Friday, May 6, 2016

Major Amendments in Finance Bill 2016

On May 5, 2016, the Lok Sabha passed the Finance Bill with a few changes  in the Finance Bill which was presented originally in the Lok Sabha on February 29, 2016.
The Major Changes are tabulated as under: 

Finance BIll 2016
Finance Bill Passed by Lok Sabha
section 2(42A)
Unlisted Share held for a period of  > 36 month, then LTCA otherwise STCA
Unlisted Share held for a period of  >24 month, then LTCA otherwise STCA
Contribution to PF
Lower of the following out of ER's Contribution deemed as income of Employee
 # In excess  of 12% of Salary
Any withdrawal from the accumulated balance in the provident fund account, which is attributable to employee's contribution made on or after April 1, 2016, shall not be chargeable to tax up to 40 % of such accumulated balance.
LokSabha withdraws such amendment to the Fourth Schedule and maintains the status-quo for the taxability of contribution to and withdrawal from the provident fund account.

TCS in case of Motor Car
Every seller of a motor vehicle shall collect TCS at the rate of 1% of value of motor car if such value exceeds ten lakh rupees.
Such tax was proposed to be collected from the buyer under section 206C at the time of debiting the amount receivable or at the time of receipt, whichever happened earlier.

Every seller of a motor vehicle shall collect TCS at the rate of 1% of value of motor car if such value exceeds ten lakh rupees.
Such tax shall be collected only at the time of receipt of consideration.

Processing of Reurn u/s 143(1)
Before the finance bill 2016 the processing of return u/s 143(1) was not mandatory if there has been issued the notice u/s 143(2). The Finance Bill, 2016 proposed  that the processing of return u/s 143(1) is mandatory even if there has been issued the notice u/s 143(2) and the return shall be processed before issuing assessment order under section 143(3).
The processing of return u/s 143(1) is mandatory but not necessary before the expiry of one year from the end of the financial year in which return is furnished, where a notice is issued for scrutiny assessment under Section 143(2).

 25% tax rates on certain domestic  Co

The Finance Bill, 2016 proposed insertion of new section 115BA :
The domestic companies engaged in the business of manufacturing or production of any article or thing shall be liable to pay tax @ 25%, provided such company has been set-up and registered on or after March 1, 2016.
The option shall be exercised on or before due date u/s 139(1) for the relevant previous year and once the option is exercised cannot be withdrawn for same or any other financial year.
The Finance Bill passed by Lok Sabha provides that benefit of concessional tax rate shall also be available to the companies engaged in research in relation to or distribution of article or thing manufactured or produced by it.

Income Declaration Scheme, 2016 proposed by Finance Bill, 2016 and ammended by Lok sabha
The taxpayer will have the opportunity to declare their undisclosed income and pay tax, surcharge and penalty in aggregate at 45% of such undisclosed income under Income Declaration Scheme, 2016  and where the income chargeable to tax is declared in the form of investment in any asset, the fair market value of such asset as on the date of commencement of this scheme shall be deemed to be the undisclosed income.

The cost of acquisition of such asset shall be deemed to be the fair market value taken into account for the purpose of this scheme.
Section 80- IAC
Deduction for start-up
The 100% deduction for any 3 consecutive assessment years out of 5 years beginning from the year in which eligible startup is incorporated to an 'eligible Start-up' engaged in an eligible business.
 The 'eligible start-up' is proposed to be defined to mean a 'company' engaged in an eligible business.

The Finance Bill, 2016 as passed by the Lok Sabha extends the definition of 'eligible start-up' to include 'limited liability partnership' also.
The Additional tax on dividend paid by receiver of dividend
The additional tax of 10% will be paid  if amount of dividend received by a taxpayer exceeds Rs. 10 Lakhs.

The Lok Sabha clarified that dividend whether paid or declared or distributed by one or more domestic companies, the aggregate of dividend shall be considered for the limit of Rs.10 lakhs but Tax shall be payable only on the amount of dividend exceeding Rs 10 lakhs.
Deduction u/s 35CCC in respect of expenditure on agricultural extension project

Proposed to limit the deduction of 100% (Earlier it was 150%) w.e.f 01.04.2018

The Lok Sabha defers the applicability of the provision from 01.04.2018 to 01.04.2021
Section 80-IBA - Profit linked deduction on housing projects

Proposed to insert a section 80-IBA for deduction from profit arising from the business of developing and building housing projects subject to fulfillment of certain conditions where project is located within cities of Chennai, Delhi, Kolkata or Mumbai or within acceptable distance from municipal limits
The Lok Sabha clarified that
The distance from municipal limits shall be measured aerially.
The 'built-up area' of the residential unit shall be relevant to check if the size of the residential unit is within threshold limit .
Tax on Accreted Income of Trusts
As per Chapter XII-EB, containing Section 115TD, 115TE and 115TF, under the Act to provide that 'accreted income' of a trust or institution registered under section 12AA shall be chargeable to tax at the MMR in following circumstances:
   ** If the trust or institution gets converted into any form which is not eligible under section 12AA;
 ** If the trust or institution gets merged into any entity which is not eligible under section 12AA;
   ** If the trust or institution, in case of dissolution, fails to transfer its assets to exempt entities under section 12AA and section 10(23C) (iv), (v), (vi) & (via).
Accreted Income : The difference between the fair market value of the assets and liabilities of the trust or institution
Time-limit to pay tax on accreted income:
14 days from date of receipt of order cancelling registration or date of order rejecting application for fresh registration

The Lok Sabha made the following amendment
A. Assets which don't form part of accreted income

Any asset acquired by a trust or institution out of its agricultural income.

Any asset acquired by the trust before getting registered under section 12AA provided that no exemption under section 11 or 12 is provided to trust or institution during that period.
B. Time-limit to pay tax on accreted income:  Tax on accreted income shall be paid within 14 days from:
 The date on which the period for filing appeal before ITAT against the order cancelling the registration (or order rejecting the application) expires, if no appeal has been filed by the trust or the institution; or
The date on which the order in any appeal, confirming the cancellation of the registration (or application), is received by the trust or institution
C. Validity of registration obtained under section 12A
Registration under section 12AA shall include any registration obtained under section 12A.

Immunity from penalty and prosecution in certain cases
section 270AA provides  immunity to the assessee from penalties under section 270A and prosecution under section 276C if the assessee pays the tax and interest within the time prescribed by the notice, provided assessee does not file an appeal against the order.
LokSabha also includes immunity from prosecution under Section 276CC in the new Section 270AA
Rate of MAT for unit located in IFSC
The assessee shall pay the the tax under MAT @ 9% instead of 18.5% provided
  **The taxpayer is a unit established in IFSC
  **The unit must be a new unit established on or after April 1, 2016
 ** It should derive its income solely in convertible foreign exchange

LokSabha withdraws the condition of establishment of new IFSC unit after April 1, 2016
Hence all the unit whether established before April 1, 2016 or later can avail the benefit if they fulfill other two condition

Amortization of spectrum fee

35ABA provides that the spectrum fee paid for auction of airwaves shall be allowed to be deducted over the useful life of the spectrum.

LokSabha also provides for consequences if specified conditions are not fulfilled  subsequently, the deduction shall be treated as wrongly allowed and the Assessing Officer may re-compute the total income of the assessee for the respective previous years
Transfer of shares through a recognized stock exchange located in IFSC

it was proposed to amend the section 10(38) of the Income-tax Act to provide that LTCG arising from transfer of equity shares, equity oriented mutual fund or units of business trust shall be exempt from tax if the transaction is undertaken in foreign currency through a recognised stock exchange located in an IFSC, even if STT is not paid in respect of such transactions.
However, no such amendment was proposed to section 111A
The Finance Bill, 2016 as passed by the LokSabha makes similar amendment to section 111A to provide that short-term capital gains arising from transfer of underlying securities shall be taxable at 15%
Tax on income from patent developed and registered in India

The royalty income in respect of a patent developed and registered in India will be taxable at the rate of 10%b as per section 115BBF proposed to be inserted by finance bill 2016.

The LokSabha inserts two new sub-sections in Section 115BBF to provide as follows:

Assessee may exercise the option on or before the due date of furnishing of return of income under section 139(1) of the relevant previous year.

If assessee opts for taxation of income from patents as per section 115BBF in any previous year and fails to offer tax on income from patents as per section 115BBF in any of the 5 succeeding assessment years then he shall not be eligible to claim benefit of said section for 5 assessment years subsequent to the assessment year in which such income has not been offered to tax as per section 115BBF.

Compiled by CA Shalu Gupta at Sandeep Ahuja & co.