation of ALP Roll back mechanism is made. Sec. 92CC of the I.Tax Act has been amended to provide for roll back mechanism in the Advance Pricing Agreement scheme. The “roll back” provisions refer to the applicability of the methodology of determination of Arm's Length Price, or the ALP, to be applied to the international transactions which had already been entered into in a period prior to the period covered under an APA.

Extension of tax benefits under section 80CCD of the I.Tax Act to private sector employees

For employees in the private sector, the date of joining the service is not relevant for joining the New Pension Scheme, So Now amended Sec. 80CCD provide that the condition of the date of joining the service on or after 1.1.2004 is not applicable to them for the purposes of deduction under the said section.

Capital gains arising from transfer of an asset by way of compulsory acquisition
There was uncertainty about the year in which the amount of compensation received in pursuance of an interim order of the court is to be charged to tax, due to court orders.
Sec. 45(5) of the Income-tax Act, has been amended to provide that the amount of compensation received in pursuance of an interim order of the court/ Tribunal/other authority shall be deemed to be the income chargeable under the head ‘Capital gains’ in the previous year in which the final order of such court, Tribunal or other authority is made.

Transfer of Government Security by one non-resident to another nonresident

Explanation: - To facilitate listing and trading of Government securities outside India. A new clause(viib) has been inserted in Sec 47 of the I.Tax Act so as to provide that any transfer of a capital asset,  by a non-resident to another non-resident shall not be considered as transfer for the purpose of charging capital gains.

Disallowance of expenditure for non- deduction of tax at source
Explanation:-Only up to the amount of TDS the expenditure should be disallowed when tax is not deducted, before amendment full amount is disallowed which is not fair on the part of Tax payer.
So, Section 40(a)(ia) amended to provide that the disallowance shall be restricted to 30% of the amount of expenditure claimed in case of non-deduction of TDS  or non-payment of TDS on payments made to residents liable for TDS.

Corporate Social Responsibility (CSR)
Sec.  37(1) : Any expenditure by an assessee on the activities relating to CSR shall not be deemed to have been incurred for the purpose of business and hence shall not be allowed as deduction . However, the CSR expenditure which is of the nature described in section 30 to section 36 of the Income-tax Act shall be allowed as deduction under those sections subject to fulfillment of conditions specified.

Explanation:- CSR expenditure include
All expenditure including contribution to corpus projects or programs relating to CSR activities.
·         CSR expenditure, being an application of income, is not incurred wholly and exclusively for the purposes of carrying on business. So,CSR expenditure are not allowed as deduction for the purposes of computing taxable income of a company.
·         By CSR Companies are helping the Government to share the burden of social services. If such expenses are allowed as tax deduction, this would result in subsidizing of around one-third of such expenses by the Government by way of tax expenditure.

Taxability of advance for transfer of a capital asset
Prior to the amendment any advance retained or received was reduced from Cost of acquisition of the asset / the written down value / the fair market value of the asset.
New Section 56(2)(ix) : Any sum of money, received as an advance or otherwise in the course of negotiations for transfer of a capital asset shall be taxable under the head ‘income from other sources’ if such sum is forfeited and the negotiations do not result in transfer of such capital asset.

Capital gains exemption on investment in Specified Bonds
Explanation: -
A proviso in section 54EC (1) of the Income-tax Act has been inserted to provide that the investment made by an assessee in the long-term specified asset, out of capital gains arising from transfer of one or more original assets, during the financial year in which the original asset or assets are transferred and in the subsequent financial year does not exceed fifty lacs rupees.

Contributed by Ms Tanya Gagneja