Highlights of Budget 2017

1.       Service  Charge on rail tickets booked through IRCTC to be withdrawn.

2.       Small Firms with Turnover upto Rs. 50 Crore to pay 25% tax instead of 30%

3.       Surcharge of 10% for those whose annual income is Rs. 50 Lakh to 1 Crore per annum (Earlier Surcharge was on income above Rs. 1 Crore @ 15%)

4.       15% Surcharge on income above Rs. 1 Crore to continue

5.       A single one page form for IT returns for Taxable Income upto Rs. 5 Lakh

6.       5% TDS on Insurance agents removed

7.       Lower Income Tax for lowest Bracket, from 10% to 5%

8.       Capital Gain tax in real estate: Holding period reduced to 2 years, base year indexation shifted from 01.04.1981 to 01.04.2001

9.       Holding period in relation with equity shall remain the same .

10.   Proposed Income Tax slab is as follows-

Income Slab	Tax Rate
Income upto Rs. 2.5 Lakh	Nil
Income upto Rs. 3 Lakh to 5 Lakh	5%
Income from Rs. 5 Lakh to 10 Lakhs	20%
Income More than  Rs. 10 lakhs	30%

11.   Carry forward of MAT to 15 years from 10 years.

12.   No cash transaction above Rs. 3 Lakh without PAN

13.   Presumptive Turnover threshold for Companies W/Turnover upto Rs. 2 Crore to 6%

14.   No change in Excise and Service Tax rates due to upcoming GST

Direct taxes

1. Tax rates

A. Tax rates reduced from 10% to 5%

[Applicable for Assessment Year 2018-19]

Tax rates for the lowest slab of Rs. 2,50,000 to Rs. 5,00,000 have been proposed

to be reduced from existing 10% to 5%. The benefit of such reduced tax

rate shall be available to all individuals, HUF, AOP, BOI and Artificial juridical

persons.

B. Reduction in relief under section 87A

[Section 87A - Applicable from Assessment Year 2018-19]

Section 87A provides a relief up to Rs. 5,000 to a resident individual if his

total income does not exceed Rs. 5,00,000. The relief is proposed to be reduced

to Rs. 2,500 and it is proposed to be made available to only those resident

individuals whose total income does not exceed Rs. 3,50,000.

C. Surcharge on income above Rs. 50 lakhs

[Applicable for Assessment Year 2018-19]

Currently, surcharge is levied at the rate of 15% of tax, if income exceeds

Rs. 1 crore in case of an individual, HUF, AOP, BOI or artificial juridical person.

It is now proposed to levy surcharge at rate of 10% of tax, if income exceeds

Rs. 50 lakhs and at the rate of 15% if income exceeds Rs. 1 crore in case of

an individual, HUF, AOP, BOI or artificial juridical person.

D. Dividend in excess of Rs. 10 lakhs

[Section 115BBDA - Applicable from Assessment Year 2018-19]

Under the existing provisions of section 115BBDA, dividend income in excess

of Rs. 10 lakh is chargeable to tax at the rate of 10% in case of a resident

individual, HUF or firm. It is proposed that the provisions of this section shall

be applicable to all resident assessee except domestic company and certain

funds, trusts, institutions, etc. Therefore, AOP, BOI and Artificial Jusidical

persons are also liable to pay tax at rate of 10% if they receive dividend

income exceeding Rs.10 lakh.

E. Income from transfer of Carbon Credits to be taxed at 10%

[Section 115BBG – Applicable from Assessment Year 2018-19]

Carbon credits is an incentive given to an industrial undertaking for reduction

of the emission of Green House gases, including carbon dioxide which is done

through several ways such as by switching over to wind and solar energy,

forest regeneration, installation of energy-efficient machinery, landfill methane

capture, etc.

Each carbon credit represents one tonne of carbon dioxide either removed

from the atmosphere or saved from being emitted. Carbon credits are issued

as Certified Emission Reduction (CERs) by the UNFCCC. Credits can be

exchanged between businesses or bought and sold in international markets

at the prevailing market price.

Department has been treating the income on transfer of carbon credits as

business income. However, conflicting decisions have been given by the various

courts on the issue as to whether such income is a revenue receipt or capital

receipt.

To stop any further litigation, a new section 115BBG is proposed to be inserted

to provide that any income from transfer of carbon credit shall be taxable

at the concessional rate of 10% (plus applicable surcharge and cess). No

expenditure or allowance shall be allowed from such income.

F. Clarification on the rate of tax under section 112

[Section 112 - Applicable retrospectively from Assessment Year 2013-14]

Section 112(1)(c) as amended by the Finance Act, 2012 provided concessional

rate of tax at the rate of 10% for long-term capital gains arising from the

transfer of unlisted securities. The ambiguity as to applicability of this provision

to share of a private company was clarified by the Finance Act, 2016, w.e.f.

01-04-2017.

As the concessional rate in section 112(1)(c) was provided w.e.f. 1st April,

2013, there was uncertainty about the applicability of the amendment to the

intervening period. With a view to resolve the above uncertainty, it is proposed

that the effective date of amendment made to section 112(1)(c)(iii) vide

Finance Act, 2016 shall be w.r.e.f. 01-04-2013 instead of w.e.f. 01-04-2017.

G. Increase in time limit to carry forward MAT and AMT credit

[Sections 115JAA and 115JD - Applicable from Assessment Year 2018-19]

Currently, Section 115JAA allows carry forward of MAT credit up to ten

assessment years. The time period is proposed to be increased to fifteen

assessment years. Similar amendment is proposed in section 115JD so as to

allow carry forward of AMT Credit up to fifteen assessment years in case of

non-corporate assessee.

H. MAT in line with Ind AS

[Section 115JB - Applicable from Assessment Year 2017-18]

Since, the Government has notified Ind AS for certain companies, the book

profit of such companies as per Ind AS financial statement shall be different

from the book profit as per existing Indian GAAP. Thus, the CBDT constituted a

committee for suggesting the framework for computation of MAT liability under

section 115JB for Ind AS compliant companies in the year of adoption and

thereafter. In line with recommendations of the committee, various amendments

have been proposed in Section 115JB.

I. Computation of MAT/AMT credit in case of FTC

[Section 115JAA - Applicable retrospectively from Assessment Year 2018-19]

A new Rule 128 was inserted vide Income-tax (Eight Amendment) Rules to

provide the mechanism for grant of foreign tax credit. The rule provides that

credit of foreign tax can also be allowed against MAT/AMT. However, in order

to prevent taxpayers from obtaining double benefits, it has been provided

under the said rule that where amount of FTC available against MAT/AMT

exceeds the amount of FTC available against the normal provisions, than

while computing the amount of MAT/AMT credit such excess shall be ignored.

Though the mechanism to compute MAT/AMT credit in case of FTC is already

provided under Rule 128, the amendment in the Section 115JAA and 115JD

is proposed to bring the two provisions in assimilation.

2. Income from house property

A. Set-off of losses from house property in a year restricted to 2 lakhs

[Section 71 - Applicable from Assessment Year 2018-19]

Section 71 is proposed to be amended to restrict the set-off of loss under

the head ‘Income from house property’, in any assessment year against any

other income, up to Rs. 2,00,000. The unabsorbed loss shall be allowed to be

carried forward for set-off in subsequent years.

B. No Notional income for house property held as stock-in-trade

[Section 23 - Applicable from Assessment Year 2018-19]

As per the existing provisions assessee is liable to pay tax on deemed

annual value of house property lying vacant. However, exception is given in

those cases where property is either self-occupied or used for the purpose

of business or profession. Such concept of deemed annual value is applicable

even for house property held as stock-in-trade.

This provision was creating practical difficulties for real estate developers as

they were forced to pay tax on notional income for unsold flats. Now some

relief is proposed for the real estate developers who are holding residential

unit as stock-in-trade. The annual value of such house property (if not letout

during the year) shall be deemed to be nil for a period of up to one

year from the end of the financial year in which certificate of completion of

construction is obtained from the competent authority.

3. Business Income

A. Reduced threshold limit for cash payments

[Section 40A(3) - Applicable from Assessment Year 2018-19]

The current threshold limit under Section 40A(3) for making cash payment is

proposed to be reduced from Rs. 20,000 to Rs. 10,000.

B. Tax Incentive for digital payments

[Section 44AD - Applicable from Assessment Year 2017-18]

In order to promote digital transactions and to encourage small unorganized

business to accept digital payments, it is proposed that the presumptive

income under Section 44AD shall be deemed to be 6% (instead of 8%) in

respect of amount received through banking channel during the previous year

or before the due date for filing of return of income. It is worth noted that,

the benefit of reduced presumptive income rate shall be available even for

the revenue generated during the whole current year 2016-17.

The existing rate of 8% for the presumptive income shall continue to apply

in respect of total turnover or gross receipts received by way of any other

mode.

C. Increase in threshold limit of maintenance of books

[Section 44AA - Applicable from Assessment Year 2018-19]

As per existing provisions of Section 44AA, every person carrying on any

business or profession (other than specified profession of medical, legal, etc.)

is required to maintain books of account if income from such business or

profession exceeds Rs. 1,20,000 or sales/gross receipts exceeds Rs. 10,00,000 during

the previous year. In order to reduce the compliance burden, this threshold

limit has been proposed to be increased from Rs. 1,20,000 to Rs. 2,50,000 and

from Rs. 10,00,000 to Rs. 25,00,000 respectively.

D. Increase in threshold limit for audit for assessees opting for

presumptive taxation

[Section 44AD - Applicable from Assessment Year 2017-18]

The Finance Act, 2016 had increased the threshold limit under Section 44AD

for presumptive taxation scheme from Rs. 1 Crore to Rs. 2 Crore. However,

corresponding amendment was not made in Section 44AB. In other words, the

threshold limit for the tax audit under Section 44AB was not increased to Rs. 2

Crores for the taxpayers opting for the presumptive scheme. Therefore, in order

to bring the provisions in parity Section 44AB is proposed to be amended. As

per proposed amendment, an eligible person opting for presumptive taxation

scheme as per section 44AD(1) shall not be required to get his accounts

audited if the total turnover or gross receipts of the relevant previous year

does not exceed two crore rupees.

E. No cash payments for capital expenditure

[Sections 43 and 35AD - Applicable from Assessment Year 2018-19]

Currently there is no provision in the Act so as to disallow the capital

expenditure incurred in cash. Therefore, it has been proposed that any cash

payments of capital expenditure above Rs. 10,000 shall not be considered to

determine actual cost of asset under Section 43(1). Similarly, no deductions

shall be available under section 35AD for any capital expenditure in cash in

excess of Rs. 10,000.

F. Taxability of income from NPAs on receipt basis

[Sections 43D and 43B - Applicable from Assessment Year 2018-19]

As per existing provisions of section 43D, interest income on NPAs received by

certain institutions or banks is chargeable to tax in the previous year in which

it is credited to P/L account or in the year in which it is actually received,

whichever is earlier. This option is not currently allowed to co-operative banks.

Therefore, it is proposed to amend section 43D of the Act so as to provide

similar exception from accrual system of accounting to the co-operative banks

(other than a primary agricultural credit society or a primary co-operative

agricultural and rural development bank) as well.

Consequentially, it is also proposed that interest payable on any loan or advances

to a co-operative bank (other than a primary agricultural credit society or a

primary co-operative agricultural and rural development bank) shall be allowed

as deduction under Section 43B only if it is actually paid on or before the

due date of furnishing the return of income of the relevant previous year.

G. Increase in deduction for provision for bad and doubtful debts

[Section 36(1)(viia) - Applicable from Assessment Year 2018-19]

Banks or Co-operative banks are allowed to claim deduction in respect of

provision for bad and doubtful debts, inter-alia, up to 7.5% of their total

income before making any deduction under Chapter VIA. The above limit has

been increased to 8.5%.

4. International taxation

A. Provisions of Indirect transfer not applicable in case of investors in

FPIs

[Section 9 - Applicable retrospectively from Assessment Year 2012-13]

Section 9(1)(i) provides that all income accruing or arising, whether directly

or indirectly, through or from any business connection in India, or through

or from any property in India, or through or from any asset or source of

income in India, or through the transfer of a capital asset situate in India

shall be deemed to accrue or arise in India. The Finance Act, 2012 inserted

an Explanation 5 in Section 9(1)(i) w.r.e.f. 1st April, 1962 to clarify that an

asset or capital asset, being any share or interest in a foreign company or

foreign entity shall be deemed to be situated in India, if the share or interest

derives, directly or indirectly, its value substantially from the assets located

in India.

In response to various queries raised by stakeholders seeking clarification on

the scope of indirect transfer provisions, the CBDT issued Circular No 41 of

2016. However, concerns have been raised by stakeholders that the provisions

result in multiple taxation as investors in FPIs are held liable to pay tax on

redeeming their units in FPI. Therefore, it is proposed to clarify that the

Explanation 5 shall not apply to any investment held by non-resident, directly

or indirectly, in a FPI.

B. Domestic Transfer Pricing not applicable in tax neutral transactions

[Section 92BA - Applicable from Assessment Year 2017-18]

The existing provisions of section 92BA provide that any expenditure in respect

of which payment is made by the assessee to persons specified under section

40A(2)(b) are covered within the ambit of Specified Domestic Transactions

(SDT). In order to reduce the compliance burden of taxpayers, it has been

proposed that these transactions shall be excluded from the scope of section

92BA. In other words, SDT will not be applicable where transactions are tax

neutral between taxable entities and it will apply only to those companies

that are claiming any tax holiday or investment linked deductions.

It may be noted that the AO can still disallow unreasonable or excessive

payments made under Section 40A(2)(b).

C. Relaxation in conditions applicable to off shore funds under section

9A

[Section 9A - Applicable retrospectively from Assessment Year 2016-17]

As per section 9A, off-shore funds shall not be deemed to have a business

connection in India merely because it is managed from India by a fund

manager. However, there are certain conditions which an off-shore fund have

to comply with to avail of the benefit of section 9A, inter alia, off-shore

fund maintains the corpus of Rs. 100 crore. However, such condition shall not

apply in the year of set-up of the Fund. The Finance Bill, 2017 proposes to

rationalise this provision and provide that corpus will not be required to be

maintained in the year in which the fund is being wound up.

D. Foreign tax credit in cases of disputes

[Section 155 - Applicable from Assessment Year 2018-19]

Currently Income-tax Act does not contain any provision to allow the assessee

to file for rectification of assessment if Assessing Officer disputed the foreign

tax credit in absence of any documentary evidence and assessee subsequently

furnishes the same.

The Finance Bill, 2017 proposes that the Assessing Officer shall rectify the

assessment order, if assessee, within six months from end of the month in

which dispute is settled, furnishes proof for payment of foreign tax liability

along with an undertaking that credit of such foreign tax has not been claimed

or shall not be claimed for any other assessment year.

E. Adoption of BEPS recommendations on thin capitalization

[Section 94B - Applicable from Assessment Year 2018-19]

The Indian tax legislation allows deduction of interest from profit while the

dividend paid on equity contribution is not deductible. Therefore, the higher

the level of debt in a company, and thus the amount of interest it pays,

the lower will be its taxable profit. For this reason, debt is often a more tax

efficient method of finance than equity. Multinational groups are often able to

structure their financing arrangements to maximize these benefits.

To end this malpractice, OECD in its BEPS project has recommended several

measures to address this issue. Accordingly, a new Section 94B is proposed

to be inserted. This new provision aims to restrict the deduction claimed by

an entity in respect of interest charges paid to its associated enterprises. If

Indian company or PE of a foreign company pays interest in excess of Rs. 1

crore to the associated enterprise, the deduction for interest shall be restricted

to 30% of its earnings before interest, taxes, depreciation and amortization

(EBITDA). However, the section will not be applicable to banking and insurance

companies.

The provisions allow carry forward of disallowed interest expense to eight

assessment years for claiming it as deduction against future business profits.

F. Definition of ‘person responsible for paying’ for section 195(6)

[Section 204 - Applicable from Assessment Year 2017-18]

A clarification is proposed to be inserted in Section 204 that for the purpose

of furnishing of information under Section 195(6) in Form 15CA or 15CB in

respect of payment to a non-resident, ‘person responsible for paying’ shall be

the payer himself, or, if the payer is a company, the company itself including

the Principal Officer thereof.

G. How to interpret ‘terms’ used in DTAA

[Sections 90 and 90A - Applicable from Assessment Year 2018-19]

Where any ‘term’ used in an agreement (DTAA or TIEA), entered into under

Section 90 and 90A of the Act, but not defined under the said agreement,

the said term is proposed to be assigned the meaning as defined in the Act

and any explanation given to it by the Central Government.

5. Capital Gains

A. Shifting base year from 1981 to 2001 for computation of capital

gains

[Sections 48 and 55 - Applicable from Assessment Year 2018-19]

As per existing provision, for computing capital gains in respect of an asset

acquired before 01.04.1981, the assessee is allowed to take either the fair

market value of the asset as on 01.04.1981 or the actual cost of the asset

as cost of acquisition. As the base year for computing the indexed cost of

acquisition or cost of improvement has become more than three decades

old, assessee are facing genuine difficulties due to non-availability of relevant

information for computation of fair market value (FMV) of such asset as on

01.04.1981.

A revision is proposed that the now base year shall be 2001. In other words,

cost of acquisition of an asset acquired before 01.04.2001 shall be allowed to

be taken as FMV as on 1st April, 2001 and the cost of improvement shall

include only those capital expenses which are incurred after 01.04.2001.

Now 2001-2002 will be taken as base year and Govt. will notify the revised

Cost Inflation Index starting from year 2001-2002.

B. Immovable property held for 24 months is a long-term capital asset

[Section 2(42A) - Applicable from Assessment Year 2018-19]

It is proposed that the period of holding of an immovable property, to qualify

as long-term capital asset, shall be reduced from existing 36 months to 24

months.

C. Sec. 10(38) exemption not allowed on offline acquisition of shares

[Section 10(38) – Applicable from Assessment Year 2018-19]

Under the existing provisions of the Section 10(38), income arising from a

transfer of long term capital asset, being equity share of a company or a

unit of an equity oriented fund, is exempt from tax if transaction of sale is

undertaken on or after 01-10-2014 and is chargeable to STT. It has been

noticed that exemption provided under section 10(38) is being misused by

certain persons for declaring their unaccounted income as exempt long-term

capital gains by entering into sham transactions.

With a view to prevent this abuse, it is proposed to amend section 10(38)

to provide that exemption under this section for income arising on transfer

of equity share acquired or on after 01-10-2004 shall be available only if the

acquisition of share is chargeable to STT. However, the exemption shall continue

in genuine cases where the STT could not have been paid like acquisition of

share in IPO, FPO, bonus or right issue by a listed company, acquisition by

non-resident in accordance with FDI policy, etc.

D. Taxability in case of Joint Development Agreements

[Section 45(5A) - Applicable from Assessment Year 2018-19]

As per existing provisions, ‘transfer’ includes any arrangement or transaction

where any rights are handed over in execution of part performance of

contract, even though the legal title has not been transferred. In such a

scenario, execution of Joint Development Agreement (JDA) between the owner

of immovable property and the developer triggers the capital gains tax liability

in the hands of the owner in the year in which the possession of immovable

property is handed over to the developer for development of a project.

A new sub-section (5A) is proposed to be inserted in Section 45, which provides

that capital gain arising in case of JDAs shall be taxable in the hands of

an individual or HUF in the previous year in which certificate of completion

for the whole or part of the project is issued by the competent authority.

The deferment of tax shall not be allowed if owner transfers his share in

the project on or before the date of issue of said certificate of completion.

The full value of consideration in case of JDAs shall be stamp duty value

of owners’ share, being land or building or both, in the project on the date

of issuing of said certificate of completion as increased by any monetary

consideration received by him.

E. No capital gains on conversion of preference shares into equity

[Section 47 - Applicable from Assessment Year 2018-19]

Conversion of bond or debenture of a company into share or debenture of

that company are outside the scope of ‘transfer’ under the current provisions

of Section 47. However, no similar tax neutrality is provided for conversion

of preference share of a company into its equity share.

Therefore, it is proposed that conversion of preference share of a company into

equity share of that company shall not be regarded as transfer. Corresponding

amendments are also proposed to section 49 and section 2(42A) in respect

of cost of acquisition and period of holding for such converted equity shares.

F. Unquoted shares taxable at fair market value

[Section 50CA – Applicable from Assessment Year 2018-19]

The Finance Bill, 2017 proposed insertion of a new Section 50CA, to provide

that where the consideration declared for transfer of unquoted shares of a

company is less than the Fair Market Value of such share, the FMV of such

shares shall be deemed to be the Full Value of Consideration for the purpose

of computing the capital gains.

G. Expanding scope of long term bonds under Section 54EC

[Section 54EC - Applicable from Assessment Year 2018-19]

The existing section 54EC allows exemptions to the extent of Rs. 50 lakhs in

respect of long-term capital gain invested in in bonds issued by NHAI or RECL.

It is proposed that investment in any notified bonds which are redeemable

after three years shall also be eligible for this exemption.

H. Tax incentive for development of capital of Andhra Pradesh

[Section 10(37A) - Applicable retrospectively from Assessment Year 2015-16]

As per Land Acquisition Act1, compensation received by the landowner in lieu

of acquisition of land is exempt from income tax. The Land Pooling Scheme

is an alternative form of arrangement, wherein compensation is paid to the

original landowners in the form of reconstituted plot or land. However, the

existing provisions do not provide any exemption from tax in respect of income

arising on transferring of:

(a) Land under the land pooling scheme

(b) Land Pooling Ownership Certificates (LPOCs)

(c) Reconstituted plot or land.

A new clause (37A) is proposed to be inserted in Section 10 to provide

exemption from tax in respect of capital gains arising from transfer of above

referred to assets. The exemption shall be available to an individual or HUF

who was the owner of such land as on 02-06-2014, and who has transferred

it under the notified land pooling scheme2. Exemption for capital gains arising

on transfer of reconstituted plot or land shall be allowed if such plot or land

is sold within two years from the end of the financial year in which the

possession of such plot or land was handed over.

Where reconstituted plot or land is transferred after two years (from the end

of the financial year in which its possession was handed over), its stamp duty

value as on the last day of the second financial year shall be deemed to be

the cost of acquisition. This amendment will be applicable from Assessment

Year 2018-19.

Consequent amendment is also proposed in Section 194LA to provide exemption

from deduction of tax at source in respect of such payment.

I. Cost of acquisition of shares of Indian company in case of demerger

[Section 47 - Applicable from Assessment Year 2018-19]

Section 47(vic) provides that the transfer of shares of an Indian company by

a demerged foreign company to a resulting foreign company is not regarded

as transfer. However, Section 49 does not provide for cost of acquisition in

case of transfer of shares of such Indian company by the demerged foreign

company to the resulting foreign company.

Therefore, it is proposed that cost of acquisition of such shares of Indian

company in the hands of the resulting foreign company shall be the same

as it was in the hands of demerged foreign company.

J. Extension of capital gain exemption to rupee denominated bonds

[Sections 47 and 48 - Applicable from Assessment Year 2018-19]

Section 48 is proposed to be amended to provide that in respect of gain

arising on account of appreciation of rupee against a foreign currency at the

time of redemption of rupee denominated bond of an Indian company shall

be ignored for the purpose of computing full value of consideration3.

Section 47 is also proposed to be amended that transfer of rupee denominated

bond of an Indian company issued outside India, by a non-resident to another

non-resident shall not be regarded as transfer.

K. Cost of acquisition of capital asset of entities where tax levy on

accreted income

[Section 49 - Applicable retrospectively from Assessment Year 2016-17]

Section 49 is proposed to be amended so as to provide that cost of acquisition

of an asset held by a trust or an institution, in respect of which accreted

income has been computed, shall be deemed to be its fair market value

which has been taken into account as per section 115TD(2).

L. Period of holding in case of consolidation of plans within a scheme

of mutual fund

[Section 2(42A) and 49 - Applicable from Assessment Year 2017-18]

Finance Act, 2016 amended section 47 of the Act so as to provide tax

neutrality in case of switching from one or more mutual fund to other.

However, no corresponding amendments were made in section 2(42A) and

Section 49. Therefore, it is proposed to amend section 2(42A) and section

49 to provide that cost of acquisition of the units in the consolidated plan

of mutual fund scheme as referred to in section 47(xix) shall be the cost

of units in consolidating plan of mutual fund scheme and period of holding

of the units of consolidated plan of mutual fund scheme shall include the

period for which the units in consolidating plan of mutual fund scheme were

held by the assessee.

6. Income from other sources

A. Gifts taxable in hands of every person not only individual or HUF

[Section 56 – Applicable from Assessment Year 2017-18]

The existing provisions of Section 56(2)(vii) is applicable to an individual and

HUF only. It provides for taxability of any sum of money or any property

received by an individual or HUF without consideration or for inadequate

consideration (in excess of the specified limit of Rs. 50,000). The scope of

this provision is proposed to be widened by introducing a new clause Section

56(2)(x) so as to cover all taxpayers within its ambit.

7. Losses

A. Set-off and carry forward of loan in case of change in shareholding

[Section 79 - Applicable from Assessment Year 2018-19]

As per existing provisions of Section 79, a closely held company is not allowed

to carry forward and set-off of losses of earlier years if its shareholding

changes by more than 50%.

In order to facilitate ease of doing business and to promote start up India,

it is proposed that losses, incurred by an eligible start-up4, can be carried

forward and set off against the income of the previous year, if all shareholders

of such company (as existed in the year of loss) continue to hold the shares

on last day of the previous year.

8. Deductions

A. Restricting cash donations

[Section 80G - Applicable from Assessment Year 2018-19]

Currently, no deduction is allowed for the cash donations in excess of Rs.

10,000. This threshold limit is proposed to be reduced to Rs. 2,000.

B. Deduction for investment made under equity savings scheme is

withdrawn

[Section 80CCG - Applicable from Assessment Year 2018-19]

Section 80CCG provides deductions, up to Rs. 25,000 for 3 consecutive assessment

years, to a resident individual for investment made in listed equity shares

or listed units of an equity oriented fund. Since, only limited number of

individuals has availed this deduction, it is proposed that no deduction under

section 80CCG shall be allowed from assessment year 2018-19.

However, an assessee who has claimed deduction under this section for

assessment year 2017-18 and earlier assessment years shall be allowed to

claim deduction under this section as per the provision of this section.

C. Self-employed individuals to get 20% deduction under NPS Scheme

[Section 80CCG - Applicable from Assessment Year 2018-19]

Section 80CCD provides that employee or other individuals shall be allowed

a deduction for amount deposited in National Pension System trusts (NPS).

The deduction under section 80CCD(1) cannot exceed 10% of salary in case

of an employee or 10% of gross total income in case of other individuals.

For employees, additional deduction of 10% of salary is allowed with respect

to employer contribution under section 80CCD(2). Thus, employees get overall

deduction of up to 20% of the salary income. In order to provide parity, it

is proposed to amend Section 80CCD(1) so as to increase the upper limit of

10% to 20% of gross total income in case of other individuals.

D. Extending the period for claiming deduction by start-ups

[Section 80-IAC - Applicable from Assessment Year 2018-19]

Section 80-IAC provides a deduction of 100% in respect of income derived

by eligible start-up for three consecutive assessment years out of five years

beginning from the year in which such eligible start-up is incorporated. It is

proposed that this deduction can be claimed by an eligible start-up for any

three consecutive assessment years out of seven years beginning from the

year in which such eligible start-up is incorporated.

E. Conditions relaxed for allowing deduction under Sec. 80-IBA

[Section 80-IBA - Applicable from Assessment Year 2018-19]

Section 80-IBA provides for 100% deduction in respect of income derived from

developing and building certain housing projects. A few conditions, specified in

the section for allowing this deduction, have been relaxed, which are as under:

(a) The deduction is allowed if built-up area of the house, in a project located

within 25 kms from municipal limits of Chennai, Delhi, Kolkata and Mumbai,

does not exceed 30 square meters. This restriction has been removed.

(b) The assessee is eligible to claim deductions, provided the project is

completed within a period of three years. The period of completion of

project is now increased to 5 years.

(c) The size of residential unit shall now be measured by taking into account

the ‘carpet area’ and not the ‘built-up area’.

F. Clarification in provisions of Section 10AA

[Section 10AA - Applicable from Assessment Year 2018-19]

Section 10AA of the Act provides deduction from the total income of an

assessee, in respect of profits and gains arising from Unit operating in SEZ,

subject to fulfilment of certain conditions. In various cases, courts have taken

a view that the deduction under Section 10AA is allowed from the total income

of the undertaking and not from the total income of the assessee.

In order to remove this ambiguity, it is proposed to clarify that the deduction

shall be allowed from the total income of the assessee and the deduction

under section 10AA in no case shall exceed the said total income.

9. Restrictions on cash transactions

A. Transaction in cash above Rs. 3 lakhs is prohibited

[Sections 269ST, 271DA and 206C - Applicable from Assessment Year 2017-18]

A new Section 269ST is proposed to prohibit the receipts of cash in excess

of Rs. 3,00,000 from a person in a single day or in respect of any single

transaction. However, this restriction shall not apply to Government, any banking

company, post office savings bank or co-operative bank or any other notified

person. Contravention of this provisions would result in levy of penalty under

Section 271DA which shall be equivalent to the amount received. Further,

due to these amendments, TCS provisions in respect of sale of Jewellery has

been withdrawn.

It may be noted that such provisions have been enforced with retrospective

effect from AY 2017-18. It needs to be clarified that whether such prohibition

may be made applicable for cash transactions already concluded in PY 2016-17?

B. Transparency in funding to political parties

[Section 13A - Applicable from Assessment Year 2018-19]

Section 13A provides tax exemption to registered political parties. In order

to discourage cash transactions and bring transparency in source of funding

of political parties, additional conditions have been proposed for claiming tax

exemptions, which are as under:

(a) No donations in excess of Rs. 2,000 shall be received by the political parties

in cash.

(b) Political parties shall furnish the return of income in accordance with

provisions of Section 139(4B).

10. TDS/TCS

A. TDS on Rent

[Section 194-IB - Applicable from 01-06-2017]

A new section 194-IB is proposed to be inserted to provide that an Individual

and HUF (even if not liable to tax audit under Section 44AB) are liable to

deduct TDS at the rate of 5% from payment of rent exceeding Rs. 50,000 per

month. In other words, every individual or HUF paying monthly rent above Rs.

50,000 shall now be liable to deduct tax at the rate of 5%.

Tax shall be deducted at the time of making payment or at the time of

credit of rent to the account of landlord, for the last month of the previous

year or the last month of tenancy (if property is vacated during the year),

whichever is earlier.

In order to reduce the compliance burden, the tenants shall not be required

to obtain TAN. Where PAN of the landlord is not available, the tax required

to be deducted as per Section 206AA shall not exceed the amount of rent

payable for the last month of the previous year or the last month of the

tenancy.

B. Exemption from TDS on insurance commission

[Section 194D - Applicable from 01-06-2017]

As per current provision, any payment of insurance commission above Rs. 15,000

shall be subject to TDS at the rate of 5% under Section 194D. Further, no

option is allowed to the agent to avoid the deduction of TDS by submitting

the Form 15G/H under section 197A.

Therefore, in order to reduce compliance burden in the case of Individuals

and HUFs, it is proposed to amend Section 197A so as to allow the agent to

file Form. No. 15G/15H to receive the insurance commission without deduction

of tax at source.

C. Lower TDS from payment to call center

[Section 194J - Applicable from 01-06-2017]

As per existing provisions, Fee for professional services or Fee for Technical

services paid to call centers subject to TDS at the rate of 10% under Section

194J. To reduce the compliance burden and to promote the ease of doing

business, such TDS rate has been proposed to be reduced from 10% to 2%.

D. Disallowance for TDS default in case of income from other sources

[Section 58 - Applicable from Assessment Year 2018-19]

The provisions of Section 40(a)(ia) disallows 30% of certain expenditures if tax

is not deducted in respect of those expenditure in accordance with Chapter

XVII-B or if tax is deducted but not deposited on or before the due date for

filing of return of income. These provisions are proposed to be expanded to

cover the expenditure incurred in respect of residuary income.

E. Furnishing of PAN in TCS

[Section 206CC - Applicable from Assessment Year 2017-18]

A provision similar to Section 206AA is proposed to be inserted so as to

strengthen the mechanism of collection of tax at source. A payer shall furnish

his PAN to the person responsible for collecting tax. If he fails to do so than

tax shall be collected at higher of twice of the specified rate or 5%. The

requirement to furnish PAN shall not apply to a non-resident who does not

have a PE in India.

F. Concessional TDS rate under Section 194LC

[Section 194LC - Applicable from Assessment Year 2018-19/Applicable

Retrospectively from Assessment Year 2016-17]

If borrowings in foreign currency is made under a loan agreement entered into

between 01-07-2012 and 01-07-2017 or by way of long-term bonds issued

between 01-10-2014 and 01-07-2017, tax is deducted at the rate of 5% in

respect of interest payable to non-residents.

It is proposed that the concessional rate of 5% TDS on interest payment

under this section will be available in respect of borrowings made before the

01-07-2020.

The benefit of concessional TDS rate is also proposed to be extended to rupee

denominated bonds issued outside India before 01-07-2020. This amendment

will take effect retrospectively from 01-04-2016.

G. Concessional TDS rate under Section 194LD

[Section 194LD - Applicable from Assessment Year 2018-19]

Tax is deducted at concessional rate of 5% in respect of interest payable

between 01-06-2013 to 01-07-2017 to FIIs and QFIs on their investments

in Government securities and rupee denominated corporate bonds. This time

limit for concessional tax rate is proposed to be extended to 01-07-2020. In

other words, interest payable to FIIs and QFIs before 01-07-2020 shall be

subject to concessional TDS rate of 5%.

H. CBDT to issue directions in respect of penalty for failure to deduct

TDC/TCS

[Section 119 – Applicable from Assessment Year 2017-18]

The Board has been provided with power to issue directions or instructions

under section 119 in order to reduce the genuine hardship which may be

faced by a person responsible for deduction and collection of tax at source

due to levy of penalty under section 271C or 271CA

11. Returns and refunds

A. Fees for delay in filing of return

[Section 234E - Applicable from Assessment Year 2018-19]

To ensure filing of returns within due date, fee for delayed filing of return

is proposed to be levied. If the return is filed after the due date but on or

before the December 31 of the assessment year, assessee shall be liable to

pay Rs. 5,000. If return is filed after December 31 of the Assessment year,

the charges shall be Rs. 10,000.

However, in a case where the total income does not exceed five lakh rupees,

it is proposed that the fee shall not exceed Rs. 1,000.

Resultant amendment is proposed in penal provisions under Section 271F that

the penalty provision shall not to be made applicable in respect of assessment

year 2018-19 and onwards.

B. Professionals allowed to pay advance tax in single installment

[Section 211 and 234 - Applicable from Assessment Year 2017-18]

Presently, assessees claiming benefits of presumptive taxation scheme under

Section 44AD are allowed to deposit advance tax in single instalment. Similar

benefits were not given to professionals opting for new presumptive taxation

scheme under Section 44ADA. To bring parity among the provisions, the option

to pay advance tax in single instalment is also extended to the professionals

opting for presumptive taxation under section 44ADA.

Consequent amendment is also proposed to Section 234C to provide no interest

under this section shall be levied, if the advance tax is paid by such eligible

professionals on or before the 15th March of the relevant previous year.

C. Interest on refund due to deductor

[Section 244A - Applicable from Assessment Year 2017-18]

As per existing Section 244A, interest is payable on the refund amount due

to an assessee on account of excess payment of advance tax, TDS, TCS, etc.

Currently, no interest is paid to the deductor if he inadvertently deducts and

deposits the excess TDS. Therefore, it is proposed that, where refund is due

to a deductor, he shall be entitled to receive simple interest on such refund,

calculated at the rate of 0.5% per month or part of the month, for the period

beginning from the date on which claim is made and ending on the date on

which refund is granted. In case of an appeal, the interest shall be payable

for the period beginning from the date on which tax is paid and ending on

the date on which refund is granted.

D. Mandatory furnishing of return by exempt entities

[Section 139 - Applicable from Assessment Year 2018-19]

Current provisions of Section 139(4C) make it mandatory to file income tax

return by certain entities which are exempt from the levy of income-tax. It is

proposed that any person as referred to in clause (23AAA), Investor Protection

Fund as referred to in clause (23EC) or clause (23ED), Core Settlement

Guarantee Fund as referred to in clause (23EE) and any Board or Authority

as referred to in clause (29A) of section 10 shall also mandatorily furnish a

return of income.

12. Appeals & Assessments

A. Processing of return is mandatory before scrutiny assessment

[Sections 143 and 241A - Applicable from Assessment Year 2017-18]

As per Section 143(1D) processing of return shall not be necessary in case

a notice is issued under section 143(2) for scrutiny assessment. Amendment

to said section brought by Finance Act, 2016 provides that with effect from

AY 2017-18, processing of return under section 143(1) is to be done before

passing of assessment order.

It is proposed that this provision shall cease to apply in respect of returns

furnished for the assessment year 2017-18 and onwards. Resultantly, it would

be necessary to process a return of income before expiry of one year from

the end of the financial year in which the return is made. This amendment

is made with a view to address the grievance of assessees that refunds are

getting delayed even in genuine cases where cases are selected routinely for

scrutiny assessment.

To address the concern of recovery of revenue in doubtful cases, the Finance

Bill proposes to insert a new Section 241A. It authorize the Assessing Officer

to withhold the payment of refund amount, if such grant of refund may

adversely affect the recovery of revenue.