DOWNLOAD FINANCE BILL 2016: BUDGET 2016-2017

FINANCE Bill 2016: BUDGET 2016-2017

This Year i.e. 2016-2017 Budget was Presented by Finance Minister Mr. Arun Jaitley (Budget of 2014-15 & 2015-16 also by Arun Jaitley under the Prime Minsiter  of India Mr.Narendra Modi) Finance Minister has started the Budget with Following Paragraph on February 29, 2016

“I am presenting this Budget when the global economy is in serious crisis. Global growth has slowed down from 3.4% in 2014 to 3.1% in 2015. Financial markets have been battered and global trade has contracted. Amidst all these global headwinds, the Indian economy has held its ground firmly. Thanks to our inherent strengths and the policies of this Government, a lot of confidence and hope continues to be built around India. The International Monetary Fund has hailed India as a ‘bright spot’ amidst a slowing global economy. The World Economic Forum has said that India’s growth is ‘extraordinarily high’. We accomplished this despite very unfavourable conditions and despite the fact that we inherited an economy of low growth, high inflation and zero investor confidence in Government’s capability to govern. We converted these difficulties and challenges into opportunities.” 

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KEY IMPORTANT FEATURES OF INDIA BUDGET 2016-17

Key Features of India Budget for Year 2016-2017

  • Growth of Economy accelerated to 7.6% in 2015-16. Fiscal deficit in RE 2015-16 and BE 2016-17 retained at 3.9% and 3.5%. Revenue Deficit target from 2.8% to 2.5% in RE 2015-16.
  • Total expenditure projected at Rs. 19.78 lakh crore. Plan expenditure pegged at Rs. 5.50 lakh crore under Plan, increase of 15.3%. Non-Plan expenditure kept at Rs.14.28 lakh crores
  • Foreign exchange reserves touched highest ever level of about 350 billion US dollars.
  • Allocation for Agriculture and Farmers’ welfare is Rs. 35,984 crore
  • ‘Pradhan Mantri Krishi Sinchai Yojana’ to be implemented in mission mode. 28.5 lakh hectares will be brought under irrigation.
  • A dedicated Long Term Irrigation Fund will be created in NABARD with an initial corpus of about Rs 20,000 crore.
  • Promote organic farming through ‘Parmparagat Krishi Vikas Yojana’ and ‘Organic Value Chain Development in North East Region’.
  • Allocation under Pradhan Mantri Gram Sadak Yojana increased to Rs. 19,000 crore. Will connect remaining 65,000 eligible habitations by 2019.
  • To reduce the burden of loan repayment on farmers, a provision of Rs.15,000 crore has been made in the BE 2016-17 towards interest subvention
  • Allocation under Prime Minister Fasal Bima Yojana Rs.5,500 crore.
  • Rs. 850 crore for four dairying projects – ‘Pashudhan Sanjivani’, ‘Nakul Swasthya Patra’, ‘E-Pashudhan Haat’ and National Genomic Centre for indigenous breeds.
  • A sum of Rs. 38,500 crore allocated for MGNREGS (Mahatma Gandhi National Rural Employment Gurantee Act for Details About NREGA Scheme www.nrega.nic.in)
  • 3,000 Stores under Prime Minister’s Jan Aushadhi Yojana will be opened during 2016-17.
  • “Stand Up India Scheme” to facilitate at least two projects per bank branch. This will benefit at least Rs.2.5 lakh entrepreneurs.
  • Digital Depository for School Leaving Certificates, College Degrees, Academic Awards and Mark sheets to be set-up.
  • GoI will pay contribution of 8.33% for of all new employees enrolling in EPFO for the first three years of their employment. Budget provision of Rs. 1000 crore for this scheme.
  • Deduction under Section 80JJAA of the Income Tax Act will be available to all assesses who are subject to statutory audit under the Act.
  • Total investment in the road sector, including PMGSY allocation, would be Rs. 97,000 crore during 2016-17.
  • India’s highest ever kilometres of new highways were awarded in 2015. To approve nearly 10,000 kms of National Highways in 2016-17.Allocation of Rs. 55,000 crore in the Budget for Roads. Additional Rs. 15,000 crore to be raised by NHAI through bonds.Total outlay for infrastructure – Rs. 2,21,246 crore.
  • Mobilisation of additional finances to the extent of Rs. 31,300 crore by NHAI, PFC, REC, IREDA, NABARD and Inland Water Authority by raising Bonds.
  • Amendments in the SARFAESI Act 2002 to enable the sponsor of an ARC to hold up to 100% stake in the ARC and permit non institutional investors to invest in Securitization Receipts.
  • Allocation of Rs. 25,000 crore towards recapitalisation of Public Sector Banks.Target of amount sanctioned under Pradhan Mantri Mudra Yojana increased to Rs. 1,80,000 crore.General Insurance Companies owned by the Government to be listed in the stock exchanges.
  • Raise the ceiling of tax rebate under section 87A from Rs.2000 to Rs.5000 to lessen tax burden on individuals with income upto Rs. 5 laks. Increase the limit of deduction of rent paid under section 80GG from Rs.24000 per annum to Rs.60000, to provide relief to those who live in rented houses.Deduction for additional interest of Rs.50,000 per annum for loans up to Rs.35 lakh sanctioned in 2016-17 for first time home buyers, where house cost does not exceed Rs. 50 lakh.
  • Increase the turnover limit under Presumptive taxation scheme under section 44AD of the Income Tax Act to Rs.2 crores to bring big relief to a large number of assessees in the MSME category.
  • Extend the presumptive taxation scheme with profit deemed to be 50%, to professionals with gross receipts up to Rs.50 lakh
  • Phasing out deduction under Income Tax: Accelerated depreciation wherever provided in IT Act will be limited to maximum 40% from 1.4.2017. Benefit of deductions for Research would be limited to 150% from 1.4.2017 and 100% from 1.4.2020. Benefit of section 10AA to new SEZ units will be available to those units which commence activity before 31.3.2020. The weighted deduction under section 35CCD for skill development will continue up to 1.4.2020.
  • Additional tax at the rate of 10% of gross amount of dividend will be payable by the recipients receiving dividend in excess of Rs.10 lakh per annum.
  • New manufacturing companies incorporated on or after 1.3.2016 to be given an option to be taxed at 25% + surcharge and cess provided they do not claim profit linked or investment linked deductions and do not avail of investment allowance and accelerated depreciation. Lower the corporate tax rate for the next financial year for relatively small enterprises i.e companies with turnover not exceeding Rs.5 crore (in the financial year ending March 2015), to 29% plus surcharge and cess.
  • 100% deduction of profits for 3 out of 5 years for startups setup during April, 2016 to March, 2019. MAT will apply in such cases.
  • 10% rate of tax on income from worldwide exploitation of patents developed and registered in India by a resident.
  • Complete pass through of income-tax to securitization trusts including trusts of ARCs. Securitisation trusts required to deduct tax at source.
  • Period for getting benefit of long term capital gain regime in case of unlisted companies is proposed to be reduced from three to two years.
  • Non-banking financial companies shall be eligible for deduction to the extent of 5% of its income in respect of provision for bad and doubtful debts.
  • Determination of residency of foreign company on the basis of Place of Effective Management (POEM) is proposed to be deferred by one year.
  • Commitment to implement General Anti Avoidance Rules (GAAR) from 1.4.2017.
  • Exemption of service tax on services provided under Deen Dayal Upadhyay Grameen Kaushalya Yojana and services provided by Assessing Bodies empanelled by Ministry of Skill Development & Entrepreneurship.
  • Exemption of Service tax on general insurance services provided under ‘Niramaya’ Health Insurance Scheme launched by National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disability.
  • Basic custom and excise duty on refrigerated containers reduced to 5% and 6%.
  • Surcharge to be raised from 12% to 15% on persons, other than companies, firms and cooperative societies having income above Rs. 1 crore.
  • Tax to be deducted at source at the rate of 1 % on purchase of luxury cars exceeding value of Rs.ten lakh and purchase of goods and services in cash exceeding Rs.two lakh.
  • Securities Transaction tax in case of ‘Options’ is proposed to be increased from .017% to .05%.
  • Equalization levy of 6% of gross amount for payment made to non- residents exceeding ` 1 lakh a year in case of B2B transactions.
  • Krishi Kalyan Cess, @ 0.5% on all taxable services, w.e.f. 1 June 2016. Proceeds would be exclusively used for financing initiatives for improvement of agriculture and welfare of farmers. Input tax credit of this cess will be available for payment of this cess.
  • Infrastructure cess, of 1% on small petrol, LPG, CNG cars, 2.5% on diesel cars of certain capacity and 4% on other higher engine capacity vehicles 13 and SUVs. No credit of this cess will be available nor credit of any other tax or duty be utilized for paying this cess.
  • Excise duty of ‘1% without input tax credit or 12.5% with input tax credit’ on articles of jewellery [excluding silver jewellery, other than studded with diamonds and some other precious stones], with a higher exemption and eligibility limits of Rs.6 crores and Rs.12 crores respectively.
  • Excise on readymade garments with retail price of Rs.1000 or more raised to 2% without input tax credit or 12.5% with input tax credit.
  • ‘Clean Energy Cess’ levied on coal, lignite and peat renamed to ‘Clean Environment Cess’ and rate increased from Rs.200 per tonne to Rs.400 per tonne.
  • Excise duties on various tobacco products other than beedi raised by about 10 to 15%.
  • Domestic taxpayers can declare undisclosed income or such income represented in the form of any asset by paying tax at 30%, and surcharge at 7.5% and penalty at 7.5%, which is a total of 45% of the undisclosed income. Declarants will have immunity from prosecution.
  • Surcharge levied at 7.5% of undisclosed income will be called Krishi Kalyan surcharge to be used for agriculture and rural economy.
  • New Dispute Resolution Scheme to be introduced. No penalty in respect of cases with disputed tax up to Rs.10 lakh. Cases with disputed tax exceeding Rs.10 lakh to be subjected to 25% of the minimum of the imposable penalty.
  • Any pending appeal against a penalty order can also be settled by paying 25% of the minimum of the imposable penalty and tax interest on quantum addition.
  • High Level Committee chaired by Revenue Secretary to oversee fresh cases where assessing officer applies the retrospective amendment.
  • One-time scheme of Dispute Resolution for ongoing cases under retrospective amendment.
  • Penalty rates to be 50% of tax in case of underreporting of income and 200% of tax where there is misreporting of facts.
  • Disallowance will be limited to 1% of the average monthly value of investments yielding exempt income, but not exceeding the actual expenditure claimed under rule 8D of Section 14A of Income Tax Act.
  • Time limit of one year for disposing petitions of the tax payers seeking waiver of interest and penalty.
  • Mandatory for the assessing officer to grant stay of demand once the assesse pays 15% of the disputed demand, while the appeal is pending before Commissioner of Income-tax (Appeals).
  • Monetary limit for deciding an appeal by a single member Bench of ITAT enhanced from Rs. 15 lakhs to Rs.50 lakhs.
  • 11 new benches of Customs, Excise and Service Tax Appellate Tribunal (CESTAT).

Explanatory Notes to the Provisions of the Finance Act, 2013 by CBDT

CBDT has release the explanatory notes to the provisions of the Finance Act, 2013. Below notes are issued by Income tax department so that income tax assessees can have the clarity on the changes made in the Income Tax Act, 1961 through Finance Act, 2013. Explanation includes list of changes made through Finance Act, 2013, Rates of income-tax in respect of incomes liable to tax for the assessment year 2013-14 as applicable to Individual, Hindu undivided family, association of persons, body of individuals or artificial juridical person, Co-Operative Societies, Firms, Companies, Local Authorities, Amendment made in the definition of Capital Asset, Exemption to income of Investor Protection Fund of depositories etc.

CBDT released explanatory notes to the provisions of the Finance Act, 2013

EXPLANATORY NOTES TO
THE PROVISIONS OF THE
FINANCE ACT, 2013

Introduction

1.1 The Finance Act, 2013 (hereafter referred to as the Act) as passed by the Parliament, received the assent of the President on the 10th day of May, 2013 and has been enacted as Act No. 17 of 2013. 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 2013-14 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 2013-14.

(ii) amended sections 2,10, 36,40, 43, 56, 80C, 80CCG, 80D, 80G, 80GGB, 80GGC, 80-IA, 80JJAA, 87, 90, 90A, 115A, 115AD, 115BBD, 115-O, 115R, 132B, 138, 139, 142, 144C, 153, 153B, 153D, 167C, 179, 195, 196D, 204, 206AA, 206C, 245N, 245R, 246A, 252, 253, 271FA, 295 in the Income-tax Act, 1961;

(iii) omitted Chapter X-A and Section 144BA of the Income tax Act, 1961;

(iv) inserted new sections 32AC, 43CA, 80EE, 87A, 194-IA and 194LD in the Income-tax Act, 1961;

(v) inserted Chapter X-A consisting of sections 95 – 102, Chapter XII-DA consisting of sections 115QA – 115QC and Chapter XII-EA consisting of sections 115TA – 115TC, section-144BA and section-194LD in the Income-tax Act, 1961;

(vi) amended rule 3 of Part A of the Fourth Schedule to the Income-tax Act, 1961;

(vii) amended sections 2 and 46 of the Wealth-tax Act, 1957;

(viii) inserted sections 14A and 14B in the Wealth-tax Act, 1957

(ix) amended section 98 of the Finance (No.2) Act, 2004;

(x) introduced Commodity Transaction Tax through Chapter VII.

3. Rate structure

3.1 Rates of income-tax in respect of incomes liable to tax for the assessment year 2013-14

3.1.1 In respect of income of all categories of assessees liable to tax for the assessment year 2013-14, the rates of income-tax have been specified in Part I of the First Schedule to the Act. These rates are the same as those laid down in Part III of the First Schedule to the Finance Act, 2012 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 2012-13.

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 senior and very senior citizen resident in India), HUF, association of persons, body of individuals and artificial juridical person

Individual, resident in India, who is of the age of sixty years or more but less than eighty years (senior citizen)

Individual, resident in India, who is of the age of eighty years or more (very senior citizen)

Up to Rs. 2,00,000

Nil

NIL

Nil

Rs. 2,00,001 – Rs. 2,50,000

10%

Rs. 2,50,001 – Rs. 5,00,000

10%

Rs. 5,00,001 – Rs. 10,00,000

20%

20%

20%

Exceeding Rs. 10,00,000

30%

30%

30%

In the case of every individual, Hindu undivided family, association of persons or body of individuals, no surcharge is levied.

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 cess called Secondary and Higher Education Cess on income-tax at the rate of one per cent of such income-tax. Thus, 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). No marginal relief shall be available in respect of such Cess.

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 Act. 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 Act. No surcharge shall be levied in the case of a firm.

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 Act. No surcharge shall be levied. However, Education Cess, 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 Act.

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 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 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 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 2013-14.

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 Income-tax Act, the rates for deduction of income-tax at source during the financial year 2013-14 have been specified in Part II of the First Schedule to the Act. The rates for deduction of income-tax at source during the financial year 2013 -14 will continue to be the same as those specified in Part II of the First Schedule to the Finance Act, 2012 except that in case of certain payments made to a non-resident (other than a company) or a foreign company, in the nature of income by way of royalty or fees for technical services, the rate shall be twenty-five percent. of such income instead of ten percent.

3.2.2 Surcharge –

The tax deducted at source in the following cases shall be increased by a surcharge for purposes of the Union indicated below:-

(i) In case of every non-resident person not being a company, the rate of surcharge is ten percent of tax where the income or aggregate of such income paid or likely to be paid and subject to the deduction exceeds one crore rupees.

(ii) In case of payments made to foreign companies, the rate of surcharge is two per cent of such income tax where the income or the aggregate of such incomes paid or likely to be paid and subject to the deduction exceeds one crore rupees but does not exceed ten crore rupees. In case where such income or the aggregate of such incomes paid or likely to be paid to a foreign company and subject to the deduction exceeds ten crore rupees, the rate of surcharge is five percent.

(iii) No surcharge on tax deducted at source shall be levied in the case of an individual, Hindu undivided family, association of persons, body of individuals, artificial juridical person, co-operative society, local authority, firm being a resident or a domestic company.

3.2.3 Education Cess –

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 cases of persons not resident in India including companies other than domestic company. For instance, if income tax on a foreign company is Rs. 1, 20,00,000 and the surcharge at the rate of two per cent. is Rs. 2,40,000, then the education cess of two per cent is to be computed on Rs. 1,22,40,000 which works out to Rs. 2,44,800.

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. 1,20,00,000, the surcharge is Rs. 2,40,000, , the said Secondary and Higher Education Cess will be computed at the rate of one percent on Rs. 1,22,40,000 which works out to be Rs. 1,22,400. The total cess in this case will, therefore, amount to Rs. 3,67,200 (i.e., Rs. 2,44,800 + Rs. 1,22,400).

3.3 Rates for deduction of income-tax at source from “Salaries”, computation of “advance tax” and charging of income-tax in special cases during the financial year 2013-14.

3.3.1 The rates for deducting income-tax at source from Salaries and computing advance tax during the financial year 2013-14 have been specified in Part III of the First Schedule to the Act. These rates are also applicable for charging income-tax during the financial year 2013-14 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). The basic exemption limit, the rates of tax and slabs of income for various categories remain the same as in financial year 2012-13. The rates of tax during the financial year 2013-14 are as follows:-

Income chargeable to tax

Rate of income-tax

Individual(other than senior and very senior citizen resident in India), HUF, association of persons, body of individuals and artificial juridical person

Individual, resident in India, who is of the age of sixty years or more but less than eighty years (senior citizen)

Individual, resident in India, who is of the age of eighty years or more (very senior citizen)

Up to Rs. 2,00,000

Nil

NIL

Nil

Rs. 2,00,001 – Rs. 2,50,000

10%

Rs. 2,50,001 – Rs. 5,00,000

10%

Rs. 5,00,001 – Rs. 10,00,000

20%

20%

20%

Exceeding Rs. 10,00,000

30%

30%

30%

The amount of income-tax so computed shall be increased by a surcharge at the rate of ten percent. of such income-tax in case of a person having a total income exceeding one crore rupees.

However, the total amount payable as income-tax and surcharge on total income exceeding one crore rupees shall not exceed the total amount payable as income-tax on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees.

The Education Cess on income-tax shall continue to be levied at the rate of two per cent on the amount of tax computed inclusive of surcharge. In addition, the amount of tax computed shall be further increased by an additional surcharge called Secondary and Higher Education Cess on income-tax at the rate of one per cent of such income-tax inclusive of surcharge. No marginal relief shall be available in respect of Education Cess and Secondary and Higher Education Cess.

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 Act. 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%

The amount of income-tax so computed shall be increased by a surcharge at the rate of ten percent. of such income-tax in case of a co-operative society having a total income exceeding one crore rupees.

However, the total amount payable as income-tax and surcharge on total income exceeding one crore rupees shall not exceed the total amount payable as income-tax on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees.

Education Cess on income-tax 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 income-tax computed inclusive of surcharge. No marginal relief shall be available in respect of Education Cess and Secondary and Higher Education Cess.

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 Act.

The amount of income-tax so computed shall be increased by a surcharge at the rate of ten percent. of such income-tax in case of a firm having a total income exceeding one crore rupees.

However, the total amount payable as income-tax and surcharge on total income exceeding one crore rupees shall not exceed the total amount payable as income-tax on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees.

The Education Cess on income-tax shall continue to be levied at the rate of two per cent on the amount of tax computed inclusive of surcharge. In addition, the amount of tax computed shall be further increased by an additional surcharge called Secondary and Higher Education Cess on income-tax at the rate of one per cent of such income-tax inclusive of surcharge. No marginal relief shall be available in respect of Education Cess and Secondary and Higher Education Cess.

3.3.5 Local Authorities-

In the case of every local authority, the rate of income-tax has been specified at thirty per cent in Paragraph D of Part III of the First Schedule to the Act.

The amount of income-tax so computed shall be increased by a surcharge at the rate of ten percent. of such income-tax in case of a local authority having a total income exceeding one crore rupees.

However, the total amount payable as income-tax and surcharge on total income exceeding one crore rupees shall not exceed the total amount payable as income-tax on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees.

Education Cess on Income-tax 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 income tax and surcharge. No marginal relief shall be available in respect of Education Cess and Secondary and Higher Education Cess.

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 Act.

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 where such domestic company has total income exceeding one crore rupees but not exceeding ten crore rupees. Surcharge at the rate of ten per cent shall be levied if the total income of the company exceeds ten crore rupees.

In the case of a company other than a domestic company, royalties received from Government or 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 but does not exceed ten crore rupees. Surcharge at the rate of five per cent shall be levied if the total income of the company other than domestic company exceeds ten crore rupees.

However, marginal relief shall be allowed in the case of every company to ensure that (i) 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, (ii) the total amount payable as income-tax and surcharge on total income exceeding ten crore rupees shall not exceed the total amount payable as income-tax and surcharge on a total income of ten crore rupees, by more than the amount of income that exceeds ten crore rupees.

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 income-tax computed including surcharge. No marginal relief shall be available in respect of Education Cess and Secondary and Higher Education Cess.

3.4 Surcharge on Additional Income-taxWhere additional income-tax has to be paid under section 115-O or section 115-QA or sub-section (2) of section 115R or section 115TA of the Income-tax 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 on distribution of income by a mutual fund to its unit holders or on distribution of income by a securitization trust to its investors, the additional tax so payable shall be increased by a surcharge of ten percent of such tax.

4. Amendment in the definition of Capital Asset

4.1 The provisions contained in clause (14) of section 2 of the Income-tax Act, 1961, before amendment by the Act, define the term “capital asset” as property of any kind held by an assessee, whether or not connected with his business or profession. Certain categories of properties including agricultural land have been excluded from this definition. Sub-clause (iii) of clause (14) of section 2 provides that (a) agricultural land situated in any area within the jurisdiction of a municipality or cantonment board having population of not less than ten thousand according to last preceding census, or (b) agricultural land situated in any area within such distance not exceeding eight kilometers from the local limits of any municipality or cantonment board as notified by the Central Government having regard to the extent and scope of urbanization and other relevant factors, forms part of capital asset.

4.2 Item (b) of sub-clause (iii) of clause (14) of section 2 has been amended so as to provide that the land situated in any area within the distance, measured aerially (shortest aerial distance), (I) not being more than two kilometers, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lakh; or (II) not being more than six kilometers, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than one lakh but not exceeding ten lakh; or (III) not being more than eight kilometers, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten lakh, shall form part of capital asset.

4.3 The expression “population” has also been defined to mean population according to the last preceding census of which the relevant figures have been published before the first day of the previous year.

4.4 Similar amendments are also carried out in clause (IA) of section 2 of the Income-tax Act, 1961 relating to the definition of “agricultural income” and in respect of the definition of “urban land” in the Wealth-tax Act, 1957.

4.5 Applicability – These amendments take effect from 1st April, 2014 and accordingly, apply in relation to Assessment year 2014-15 and subsequent assessment years.

5. Keyman insurance policy

5.1 The provisions of clause (10D) of section 10 of the Income-tax Act, 1961 before amendment by the Act, inter alia, exempt any sum received under a life insurance policy other than a keyman insurance policy. Explanation 1 to the said clause (10D) defines a keyman insurance policy to mean a life insurance policy taken by a person on the life of another person who is or was the employee of the first-mentioned person or is or was connected in any manner whatsoever with the business of the first-mentioned person.

5.2 It has been noticed that the policies taken as keyman insurance policy are being assigned to the keyman before its maturity. The keyman pays the remaining premium on the policy and claims the entire sum received under such policy as exempt on the ground that the policy is no longer a keyman insurance policy.

5.3 The exemption under section 10(10D) is claimed for policies which were originally keyman insurance policies but during the term these were assigned to some other person. The Courts have also noticed this loophole in law.

5.4 With a view to plug the loophole and check such practices to avoid payment of taxes, the provisions of clause (10D) of section 10 of the Income-tax Act, 1961 have been amended to provide that a keyman insurance policy which has been assigned to any person during its term, with or without consideration, shall continue to be treated as a keyman insurance policy and consequently would not be eligible for any exemption under section 10(10D) of the Income-tax Act.

5.5 Applicability: – The amendment will take effect from 1st April, 2014 and will, accordingly, apply in relation to assessment year 2014-15 and subsequent assessments years.

6. Exemption to income of Investor Protection Fund of depositories

6.1 Under the provisions of SEBI (Depositories and Participants) Regulations, 1996, as amended in 2012, the depositories are mandatorily required to set up an Investor Protection Fund. Section 10(23EA) of the Income-tax Act, 1961 provides that income by way of contributions from a recognised stock exchange received by an Investor Protection Fund set up by the recognised stock exchange shall be exempt from taxation .

6.2 On similar lines, a new clause (23ED) has been inserted in section 10 of the Income-tax Act, 1961 wherein it has been provided that income, by way of contribution from a depository, of the Investor Protection Fund set up by the depository in accordance with the regulations prescribed by SEBI will not be included while computing the total income subject to same conditions as are applicable in respect of exemption to an Investor Protection Fund set up by recognised stock exchanges. However, where any amount standing to the credit of the fund and not charged to income-tax during any previous year is shared wholly or partly with a depository, the amount so shared shall be deemed to be the income of the previous year in which such amount is shared.

6.3 Applicability: – This amendment takes effect from 1st April, 2014 and will, accordingly, apply in relation to assessment year 2014-15 and subsequent assessment years.

7. Pass through Status to certain Alternative Investment Funds

7.1 Section 10(23FB) of the Income-tax Act, 1961 before its amendment by the Act, provided that any income of a Venture Capital Company (VCC) or Venture Capital Fund (VCF) from investment in a Venture Capital Undertaking (VCU) shall be exempt from taxation. Section 115U of the Income-tax Act, 1961 provides that income accruing or arising or received by a person out of investment made in a VCC or VCF shall be taxable in the same manner as if the person had made direct investment in the VCU.

7.2 These sections provide a pass through status (i.e. income is taxable in the hands of investors instead of VCF/VCC) only to the funds which satisfy the investment and other conditions as are provided in SEBI (Venture Capital Fund) Regulations, 1996. Further the pass through status is available only in respect of income which arises to the fund from investment in VCU, being a company which satisfies the conditions provided in SEBI (Venture Capital Fund) Regulations, 1996.

7.3 The SEBI (Alternative Investment Funds) Regulations, 2012 (AIF regulations) have replaced the SEBI (Venture Capital Fund) Regulations, 1996 (VCF regulations) from 21st May, 2012. In order to provide pass through status to similar venture capital funds which are registered under new regulations and subject to same conditions of investment restrictions in the context of investment in a venture capital undertaking, section 10(23FB) has been amended to provide that–

(i) the existing VCFs and VCCs (i.e. which have been registered before 21/05/2012) and are regulated by the VCF regulations, as they stood before repeal by AIF regulations, would continue to avail pass through status as currently available.

(ii) in the context of AIF regulations, the Venture Capital Company shall be defined as a company and Venture capital fund shall be defined as a fund set up as a trust, which has been granted a certificate of registration as Venture Capital Fund being a sub-category of Category I Alternative Investment Fund and satisfies the following conditions:-

(a) at least two-thirds of its investible funds are invested in unlisted equity shares or equity linked instruments of venture capital undertaking.

(b) no investment has been made by such AIFs in a VCU which is an associate company.

(c) units of a trust set up as AIF or shares of a company set up as AIF, are not listed on a recognised stock exchange.

(iii) in the context of AIF regulations, the Venture Capital Undertaking shall be defined in the manner as defined in the Alternative Investment Funds Regulations.

7.4 Applicability: – This amendment has been made effective retrospectively from 1st April, 2013 and will, accordingly, apply in relation to assessment year 2013-14 and subsequent assessment years.

8. Exemption of income received in India in Indian currency by a foreign company

8.1 Clause (48) of section 10 of the Income-tax Act, 1961 was introduced by the Finance Act, 2012 with effect from 01.04.2012. This clause provides exemption to a foreign company in respect of any income received by it in India in Indian currency on account of sale of crude oil to any person in India.

8.2 The above clause was introduced in national interest so that payment can be made in Indian currency to foreign companies for import of crude oil. Similar facility is required in relation to certain other goods and services.

8.3 Accordingly, clause (48) of section 10 of the Income-tax Act, 1961 has been amended to provide that income received in India in Indian currency by a foreign company on account of sale of goods or rendering of services, as may be notified by the Central Government, to any person in India shall also be exempt subject to the existing conditions mentioned in the said clause.

8.4 Applicability: – This amendment takes effect from 1st April, 2014 and will, accordingly, apply in relation to the assessment year 2014-15 and subsequent assessment years.

9. Exemption to National Financial Holdings Company Limited

9.1 The Specified Undertaking of Unit Trust of India (SUUTI) was created vide the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 as the successor of Unit Trust of India (UTI). Exemption from Income-tax was available to SUUTI in respect of its income up to 31st March, 2014. SUUTI has been succeeded by a new company wholly owned by the Central Government. It has been incorporated on 7th June, 2012 as National Financial Holdings Company Limited (NFHCL).

9.2 In order to provide the exemption on the lines of SUUTI to NFHCL, clause (49) has been inserted in section 10 of the Income-tax Act, 1961 to grant exemption to NFHCL in respect of income accruing, arising or received on or before 31.03.2014.

9.3 Applicability: – This amendment has been made effective retrospectively from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and assessment year 2014-15.

10. Incentive for acquisition and installation of new plant or machinery by manufacturing company

10.1 In order to encourage substantial investment in plant or machinery, a new section 32AC has been inserted in the Income-tax Act to provide that where an assessee, being a company,—

(a) is engaged in the business of manufacture of an article or thing; and

(b) invests a sum of more than Rs.100 crore in new assets (plant or machinery) during the period beginning from 1st April, 2013 and ending on 31st March, 2015, then, the assessee shall be allowed—

(i) for assessment year 2014-15, a deduction of 15 percent of aggregate amount of actual cost of new assets acquired and installed during the financial year 2013-14, if the cost of such assets exceeds Rs.100 crore;

(ii) for assessment year 2015-16, a deduction of 15 percent of aggregate amount of actual cost of new assets, acquired and installed during the period beginning on 1st April, 2013 and ending on 31st March, 2015, as reduced by the deduction allowed, if any, for assessment year 2014-15.

10.2 The phrase “new asset” has been defined as new plant or machinery but does not include—

(i) any plant or machinery which before its installation by the assessee was used either within or outside India by any other person;

(ii) any plant or machinery installed in any office premises or any residential accommodation, including accommodation in the nature of a guest house;

(iii) any office appliances including computers or computer software;

(iv) any vehicle;

(v) ship or aircraft; or

(vi) any plant or machinery, the whole of the actual cost of which is allowed as deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head “Profits and gains of business or profession” of any previous year.

10.3 Further, the suitable safeguards have been provided to restrict the transfer of the plant or machinery for a period of 5 years. However, this restriction shall not apply in a case of amalgamation or demerger but shall continue to apply to the amalgamated company or resulting company, as the case may be.

10.4 Applicability: This amendment takes effect from 1st April, 2014 and will, accordingly, apply in relation to the assessment year 2014-15 and subsequent assessment years.

11. Clarification for amount to be eligible for deduction as bad debts in case of banks

11.1 Under the provisions of section 36(1)(viia) of the Income-tax Act, before amendment by the Act, in computing the business income of certain banks and financial institutions, deduction is allowable in respect of any provision for bad and doubtful debts made by such entities subject to certain limits specified therein. The limit specified under section 36(1)(viia)(a) of the Income-tax Act restricts the claim of deduction for provision for bad and doubtful debts for certain banks (not incorporated outside India) and certain cooperative banks to 7.5 percent of gross total income (before deduction under this clause) of such banks and 10 percent of the aggregate average advance made by the rural branches of such banks. This limit is 5 percent of gross total income (before deduction under this clause) under sections 36(1)(viia)(b) and 36(1)(viia)(c) for a bank incorporated outside India and certain financial institutions.

11.2 Provisions of clause (vii) of sub-section (1) of section 36 of the Income-tax Act provides for deduction for bad debt actually written off as irrecoverable in the books of account of the assessee. The proviso to this clause provides that for an assessee, to which section 36(1) (viia) of the Income-tax Act applies, deduction under said clause (vii) shall be limited to the amount by which the bad debt written off exceeds the credit balance in the provision for bad and doubtful debts account made under section 36(1) (viia) of the said Act.

11.3 The provisions of section 36(1)(vii) of the Income-tax Act are subject to the provisions of section 36(2) of the said Act. The clause (v) of sub-section (2) of section 36 of the Income-tax Act provides that the assessee, to which section 36(1)(viia) of the said Act applies, should debit the amount of bad debt written off to the provision for bad and doubtful debts account made under section 36(1) (viia) of the Income-tax Act.

11.4 Therefore, the banks or financial institutions are entitled to claim deduction for bad debt actually written off under section 36(1)(vii) of the Income-tax Act only to the extent it is in excess of the credit balance in the provision for bad and doubtful debts account made under section 36(1)(viia) of the said Act. However, certain judicial pronouncements have created doubts about the scope and applicability of proviso to clause (vii) of sub-section (1) of section 36 of the Income-tax Act and held that the proviso to clause (vii) of sub-section (1) of section 36 of the Income-tax Act applies only to provision made for bad and doubtful debts relating to rural advances.

11.5 Section 36(1)(viia) of the Income-tax Act contains three sub-clauses, i.e. sub-clause (a), sub-clause (b) and sub-clause (c) and only one of the sub-clauses i.e. sub-clause (a) refers to rural advances whereas other sub-clauses do not refer to the rural advances. In fact, foreign banks generally do not have rural branches. Therefore, the provision for bad and doubtful debts account made under clause (viia) of sub-section (1) of section 36 and referred to in proviso to clause (vii) of sub-section (1) of section 36 and clause (v) of sub-section (2) of section 36 of the Income-tax Act applies to all types of advances, whether rural or other advances.

11.6 It has also been interpreted that there are separate accounts in respect of provision for bad and doubtful debt under clause (viia) for rural advances and urban advances and if the actual write off of debt relates to urban advances, then, it should not be set off against provision for bad and doubtful debts made for rural advances. There is no such distinction made in clause (viia) of sub-section (1) of section 36 of the Income-tax Act.

11.7 In order to clarify the scope and applicability of provision of clause (vii), (viia) of sub-section (1) and sub-section (2), an Explanation in clause (vii) of sub-section (1) of section 36 has been inserted stating that for the purposes of the proviso to clause (vii) of sub-section(1) of section 36 and clause (v) of sub-section (2) of section 36, only one account as referred to therein is made in respect of provision for bad and doubtful debts under clause (viia) of sub-section (1) of section 36 and such account relates to all types of advances, including advances made by rural branches. Therefore, for an assessee to which clause (viia) of sub-section (1) of section 36 applies, the amount of deduction in respect of the bad debts actually written off under clause (vii) of sub-section (1) of section 36 shall be limited to the amount by which such bad debts exceeds the credit balance in the provision for bad and doubtful debts account made under clause (viia) of sub-section (1) of section 36 without any distinction between rural advances and other advances.

11.8 Applicability: – This amendment takes effect from 1st April, 2014 and will, accordingly, apply in relation to the assessment year 2014-15 and subsequent assessment years.

12. Disallowance of certain fee, charge, etc. in the case of State Government Undertakings

12.1 The provisions of section 40 of the Income-tax Act, 1961 before its amendment by the Act, specifies the amounts which shall not be deducted in computing the income chargeable under the head ―Profits and gains of business or profession‖. The non-deductible expense under the said section also includes statutory dues like fringe benefit tax, income-tax, wealth-tax, etc. Disputes have arisen in respect of income-tax assessment of some State Government undertakings as to whether any sum paid by way of privilege fee, license fee, royalty, etc. levied or charged by the State Government exclusively on its undertakings are deductible or not for the purposes of computation of income of such undertakings. In some cases, orders have been issued to the effect that surplus arising to such undertakings shall vest with the State Government. As a result it has been claimed that such income by way of surplus is not subject to tax. It is a settled law that State Government undertakings are separate legal entities than the State and are liable to income-tax.

12.2 In order to protect the tax base of State Government undertakings vis-à-vis exclusive levy of fee, charge, etc. or appropriation of amount by the State Governments from its undertakings, section 40 of the Income-tax Act has been amended to provide that any amount paid by way of fee, charge, etc., which is levied exclusively on, or any amount appropriated, directly or indirectly, from a State Government undertaking, by the State Government, shall not be allowed as deduction for the purposes of computation of income of such undertakings under the head “Profits and gains of business or profession”. The expression “State Government Undertaking” for this purpose includes ─

(i) a corporation established by or under any Act of the State Government;

(ii) a company in which more than fifty per cent of the paid-up equity share capital is held by the State Government;

(iii) a company in which more than fifty per cent of the paid-up equity share capital is held by the entity referred to in clause (i) or clause (ii) (whether singly or taken together);

(iv) a company or corporation in which the State Government has the right to appoint the majority of the directors or to control the management or policy decisions, directly or indirectly, including by virtue of its shareholding or management rights or shareholders agreements or voting agreements or in any other manner;

(v) an authority, a board or an institution or a body established or constituted by or under any Act of the State Government or owned or controlled by the State Government.

12.3 Applicability: – This amendment takes effect from 1st April, 2014 and will, accordingly, apply in relation to the assessment year 2014-15 and subsequent assessment years.

13. Computation of income under the head “Profits and gains of business or profession” for transfer of immovable property in certain cases

13.1 Under the provisions of the Income-tax Act, when a capital asset, being immovable property, is transferred for a consideration which is less than the value adopted, assessed or assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, then such value (stamp duty value) is taken as full value of consideration under section 50C of the Income-tax Act. However, these provisions do not apply to transfer of immovable property, held by the transferor as stock-in-trade.

13.2 Accordingly, a new section 43CA has been inserted in the Income tax Act which provides that where the consideration for the transfer of an asset (other than capital asset), being land or building or both, is less than the stamp duty value, the value so adopted or assessed or assessable shall be deemed to be the full value of consideration for the purposes of computing income under the head “Profits and gains of business or profession”.

13.3 It has also been provided that where the date of an agreement fixing the value of consideration for the transfer of the asset and the date of registration of the transfer of the asset are not the same, the stamp duty value may be taken as on the date of the agreement for transfer and not as on the date of registration for such transfer. However, this exception shall apply only in those cases where amount of consideration or a part thereof for the transfer has been received by any mode other than cash on or before the date of the agreement.

13.4 Applicability: This amendment take effects from 1st April, 2014 and will, accordingly, apply in relation to the assessment year 2014-15 and subsequent assessment years.

14. Taxability of immovable property received for inadequate consideration

14.1 Sub clause (b) of clause (vii) of sub-section (2) of section 56 of the Income-tax Act, before its amendment by the Act, inter alia, provided that where any immovable property is received by an individual or HUF without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property would be charged to tax in the hands of the individual or HUF as income from other sources.

14.2 The said provision does not cover a situation where the immovable property has been received by an individual or HUF for inadequate consideration. Accordingly, the provisions of clause (vii) of sub-section (2) of section 56 have been amended so as to provide that where any immovable property is received for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the difference between the stamp duty value of such property and the consideration, shall be chargeable to tax in the hands of the individual or HUF as income from other sources.

14.3 Considering the fact that there may be a time gap between the date of agreement and the date of registration, it has been provided that where the date of the agreement fixing the amount of consideration for the transfer of the immovable property and the date of registration are not the same, the stamp duty value may be taken as on the date of the agreement, instead of that on the date of registration. This exception shall, however, apply only in a case where the amount of consideration, or a part thereof, has been paid by any mode other than cash on or before the date of the agreement fixing the amount of consideration for the transfer of such immovable property.

14.4 Applicability: – This amendment takes effect from 1st April, 2014 and accordingly, applies in relation to the assessment year 2014-15 and subsequent assessment years.

15. Raising the limit of percentage of eligible premium for life insurance policies of persons with disability or disease

15.1 Under the provisions contained in clause (10D) of section 10 of the Income-tax Act, 1961 before amendment by the Act, any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy, is exempt, subject to the condition that the premium paid for such policy does not exceed ten per cent of the ‗actual capital sum assured‘.

15.2 Similarly as per the provisions of sub-section (3A) of section 80C of the Income-tax Act, prior to its amendment by the Act, the deduction under the said section is available in respect of any premium or other payment made on an insurance policy of up to ten per cent of the ‗actual capital sum assured‘.

15.3 The above limit of ten per cent was introduced through the Finance Act, 2012 and applies to policies issued on or after 1st April, 2012. Some insurance policies for persons with disability or suffering from specified diseases provide for an annual premium of more than ten per cent of the actual capital sum assured. Due to the limit of ten per cent, these policies are ineligible for exemption under clause (10D) of section 10 of the Income-tax Act. Moreover in such cases, the deduction under section 80C is eligible only to an extent of the premium paid up to 10 percent of the ‗actual capital sum assured‘.

15.4 In view of the above, it has now been provided that any sum including the sum allocated by way of bonus received under an insurance policy issued on or after 01.04.2013 for the insurance on the life of any person who is

(i) a person with disability or a person with severe disability as referred to in section 80U, or
(ii) suffering from disease or ailment as specified in the rules made under section 80DDB,

shall be exempt under clause (10D) of section 10 of the Income-tax Act, if the premium payable for any of the years during the term of the policy does not exceed 15 percent of the actual capital sum assured.

15.5 Sub-section (3A) of section 80C of the Income-tax Act has also been amended so as to provide that the deduction under the said section on account of premium paid in respect of a policy issued on or after 01.04.2013 for insurance on the life of a person referred to in para 15.4 above shall be allowed to the extent of the premium paid but does not exceed fifteen percent. of the actual capital sum assured.

15.6 Applicability: – This amendment takes effect from 1st April, 2014 and will, accordingly, apply in relation to the assessment year 2014-15 and subsequent assessment years.

16. Expanding the scope of deduction and its eligibility under section 80CCG

16.1 Section 80CCG of the Income-tax Act, before its amendment by the Act, inter-alia, provide that a resident individual who has acquired listed equity shares in accordance with the scheme notified by the Central Government, shall be allowed a deduction of fifty per cent of the amount invested in such equity shares to the extent that the said deduction does not exceed twenty five thousand rupees.

16.2 The deduction is one-time and is available only in one assessment year in respect of the amount so invested. The deduction is available to a new retail investor whose gross total income does not exceed ten lakh rupees. Rajiv Gandhi Equity Savings Scheme has been notified under section 80CCG.

16.3 With a view to liberalize the incentive available for investment in capital markets by the new retail investors, the provisions of section 80CCG have been amended so as to provide that investment in listed units of an equity oriented fund shall also be eligible for deduction in accordance with the provisions of section 80CCG. For this purpose “equity oriented fund “shall have the meaning assigned to it in clause (38) of section 10 of the Income-tax Act.

16.4 It has been further provided that the deduction under section 80CCG of the Income-tax Act shall be allowed for three consecutive assessment years, beginning with the assessment year relevant to the previous year in which the listed equity shares or listed units were first acquired by the new retail investor whose gross total income for the relevant assessment year does not exceed twelve lakh rupees. The modified Rajiv Gandhi Equity Savings Scheme has also been notified on 18th December, 2013.

16.5 Applicability: – This amendment takes effect from 1st April, 2014 and will, accordingly, apply in relation to the assessment year 2014-15 and subsequent assessment years.

17. Deduction for contribution to Health Schemes similar to CGHS

17.1 Section 80D of the Income Tax Act, before its amendment by the Act, inter alia, provided that the whole of the amount paid in the previous year out of the income chargeable to tax of the assessee, being an individual, to effect or to keep in force an insurance on his health or the health of his family or any contribution made towards the Central Government Health Scheme (CGHS) as does not exceed in the aggregate fifteen thousand rupees, is allowed to be deducted in computing the total income of the assessee.

17.2 It has been noticed that there are other health schemes of the Central and State Governments, which are similar to the CGHS but no deduction is available to the subscribers of such schemes. In order to bring such schemes at par with the CGHS, section 80D has been amended. The benefit of deduction under this section within the said limit shall be available in respect of any payment or contribution made by the assessee to such other health scheme which has been notified by the Central Government in this behalf.

17.3 Applicability: This amendment takes effect from 1st April, 2014 and will, accordingly, apply in relation to the assessment year 2014-15 and subsequent assessment years.

18. Deduction in respect of interest on loan sanctioned during financial year 2013-14 for acquiring residential house property

18.1 Under the provisions of section 24 of the Income-tax Act, before amendment by the Act, income chargeable under the head ‗Income from House Property‘ is computed after making the deductions specified therein. The deductions specified under the aforesaid section are as under:-

i. A sum equal to thirty per cent of the annual value;

ii. Where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital.

It has also been provided that where the property consists of a house or part of a house which is in the occupation of the owner for the purposes of his own residence or cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him, then the amount of deduction as mentioned above shall not exceed one lakh fifty thousand rupees subject to the conditions provided in the said section.

18.2 Keeping in view the issue of affordable housing for families, an additional benefit for first home-buyers has been provided by inserting a new section 80EE in the Income-tax Act relating to deduction in respect of interest on loan taken for residential house property.

18.3 Section 80EE provides that in computing the total income of an assessee, being an individual, deduction shall be allowed on account of interest payable on loan taken by him from any financial institution for the purpose of acquisition of a residential house property.

18.3.1 The deduction under the said section shall not exceed one lakh rupees and shall be allowed in computing the total income of the individual for the assessment year beginning on 1st April, 2014 and in a case where the interest payable for the previous year relevant to the said assessment year is less than one lakh rupees, the balance amount shall be allowed in the assessment year beginning on 1st April, 2015.

18.3.2 The deduction shall be subject to the following conditions:- (i) the loan is sanctioned by the financial institution during the period beginning on 1st April, 2013 and ending on 31st March, 2014; (ii) the amount of loan sanctioned for acquisition of the residential house property does not exceed twenty-five lakh rupees; (iii) the value of the residential house property does not exceed forty lakh rupees; (iv) the assessee does not own any residential house property on the date of sanction of the loan.

18.3.3 It is also provided that where a deduction under section 80EE is allowed for any assessment year, in respect of interest referred to in sub-section (1), deduction shall not be allowed in respect of such interest under any other provisions of the Income Tax Act for the same or any other assessment year. The term “financial institution” has been defined to mean a banking company to which the Banking Regulation Act, 1949 applies including any bank or banking institution referred to in section 51 of that Act or a housing finance company. The term “housing finance company” has been defined to mean a public company formed or registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes.

18.4 Applicability: – This amendment takes effect from 1st April, 2014 and accordingly applies in relation to the assessment year 2014-15 and assessment year 2015-16.

19. One hundred percent deduction for donation to National Children’s Fund

19.1 Under the provisions of section 80G of the Income-tax Act, before its amendment by the Act, an assessee is allowed a deduction from his total income in respect of donations made by him to certain funds and institutions. The deduction is allowed at the rate of fifty per cent of the amount of donations made except in the case of donations made to certain funds and institutions specified in clause (i) of sub-section (1) of said section 80G, where deduction is allowed at the rate of one hundred per cent.

19.2 In the case of donations made to the National Children‘s Fund, a deduction at the rate of fifty per cent of the amount so donated was allowed.

19.3 Donations to Funds which are of national importance have been generally provided a deduction of one hundred per cent of the amount donated. As the National Children‘s Fund is also a Fund of national importance, the section has been amended to provide a hundred per cent deduction in respect of any sum paid as donation to the said Fund in computing the total income of an assessee.

19.4 Applicability: – This amendment takes effect from 1st April, 2014 and will, accordingly, apply in relation to assessment year 2014-15 and subsequent assessment years.

20. Contribution not to be in cash for deduction under section 80GGB & section 80GGC

20.1 Under section 80GGB of the Income-tax Act, before its amendment by the Act, any sum contributed by an Indian company to any political party or an electoral trust in the previous year, is allowed as deduction in computing the total income of such Indian company. A similar deduction is available to an assessee, being any person other than local authority and artificial juridical person under section 80GGC.

20.2 No specific mode was provided for making such contribution. With a view to discourage cash payments by the contributors, the provisions of aforesaid sections have been amended to provide that no deduction shall be allowed under section 80GGB and 80GGC in respect of any sum contributed by way of cash.

20.3 Applicability: – This amendment takes effect from 1st April, 2014 and will, accordingly, apply in relation to the assessment year 2014-15 and subsequent assessment years.

21. Extension of the sunset date under section 80IA for the power sector

21.1 Under the provisions contained in the clause (iv) of sub-section (4) of section 80IA, before amendment by the Act, a deduction of profits and gains is allowed to an undertaking which, –

(a) is set up in any part of India for the generation or 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, 2013;

(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, 2013;

(c) undertakes substantial renovation and modernisation of the existing network of transmission or distribution lines at any time during the period beginning on 1st April, 2004 and ending on 31st March, 2013.

21.2 With a view to provide further time to such undertakings to commence the eligible activity for availing the tax incentive, the above provisions have been amended so as to extend the terminal date by a further period of one year i.e. up to 31st March, 2014.

21.3 Applicability: – These amendments take effect from 1st April, 2014 and will, accordingly, apply in relation to the assessment year 2014-15 and subsequent assessment years.

22. Deduction for additional wages in certain cases

22.1 Section 80JJAA, before amendment by the Act, provided for a deduction of an amount equal to thirty per cent of additional wages paid to the new regular workmen employed in any previous year by an Indian company in its industrial undertaking engaged in manufacture or production of article or thing. The deduction is available for three assessment years including the assessment year relevant to the previous year in which such employment is provided.

22.2 No deduction under this section is allowed if the industrial undertaking is formed by splitting up or reconstruction of an existing undertaking or amalgamation with another industrial undertaking.

22.3 The tax incentive under section 80JJAA was intended for employment of blue collared employees in the manufacturing sector whereas in practice, it is being claimed for other employees in other sectors also. Therefore, the provisions of section 80JJAA have been amended so as to provide that the deduction shall be available to an Indian Company deriving profits from manufacture of goods in a factory.

22.4 The deduction shall be of an amount equal to thirty per cent of additional wages paid to the new regular workmen employed by the assessee in such factory, in the previous year, for three assessment years including the assessment year relevant to the previous year in which such employment is provided.

22.5 It has also been provided that the deduction under this section shall not be available if the factory is hived off or transferred from another existing entity or acquired by the assessee company as a result of amalgamation with another company.

22.6 Applicability: – This amendment takes effect from 1st April, 2014 and will, accordingly, apply in relation to assessment year 2014-15 and subsequent assessment years.

23. Rebate of Rs. 2000 for individuals having total income up to Rs. 5 lakh

23.1 With a view to provide tax relief to the individual tax payers who are in lower income bracket, a tax rebate has been provided to an assessee, being an individual resident in India and having total income not exceeding five lakh rupees.

23.2 The rebate shall be equal to the amount of income-tax payable on the total income for any assessment year or an amount of two thousand rupees, whichever is less. Consequently any individual having income up to Rs. 2,20,000 will not be required to pay any tax and every individual having total income above Rs. 2,20,000/- but not exceeding Rs. 5,00,000/- shall get a tax rebate of Rs. 2000/-.

23.3 Section 87A has been inserted in the Income-tax Act, 1961, and Section 87 of the said Act has also been consequentially amended.

23.4 Applicability: – These amendments take effect from 1st April, 2014 and will, accordingly, apply in relation to the assessment year 2014-15 and subsequent assessment years.

24. Tax Residency Certificate

24.1 Section 90 of the Income-tax Act empowers the Central Government to enter into an agreement with the Government of any foreign country or specified territory outside India for the purpose of –

(i) granting relief in respect of double taxation,
(ii) exchange of information and
(iii) recovery of taxes.

Further section 90A of the Income-tax Act empowers the Central Government to adopt any agreement between specified associations for above mentioned purposes.

24.2 In exercise of this power, the Central Government has entered into various Double Taxation Avoidance Agreements (DTAAs) with different countries and has adopted agreements between specified associations for relief of double taxation. The scheme of interplay between DTAA and domestic legislation ensures that a taxpayer, who is resident of one of the contracting country to the DTAA, is entitled to claim applicability of beneficial provisions either of DTAA or of the domestic law. Sub-section (4) of sections 90 and 90A of the Income-tax Act inserted by Finance Act, 2012 make submission of Tax Residency Certificate (TRC) containing prescribed particulars, as a condition for availing benefits of the agreements referred to in these sections.

24.3 Concerns were expressed by Tax Authorities of other countries, as well as stakeholders that different countries issue TRC as per their practice and law. Therefore, the TRCs issued by different countries may not contain all the particulars which were mandatorily required to be included under section 90(4) or 90A (4) of the Income-tax Act.

24.4 In order to address the concerns expressed, sub-section (4) has been amended to omit the requirement that the prescribed particulars are to be mandatorily part of the certificate to be issued by the foreign government. Therefore, TRC issued by different countries in their respective formats would meet the requirement of sub-section (4). However, sub-section (5) has been introduced in sections 90 & 90A of the Income-tax Act to provide that the taxpayer shall be required to furnish such other documents and information as may be prescribed. This has been prescribed vide Notification 47/2013 dated 26th June 2013 amending Rule 21AB of Income-tax Rules, 1962.

24.5 Applicability: – These amendments have been made retrospectively from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.

25. GENERAL ANTI-AVOIDANCE RULE (GAAR)

25.1 The General Anti Avoidance Rule (GAAR) was introduced in the Income-tax Act by the Finance Act, 2012. The substantive provisions relating to GAAR are contained in Chapter X-A (consisting of sections 95 to 102) of the Income-tax Act. The procedural provisions relating to mechanism for invocation of GAAR and passing of the assessment order in consequence thereof are contained in section 144BA. The provisions of Chapter X-A as well as section 144BA would have come into force with effect from 1st April, 2014.

25.2 A number of representations were received against the provisions relating to GAAR. An Expert Committee was constituted by the Government with broad terms of reference including consultation with stakeholders and finalising the GAAR guidelines and a road map for its implementation. The Expert Committee‘s recommendations included suggestions for legislative amendments, formulation of rules and prescribing guidelines for implementation of GAAR. The major recommendations of the Expert Committee have been accepted by the Government, with some modifications. Some of the recommendations accepted by the Government required amendment in the provisions of Chapter X-A and section 144BA.

25.3 In order to give effect to the recommendations, the following amendments have been made in GAAR provisions inserted in the Income-tax Act through the Finance Act, 2012:-

(A) The provisions of Chapter X-A and section 144BA will come into force with effect from April 1, 2016 as against the current date of April 1, 2014. The provisions shall apply from the assessment year 2016-17 instead of assessment year 2014-15.

(B) An arrangement, the main purpose of which is to obtain a tax benefit, would be considered as an impermissible avoidance arrangement. The provision of section 96 providing that it should be “the main purpose or one of the main purposes” has been amended accordingly.

(C) The factors like, period or time for which the arrangement had existed; the fact of payment of taxes by the assessee; and the fact that an exit route was provided by the arrangement, would be relevant but not sufficient to determine whether the arrangement is an impermissible avoidance arrangement. The provisions of section 97 which provided that these factors would not be relevant have been amended accordingly.

(D) An arrangement shall also be deemed to be lacking commercial substance, if it does not have a significant effect upon the business risks, or net cash flows of any party to the arrangement apart from any effect attributable to the tax benefit that would be obtained but for the application of Chapter X-A. The provisions as contained in section 97 have been amended to provide that an arrangement shall also be deemed to lack commercial substance if the condition provided above is satisfied.

(E) The Approving Panel shall consist of a Chairperson who is or has been a Judge of a High Court; one Member of the Indian Revenue Service not below the rank of Chief Commissioner of Income-tax; and one Member who shall be an academic or scholar having special knowledge of matters such as direct taxes, business accounts and international trade practices. The provision of section 144BA that the Approving Panel shall consist of not less than three members being income-tax authorities and an officer of the Indian Legal Service has been amended accordingly.

(F) The directions issued by the Approving Panel shall be binding on the assessee as well as the income-tax authorities and no appeal against such directions can be made under the provisions of the Act. The provisions of section 144BA providing that the direction of the Approving Panel will be binding only on the Assessing Officer have been amended accordingly.

(G) The Central Government may constitute one or more Approving Panels as may be necessary and the term of the Approving Panel shall be ordinarily for one year and may be extended from time to time up to a period of three years. The provisions of section 144BA have been be amended accordingly.

(H) The two separate definitions in the provisions of section 102, as inserted by Finance Act, 2012 namely “associated person” and “connected person” have been combined and there is only one inclusive provision defining a ‘connected person’. The provisions of section 102 have been amended accordingly.

25.4 Consequential amendments in other sections relating to procedural matters have also been made. Further, GAAR rules have been notified vide Notification No.75/2013 dated 23rd of September, 2013.

25.5 Applicability: – These amendments take effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent assessment years.

26. Taxation of Income by way of Royalty or Fees for Technical Services

26.1 Section 115A of the Income-tax Act provides for determination of tax in case of a non-resident taxpayer where the total income includes any income by way of Royalty and Fees for technical services (FTS) received under an agreement entered after 31.03.1976 and which are not effectively connected with permanent establishment, if any, of the non-resident in India. Prior to amendment of section 115A by the Act, the tax was payable on the gross amount of income at the rate of –

(i) 30% if income by way of royalty or FTS is received in pursuance of an agreement entered on or before 31.05.1997;

(ii) 20% if income by way of royalty or FTS is received in pursuance of an agreement entered after 31.05.1997 but before 01.06.2005; and

(iii) 10% if income by way of royalty or FTS is received in pursuance of an agreement entered on or after 01.06.2005.

26.2 India has tax treaties with 87 countries, majority of tax treaties allow India to levy tax on gross amount of royalty at rates ranging from 10 per cent to 25 per cent, whereas the tax rate as per section 115A is 10 per cent. In some cases, this has resulted in taxation at a lower rate of 10 per cent even if the treaty allows the income to be taxed at a higher rate.

26.3 In order to correct this anomaly, the tax rate in case of non-resident taxpayer, in respect of income by way of royalty and fees for technical services as provided under section 115A, has been increased from 10 per cent to 25 per cent. This rate of 25 per cent shall be applicable to any income by way of royalty and FTS received by a non-resident, under an agreement entered after 31.03.1976, which is taxable under section 115A.

26.4 Applicability: – This amendment takes effect from 1st April, 2014 and will, accordingly, apply in relation to the assessment year 2014-15 and subsequent assessment years.

27. Lower rate of tax on dividends received from foreign companies

27.1 Section 115BBD of Income-tax Act provides for taxation of gross dividends received by an Indian company from a specified foreign company (in which it has shareholding of 26 per cent or more) at the rate of 15 per cent if such dividend is included in the total income for the Financial Year 2012-13 i.e. Assessment Year 2013-14. The above provision was introduced as an incentive for repatriation of income earned by residents from investments made abroad subject to certain conditions.

27.2 In order to continue the tax incentive for one more year, section 115BBD has been amended to extend the applicability of this section in respect of income by way of dividends received from a specified foreign company in Financial Year 2013-14 also, subject to the same conditions.

27.3 Applicability: – This amendment takes effect from 1st April, 2014 and will, accordingly, apply in relation to the assessment year 2014-15.

28. Removal of the cascading effect of Dividend Distribution Tax (DDT)

28.1 Section 115-O of the Income-tax Act provides for taxation of distributed profits of a domestic company. It provides that any amount declared, distributed or paid by way of dividends, whether out of current or accumulated profits shall be liable to be taxed at the rate of 15 per cent. The tax is known as Dividend Distribution Tax (DDT). Such distributed dividend is exempt in the hands of recipients.

28.2 Section 115BBD of Income Tax Act provides for taxation of gross dividends received by an Indian company from a specified foreign company (in which it has shareholding of 26 per cent or more) at the rate of 15 per cent.

28.3 Section 115-O provides that the tax base for DDT (i.e. the dividend payable in case of a company) is to be reduced by an amount of dividend received from its subsidiary if such subsidiary has paid the DDT which is payable on such dividend . This ensured removal of cascading effect of DDT in a multi-tier structure where dividend received by a domestic company from its subsidiary (which is also a domestic company) is distributed to its shareholders.

28.4 section 115-O has been amended in order to remove the cascading effect in respect of dividends received by a domestic company from a similarly placed foreign subsidiary ( i.e. the foreign company in which domestic company holds more than fifty per cent of equity share capital). It has been provided that where the tax on dividends received from the foreign subsidiary is payable under section 115BBD by the holding domestic company then, any dividend distributed by the holding company in the same year, to the extent of such dividends, shall not be subject to Dividend Distribution Tax under section 115-O of the Income-tax Act.

28.5 Applicability: – This amendment takes effect from 1st June, 2013.

29. Additional Income-tax on distributed income by company for buy-back of unlisted shares.

29.1 The provisions of Section 2(22) (e) of the Income-tax Act, before its amendment by the Act, provide the definition of dividends for the purposes of the Income-tax Act. Section 115- O provides for levy of Dividend Distribution Tax (DDT) on the company at the time when company distributes, declares or pays any dividend to its shareholders. Consequent to the levy of DDT the amount of dividend received by the shareholders is not included in the total income of the shareholder. The consideration received by a shareholder on buy-back of shares by the company is not treated as dividend but is taxable as capital gains under section 46A of the Act.

29.2 A company, having distributable reserves, has two options to distribute the same to its shareholders either by declaration and payment of dividends to the shareholders, or by way of purchase of its own shares (i.e. buy back of shares) at a consideration fixed by it. In the first case, the payment by company is subject to DDT and income in the hands of shareholders is exempt. In the second case the income is taxed in the hands of shareholder as capital gains. Unlisted Companies, as part of tax avoidance scheme, resort to buy back of shares instead of payment of dividends in order to avoid payment of tax by way of DDT particularly where the capital gains arising to the shareholders are either not chargeable to tax or are taxable at a lower rate.

29.3 In order to curb such practice, a new Chapter XII-DA has been inserted in the Income-tax Act to provide that the consideration paid by the company for purchase of its own unlisted shares which is in excess of the sum received by the company at the time of issue of such shares (distributed income) will be charged to tax and the company would be liable to pay additional income-tax at the rate of 20 per cent of the distributed income paid to the shareholder. The additional income-tax payable by the company shall be the final tax on similar lines as dividend distribution tax. The income arising to the shareholders in respect of such buy back by the company would be exempt under section 10 (34A) of the Income-tax Act where the company is liable to pay the additional income-tax on the buy-back of shares.

29.4 Applicability: – These amendments take effect from 1stJune, 2013.

30. Rationalisation of tax on distributed income by the Mutual Funds

30.1 Under the provisions of section 115R of the Income-tax Act, before its amendment by the Act, any amount of income distributed by the specified company or a Mutual Fund to its unit holders is chargeable to additional income-tax. In case of any distribution made by a fund other than equity oriented fund to a person who is not an individual and HUF, the rate of tax is 30 per cent whereas in case of distribution to an individual or an HUF it is 12.5 per cent or 25 per cent depending on the nature of the fund.

30.2 In order to provide uniform taxation for all types of funds, other than equity oriented fund, the rate of tax on distributed income has been increased from 12.5 per cent to 25 per cent in all cases where distribution is made to an individual or a HUF.

30.3 Further in case of an Infrastructure debt fund (IDF) set up as a Non-Banking Finance Company (NBFC) the interest payment made by the fund to a non-resident investor is taxable at a concessional rate of 5 per cent. However in case of distribution of income by an IDF set up as a Mutual Fund the distribution tax is levied at the rates described above in the case of a Mutual Fund.

30.4 In order to bring parity in taxation of income from investment made by a non-resident Investor in an IDF whether set up as a IDF-NBFC or IDF-Mutual Fund, section 115R has been amended to provide that tax at the rate of 5 per cent on income distributed shall be payable in respect of income distributed by a Mutual Fund under an IDF scheme to a non-resident Investor.

30.5 Applicability: – These amendments take effect from 1st June, 2013.

31. Taxation of Securitisation Trusts

31.1 Section 161 of the Income-tax Act provides that in case of a trust if its income consists of or includes profits and gains of business then income of such trust shall be taxed at the maximum marginal rate in the hands of trust.

31.2 The special purpose entities set up in the form of trust to undertake securitisation activities were facing problem due to lack of special dispensation in respect of taxation under the Income-tax Act. The taxation at the level of trust due to existing provisions was considered to be restrictive particularly where the investors in the trust are persons which are exempt from taxation under the provisions of the Income-tax Act like Mutual Funds.

31.3 In order to facilitate the securitisation process, a special taxation regime has been provided in respect of taxation of income of securitisation entities, set up as a trust, from the activity of securitisation. Section 10 of the Income-tax Act has been amended and also a new Chapter XII-EA has been inserted therein for providing a special tax regime. The salient features of the special regime are:-

(i) In case of securitisation vehicles which are set up as a trust being a “Special purpose distinct entity” under SEBI (Public Offer and Listing of Securitised Debt Instruments) Regulations, 2008 or “Special Purpose Vehicle” in the form of trust (not as a company or other entity) under the guidelines on securitisation of standard assets issued by RBI and the activities of which are regulated by either SEBI or RBI, the income from the activity of securitisation of such trusts will be exempt from taxation.

(ii) The securitisation trust will be liable to pay additional income-tax on income distributed to its investors on the lines of income distribution tax levied in the case of mutual funds. The additional income-tax shall be levied at the rate of 25 per cent in case of distribution being made to investors who are individual and HUF and at the rate of 30 per cent in other cases. No additional income-tax shall be payable if the income distributed by the securitisation trust is received by a person in whose case income, irrespective of its nature and source, is not chargeable to tax. For instance, in the case of income being distributed to a mutual fund, whose income from all sources are exempt under section 10(23D) of the Income-tax Act, no additional income tax shall be payable.

(iii) Consequent to the levy of distribution tax, the distributed income received by the investor will be exempt from tax under section 10 (23D) of the Income-tax Act.

(iv) The securitisation trust will be liable to pay interest at the rate of one per cent for every month or part of the month on the amount of additional income-tax not paid within the specified time.

(v) The person responsible for payment of income or the securitisation trust will be deemed to be an assessee in default in respect of the amount of tax payable by him or it in case the additional income-tax is not paid to the credit of Central Government.

31.4 Applicability: – This amendment takes effect from 1st June, 2013.

32. Application of seized assets under section 132B

32.1 The provisions contained in section 132B of the Income-tax Act, before amendment by the Act, inter-alia, provide that seized cash may be adjusted against any existing liability under the Income-tax Act, Wealth-tax Act, Expenditure-tax Act, Gift-tax Act and Interest-tax Act and the amount of liability determined on completion of assessments pursuant to search, including penalty levied or interest payable and in respect of which such person is in default or deemed to be in default. Various courts have taken a view that the term ―existing liability‖ includes advance tax liability of the assesse, which is not in consonance with the intention of the legislature. The legislative intent behind this provision is to ensure the recovery of outstanding tax/interest/penalty and also to provide for recovery of taxes/interest/penalty, which may arise subsequent to the assessment pursuant to search.

32.2 Accordingly, said section 132B has been amended to clarify that the existing liability does not include advance tax payable in accordance with the provisions of Part C of Chapter XVII of the Income-tax Act.

32.3 Applicability: – This amendment takes effect from 1st June, 2013.

33. Replacement of terms “Foreign Exchange Regulation Act, 1947” and “Foreign Exchange Regulation Act, 1973” with “Foreign Exchange Management Act, 1999”

33.1 Section 138 of the Income-tax Act provides for disclosure of information in respect of assesses. Sub-clause (i) of clause (a) of sub-section (1) of the said section, inter-alia, provides that the Board or any Income-tax authority specified by it may furnish or cause to be furnished to any officer or body performing any functions under any law relating to dealings in foreign exchange as defined in section 2(d) of the Foreign Exchange Regulation Act, 1947, any information so as to enable him to perform his functions under that law. Foreign Exchange Regulation Act, 1947 (FERA) referred to in the said section was repealed in 1973 and was substituted by Foreign Exchange Regulation Act, 1973. In 1999 a new Act, Foreign Exchange Management Act, 1999 (FEMA) was introduced. The definition of foreign exchange in FERA, 1947 has under gone slight modification in FEMA, 1999. The term foreign exchange is defined in clause (n) of section 2 of FEMA, 1999.

33.2 In view of the above, sub-clause (i) of clause (a) of sub-section (1) section 138 of the Income-tax Act has been amended to provide that foreign exchange shall have the meaning as assigned to it in section 2(n) of FEMA, 1999.

33.3 Similar amendments have been made in sections 10(4), 10(4B), 10(15), 10A, 10B, 48, 115AB, 115C, and 196A of the Income-tax Act.

33.4 Applicability: – This amendment will take effect from 1st April, 2013.

34. Return of Income filed without payment of self- assessment tax to be treated as defective return.

34.1 The provisions contained in sub-section (9) of section 139, before amendment by the Act, provide that where the Assessing Officer considers that the return of income furnished by the assessee is defective; he may intimate the defect to the assessee and give him an opportunity to rectify the defect within a period of fifteen days. If the defect is not rectified within the time allowed by the Assessing Officer, the return is treated as an invalid return. The conditions, the non-fulfillment of which renders the return defective have been provided in the Explanation to the aforesaid sub-section. Section 140A provides that where any tax is payable on the basis of any return, after taking into account the prepaid taxes, the assesse shall be liable to pay such tax together with interest payable under any provision of this Act for any delay in furnishing the return or any default or delay in payment of advance tax, before furnishing the return. It has been noticed that a large number of assesses furnish their returns of income without payment of self-assessment tax.

34.2 With a view to ensure compliance of the provisions of section 140A, the Explanation to sub-section (9) of section 139 of the Income-tax Act has been amended to provide that the return of income shall be regarded as defective unless the tax together with interest, if any, payable in accordance with the provisions of section 140A has been paid on or before the date of furnishing of the return.

34.3 Applicability: – This amendment takes effect from 1st June, 2013.

35. Direction for special audit under sub-section (2A) of section 142

35.1 Sub-section (2A) of section 142 of the Income-tax Act, before its amendment by the Act, inter-alia, provided that if at any stage of the proceedings, the Assessing Officer having regard to the nature and complexity of the accounts of the assessee and the interests of the revenue, is of the opinion that it is necessary so to do, he may, with the approval of the Chief Commissioner or Commissioner, direct the assessee to get his accounts audited by an accountant and to furnish a report of such audit in the prescribed form. The expression “nature and complexity of the accounts” has been interpreted in a very restrictive manner by various courts.

35.2 Sub-section (2A) of section 142 has been amended to provide that if at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or specialized nature of business activity of the assessee, and the interests of the revenue, is of the opinion that it is necessary so to do, he may, with the previous approval of the Chief Commissioner or the Commissioner, direct the assessee to get his accounts audited by an accountant and to furnish a report of such audit in the prescribed form.

35.3 Applicability: – This amendment takes effect from 1st June, 2013.

36. Exclusion of time in computing the period of limitation for completion of assessments and reassessments.

36.1 Section 153 of the Income-tax Act, inter-alia, provides the time limit for completion of assessment and reassessment of income by the Assessing Officer. Explanation to section 153 provides that certain periods specified therein shall be excluded while computing the period of limitation for the purposes of the said section. Under the provisions of clause (iii) of Explanation 1 to section 153 of the Income-tax Act, prior to its amendment by the Act, the period commencing from the date on which the Assessing Officer directs the assessee to get his accounts audited under sub-section (2A) of section 142 and ending with the last date on which the assesee is required to furnish a report of such audit, is excluded in computing the period of limitation for the purposes of assessment or reassessment. However, it did not provide for exclusion of time in case the direction of the Assessing Officer as aforesaid is set aside by the court.

36.2 Accordingly clause (iii) of Explanation 1 to section 153 has been amended to provide that the period commencing from the date on which the Assessing Officer directs the assessee to get his accounts audited under sub-section (2A) of section 142 and ending with the last date on which the assessee is required to furnish report of such audit under that sub-section; or where such direction is challenged before a court, ending with the date on which the order setting aside such direction is received by the Commissioner, shall be excluded in computing the period of limitation for the purposes of section 153.

36.3 Similarly, clause (viii) of Explanation I to section 153 of the Income-tax Act, before its amendment by the Act, provided for exclusion of 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 in section 90 or section 90A and ending with the date on which the information so requested is received by the Commissioner or a period of one year, whichever is less, in computing the period of limitation for the purposes of section 153. At times more than one reference for exchange of information is made in one case and the replies from the foreign Competent Authorities are also received in parts. In such cases, there will always be a dispute for counting the period of exclusion i.e. whether it should be from the date of first reference for exchange of information made or from the date of last reference. Similar dispute may also arise with regard to the date on which the information so requested is received.

36.4 With a view to clarify the above situation, the aforesaid clause (viii) of Explanation 1 to section 153 has been amended to provide that the period commencing from the date on which a reference or first of the references for exchange of information is made by an authority competent under an agreement referred to in section 90 or section 90A of the Income-tax Act and ending with the date on which the information requested is last received by the Commissioner or a period of one year, whichever is less, shall be excluded in computing the period of limitation for the purposes of section 153.

36.5 Similar amendments have also been made in Explanation to section 153B of the Income-tax Act relating to time limit for completion of search assessment.

36.6 Applicability: – These amendments take effect from 1st June, 2013.

37. Time limit for completion of assessment or reassessment where reference is made to Transfer Pricing Officer.

37.1 Sections 153 and 153B of the Income-tax Act, inter alia, provide the time limit for completion of assessment and reassessment of income by the Assessing Officer. Time limits have been provided for completion of assessment or reassessment under sections 143(3), 147, 153A, 153C etc. of the Income-tax Act. These time limits get extended if a reference is made under section 92CA of the Income-tax Act to the Transfer Pricing Officer (TPO) during the course of assessment/reassessment proceedings. These time limits are either from the end of financial year in which notice for initiation of the proceeding was served or from the end of the assessment year to which the proceedings relate.

37.2 Vide Finance Act, 2012 the period of limitation as provided in sections 153 and 153B of the Income-tax Act was extended by three months. In all the cases where reference under section 92CA of the Income-tax Act was made to the Transfer Pricing Officer the period of limitation was extended to one year from the existing 9 months. Similar amendments were made in other parts of section 153 and section 153B of the Income-tax Act wherever reference of section 92CA was made.

37.3 As a result of insertion of 3rd proviso in sub-section (1) of section 153 an anomaly arose. In a case relating to assessment year 2009-10, where a reference was made under section 92CA of the Income-tax Act and the TPO passed the order before 01.07.2012, it could not get covered by the 3rd proviso which was inserted vide Finance Act 2012. Further, it could not get covered by 2nd proviso either. Therefore, it found a place only in 153(1) (a) as per which the time limit would be two years from the end of assessment year i.e. upto 31.03.2012. Therefore, it did not get the benefit of one extra year as was intended. Further, before amendments vide Finance Act 2012 this case would have been covered under 2nd proviso and the time limit for completion would have been 31-12-2012 (33 months). Thus, with the insertion of 3rd proviso vide Finance Act 2012 the time limit got reduced from 31-12-2012 to 31-03-2012. This was not the intent of the legislature.

37.4 In view of the above, the provisions of 3rd proviso to sub-section (1) of section 153 of the Income-tax Act have been amended to provide that in case the assessment year in which the income was first assessable is the assessment year commencing on the 1st day of April, 2009 or any subsequent assessment year and during the course of the proceeding for the assessment of total income, a reference under sub-section (1) of section 92CA of the Income-tax Act is made, the provisions of clause (a) shall, notwithstanding anything contained in the first proviso, have effect as if for the words “two years”, the words “three years” had been substituted.”

37.5 Similar amendments have been made in sub-section (2), sub-section (2A) of section 153 and section 153B of the Income-tax Act where similar anomaly arose due to amendments carried out vide Finance Act, 2012 in the said sections.

37.6 Applicability: – The amendments take effect retrospectively from 1st July, 2012.

38. Clarification of the phrase “tax due” for the purposes of recovery in certain cases.

38.1 Section 179 of the Income-tax Act provides that where the tax due from a private company cannot be recovered from such company, then the director (who was the director of such company during the previous year to which non-recovery relates) shall be jointly and severally liable for payment of such tax unless he proves that the non-recovery of tax cannot be attributed to any gross neglect, misfeasance or breach of duty on his part. This provision is intended to recover outstanding demand under the Income-tax Act of a private company from the directors of such company in certain cases. However, some courts have interpreted the phrase ‗tax due‘, used in section 179, does not include penalty, interest and other sum payable under the Income-tax Act.

38.2 In view of the above, it has been clarified that for the purposes of the said section 179, the expression ―tax due‖ includes penalty, interest or any other sum payable under the Income-tax Act. Amendment on the similar lines for clarifying the expression ‗tax due‘ has also been made to the provisions of section 167C of the Income-tax Act.

38.3 Applicability: – These amendments take effect from 1st June, 2013.

39. Tax Deduction at Source (TDS) on transfer of certain immovable properties (other than agricultural land)

39.1 There is a statutory requirement under section 139A of the Income-tax Act read with rule 114B of the Income-tax Rules, 1962 to quote Permanent Account Number (PAN) in documents pertaining to purchase or sale of immovable property for value of Rs.5 lakh or more. However, the information furnished to the Income-tax Department in Annual Information Returns by the Registrar or Sub- Registrar indicate that a majority of the purchasers or sellers of immovable properties, valued at Rs.30 lakh or more, during the financial year 2011-12 did not quote or quoted invalid PAN in the documents relating to transfer of immovable property.

39.2 Under the provisions of the Income-tax Act, prior to its amendment by the Act, tax is required to be deducted at source on certain specified payments made to residents by way of salary, interest, commission, brokerage, professional services, etc. On transfer of immovable property by a non-resident, tax is required to be deducted at source by the transferee. However, there is no such requirement on transfer of immovable property by a resident except in the case of compulsory acquisition of certain immovable properties.

39.3 In order to have a reporting mechanism of transactions in the real estate sector and also to collect tax at the earliest point of time, a new section 194-IA has been inserted in the Income-tax Act to provide that every transferee, at the time of making payment or crediting of any sum as consideration for transfer of immovable property (other than agricultural land) to a resident transferor, shall deduct tax, at the rate of 1 per cent of such sum.

39.4 In order to reduce the compliance burden on the small taxpayers, it has also been provided that no deduction of tax under this provision shall be made where the total amount of consideration for the transfer of an immovable property is less than fifty lakh rupees.

3.5 Further, in view of the provisions of section 203A every person deducting tax under this newly inserted section 194-IA would have required to obtain Tax Deduction and Collection Account Number (TAN). In order to reduce the compliance burden on the deductor deducting tax under this section, it is provided that the provisions of section 203A shall not apply to a person required to deduct tax in accordance with the provisions of section 194-IA.

39.6 Applicability: – This amendment takes effect from 1st June, 2013.

40. Income by way of interest on certain bonds and Government securities.

40.1 Considering the current account deficit situation and the need to have foreign investment in India in rupees, a new section 194LD has been inserted in the Income-tax Act to provide for reduced rate of 5 per cent of withholding tax as against the normal rate of 20 per cent on interest payable on or after the 1st day of June, 2013 but before the 1st day of June, 2015 in respect of a rupee denominated bond of an Indian company or a Government security if the payment is made to a Foreign Institutional Investor (FII) or a Qualified Foreign Investor (QFI). It has been further provided that interest rate on rupee denominated bonds of an Indian company should not exceed the threshold limit to be notified by the Government. This rate has been notified vide Notification 56/2013 dated 29th July 2013 as below:

(i) in case of bonds issued before the 1st day of July, 2010, the rate of interest shall not exceed 500 basis points (bps) over the Base Rate of State Bank of India as on the 1st day of July, 2010.

(ii) in case of bonds issued on or after the 1st day of July, 2010, the rate of interest shall not exceed 500 basis points (bps) over the Base Rate of State Bank of India applicable on the date of issue of the said bonds.

40.2 Applicability: – This amendment takes effect from 1st June, 2013.

41. Meaning of “person responsible for paying” under Chapter XVII.

41.1 Chapter XVII of the Income-tax Act, 1961 deals with collection and recovery of tax. Section 204 of the Income-tax Act defines the expression “person responsible for paying”. As per clause (iia) of the said section 204 the expression “person responsible for paying” in case of any sum payable to a non-resident Indian, being any sum representing consideration for the transfer by him of any foreign exchange asset, which is not a short-term capital asset, means the authorised dealer responsible for remitting such sum to the non-resident Indian or for crediting such sum to his Non-resident (External) Account maintained in accordance with the Foreign Exchange Regulation Act, 1973 and any rules made thereunder. The expression ―authorised dealer‖ as mentioned above has been defined in the Explanation to the said section as having the meaning as assigned to it in clause (b) of section 2 of the Foreign Exchange Regulation Act, 1973. Further, in the Explanation, reference has been made to Foreign Exchange Regulation Act, 1973.

41.2 In 1999, Foreign Exchange Management Act, 1999 (FEMA) was introduced and it replaced the Foreign Exchange Regulation Act, 1973. In FEMA, the expression ―authorised dealer‖ has been replaced by ―authorised person‖.

41.3 In view of the replacement of the Foreign Exchange Regulation Act, 1973 by the Foreign Exchange Management Act, 1999, an amendment in section 204 of the Income-tax Act has been made whereby the words ―authorised dealer‖ have been replaced by the words ―authorised person‖. Further ―authorised person‖ has been defined to have the meaning as assigned to it in clause (c) of section 2 of the Foreign Exchange Management Act, 1999.

41.4 Applicability – This amendment takes effect from 1st April, 2013.

42. Exemption from requirement of furnishing PAN under section 206AA to certain non-resident bond holder.

42.1 Under section 194LC of the Income-tax Act, the payment of interest by an Indian company to a non-resident on money borrowed in foreign currency under a loan agreement or through issue of a long term infrastructure bond is subject to deduction of tax at the rate of 5 per cent instead of general rate of deduction of tax at the rate of 20 per cent. Under section 206AA of the Act, if such non-resident does not provide his Permanent Account Number (PAN) to the payer, then the tax is required to be withheld at the rate of 20 per cent.

42.2 Considering the practical difficulties in obtaining PAN by the non-resident bondholders, section 206AA has been amended to provide that provisions of section 206AA of the Income-tax Act shall not apply to interest paid to a non-resident on long-term infrastructure bonds referred to in section 194LC of the Income-tax Act.

42.3 Applicability: – This amendment takes effect from 1st June, 2013.

43. Removal of exemption from levy of Tax Collection at Source (TCS) to cash sale of any coin or any other article weighing 10 grams or less.

43.1 Finance Act, 2012 amended the provisions of section 206C of the Income-tax Act to provide that the seller of bullion or jewellery shall collect tax at the rate of 1 per cent of sale consideration from every buyer of bullion or jewellery if sale consideration exceeds two lakh rupees or five lakh rupees respectively and the sale is in cash. Further, it has also been provided that bullion shall not include any coin or any other article weighing 10 grams or less. As threshold of sales consideration for levy of TCS on cash sale of bullion has already been provided, there was no justification for providing separate exemption from levy of TCS to cash sale of any coin or any other article weighing 10 grams. In view of the above, section 206C has been amended to withdraw the separate exemption from levy of TCS provided to cash sale of any coin or any other article weighing 10 grams.

43.2 Applicability: – This amendment takes effect from the 1st June, 2013.

44. Appointment of President of the Appellate Tribunal.

44.1 The provisions of section 252 of the Income-tax Act, inter-alia, provide for the constitution of Income Tax Appellate Tribunal (ITAT), the qualification of judicial members and accountant members, the appointment of president, senior vice-presidents and vice presidents etc. Sub-section (3) of section 252 provides that the Central Government shall appoint the Senior Vice-President or one of the Vice-Presidents of the Appellate Tribunal to be the President thereof.

44.2 The choice of the President is confined only to Senior Vice-President or one of the Vice Presidents as the President. In order to provide for a wider choice in the selection of a suitable candidate for the post of President of the tribunal an amendment has been carried out to include persons from judiciary.

44.3 Accordingly, the provisions of sub-section (3) of section 252 have been amended to provide that the Central Government shall appoint a person who is a sitting or retired Judge of a High Court and who has completed not less than seven years of service as a Judge in a High Court; or the Senior Vice-President or one of the Vice-Presidents of the Appellate Tribunal, to be the President thereof.

44.4 Applicability: – The amendment takes effect from 1st June, 2013.

45. Penalty under section 271FA for non-filing of Annual Information Return.

45.1 Section 285BA of the Income-tax Act mandates furnishing of annual information return by the specified persons in respect of specified transactions within the time prescribed under sub-section (2) thereof. Sub-section (5) of the section empowers the Assessing Officer to issue notice if the annual information return has not been furnished by the due date.

45.2 Section 271FA of the income-tax Act, prior to its amendment by the Act, provided that if a person who is required to furnish an annual information return, as required under sub-section (1) of section 285BA of the Income-tax Act, fails to furnish such return within the time prescribed under that sub-section, the income-tax authority prescribed under the said sub-section may direct that such person shall pay, by way of penalty, a sum of one hundred rupees for every day during which the failure continues.

45.3 Section 271FA of the income-tax Act has been amended to provide that if a person who is required to furnish an annual information return, as required under sub-section (1) of section 285BA of the income-tax Act, fails to furnish such return within the time prescribed under sub-section (2) thereof, the income-tax authority prescribed under sub-section (1) of the said section may direct that such person shall pay, by way of penalty, a sum of one hundred rupees for every day during which the failure continues.

45.4 It is further provided that where such person fails to furnish the return within the period specified in the notice under sub-section (5) of section 285BA, he shall pay, by way of penalty, a sum of five hundred rupees for every day during which the failure continues, beginning from the day immediately following the day on which the time specified in such notice for furnishing the return expires.

45.5 Applicability – This amendment takes effect from 1st April, 2014.

46. Extension of time for approval in Part A of the Fourth Schedule to the Income-tax Act, 1961.

46.1 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 as contained in clause (ea) is that the establishment has to be notified by the Central Provident Fund Commissioner under section 1(4) of the Employees‘ Provident Funds and Miscellaneous Provisions Act, 1952 [EPF & MP Act] and has obtained exemption under section 17 of the said Act.

46.2 Rule 3 in Part A of the Fourth Schedule to the Income-tax Act 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.

46.3 The first proviso to sub-rule (1) of rule 3, prior to its amendment by the Act, inter alia, specified that in a case where recognition under the Income-tax Act has been accorded to any provident fund on or before 31st March, 2006, but such provident fund does not satisfy the conditions set out in clause (ea) of rule 4 on or before 31st March 2013, the recognition to such fund shall be withdrawn.

46.4 A number of applications were pending with the Employees‘ Provident Fund Organization (EPFO) for grant of exemption under section 17 of EPF & MP Act. With a view to provide further time to the EPFO to decide on the pending applications seeking exemption under section 17 of the EPF & MP Act, the first proviso has been amended , so as to extend the time limit from 31st March, 2013 to 31st March, 2014.

46.5 Applicability: – This amendment takes effect retrospectively from 1st April, 2013.

47. Exemption from wealth tax to agricultural land situated in urban area.

47.1 Finance Act, 1992 amended the provisions of Wealth-tax Act with effect from 1st April, 1993 to provide that wealth tax shall be levied only on certain specified assets. The definition of assets on which wealth tax is leviable inter alia includes urban land. As per this definition urban land means land situated in the jurisdiction of municipality or cantonment board or land situated in notified area.

However, certain categories of urban land such as land on which construction of a building is not permissible, land held for industrial purpose, land held as stock in trade, have been excluded from the definition of urban land. Normally on agricultural land, either no construction is allowed or allowed only for a specific purpose (mainly for agricultural needs), but no specific exemption has been provided to the agricultural land. Recently it has been held by the Hon‘ble Supreme Court that agricultural land situated in urban area is liable for wealth tax. As the wealth tax is levied only on unproductive assets, there was no intention to levy wealth tax on the agricultural land which cannot be termed as unproductive assets.

47.2 In view of the above, the definition of urban land in the Wealth-tax Act, 1957 has been amended to specifically provide that wealth tax is not leviable on urban land which is,

(i) classified as agricultural land in the records of the Government; and
(ii) used for agricultural purposes.

47.3 Applicability: – This amendment takes effect retrospectively from 1st April, 1993.

48. Enabling provisions for facilitating electronic filing of annexure-less return of net wealth.

48.1 Section 14 of the Wealth-tax Act provides for furnishing of return of net wealth as on the valuation date in the prescribed form and verified in the prescribed manner setting forth particulars of the net wealth and such other particulars as may be prescribed. Currently, certain documents, reports are required to be furnished along with the return of net wealth under the provisions of Wealth-tax Act read with the provisions of Wealth-tax Rules.

48.2 Sections 139C and 139D of the Income-tax Act contain provisions for facilitating filing of annexure-less return of income in electronic form by certain class of income-tax assesses. In order to facilitate electronic filing of annexure-less return of net wealth, new sections 14A and 14B have been inserted in the Wealth-tax Act on similar lines.

48.3 Consequently, the provisions of section 46 of the Wealth-tax Act which provide for rule making powers of the Board have also been amended.

48.4 Applicability: – These amendments take effect from 1st June, 2013.

49. Securities Transaction Tax (STT)

49.1 Securities Transaction Tax (STT) on transactions in specified securities was introduced vide Finance (No.2) Act, 2004.

49.2 Section 98 of the Finance (No.2) Act, 2004 has been amended to reduce STT rates in the taxable securities transactions as indicated hereunder:-

TABLE

S.No.

Nature of Taxable securities transaction

Payable by

Existing Rates (in per cent)

Proposed Rates (in per cent)

(1)

(2)

(3)

(4)

(5)

1.

Delivery based purchase of units of an equity oriented fund entered into in a recognised stock exchange in India

Purchaser

0.1

Nil

2.

Delivery based sale of units of an equity oriented fund entered into in a recognised stock exchange in India

Seller

0.1

0.001

3.

Sale of a futures in securities

Seller

0.017

0.01

4.

Sale of a unit of an equity oriented fund to the mutual fund

Seller

0.25

0.001

49.3 Applicability – These amendments take effect from 1st June, 2013 and will accordingly apply to any transaction made on or after that date.

50. Commodities Transaction Tax

50.1 Commodities Transaction Tax (CTT) has been introduced vide Chapter VII of the Act and has come into force from 1st July, 2013 as notified vide Notification S.O.1768(E) dated 19th June, 2013. The CTT Rules, 2013 have been notified vide Notification S.O.1769 (E) dated 19th June, 2013. CTT is levied on taxable commodities transactions entered into in a recognised association.

50.2 ‘Taxable commodities transaction’ has been defined to mean a transaction of sale of commodity derivatives in respect of commodities other than agricultural commodities traded in recognised associations. CTT is to be collected on taxable commodities transactions by the recognised associations.

50.2.1 Agricultural commodities which are not liable to CTT are almond, barley, cardamom, castor seed, channa/gram, copra, coriander/dhaniya, cotton, cotton seed oilcake/kapasia khali, guar seed, isabgul seed, jeera, kapas, maize feed, pepper, potato, rape/mustard seed, raw jute, red chilli, soya bean/seed, soymeal, turmeric, wheat.

50.3 The tax is levied at the rate, given in the Table below, on taxable commodities transactions undertaken by the seller as indicated hereunder:-

TABLE

S. No.

Taxable commodities transaction

Rate

Payable by

(1)

(2)

(3)

(4)

1.

Sale of commodity derivative

0.01 per cent

Seller

50.4 The provisions with regard to collection and recovery of CTT, furnishing of returns, assessment procedure, power of assessing officer, chargeability of interest, levy of penalty, institution of prosecution, filing of appeal, power to the Central Government, etc. have also been provided.

50.5 Further, section 36 of the Income-tax Act has been amended to provide that an amount equal to the commodities transaction tax paid by the assessee in respect of the taxable commodities transactions entered into in the course of his business during the previous year shall be allowable as deduction, if the income arising from such taxable commodities transactions is included in the income computed under the head “Profits and gains of business or profession.

50.6.1 Sub-section (5) of section 43 of the Income-tax Act has also been amended to provide that eligible transaction in respect of trading in commodity derivatives carried out in a recognised association shall not be deemed to be speculative transaction. The eligible transaction shall include only those transactions in commodity derivatives which are subject to CTT. An Explanation has been inserted to provide that the expression “commodity derivative” shall have the meaning assigned to it under Chapter VII of the Act.

50.6.2 Applicability – The amendments in sections 36 and 43 of the Act take effect from 1st April, 2014 and will, accordingly, apply in relation to the assessment year 2014-15 and subsequent assessment years.

COMMODITIES TRANSACTION TAX : NOTIFICATION NO. 45/2013, DATED 19-6-2013

SECTION 115 OF THE FINANCE ACT, 2013 – COMMODITIES TRANSACTION TAX – NOTIFIED DATE FOR ENFORCEMENT OF CHAPTER VII OF FINANCE ACT, 2013

NOTIFICATION NO. 45/2013 [F.NO.142/09/2013-TPL]/SO 1768(E), DATED 19-6-2013

In exercise of the powers conferred by sub-section (2) of section 115 of the Finance Act, 2013 (17 of 2013), the Central Government hereby appoints the 1st day of July, 2013 as the date on which Chapter VII of the said Act shall come into force

CHAPTER VII
COMMODITIES TRANSACTION TAX

105. (1) This Chapter extends to the whole of India.
(2) It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint.
(3) It shall apply to taxable commodities transactions entered into on or after the commencement of this Chapter.
106. In this Chapter, unless the context otherwise requires,—
(1) “Appellate Tribunal” means the Appellate Tribunal constituted under section 252 of the  Incometax Act, 1961;
(2) “Assessing Officer” means the Income-tax Officer or Assistant Commissioner of Income-tax or Deputy Commissioner of Income-tax or Joint Commissioner of Income-tax or Additional Commissioner of Income-tax who is authorised by the Board to exercise or perform all or any of the powers and functions conferred on, or assigned to, an Assessing Officer under this Chapter;
(3) “Board” means the Central Board of Direct Taxes constituted under the Central Boards of
Revenue Act, 1963;
(4) “commodities transaction tax” means tax leviable on the taxable commodities transactions under the provisions of this Chapter;
(5) “commodity derivative” means––
(i) a contract for delivery of goods which is not a ready delivery contract; or
(ii) a contract for differences which derives its value from prices or indices of prices––
(A) of such underlying goods; or
(B) of related services and rights, such as warehousing and freight; or
(C) with reference to weather and similar events and activities, having a bearing on the commodity sector;
(6) “prescribed” means prescribed by rules made under this Chapter;
(7) “taxable commodities transaction” means a transaction of sale of commodity derivatives in respect of commodities, other than agricultural commodities, traded in recognised associations; (8) words and expressions used but not defined in this Chapter and defined in the Forward Contracts (Regulation) Act, 1952, the Income-tax Act, 1961, or the rules made thereunder, shall have the meanings respectively assigned to them in those Acts.
107. On and from the date of commencement of this Chapter, there shall be charged a commodities transaction tax in respect of every taxable commodities transaction, being sale of commodity derivative, at the rate of 0.01 per cent. on the value of such transaction and such tax shall be payable by the seller.

108. The value of a taxable commodities transaction referred to in section 107 shall, with reference to such transaction, be the price at which the commodity derivative is traded.
109. (1) Every recognised association (hereinafter in this Chapter referred to as assessee) shall collect the commodities transaction tax from the seller who enters into a taxable commodities transaction in that recognised association at the rate specified in section 107.
(2) The commodities transaction tax collected during any calendar month in accordance with the provisions of sub-section (1) shall be paid by every assessee to the credit of the Central Government by the seventh day of the month immediately following the said calendar month.
(3) Any assessee who fails to collect the tax in accordance with the provisions of sub-section (1) shall, notwithstanding such failure, be liable to pay the tax to the credit of the Central Government in accordance with the provisions of sub-section (2).
110. (1) Every assessee shall, within the prescribed time after the end of each financial year,
prepare and deliver or cause to be delivered to the Assessing Officer or to any other authority or agency authorised by the Board in this behalf, a return in such form, verified in such manner and setting forth such particulars as may be prescribed, in respect of all taxable commodities transactions entered into during such financial year in that recognised association.
(2) Where any assessee fails to furnish the return under sub-section (1) within the prescribed
time, the Assessing Officer may issue a notice to such assessee and serve it upon him, requiring him to furnish the return in the prescribed form and verified in the prescribed manner setting forth such particulars within such time as may be prescribed.
(3) An assessee who has not furnished the return within the time prescribed under sub-section (1) or sub-section (2), or having furnished a return under sub-section (1) or sub-section (2) notices any omission or wrong statement therein, may furnish a return or a revised return, as the case may be, at any time before the assessment is made.
111. (1) For the purposes of making an assessment under this Chapter, the Assessing Officer may serve on any assessee, who has furnished a return under section 110 or upon whom a notice has been served under sub-section (2) of that section (whether a return has been furnished or not), a notice requiring him to produce or cause to be produced on a date to be specified therein such accounts or documents or other evidence as the Assessing Officer may require for the purposes of this Chapter and may, from time to time, serve further notices requiring the production of such further accounts or documents or other evidence as he may require.
(2) The Assessing Officer, after considering such accounts, documents or other evidence, if any, as he has obtained under sub-section (1) and after taking into account any other relevant material which he has gathered, shall, by an order in writing, assess the value of taxable commodities transactions during the relevant financial year and determine the commodities transaction tax payable or the refund due on the basis of such assessment: Provided that no assessment shall be made under this sub-section after the expiry of two years from the end of the relevant financial year.
(3) Every assessee, in case any amount is refunded to it on assessment under sub-section (2), shall, within such time as may be prescribed, refund such amount to the seller from whom such amount was collected.
112. (1) With a view to rectifying any mistake apparent from the record, the Assessing Officer
may amend any order passed by him under the provisions of this Chapter within one year from the end of the financial year in which the order sought to be amended was passed.
(2) Where any matter has been considered and decided in any proceeding by way of appeal
relating to an order referred to in sub-section (1), the Assessing Officer passing such order may, notwithstanding anything contained in any other law for the time being in force, amend the order under that sub-section in relation to any matter other than the matter which has been so considered and decided.
(3) Subject to the other provisions of this section, the Assessing Officer may make an amendment under sub-section (1), either suo motu or on any mistake brought to his notice by the assessee.

(4) An amendment, which has the effect of enhancing an assessment or reducing a refund or
otherwise increasing the liability of the assessee, shall not be made under this section unless the Assessing Officer has given notice to the assessee of his intention so to do and has given the assessee a reasonable opportunity of being heard.
(5) An order of amendment under this section shall be made by the Assessing Officer in writing. (6) Subject to the other provisions of this Chapter, where any such amendment has the effect of reducing the assessment, the Assessing Officer shall make the refund, which may be due to such assessee.
(7) Where any such amendment has the effect of enhancing the assessment or reducing the
refund already made, the Assessing Officer shall make an order specifying the sum payable by the assessee and the provisions of this Chapter shall apply accordingly.
113. Every assessee, who fails to credit the commodities transaction tax or any part thereof as required under section 109 to the account of the Central Government within the period specified in that section, shall pay simple interest at the rate of one per cent. of such tax for every month or part of a month by which such crediting of the tax or any part thereof is delayed.
114. Any assessee who––
(a) fails to collect the whole or any part of the commodities transaction tax as required under
section 109; or
(b) having collected the commodities transaction tax, fails to pay such tax to the credit of the
Central Government in accordance with the provisions of sub-section (2) of that section,
shall be liable to pay,––
(i) in the case referred to in clause (a), in addition to paying the tax in accordance with the
provisions of sub-section (3) of that section, or interest, if any, in accordance with the provisions of section 113, by way of penalty, a sum equal to the amount of commodities transaction tax that he failed to collect; and
(ii) in the case referred to in clause (b), in addition to paying the tax in accordance with the
provisions of sub-section (2) of that section and interest in accordance with the provisions of
section 113, by way of penalty, a sum of one thousand rupees for every day during which the
failure continues; so, however, that the penalty under this clause shall not exceed the amount of commodities transaction tax that he failed to pay.
115. Where an assessee fails to furnish the return within the time prescribed under sub-section (1) or sub-section (2) of section 110, he shall be liable to pay, by way of penalty, a sum of one hundred rupees for each day during which the failure continues.
116. If the Assessing Officer in the course of any proceedings under this Chapter is satisfied that the assessee has failed to comply with a notice under sub-section (1) of section 111, he may direct that such assessee shall pay, by way of penalty, in addition to any commodities transaction tax and interest, if any, payable by him, a sum of ten thousand rupees for each such failure.
117. (1) Notwithstanding anything contained in section 114 or section 115 or section 116, no penalty shall be imposable for any failure referred to in the said sections, if the assessee proves to the satisfaction of the Assessing Officer that there was reasonable cause for the said failure.
(2) No order imposing a penalty under this Chapter shall be made unless the assessee has been given a reasonable opportunity of being heard.
118. The provisions of sections 120, 131, 133A, 156, 178, 220 to 227, 229, 232,260A, 261, 262, 265 to 269, 278B, 282 and 288 to 293 of the Income-tax Act, 1961 shall apply, so far as may be, in relation to commodities transaction tax, as they apply in relation to income-tax.
119. (1) An assessee aggrieved by any assessment order made by the Assessing Officer under section 111 or any order under section 112, or denying his liability to be assessed under this Chapter, or by an order imposing penalty under this Chapter, may appeal to the Commissioner of Income-tax (Appeals) within thirty days from the date of receipt of the order of the Assessing Officer.
(2) An appeal under sub-section (1) shall be in such form and verified in such manner as may
be prescribed and shall be accompanied by a fee of one thousand rupees.
(3) Where an appeal has been filed under sub-section (1), the provisions of sections 249 to 251 of the Income-tax Act, 1961, shall, as far as may be, apply to such appeal.

120. (1) An assessee aggrieved by an order made by a Commissioner of Income-tax (Appeals) under section 119 may appeal to the Appellate Tribunal against such order.
(2) The Commissioner of Income-tax may, if he objects to any order passed by the Commissioner of Income-tax (Appeals) under section 119, direct the Assessing Officer to appeal to the Appellate Tribunal against such order.
(3) An appeal under sub-section (1) or sub-section (2) shall be filed within sixty days from the date on which the order sought to be appealed against is received by the assessee or by the Commissioner of Income-tax, as the case may be.
(4) An appeal under sub-section (1) or sub-section (2) shall be in such form and verified in such manner as may be prescribed and, in the case of an appeal filed under sub-section (1), it shall be accompanied by a fee of one thousand rupees.
(5) Where an appeal has been filed before the Appellate Tribunal under sub-section (1) or subsection (2), the provisions of sections 253 to 255 of the Income-tax Act, 1961, shall, as far as may be, apply to such appeal.
121 (1) If a person makes a false statement in any verification under this Chapter or any rule made thereunder, or delivers an account or statement, which is false, and which he either knows or believes to be false, or does not believe to be true, he shall be punishable with imprisonment for a term which may extend to three years and with fine.
(2) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, an offence
punishable under sub-section (1) shall be deemed to be non-cognizable within the meaning of that Code.
122. No prosecution shall be instituted against any person for any offence under section 121 except with the previous sanction of the Chief Commissioner of Income-tax.
123. (1) The Central Government may, by notification in the Official Gazette, make rules for carrying out the provisions of this Chapter.
(2) In particular, and without prejudice to the generality of the foregoing power, such rules may
provide for all or any of the following matters, namely:––
(a) the time within which and the form and the manner in which the return shall be delivered or
caused to be delivered or furnished under section 110;
(b) the form in which an appeal may be filed and the manner in which it may be verified under
sections 119 and 120.
(3) Every rule made under this Chapter shall be laid, as soon as may be after it is made, before each House of Parliament, while it is in session, for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the rule or both Houses agree that the rule should not be made, the rule shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule.
124. (1) If any difficulty arises in giving effect to the provisions of this Chapter, the Central Government may, by order published in the Official Gazette, not inconsistent with the provisions of this Chapter, remove the difficulty:
Provided that no such order shall be made after the expiry of a period of two years from the date on which the provisions of this Chapter come into force.
(2) Every order made under this section shall be laid, as soon as may be after it is made, before each House of Parliament.
CHAPTER VIII
MISCELLANEOUS
125. In the Finance (No. 2) Act, 2004, in section 98, in the Table, with effect from the 1st day of June, 2013,—
(i) against Sl. No. 1, under column (2) relating to taxable securities transaction,—
(A) the words “or a unit of an equity oriented fund,” shall be omitted;
(B) in item (b), the words “or unit”, at both the places where they occur, shall be omitted;

(ii) against Sl. No. 2, under column (2) relating to taxable securities transaction,—
(A) the words “or a unit of an equity oriented fund,” shall be omitted;
(B) in item (b), the words “or unit”, at both the places where they occur, shall be omitted;
(iii) after serial number 2 and the entries relating thereto, the following serial number and
entries shall be inserted, namely:—
Sl. No. Taxable securities Rate Payable by
transaction (1) (2) (3) (4) “2A Sale of a unit of an equity 0.001 Seller”; oriented fund, where— per cent.
(a) the transaction of such sale is entered into in a recognised stock exchange; and
(b) the contract for the sale of such unit is settled by the actual delivery or transfer of
such unit.
(iv) against Sl. No.4, in item (c), under column (3) relating to rate, for the figures “0.017”, the
figures “0.01” shall be substituted;
(v) against Sl. No. 5, under column (3) relating to rate, for the figures “0.25”, the figures “0.001”
shall be substituted.Declaration under the Provisional Collection of Taxes Act, 1931
It is hereby declared that it is expedient in the public interest that the provisions of clauses 76,
77 (b), 91 and 92 of this Bill shall have immediate effect under the Provisional Collection of Taxes Act, 1931.

Income Tax Deduction on Interest on Saving Bank Account, Section 80TTA of Income Tax Act

Income Tax Deduction in respect of interest on deposits in savings account under Section 80TTA of Income Tax Act, 1961. For giving additional income tax deduction on Interest on Saving Bank Account  new section 80TTA under Income Tax Act,1961 was  introduced through Finance Act, 2012. This additional deduction u/s 80TTA is applicable only to individual and HUF on interest income from bank saving account .i.e this deduction is not applicable on interest received on time deposit/term deposit.

Eligible Assessee for section 80TTA: only Individual and HUF are elegible under this section, so a firm, an association of persons or a body of individuals will not get the benefit of this section.

Deduction Limit/ Maximum Deduction under Section 80TTA:  Rs 10,000/- or actual interest receipt from saving bank account , which ever is lower. Example1. if person receive interest of Rs 15000/- from saving bank account then he has to pay tax on Rs 5000/- and Rs 10,000/- he can claim as deduction u/s 80TTA. Example2. if person receive interest of Rs 9000/- from saving bank account then he don’t have to pay tax on Rs 9000/- and Rs 9,000/-  can be claimed as deduction u/s 80TTA.

Meaning of Term Deposit: The deposits under the Scheme mean “term deposits” received by the bank for a fixed period and withdrawable only after the expiry of the said fixed period and includes Reinvestment Deposits and Cash Certificates or other deposits of similar nature.

Reference: Section 80TTA  

Deduction in respect of interest on deposits in savings account.

80TTA. (1) Where the gross total income of an assessee, being an individual or a Hindu undivided family, includes any income by way of interest on deposits (not being time deposits) in a savings account with—

 (a) a banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act);

 (b) a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank); or

 (c) a Post Office as defined in clause (k) of section 2 of the Indian Post Office Act, 1898 (6 of 1898),

there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee a deduction as specified hereunder, namely:—

  (i) in a case where the amount of such income does not exceed in the aggregate ten thousand rupees, the whole of such amount; and

 (ii) in any other case, ten thousand rupees.

(2) Where the income referred to in this section is derived from any deposit in a savings account held by, or on behalf of, a firm, an association of persons or a body of individuals, no deduction shall be allowed under this section in respect of such income in computing the total income of any partner of the firm or any member of the association or any individual of the body.

Explanation.—For the purposes of this section, “time deposits” means the deposits repayable on expiry of fixed periods.

For definition of “Post Office” as defined in section 2(k) of the Indian Post Office Act, 1898

India’s First Budget Speech

Speech of Shri R.K. Shanmukham Chetty, Minister of Finance Introducing the Budget for the Year 1947-1948

I rise to present the first Budget of a free and independent India. This occasion may well be considered an historic one and I count it a rare privilege that it has fallen to me to be the Finance Minister to present this Budget. While I am conscious of the honour that is implied in this position, I am even more conscious of the responsibilities that face the custodian of the finances of India at this critical juncture. I have no doubt

That in the discharge of my responsibilities I may count on the sympathetic and wholehearted co-operation of every Hon’ble Member in this House.

2. It is not necessary to dwell at any length on the political developments which have led to the momentous changes that have taken place since the Budget for the current year was presented to the Legislative Assembly last February. The partition of the country has cut across its economic and cultural unity and the growth of centuries of common life to which all the communities have contributed. The long-term effects of the division of the country still remain to be assessed and we are too near the events

To take a dispassionate view. When the ashes of controversy have died down, it will be for the future historian to judge the wisdom of the step and its consequences on the destiny of one fifth of the human race. Whatever might be the immediate political justification of partition, its economic consequences must be fully appreciated if the two Dominions are to safeguard the interests of the ordinary man in both the new States. Regions which have functioned for centuries on a complementary basis have been suddenly cut asunder. To have had as a single economic unit a subcontinent peopled by a fifth of the human race meant by itself a great advantage for the teeming millions of its population an advantage not fully realized, and perhaps not properly utilized while the unity was a fact. While it may be a comparatively easy matter to make the necessary political adjustments resulting from partition, it would require time, patience, goodwill and mutual understanding to effect the adjustments necessitated by the economic consequences of partition. Economically India and Pakistan have each point of advantages and disadvantages. In general, it may be said that, while India is much the stronger at present in industrial production and mineral resources, Pakistan has some advantage in agricultural resources, especially foodstuffs. But the complementary character of their economies is even deeper than is indicated by this generalization. The compelling forces of economic necessity must create a friendly and cooperative spirit between the two Dominions and I trust that, when the present passions subside and normal conditions of life return, our people will work together to secure that, notwithstanding the political division, the economic life of the common man is not injured. So far as we are concerned, the Indian Union with its population of nearly 300 million will be the second largest country in the world next to China.

Our economy is more balanced than that of most countries and, in spite of the setbacks resulting from partition, our large natural resources and sound financial position will enable us to launch a vigorous economic plan for substantially raising the living standard of our people.

3. The Budget Statement that I am presenting today will cover a period of 71/2 months from the 15th August, 1947 to the 31st March, 1948. I may briefly explain the circumstances in which it has been necessary to present a fresh Budget for this period. With the division of the country and the emergence of two independent Governments in place of the old Central Government, the Budget for the current year 1947-48 passed by the Legislature last March ceased to be operative. Although under the transitional provisions of the constitution, Government could authorize the expenditure necessary for the rest of the financial year, it was felt that it will be in accordance with the public wish that a Budget should be placed before the representatives of the people at the earliest possible moment. There is nothing spectacular about my statement and there will be no surprises associated with a Budget. I shall place before the House our estimate of revenue and expenditure for this period and I shall try to indicate in broad outlines the pattern of the economic life of the country and the problems that we will have to face in the immediate future.

PARTITION ARRANGEMENTS

4. Before I proceed to deal with the estimates for the year, the House would doubtless wish to have a brief account of the broad details of the partition and its immediate financial and economic results. As soon as the decision to divide the country was taken, a Partition Council, consisting of the representatives of both the future Governments, was set up to implement the decision. A number of Expert Committees,

On which both the future Governments were equally represented, were appointed under the aegis of the Partition Council to work out the administrative and other consequences of the partition. These Committees, some of which are assisted by a number of departmental subcommittees, dealt with all aspects of the problems arising out of the partition such as the transfer of staff and organizations, the division of assets and liabilities, the arrangements for the coinage and currency In the two Dominions, the trade and economic relations between them, the continuance of economic controls and so on. These Committees had to complete their work in a matter of four to six weeks and the House will appreciate that in the short time available to deal with these issues, some of which were of the utmost complexity and importance, it was not possible to reach an agreement on all matters before the 15th August 1947 when the two Dominions came into existence and took over the Government of their respective territories. A number of important points were accordingly left over for further consideration by the two Dominions and, in the absence of an agreement between them, for reference to an Arbitral Tribunal which has been set up. Among the important issues on which it has not been possible to reach an agreement, I may mention the allocation of debt between the two Dominions, the method of discharging the pensionary liability, the valuation of the Railways, the division of the assets of the Reserve Bank and the division of the movable stores held by the Army. Some of these issues are likely to go before the Arbitral Tribunal and the House will not expect me to say anything further about them at this stage. It was also found impossible to reconstitute the Armed Forces between the two Dominions and allocate the military stores, equipment and installations between them before the 15th August 1947. For the completion of this work, and for clothing, feeding and paying the Armed Forces till their reconstitution had been completed, a Joint Defense Council representing the two Dominions with an independent Chairman and with a Supreme Commander responsible to the Council, has been set up. This Council was originally expected to complete its work by the 1st of April 1948 but it is now hoped that this may be mostly achieved by the end of this month.

5. The long range fiscal, financial and economic relations between the two Dominions still remain to be considered, but for the rest of the current year the intention is to maintain, within the framework of the agreements arrived at, the status quo before the partition. For the present both the Dominions will continue the existing taxes and duties, there will be a free movement of trade between them without any internal barriers and the import and exchange controls of the two Dominions will be co-ordinated. It has also been agreed that till the end of September 1948 the two Dominions will remain under a common currency system managed by the Reserve Bank, although from the 1st April next Pakistan will have its own overprinted notes and coin. So far as revenue is concerned, each Dominion will ordinarily retain what it collects but in respect of income tax on assessments for .1946-47 and earlier years and uncollected demands ion the date of the partition an arrangement for sharing the receipts arising in both the Dominions has been arrived at. In the matter of the division of assets and liabilities, it has not been possible, as I have explained earlier, to reach an agreement on a number of important points including the allocation of debt and the discharge of the liability for pensions. But the responsibility for the outstanding liabilities of the old Government could not, obvious reasons, be left vague and undetermined and the only practicable course was for one of the Dominions to accept the initial liability to the creditors and settle with the other the contribution to be made by it. The initial liability for the outstanding loans, guarantees and financial obligations of the late Central Government at the time of the partition and for the pensions chargeable to it has been placed by law on the Indian Dominion subject to an equitable contribution from Pakistan. I am sure the House will welcome this decision because in the interests of the credit of both the successor Governments it is obviously undesirable to leave those who had lent money to the previous Government or had earned pensions under it in any doubt as to the Government they should approach for their dues.

REVIEW OF ECONOMIC CONDITIONS

6. There has been a marked deterioration in the economic situation in the country since March last. The situation has been aggravated by the large scale disturbances which burst out suddenly, more especially in the Punjab and the North- West Frontier Province. Apart from the serious economic consequences arising out of these disturbances, the human misery that it has caused cannot be measured in terms of money. Thousands of innocent lives have been lost in the two Dominions and migration on a scale unprecedented in history has taken place. The total number of people involved in this mass migration of population has reached colossal figures on either side giving rise to problems of great magnitude affecting the economy of the country. The Immediate effect of these tragic developments has been to divert the attention of the Government almost completely from normal activities. There has been an almost total breakdown of the economy of the East and West Punjabs. While Government have done and are doing everything possible to relieve the immediate distress and suffering of the refugees, the formulation of long-range plans for their rehabilitation raises formidable issues both in the financial and administrative fields.

These problems have imposed a heavy burden on the Central exchequer, the magnitude of which it is not possible to assess at present. The budget of the Central Government for the next few years will be materially affected by this unexpected development in the country, Our whole programme of post-war development will have to be reviewed in the light of this context.

7. The food position has continued to cause grave anxiety both to the Provincial Governments and the Central Government. The country has just weathered a serious threat of a breakdown of its rationing system. The results of the “Grow More Food Campaign” have been on the whole disappointing. During the three years 1944- 45, 1945-46 and 1946-47 we had to import from abroad 43.80 lakhs of tons of foodgrains at a cost of over 127 crores of rupees. Daring the current year from April to September we have already imported 10.62 lakhs of tons of foodgrains at a cost of over 42 crores of rupees. Apart from its being a constant source of anxiety, the reliance on the import of foodgrains from abroad of such magnitude imposes a heavy strain on the finances of the Government. In recent years our exchange difficulty is almost entirely due to the import of foodgrains on such a large scale. The meagre exchange

resources available to us are consumed by the purchase of foodstuffs abroad with the result that we have to impose the most stringent restrictions on the import of many other essential articles. The various steps necessary for making the country selfsufficient in foodgrains must now claim the highest priority. The implementation of this policy must largely depend on the Provincial Governments though the Government of India has been and will always be prepared to afford all possible help In this direction. We have sent a mission to Australia for the purchase of the surplus wheat of that country and we are hoping that we might be in a position to get from Australia a substantial quantity of wheat during the next year. An expert committee under the Chairmanship of Sir Purushottamdas Thakurdas has been examining the food position in the country and the Committee has submitted an interim report which is receiving the attention of the Government.

8. The deterioration in the economic situation has been particularly noticed in respect of prices which have shown an unchecked upward tendency. Between the 5th April and the 9th August this year the Economic Adviser’s index number of wholesale prices rose by 7 points while the Bombay cost of living index advanced by 14 points. Taking the Bombay cost of living index number, while it was 243 in August 1945 it rose to 267 in August 1946 and reached 284 in August 1947. The chief factor which has contributed to this development is the general decline in agricultural and industrial production In the country due partly to the wide prevalence of communal disorders and generally to the increasing Industrial unrest. While the supply position has been deteriorating, increases in wages and salaries given by private employers and the Government had the effect of augmenting the purchasing power of the people and widening the gap between current money income and production of goods. The situation would not have been so bad if the unbalance between money and goods was confined to these factors only. The most disturbing factor which affects the situation today is the unspent balances of Individuals and institutions accumulated during the peak years of Inflation which are being spent on the deferred wants of individuals, repairs to industry and on the building of trade inventory. In other words, the money demand for goods is colossal compared to their local production. While the inflation in war time was due to the large increases in currency circulation (which rose from Rs. 172 crores in 1939 to over Rs. 1200 crores at the end of 1945) without any tangible increase in the supply of goods the present Inflation Is not due to further increase of currency but to a steady fall in the supply of goods. Although the total available money, whether currency or bank deposits, has slightly fallen It has spread out more among a wider circle of people in the form of wages and salaries and thus the actual purchasing power in the hands of those who spend it on ordinary goods has greatly increased. But the supply of goods has meanwhile fallen and has resulted in an upward trend of prices. To take only a few examples of the marked fall in internal production, it may be mentioned that as against a production of 4, 600 million yards of mill made cloth and 1, 500 million yards of handloom cloth in 1945 the production this year is estimated at 3,900 million yards and 1,200 million yards respectively. The production of steel in the current year is also expected to show a drop of nearly 400,000 tons compared with the peak production of 1,200,000 tons during the war. The production of cement has also grown steadily worse, the estimated production this year showing a drop of 700, 000 tons over the capacity of over 21/2 million tons. In recent months the production of coal has shown some improvement. But so far as the consuming public is concerned, this has been more than neutralized by difficulties in transport resulting in large accumulation of coal at the pit heads. Transport and other difficulties explain the drop in production to some extent, but this is also partly due to labour unrest and strikes.

9. If the economy of this country is to be placed on a sound footing and maintained in a healthy condition, it is of the utmost importance to increase internal production. The chances of increasing the supplies of commodities by imports are not very bright. Until recently we had a fair chance of sizable imports of consumer goods from the British Commonwealth countries from accumulated balances, but with the blocking of the major part of these and the growing adverse balance resulting from the large scale importation of food grains, the hope of procuring supplies from abroad is growing weak. We have therefore to fall back on our own resources. Government has recently announced their scheme for increasing the production of cotton textiles which, if worked in a spirit of co-operation between industry and labour, will result in the production of an additional 1,000 million yards over the estimated production of the current year. It is intended to explore the possibilities of restoring the level of production in other fields in a similar manner. I am fully conscious of the fact that any policy of stabilization must aim not merely at the increase of production of both consumer and producer goods but also at the pegging of money incomes at an agreed and accepted level so that the increased volume of trading resulting from the increase of production may neutralize the inflationary effects of the large volume of uncovered money income. If this policy is to be carried out successfully, it would require an appreciation of the situation by labour and its wholehearted co-operation.

REVENUE

10. I shall now proceed to a brief review of the financial position for the rest of the current year. But I must warn the House that the estimates now presented must be treated as very tentative as it has not been possible to assess with any measure of accuracy the effects of the partition on our revenue and expenditure. I hope it will be possible to present a more accurate picture when the revised estimates are placed before the House along with the budget for the next year.

11. I have budgeted for revenue of Rs. 171.15 crores and a revenue expenditure of Rs. 197.39 crores. The net deficit on revenue account in the period covered by these estimates will be Rs. 26.24 crores. But the final figure may be higher because the actual amount likely to be required for meeting the expenditure in connection with the relief and rehabilitation of refugees is still very uncertain and some help may also have to be given to the new Provinces of West Bengal and East Punjab for which, in the absence of any reliable data, no provision has been included.

12. The revenue receipts, as I have said, are estimated at Rs. 171.15 crores. Customs receipts have been placed at Rs. 50.5 crores and take into account the effect of the recent restrictions on imports for conserving our foreign exchange resources. Income tax is expected to yield Rs. 29.5 crores on account of E.P.T. and Rs. 88.5 crores on account of ordinary collections. Although the Niemeyer Award has now ceased to have effect it is proposed to maintain the share of the Provinces in the income tax revenue at approximately the same level as now after making an adjustment in respect of the Provinces and parts of Provinces now included in Pakistan. The Centre will retain Rs. 3 crores out of the Provincial moiety as provided in the original budget. On this basis, the divisible pool of income tax is estimated at Rs. 66 crores and the Provincial share at Rs. 30 crores.

13. Revenue from the Posts and Telegraphs Department is expected to amount to Rs. 15.9 crores and the working expenses and interest to 13.9 crores leaving a net surplus of Rs. 2 crores. The outright contribution of the department to general revenues will be three-fourths of the realized surplus, the department retaining the balance. The department will get a rebate of interest on its share of the accumulated profits in the past which, after allowing for the portion of the department transferred to Pakistan, is expected to amount to Rs. 71 crores. As regards the contribution from Railways we do not expect anything in the current year. The House is already aware of the reasons for this from the Railway Budget.

EXPENDITURE

14. The total expenditure for the year is estimated at Rs. 197.39 crores, of which Rs. 92.74 crores is on account of the Defense Services, the balance representing civil expenditure. Following the customary procedure, I shall first deal with the Defense Estimates which remain, as in the past, the largest single item of expenditure.

DEFENCE SERVICES

15. The reconstitution of the Armed Forces in India into two Dominion forces was an inevitable consequence of the partition of the country. This decision came at a time when the Armed Forces were in the process of rapid demobilization. While a substantial measure of demobilization had already been achieved, the process was arrested as a consequence of the decision to divide the remaining forces between the two Dominions on a communal cum optional basis. The strength of the Army at the time stood roughly at 410,000 troops. After the completion of the reconstitution of the Army, India will have roughly 260,000 troops. An organization under a Supreme Commander, acting under the direction of the Joint Defense Council, was set up and made responsible for carrying out the reconstitution and for general administrative control of the entire Armed Forces until the completion of reconstitution. From the 15th August 1947, however, the operational control of the troops in each Dominion was transferred to the Dominion Government. It was originally expected that the reconstitution would be completed by the 31st March 1948. But the Armed Forces Headquarters of each of the Dominion have been able to take over administrative responsibilities in a greater measure and earlier than was originally anticipated and the reconstitution of the Forces has in consequence been accelerated. It is now expected that this will be completed in the more important fields by the end of this month when the Supreme Commander’s organization will be disbanded.

16. The future size and composition of the Armed Forces have been engaging the attention of Government, as it is obvious that they must be related to the altered strategic needs of the country as well as to its reduced financial resources. Under the pre-partition demobilization plan the Army was to be reduced to about 230,000 men for undivided India by the 1st April, 1949 against which we shall have about 260,000 men for our share alone after the reconstitution of the Armed Forces. Due to the widespread communal disturbances in the Punjab and the sporadic outbursts of disorder in other parts of the country, there has been an unprecedented call on the Armed Forces in aid of the civil power. Government has accordingly come to the conclusion that the existing Forces should be retained until the 31st March 1948 but the position will be reviewed next month. The financial effect of this is that in spite of a reduction of revenue resources the expenditure on Defense Services will be running higher than it normally should during this year. In the present fluid conditions it is impossible to forecast the position in 1948-49.

17. India had never an adequate Navy or Air Force and the effect of the partition has been to reduce them still further, so far as the Dominion of India is concerned. It is obvious that even without the disturbances there could be no question of an overall demobilization in these services. The future development plans of these services are under consideration.

18. The complete nationalization of India’s Armed Forces in the shortest time possible is the accepted policy of Government. Due, however, to various reasons which are now a matter of history, we have had a shortage of Indian officers for filling some of the posts in the technical services and the senior appointments, this holds good to a varying degree for all the three services. It was therefore decided to employ a number of British officers who volunteered to stay, for one year in the first instance, from the 15th August 1947. As these officers hold the King’s Commission they were transferred to a special list of the British Army and the Supreme Commander assumed control over them. When subsequent developments indicated that the Supreme Commander’s office may not continue beyond the 31st December 1947 it was decided to terminate the services of these British officers by the same date, leaving it to the two Dominions to offer fresh terms to any British officers they may wish to employ. The British officers have, therefore, been served with three months’ notice, as laid down in their present terms of service, with effect from the 1st October 1947. The number of British officers whom it is essential for India to retain and the terms of service to be offered are now under the active consideration of Government. It may, however, be stated that the number of British officers to be retained will be relatively small and it is hoped that all operational Commands, at least in the Army and the Air Force, will be filled by Indian officers.

19. As has already been announced, an agreement was reached with the United Kingdom Government that the withdrawal of the British Forces from India should commence immediately after the transfer of power and completed as early as possible. The first detachment of British troops actually left India on the 17th August 1947. It was hoped at one time that the withdrawals would be completed before the end of 1947 but due to shipping difficulties it now appears that this may take up to April 1948. The British troops remaining in the country have, however, no operational functions. Except two R.A.F. Transport Squadrons the rest are merely awaiting repatriation.

20. The rapidly changing conditions this year have made it difficult to frame a close estimate of Defense expenditure and the position is further complicated by the fact that the proportion in which the joint expenditure incurred by the Supreme Commander’s organization should he allocated between the two Dominions is yet to be decided. On the best estimate that can be made at this stage, the net expenditure on Defense Services during the period 15th August 1947 to 31st March 1948 is estimated at Rs. 92.74 crores. The following main factors have contributed to an increase in the expenditure;

(1) The decision to suspend demobilization and to withdraw troops from overseas.

(2) The implementation of the Post-war Pay Committee’s recommendations In respect of Defense Services personnel. No provision for this was included in the original estimates.

(3) The movement of troops and stores in connection with the reconstitution of the Armed Forces.

(4) The calling out of troops in aid of the civil power during the disturbances in the Punjab and elsewhere. The withdrawal of British troops from India earlier than was anticipated originally has resulted in a saving but this has been to some extent counterbalanced by expenditure in moving them to the United Kingdom and other destinations.

CIVIL ESTIMATES

21. Details of the estimates under individual heads are given in the Explanatory Memorandum circulated with the Budget papers and I propose to draw the attention of Hon’ble Members to only the more important items included In them. As I have explained elsewhere, the initial liability in respect of the outstanding debt of the late Central Government and the pensions chargeable to it has been placed on the Indian Dominion subject to the levy of an equitable contribution from Pakistan. The contribution still remains to be settled and, for the present, no credit has been taken in these estimates for any recovery from Pakistan. The estimates also include Rs. 2221 crores on account of subsidies on imported food grains and a lump sum provision of Rs. 22 crores for expenditure on the evacuation, relief and rehabilitation of refugees from Western Pakistan. I have briefly referred elsewhere to the problems raised by the widespread communal disturbances In the Punjab and the North West Frontier Province and the mass migration of refugees between the two Dominions. There are two aspects to this problem viz., the short term one of giving immediate relief to the refugees pouring into this country from Pakistan, practically destitute, and the long term one of resettling them in India. All the resources at the disposal of the Government of India have been mobilized in arranging the evacuation and relief of these refugees and the railways and the Armed Forces have been utilized to the maximum extent possible on this work. It is not possible to estimate the expenditure likely to fall on Central revenues on account of these developments and I have provisionally included a sum of Rs. 22 crores on this account In the Revenue Budget. In addition, a sum of Rs. 5 crores is being included in the ways and means budget for advances to the East Punjab Government. But I must mention that this does not give any idea of the magnitude of the burden that may be placed on Central revenues by these developments. Indeed, the basis on which the expenditure on relief and rehabilitation should be shared between the Centre and the East Punjab, the province most vitally affected, still remains to be decided and may take some time to decide. Whatever the final arrangement in this behalf may be, I have no doubt that it is the desire of all sections of the House that financial considerations should not stand in the way of affording relief to these

Unfortunate people and in alleviating their sufferings in one of the most poignant human tragedies that could take place outside a war. 22. Before I leave this subject I should like to give a brief analysis of the total provision included for civil expenditure, so that a balanced view of the position may be obtained. Of the total provision of Rs. 1041/2 crores, Rs. 441/2 crores are accounted for by the expenditure on refugees and the subsidizing of imported food grains, leaving Rs. 60 crores for normal expenditure. This includes Rs. 5 crores for tax collection, obligatory expenditure of Rs. 221 crores on payment of interest and pensions and provision for debt redemption, Rs. 2 crores on planning and resettlement and Rs. 12 crores for expenditure on nation building activities such as education, medical, public health, the running of scientific institutions and scientific surveys, aviation, broadcasting etc. in which the Centre largely supplements the work of the Provincial Governments by providing valuable assistance by way of specialized services and research, leaving a balance of Rs. 181/2 crores for the ordinary expenditure on administration, civil works etc. This expenditure only constitutes 18 per cent of the total civil expenditure included in the budget. In addition to the expenditure of Rs. 12 crores on nation building activities mentioned above, provision has been made in the Capital Budget for a grant of Rs. 20.39 crores to Provincial Governments for development and Rs. 15 crores for loans.

WAYS AND MEANS

23. I shall now turn to give a brief account of the ways and means position. The budget for the current year provided for a borrowing of Rs. 150 crores but this target will not be reached. Owing to the communal disturbances in the country and the uncertainties of the political situation, the securities market was very unsettled in the opening months of the year and no loan was actually floated before the 15th August 1947. After the doubts about the political future had been cleared by the decision to partition the country, there was some improvement in the position and although the market has been fairly steady in recent weeks, there is not as yet any large sustained demand for investment. Government issued early this month a fifteen year loan for Rs. 40 crores carrying interest at two and three quarter per cent with facilities for holders of the 31 per cent. Loan 1947-50, falling due for discharge on the 15th of that month to convert their holdings. The loan was issued at the beginning of the busy season and was not expected to be oversubscribed. But the public still seem to be hesitant in taking up Government loans and if their holding off is due to any lingering doubts about the responsibility for the repayment of the outstanding debt, I hope they will be reassured by what I have stated elsewhere that the Indian Dominion remains

Responsible to the bondholder. The need for money is now as urgent as ever if Government is to finance their own development plans and assist the Provincial Governments to implement their plans for development. There is also the short-term aspect to this problem, viz. the urgent necessity to counter the inflationary forces which are still present by withdrawing from the public as much surplus purchasing

Power as possible through Government loans.

24. Hon’ble Members must have noticed that in recent months there has been some criticism in certain quarters of the cheap money policy of the Government. At the last Annual General Meeting of the shareholders of the Reserve Bank the Governor of the Bank made some observations on this question. Under the influence of that eminent economist the late Lord Keynes, cheap money has been the cardinal feature of the monetary policy in many countries. It is no wonder that the Government of India fe ll in line with this trend in monetary policy. The House will realize that there is no absolute criterion by which to judge the propriety of rates at which Government borrow in the market. In the long run it is mainly a question of keeping a balance between the demands of Government on the market and the demands of Industry so that the available funds in the country are used to the best advantage. In the United Kingdom where the pursuit of this policy culminated in the issue of a 21 per cent irredeemable loan last year, attempts are being made to consolidate the progress made so far and not to proceed further in the same direction. I realize that if there is the need for such a cautious policy in a country where the economy is mature and the money and capital markets are highly developed, it is all the more necessary in the case of an economically backward country like India. Our efforts will now be directed towards consolidating and stabilizing the position so far gained. There is no intention on the part of the Government to reverse the policy and thereby jeopardize the interests of those who have trusted the Government with their money. Our borrowing programme will be such as will enable us to obtain the funds required by Government as cheaply as possible without in any way affecting the flow of investment into industry. It is also

My intention to reorganize the small savings movement which was considerably expanded during the war years, so that it might be retained as a peacetime organization with the primary purpose of encouraging savings among the middle classes. In cooperation with the Provincial Governments, steps will be taken to place the movement on a permanent footing. I take this opportunity of appealing to the chosen representatives of the people in this House to co-operate with Government fully in their borrowing programme. If the standard of living of our people is to be substantially raised by undertaking large schemes of development, both the rich and the middle classes should come forward to place their savings at the disposal of the Government.

STERLING BALANCES

25. The House will, I am sure, be interested to get some information on the subject of the sterling balances, the recent agreement regarding which between us and His Majesty’s Government in the United Kingdom I placed on the table of the House a few days ago. The peak figure which the sterling balances reached was Rs. 1,733 crores on the 5th April 1946. Thereafter, they have declined very rapidly. At the end of March 1947 they stood at Rs. 1,612 crores showing a reduction of Rs. 121 crores in twelve months. In the middle of July 1947, from when our new agreement became effective, they stood at about Rs. 1, 547 crores. We had thus drawn as much as Rs. 65 crores in a little over six months. These large decreases were due largely to heavy imports mainly of food grains and of consumer goods, of which the country had been starved during the period of the war. They also reflected some movement of capital from India, largely British.

26. This rapid depletion of the sterling balances caused some anxiety to the Government of India. These balances represent the entire foreign exchange reserves of this country and it is of the utmost importance that they should not be lightly frittered away on the import of unessential and luxury articles or on luxury living in foreign countries for they thereby reduce pro tanto the capacity of this country to finance capital and developmental expenditure abroad. The view of the Government of India is that these reserves should not be used to finance deficits in the balances of payments on what may be called normal current account. Our aim should be to meet our normal day-to-day requirements from abroad through the earnings of our current exports and we should draw upon these accumulated reserves, broadly speaking, only for the purpose of purchasing capital goods, the import of which is necessary for developing the agricultural and industrial productivity of the country.

27. With this aim in view, the Government of India decided to follow a more restrictive import policy from the second half of the calendar year 1947. Broadly speaking, that policy consists of dividing imports into three categories: free, restricted and prohibited. Imports of food, capital goods, the raw materials of industry and certain essential consumer goods are free and no exchange restrictions are placed upon their import. Consumer goods which are not absolutely essential are licensed on a quota basis, while others which in the context of the economy of this country must be regarded as totally unessential and luxury imports have been altogether prohibited. Together with the restrictions on imports were introduced certain restrictions on remittances abroad, in particular on the transference of Indian capital. These new

Policies are now showing the effects which they were calculated to have and the reduction in the sterling balances between the middle of July and the beginning of November 1947 has only been Rs. 21 crores. I should like to point out, however, that in one substantial respect the import policy now in force differs from that in force previously, in that in the licenses issued for the licensing period June to December

1947 no discrimination has been made between currencies and imports from the dollar area have been allowed on the same basis as imports from the sterling area. This position, which the House will no doubt welcome, has been brought about by the terms obtained by us in our interim negotiations on the sterling balances. The main features of this agreement, which holds good to the 31st December 1947, are that the

Indian sterling balances have been divided into two accounts which may well be likened to a deposit account and a current account. The current account has been opened with a credit of £65 million. All fresh earnings of foreign exchange are credited to the current account and all balances in the current account are available for expenditure in any part of the world including the United States of America. The deposit account is not available for ordinary current transactions but can be drawn upon only for certain limited purposes such as the repatriation of British capital from India, the payments of pensions, provident funds and gratuities outside India and certain other defined categories of payments.

28. Shortly after this agreement had been signed there arose the dollar crisis. The strain on the dollar reserves of the United Kingdom Government was felt by them to be so great that they were compelled to break their agreement with various countries regarding the free convertibility of sterling into dollars. I am glad to be able to report to the House that our agreement stands unaltered and intact and that as long as we

Have any balance to our credit in the current account we shall be able to spend it without question in any currency area. The United Kingdom Government has, however, appealed to us for our co-operation in the matter of saving dollars and we have promised them this co-operation. We are now engaged on a review of our import policy and are investigating other means to save dollar expenditure and we may have, I fear, to reintroduce in the next licensing period the discrimination in favour of imports from the sterling area which we removed only so short a time ago. We trust, however, that it will be possible so to arrange this discrimination as not to injure the vital needs of the country’s economy.

EMPIRE DOLLAR POOL

29. The country has always displayed an interest in the arrangement commonly known as the Empire Dollar Pool. As has been explained before, the arrangement is that the countries of the sterling area hold all their foreign exchange reserve in sterling, selling currencies which they do not need to the Bank of England and buying from the Bank of England currencies of which they are in short supply. As a consequence, there is always in the custody of the Bank of England a pool of foreign exchange from which members of the sterling area can buy for sterling the currencies which they need. A more correct name for this arrangement would be “the Sterling Area Pool of Foreign Exchange”. It has come to be known as the Empire Dollar Pool only because the most important of the foreign exchanges in the pool is the United States dollar.

30. Figures have been published by, Government from time to time of India’s earnings of dollars and other hard currencies and of her expenditure of these currencies and I shall now bring these figures up to date. From September 1939 up to the 31st March 1946 we earned Rs. 405 crores worth of United States dollars and spent Rs. 240 crores worth of United States dollars, leaving a surplus of Rs. 165 crores. On the other hand, in the same period we spent net Rs. 51 crores worth of other hard currencies, namely those of Canada, Switzerland, Sweden and Portugal so that our net surplus on hard currency account was Rs. 114 crores. Daring the year 1946-47 we had a deficit in the balance of payments with the United States of Rs. 15 crores, having earned Rs. 83crores and spent Rs. 98 crores, and a deficit in the balance of payments with other hard currency countries of Rs. 7 crores. It may therefore be assumed that we contributed net to the pool between September 1939 and March 1947 Rs. 92 crores worth of hard currencies, which is the equivalent of 275 million dollars. During the quarter April to

June 1947 we have had a net deficit on hard currency account of Rs. 15 crores. It will be observed, therefore, that since the financial year 1946-47 we have been consistently drawing on the pool for our dollar requirements and that we are at the moment also in heavy deficit with the United States and other hard currency countries. Generally speaking, however, I would say that, thanks to our policy of foreign exchange restriction, we hope to end the year in a fairly comfortable financial position externally. What definite policy we will follow from the next year I am not now in a position to say because our agreement terminates at the end of this year and we do not yet know what kind of agreement will replace it. I fear, however, that in view of the dollar crisis which has threatened not only the United Kingdom but the entire world, we may be in somewhat greater difficulty in the matter of dollar exchange than we are now. We hope to enter shortly into further discussions with the United Kingdom Government on the subject of the sterling balances.

POSTWAR PLANNING AND DEVELOPMENT

31. The House will remember that in the budget for the current year provision of Rs. 100 crores was made for development expenditure, including a provision of Rs. 45 crores for grants to Provinces. The partition of the country has naturally affected the scale of this expenditure as the Government of India are no longer concerned with the expenditure on development in the Provinces and areas now included in Pakistan. When the partition of the country was decided upon, Provincial Governments were informed last July that so far as the period up to the 15th August 1947 was concerned, the Government of India would make advance payments to cover expenditure on approved schemes up to the maximum of the proportion of the budget grant for this period. The Provinces were also advised not to enter into any major commitments that were likely to embarrass either of the successor Governments. It has since been decided

that for the remainder of the year grants will be available to the Provinces now remaining in the Indian Dominion on the same scale as was originally planned subject to a proportionate adjustment on account of the division of the Punjab and Bengal and the transfer of most of the Sylhet district to East Bengal. In the estimates now placed before the House a provision of Rs. 20.39 crores has been included for grants to Provinces and a sum of Rs. 15 crores for loans to them.

32. In the last budget speech my predecessor drew attention to the fact that the resources available to the then Central Government for planning and development were likely to be less than was originally estimated. What he said then for the then Central Government is equally applicable to the present Government and in the light of the reduced resources likely to be available it may be necessary to redraw the development plans and rearrange their priorities. This does not however mean that

There e has been any change In the Government’s policy of giving all the assistance in their power to the Provincial Governments for implementing their development schemes. It merely emphasizes the need for the Provinces mobilizing all the resources for this purpose and I have no doubt that this is recognized by the Provinces themselves. The House will appreciate that there is a large measure of uncertainty about the future allocation of resources between the Centre and the Provinces and till this in decided it will be difficult to make any forecast of Central resources or determine the extent to which they will be available for development and I hope to take this question of reexamining the development schemes with the Provincial Governments shortly. Meanwhile, all the approved schemes of development will be continued and the necessary funds will be made available for them. Having given this assurance on behalf of the Central Government, I would earnestly urge on the Provinces the need for conserving all their resources and securing the most rigid economy in expenditure. As I have stated, the whole basis on which post-war development plans were conceived has now been upset. The substantial revenue surpluses which were anticipated in the Central budget will now be turned into substantial deficits. In the context of this new development, the need for utilizing all the available funds in the most effective manner possible should be appreciated by the Provincial Governments.

33. In the Central field the progress on development schemes is being maintained and we are going forward with all the sanctioned schemes particularly those schemes of river development with long range benefits to the country. In this connection, the House will be interested to know that an agreement has been reached between the Central Government and the Provincial Governments concerned regarding the setting up of the Damodar Valley Authority. Another scheme which is likely to be taken up very shortly is the construction of the Hirakud Dam in Orissa at an estimated cost of Rs. 48 crores, the benefits from which will include irrigation for over a million acres, 350, 000 kilowatts of power and a considerable degree of protection from floods to the coastal districts of Orissa. It is hoped shortly to reach an agreement on this project with the Orissa Government and the Orissa States after which the actual work of construction would begin early in 1948. It is also proposed to concentrate on the construction of the Bhakra Dam in the East Punjab.

THE DEFICIT

34. I have carefully considered if any part of the deficit for this year should be covered by additional taxation and I have come to the conclusion that it should be left largely uncovered. If, for any reason, our ordinary expenditure threatens to outrun our revenue there will be a clear case for either reducing the expenditure to within the available revenue or raising additional revenue to meet the expenditure. But the circumstances during the period under review have been abnormal and the deficit is entirely due to these abnormal factors. The expenditure estimates include Rs. 22 crores for the evacuation and relief of refugees while subsidies for imported food grains are expected to cost Rs. 221/2 crores. Defense expenditure is also considerably inflated due to the slowing down of demobilization following the partition of the country and the necessity to maintain larger forces than would normally be necessary. It must also be remembered that no credit has been taken in the estimates for Pakistan’s share of the expenditure on pensions and interest. If these factors are allowed for the budgeted deficit of Rs. 26.24 crores will be converted into a surplus. Notwithstanding this I feel justified in tapping any available source of income if it could be done without adding to the burden of the ordinary man. After a careful consideration of all the available sources I have decided to replace the existing export duty of three per cent on cotton cloth and yarn by a duty of four annas per square yard on cotton cloth and six annas a pound on cotton yarn. In a full year this will yield Rs. 8 crores but in the current year the net additional revenue will amount to only Rs. 165 lakhs leaving a final deficit of Rs. 24.59 crores. A bill to give effect to this proposal will be introduced at the end of my speech.

GENERAL FINANCIAL POSITION

35. This is the eighth consecutive deficit budget and the House may well ask itself if our revenue position is sound. I have myself no hesitation in answering that question with an emphatic ‘yes’. The years covered by these budgets have been overshadowed by the greatest war in history and no country, whether neutral or belligerent, has been able to escape its economic effects or its aftermath. The deficits in the war years were wholly due to the high level of Defense expenditure and were met as far as possible by raising additional taxation. The return to peace time conditions has been slower than we anticipated and even this tardy progress has been retarded by the recent partition of the country and the unhappy developments in the Punjab. I have just mentioned the large burden thrown on this year’s budget by the unavoidable

Expenditure on refugees and the payment of subsidies for food grains. In addition, the expenditure on Defense is much higher than it would be in a normal year. If these special factors are taken into account it will be seen that we have not been living beyond our means or heading towards bankruptcy. I do not wish in any way to minimize our present difficulties or to underrate the effort required to surmount them but I have no doubt that once we reach fairly normal conditions and are able to reduce our Defense expenditure to peacetime proportions and curtail our reliance upon import of food grains we should be able to balance the budget. It will be too optimistic to expect normal conditions for the next year but I feel that with a determined all round effort we should be able to achieve this result in 1949-50.

36. And what about the general financial position of the country? Here again while there is no room for complacency there is equally no reason to take a pessimistic view. There is no doubt that economically and strategically the partition of the country has weakened both the Dominions created by it and it to a truism that an undivided India would have been in every way a stronger State than either. But the Indian Dominion with its acceding States would still cover the larger part of the country, with immense resources in men, material and industrial potential. Our debt position is also intrinsically sound and for a country of its size, India carries only a relatively small burden of unproductive debt. Our external debt is negligible and we have considerable external resources in the accumulated sterling balances. At the beginning of this year the total public debt and interest bearing obligations of undivided India stood at roughly Rs. 2,531 crores of which only Rs. 864 crores represented unproductive debt and Rs. 36 crores. External debt, while her external reserves amounted to over Rs. 1,600 crores. The share of Pakistan in these has not yet been determined but it is unlikely to affect the broad proportions of this picture.

37. The only disturbing features in the position are the persistence of inflationary trends and the unsatisfactory food position to both of which I have drawn attention elsewhere. The only real answer to inflation is to increase our internal production and thereby close the gap between the available supplies and the purchasing power in the hands of the community which in present circumstances imports cannot bridge. Till this position is reached the community must conserve its purchasing power by lending it to Government. As regards food, I am sure the House will agree that the country cannot depend indefinitely on imports. For one thing this places us at the mercy of foreign countries for our vital necessities and for another large scale Imports of food grains seriously affect our foreign exchange position and threaten to consume the bulk of the available resources which are badly required for the industrialization and development of the country. We must concentrate our energies on producing as much food as possible within the country. I suggest that this to not an impossible task, for after all the total Imports from abroad, which have never touched more than 21 million tons in any year so far, represent only a fraction of the total food grains amounting to 45 million tons we produce, although they make a large hole in our available foreign exchange.

38. I should like to make a few observations on the criticism made in certain quarters that the level of taxation introduced in the last Budget has seriously affected the incentive for Investment. In their last Annual Report the Central Board of Directors of the Reserve Bank of India has observed “There seems little doubt now that the severity of the last Budget is defeating its own purpose and is hindering the formation of capital for productive purposes. Unless correctives are applied without delay, there is a danger of the very foundations of society and economic life of the country being undermined by deepening penury and despair”. A pronouncement of this kind coming from such an authoritative source must receive serious notice. I have no doubt in my mind that it was not the intention of the Government to so arrange its taxation policy as to stifle the growth of Industry in the country. On the contrary, it is of the utmost importance that the country should be industrialized rapidly so as to secure increased production and a widening range of employment for the people. There is no need for any serious difference of opinion based on more ideological differences. Whatever might be the ultimate pattern of our economic structure, I hold the belief that for many years to come there is need and scope for private enterprise in industry. We cannot afford to lose the benefit of the long years of experience which private enterprise has

Gained in the building up of our industrial economy. I believe that the general pattern of our economy must be a mixed economy in which there is scope both for private enterprise and for State enterprise. Before I present the annual Budget to this House next February. I shall make a careful examination of the consequences of our taxation policy and endeavor to make any adjustments that may be necessary to instill confidence in private enterprise. In the meantime, I may assure the House that it is not the policy of the Government to hamper in any way the expansion of business enterprise or the accumulation of savings likely to flow into investment.

CONCLUSION

39. I would conclude the Speech with an appeal to this House and through the House to the country at large. For the first time in two centuries we have a Government of our own answerable to the people for its actions. A to the duty and the privilege of such a Government to render an account of its stewardship to the representatives of the people, but it has also the right to ask for the co-operation of the entire community in the carrying out of the accepted policies. Events of the last few weeks have unmistakably shown that the political problems arising out of our status have not yet been fully solved. While we have secured freedom from foreign yoke, mainly through the operation of world vents and partly through a unique act of enlightened self-abnegation on behalf of the erstwhile rulers of the country, we have yet to consolidate into one unified whole the many discordant elements in our national life. This can be achieved only by the rigorous establishment of the rule of law which is the only durable foundation on which the fabric of any democratic State can be raised. Respect for law is essentially a matter of political training and tradition and transition from a dependent to an independent status always makes it difficult in the initial stages to secure that unflinching obedience to the rule of law which always acquires a new meaning in a new political context. If the fabric of the State is not built on durable foundations, it will be futile to try and fill it with the material and moral contents of a good life. If India, just raised from bondage, is to realize her destiny as the leader of Asia and take her place in the front rank of free nations, she would require all the disciplined effort her sons can put forth in the years immediately ahead. The willing help and co-operation of all sections of the community is required in maintaining peace and order, in increasing production and in avoiding internecine quarrels whether between communities or between capital and labour. I am sure my appeal for this help and co-operation will not go in vain.

(November 26, 1947)

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Finance Act 2013, Budget 2013

Summary of Finance Act, 2013

Amendment of section 2: Definitions under Income Tax Act, 1961

Amendment of section 10: Incomes not included in total Income

Insertion of new section 32AC: Deduction for acquisition and installation of new plant or machinery by manufacturing company

Amendment of section 36: Other Deductions

Amendment of section 40: Amounts not deductible

Amendment of section 43: Definitions of certain terms relevant to income from profits and gains of business or profession

Insertion of new section 43CA: Special provision for full value of consideration for transfer of assets other than capital assets in certain cases

Amendment of section 56: Income from other sources

Amendment of section 80C: Deduction in respect of life insurance premia, deferred annuity, contributions to provident fund, subscription to certain equity shares or debentures, etc

Amendment of section 80CCG: Deduction in respect of investment made under an equity savings scheme.

Amendment of section 80D: Deduction in respect of health insurance premia

Insertion of new section 80EE: Deduction in respect of interest on loan taken for residential house property

Amendment of section 80G: Deduction in respect of donations to certain funds, charitable institutions, etc

Amendment of section 80GGB: Deduction in respect of contributions given by companies to political parties

Amendment of section 80GGC: Deduction in respect of contributions given by any person to political parties

Amendment of section 80-IA: Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc.

Amendment of section 80JJAA: Deduction in respect of employment of new workmen

Amendment of section 87: Rebate to be allowed in computing income-tax

Insertion of new section 87A: Rebate of income-tax in case of certain individuals

Amendment of section 90: Agreement with foreign countries or specified territories

Amendment of section 90A: Adoption by Central Government of agreement between specified associations for double taxation relief.

Omission of Chapter X-A relating to General Anti-Avoidance Rule

Insertion of new Chapter X-A: GENERAL ANTI-AVOIDANCE RULE 95. Applicability of General Anti-Avoidance Rule.—Notwithstanding anything contained in the Act, an arrangement entered into by an assessee may be declared to be an impermissible avoidance arrangement and the consequence in relation to tax arising therefrom may be determined subject to the provisions of this Chapter.

Amendment of section 115A: Tax on dividends, royalty and technical service fees in the case of foreign companies

Amendment of section 115AD: Tax on income of Foreign Institutional Investors from securities or capital gains arising from their transfer

Amendment of section 115BBD: Tax on certain dividends received from foreign companies

Amendment of section 115-O: Tax on distributed profits of domestic companies

Insertion of new Chapter XII-DA: SPECIAL PROVISIONS RELATING TO TAX ON DISTRIBUTED INCOME OF DOMESTIC COMPANY FOR BUY-BACK OF SHARES 115QA. Tax on distributed income to shareholders

Amendment of section 115R: Tax on distributed income to unit holders

Insertion of new Chapter XII-EA.: SPECIAL PROVISIONS RELATING TO TAX ON DISTRIBUTED INCOME BY SECURITISATION TRUSTS 115TA. Tax on distributed income to investors

Amendment of section 132B: Application of seized or requisitioned assets

Amendment of section 138: Disclosure of information respecting assessees

Amendment of section 139: Return of income

Amendment of section 142: Inquiry before assessment

Omission of section 144BA: Reference to Commissioner in certain cases

Insertion of new section 144BA: Reference to Commissioner in certain cases

Amendment of section 144C: Reference to dispute resolution panel

Amendment of section 153: Time limit for completion of assessments and reassessments

Amendment of section 153B: Time-limit for completion of assessment under section 153A

Amendment of section 153D: Prior approval necessary for assessment in cases of search or requisition

Amendment of section 167C: Liability of partners of limited liability partnership in liquidation

Amendment of section 179: Liability of directors of private company in liquidation

Insertion of new section 194-IA: Payment on transfer of certain immovable property other than agricultural land

Insertion of new section 194LD: Income by way of interest on certain bonds and Government securities

Amendment of section 195: Other sums

Amendment of section 196D: Income of Foreign Institutional Investors from securities

Amendment of section 204: Meaning of “person responsible for paying”

Amendment of section 206AA: Requirement to furnish Permanent Account Number

Amendment of section 206C: Profits and gains from the business of trading in alcoholic liquor, forest produce, scrap, etc

Amendment of section 245N: Advance Ruling Definitions

Amendment of section 245R: Advance Ruling Procedure on receipt of application

Amendment of section 246A: Appealable orders

Amendment of section 252: Appellate Tribunal

Amendment of section 253: Appeals to the Appellate Tribunal

Substitution of new section for section 271FA: Penalty for failure to furnish annual information return

Amendment of section 295: Power to make rules

Amendment of Fourth Schedule:  PART A – RECOGNISED PROVIDENT FUNDS,  PART B – APPROVED SUPERANNUATION FUNDS, PART C – APPROVED GRATUITY FUNDS

Amendment of section 2

(ii) for item (B), the following item shall be substituted, namely:— “(B) in any area within the distance, measured aerially,— (I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (A) and which has a population of more than ten thousand but not exceeding one lakh; or (II) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item (A) and which has a population of more than one lakh but not exceeding ten lakh; or (III) not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (A) and which has a population of more than ten lakh.”;

Substitution of reference of certain expression by other expression. 4. In the Income-tax Act, for the expression “the Foreign Exchange Regulation Act, 1973 (46 of 1973)”, wherever it occurs, the expression “the Foreign Exchange Management Act, 1999 (42 of 1999)” shall be substituted.

Amendment of section 10

„Provided also that where the policy, issued on or after the 1st day of April, 2013, is for insurance on life of any person, who is— (i) a person with disability or a person with severe disability as referred to in section 80U; or (ii) suffering from disease or ailment as specified in the rules made under section 80DDB, the provisions of this sub-clause shall have effect as if for the words “ten per cent”, the words “fifteen per cent” had been substituted

„(23DA) any income of a securitisation trust from the activity of securitisation. Explanation.—For the purposes of this clause,— (a) “securitisation” shall have the same meaning as assigned to it,—
(i) in clause (r) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Public Offer and Listing of Securitised Debt Instruments) Regulations, 2008 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) and the Securities Contracts (Regulation) Act, 1956 (42 of 1956); or(ii) under the guidelines on securitisation of standard assets issued by the Reserve Bank of India; (b) “securitisation trust” shall have the meaning assigned to it in the Explanation below section 115TC;‟;

„(23ED) any income, by way of contributions received from a deposi- tory, of such Investor Protection Fund set up in accordance with the regulations by a depository as the Central Government may, by notification in the Official Gazette, specify in this behalf:

(IV) in clause (23FB), for Explanation 1, the following Explanation shall be substituted, namely:—(a) “venture capital company” means a company which— (A) has been granted a certificate of registration, before the 21st day of May, 2012, as a Venture Capital Fund and is regulated under the Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996 (herein- after referred to as the Venture Capital Funds Regula- tions) made under the Securities and Exchange Board of India Act, 1992 (15 of 1992); or ……… (b) “venture capital fund” means a fund— (A) operating under a trust deed registered under the provi- sions of the Registration Act, 1908 (16 of 1908), which—

Insertion of new section 32AC

„32AC. Investment in new plant or machinery.—(1) Where an assessee, being a company, engaged in the business of manufacture or production of any article or thing, acquires and installs new asset after the 31st day of March, 2013 but before the 1st day of April, 2015 and the aggregate amount of actual cost of such new assets exceeds one hundred crore rupees, then, there shall be allowed a deduction,— (a) for the assessment year commencing on the 1st day of April, 2014, of a sum equal to fifteen per cent of the actual cost of new assets acquired and installed after the 31st day of March, 2013 but before the 1st day of April, 2014, if the aggregate amount of actual cost of such new assets exceeds one hundred crore rupees; and
(b) for the assessment year commencing on the 1st day of April, 2015, of a sum equal to fifteen per cent of the actual cost of new assets acquired and installed after the 31st day of March, 2013 but before the 1st day of April, 2015, as reduced by the amount of deduction allowed, if any, under clause (a). (2) If any new asset acquired and installed by the assessee is sold or otherwise transferred, except in connection with the amalgamation or demerger, within a period of five years from the date of its installation, the amount of deduction allowed under sub-section (1) in respect of such new asset shall be deemed to be the income of the assessee chargeable under the head “Profits and gains of business or profession” of the previous year in which such new asset is sold or otherwise transferred, in addition to taxability of gains, arising on account of transfer of such new asset. (3) Where the new asset is sold or otherwise transferred in connection with the amalgamation or demerger within a period of five years from the date of its installation, the provisions of sub-section (2) shall apply to the amalgamated company or the resulting company, as the case may be, as they would have applied to the amalgamating company or the demerged company. (4) For the purposes of this section, “new asset” means any new plant or machinery (other than ship or aircraft) but does not include— (i) any plant or machinery which before its installation by the assessee was used either within or outside India by any other person; (ii) any plant or machinery installed in any office premises or any residential accommodation, including accommodation in the nature of a guest house; (iii) any office appliances including computers or computer software; (iv) any vehicle; or (v) any plant or machinery, the whole of the actual cost of which is allowed as deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head “Profits and gains of business or profession” of any previous year.‟.

Amendment of section 36

in sub-section (1), with effect from the 1st day of April, 2014,— (a) in clause (vii), the Explanation shall be numbered as Explanation 1 thereof and after Explanation 1 as so numbered, the following Explanation shall be inserted, namely:—
“Explanation 2.—For the removal of doubts, it is hereby clarified that for the purposes of the proviso to clause (vii) of this sub-section and clause (v) of sub-section (2), the account referred to therein shall be only one account in respect of provision for bad and doubtful debts under clause (viia) and such account shall relate to all types of advances, including advances made by rural branches;”;

Amendment of section 40

“(iib) any amount— (A) paid by way of royalty, licence fee, service fee, privilege fee, service charge or any other fee or charge, by whatever name called, which is levied exclusively on; or (B) which is appropriated, directly or indirectly, from, a State Government undertaking by the State Government. Explanation.—For the purposes of this sub-clause, a State Government undertaking includes— (i) a corporation established by or under any Act of the State Government; (ii) a company in which more than fifty per cent of the paid-up equity share capital is held by the State Government; (iii) a company in which more than fifty per cent of the paid-up equity share capital is held by the entity referred to in clause (i) or clause (ii) (whether singly or taken together); (iv) a company or corporation in which the State Government has the right to appoint the majority of the directors or to control the management or policy decisions, directly or indirectly, includ- ing by virtue of its shareholding or management rights or shareholders agreements or voting agreements or in any other manner;
(v) an authority, a board or an institution or a body established or constituted by or under any Act of the State Government or owned or controlled by the State Government;”.

Amendment of section 43

(I) in the proviso,— (A) in clause (d), after the words “a recognised stock exchange;”, the word “or” shall be inserted; (B) after clause (d), the following clause shall be inserted, namely:— “(e) an eligible transaction in respect of trading in commodity derivatives carried out in a recognised association,”; (II) the Explanation shall be numbered as “Explanation 1” thereof and in the Explanation 1 as so renumbered, for the words “this clause”, the word, brackets and letter “clause (d)” shall be substituted; (III) after Explanation 1 as so renumbered, the following Explanation shall be inserted, namely: „Explanation 2.— For the purposes of clause (e), the expressions— (i) “commodity derivative” shall have the meaning as assigned to it in Chapter VII of the Finance Act, 2013; (ii) “eligible transaction” means any transaction,—

Insertion of new section 43CA

“43CA. Special provision for full value of consideration for transfer of assets other than capital assets in certain cases.—(1) Where the consideration received or accruing as a result of the transfer by an assessee of an asset (other than a capital asset), being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of computing profits and gains from transfer of such asset, be deemed to be the full value of the consideration received or accruing as a result of such transfer. (2) The provisions of sub-section (2) and sub-section (3) of section 50C shall, so far as may be, apply in relation to determination of the value adopted or assessed or assessable under sub-section (1).

Amendment of section 56

“(b) any immovable property,— (i) without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property; (ii) for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration:

Amendment of section 80C

„Provided that where the policy, issued on or after the 1st day of April, 2013, is for insurance on life of any person, who is— (a) a person with disability or a person with severe disability as referred to in section 80U, or (b) suffering from disease or ailment as specified in the rules made under section 80DDB, the provisions of this sub-section shall have effect as if for the words “ten per cent”, the words “fifteen per cent” had been substituted

Amendment of section 80CCG

(a) in sub-section (1),— (i) after the words “acquired listed equity shares”, the words “or listed units of an equity oriented fund” shall be inserted; (ii) after the words “in such equity shares”, the words “or units” shall be inserted;

Amendment of section 80D

In section 80D of the Income-tax Act, in sub-section (2), in clause (a), after the words “Central Government Health Scheme”, the words “or such other scheme as may be notified by the Central Government in this behalf” shall be inserted with effect from the 1st day of April, 2014.

Insertion of new section 80EE

„80EE. Deduction in respect of interest on loan taken for residential house property.—(1) In computing the total income of an assessee, being an individual, there shall be deducted, in accordance with and subject to the provisions of this section, interest payable on loan taken by him from any financial institution for the purpose of acquisition of a residential house property. (2) The deduction under sub-section (1) shall not exceed one lakh rupees and shall be allowed in computing the total income of the individual for the assessment year beginning on the 1st day of April, 2014 and in a case where the interest payable for the previous year relevant to the said assessment year is less than one lakh rupees, the balance amount shall be allowed in the assessment year beginning on the 1st day of April, 2015

Amendment of section 80G

Amendment of section 80GGB: Provided that no deduction shall be allowed under this section in respect of any sum contributed by way of cash

Amendment of section 80GGC: Provided that no deduction shall be allowed under this section in respect of any sum contributed by way of cash.

Amendment of section 80-IA

Amendment of section 80JJAA

“(1) Where the gross total income of an assessee, being an Indian company, includes any profits and gains derived from the manufac- ture of goods in a factory, there shall, subject to the conditions specified in sub-section (2), be allowed a deduction of an amount equal to thirty per cent of additional wages paid to the new regular workmen employed by the assessee in such factory, in the previous year, for three assessment years including the assessment year relevant to the previous year in which such employment is provided

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Rate of TCS on Sale of Gold Coins, Bullion or Jewellery

Rate of TCS on Sale of Coins, Bullion or Jewellery of 1%. Tax Collection at Source if Sale in cash of bullion in excess of Rs 2 lakhs and Jewellery in excess of Rs 5 Lakhs.

CLARIFICATION ON AMENDMENT TO SECTION 206-C OF INCOME TAX ACT DEALING WITH TAX COLLECTION AT SOURCE (TCS) ON SALE OF BULLION OR JEWELLERY IN CASH.
Currently, sale in cash of bullion (excluding coin or any other article weighing 10 grams or less) in excess of Rs 2 lakhs or jewellery in excess of Rs.5 lakhs is subject to Tax Collection at Source (TCS) @ 1%. As coins were neither included in bullion nor in jewellery, therefore, coins, even when amounting to more than Rs. 2 lakh in value, were being sold in cash without TCS.

The Finance Bill, 2013 proposes to delete exclusion of coins/articles weighing 10 grams or less from bullion. Hence, the sale of bullion (including coins/articles) in cash in excess of Rs 2 lakh shall be subject to TCS @1%. Similarly, sale of jewellery in cash in excess of Rs 5 lakh shall be subject to TCS @1%. It is not a new levy of tax but continuation of old levy except withdrawal of exemption in the case of coins/articles weighing 10 grams or less.

 Reference: Section 206C(1D) for TCS on Bullion and Jewellery

(1D) Every person, being a seller, who receives any amount in cash as consideration for sale of bullion (excluding any coin or any other article weighing ten grams or less) or jewellery, shall, at the time of receipt of such amount in cash, collect from the buyer, a sum equal to one per cent of sale consideration as income-tax, if such consideration,—

 (i)  for bullion, exceeds two hundred thousand rupees; or

(ii)  for jewellery, exceeds five hundred thousand rupees.

Budget 2012-2013

Union Budget of 2012-13 was presented by Pranab Mukherjee (Minister of Finance) on March 16,  2012. Here is the speech what finance Minister gave in parliament while presenting union budget for 2012-13.

For the Indian economy, this was a year of recovery interrupted. When one year ago, I rose to present the Budget, the challenges were many, but there was a sense that the world economy was on the mend. The Budget was presented in the first glimmer of hope. But reality turned out to be different. The sovereign debt crisis in the Euro zone intensified, political turmoil in Middle East injected widespread uncertainty, crude oil prices rose, an earthquake struck Japan and the overall gloom refused to lift.

2.         While I believe that there should be no room for complacency, nor any excuse for what happens in one’s own country, we will be misled if we ignore the ground realities of the world. The global crisis has affected us. India’s Gross Domestic Product (GDP) is estimated to grow by 6.9 per cent in 2011-12, after having grown at the rate of 8.4 per cent in each of the two preceding years. Though we have been able to limit the adverse impact of this slowdown on our economy, this year’s performance has been disappointing. But it is also a fact that in any cross-country comparison, India still remains among the front runners in economic growth.

3.         For the better part of the past two years, we had to battle near double-digit headline inflation. Our monetary and fiscal policy response during this period was geared towards taming domestic inflationary pressures. A tight monetary policy impacted investment and consumption growth. The fiscal policy had to absorb expanded outlays on subsidies and duty reductions to limit the pass-through of higher fuel prices to consumers. As a result growth moderated and the fiscal balance deteriorated.

4.         But there is good news in the detail. With agriculture and services continuing to perform well, India’s slowdown can be attributed almost entirely to weak industrial growth. While we do not have aggregate figures for the last quarter of 2011-12, numerous indicators pertaining to this period suggest that the economy is now turning around. There are signs of recovery in coal, fertilisers, cement and electricity sectors. These are core sectors that have an impact on the entire economy. Indian manufacturing appears to be on the cusp of a revival.

5.         We are now at a juncture when it is necessary to take hard decisions. We have to improve our macroeconomic environment and strengthen domestic growth drivers to sustain high growth in the medium term. We have to accelerate the pace of reforms and improve supply side management of the economy.

6.         We are about to enter the first year of the Twelfth Five Year Plan which aims at “faster, sustainable and more inclusive growth.” The Plan will be launched with the Budget proposals for 2012-13. In keeping with the stated priorities, I have identified five objectives that we must address effectively in the ensuing fiscal year. These are:

•        Focus on domestic demand driven growth recovery;

•        Create conditions for rapid revival of high growth in private investment;

•        Address supply bottlenecks in agriculture, energy and transport sectors, particularly in coal, power, national highways, railways and civil aviation;

•        Intervene decisively to address the problem of malnutrition especially in the 200 high-burden districts; and

•        Expedite coordinated implementation of decisions being taken to improve delivery systems, governance, and transparency; and address the problem of black money and corruption in public life.

7.         Today, India has global responsibilities of a kind that it did not have earlier. Our presence at the high table of global economic policy makers is a matter of some satisfaction. It, however, places new responsibilities on our shoulders. If India can continue to build on its economic strength, it can be a source of stability for the world economy and provide a safe destination for restless global capital.

8.         I know that mere words are not enough. What we need is a credible roadmap backed by a set of implementable proposals to meet those objectives. In my attempt to do so, I have benefited from the able guidance of Hon’ble Prime Minister, Dr. Manmohan Singh, and strong support of the UPA Chairperson Smt. Sonia Gandhi.

I would now begin with a brief overview of the economy.

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