Union Budget 2012- Direct Tax Budget Proposal part-2

Intimation after processing of TDS Statement:

Existing Provision: As per Section 200A, After processing of TDS statement, intimation is generated specifying the amount payable or refundable. The intimation generated after processing of TDS statement is not

(i) subject to rectification under section 154;

(ii) appealable under section 246A; and

(iii) deemed as notice of demand under section 156.

Proposed: In order to reduce the compliance burden of the deductor and also to rationalise the provisions of processing of TDS statement, it is proposed to provide that the intimation generated after processing of TDS statement shall be:

(i) subject to rectification under section 154;

(ii) appealable under section 246A; and

(iii) deemed as notice of demand under section 156.

Effective Date: These amendments will take effect from 1st July, 2012.

Extension of time for passing an order under section 201 in certain cases:

Existing Provision: Under the existing provisions section 201 of the Income-tax Act, a person can be deemed to be an assessee in default, by an order, in respect of non-deduction/short deduction of tax. Such order can be passed within a period of four years from end of financial year in a case where no statement as referred to in section 200 has been filed.

Proposed: It is proposed to amend provision of section 201, so as to extend the time limit from four years to six years.

Effective Date: This amendment will take effect retrospectively from 1st April, 2010.

Amendments in relation of prevention of Unaccounted Money
Cash Credits under Section 68:
Existing Provision: Section 68 of the Act provides that if any sum is found credited in the books of an assessee and such assessee either

(i) does not offer any explanation about nature and source of money; or

(ii) the explanation offered by the assessee is found to be not satisfactory by the Assessing Officer,
then, such amount can be taxed as income of the assessee.

Proposed: It is proposed to amend section 68 of the Act to provide that the nature and source of any sum credited, as share capital, share premium etc., in the books of a closely held company shall be treated as explained only if the source of funds is also explained by the assessee company in the hands of the resident shareholder.

However, even in the case of closely held companies, it is proposed that this additional onus of satisfactorily explaining the source in the hands of the shareholder, would not apply if the shareholder is a well regulated entity, i.e. a Venture Capital Fund, Venture Capital Company registered with the Securities Exchange Board of India (SEBI).

Effective Date: This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent years.

Taxation of Cash Credits, Unexplained Money etc.

Existing Provision: Under the existing provisions of the Income-tax Act, certain unexplained amounts are deemed as income under section 68, section 69, section 69A, section 69B, and section 69C and section 69D of the Act and are subject to tax as per the tax rate applicable to the assessee.
In case of individuals, HUF, etc. no tax gets levied if such income is less than the Basic Exemption Limit.

Proposed: it is proposed to tax the unexplained credits, money, investment, expenditure, etc., which has been deemed as income under section 68, section 69, section 69A, section 69B, section 69C or section 69D, at the rate of 30% (plus surcharge and cess as applicable).
It is also proposed to provide that no deduction in respect of any expenditure or allowance shall be allowed to the assessee under any provision of the Act in computing deemed income under the said sections.

Effective Date: This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013- 14 and subsequent assessment years.

Share Premium in excess of the fair market value to be treated as income:

Existing Provision: Section 56(2) provides for the specific category of incomes that shall be chargeable to income-tax under the head “Income from other sources”. There is no provision for Share Premium under the Section.

Proposed: It is proposed to insert a new clause in section 56(2). The new clause will apply where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares. In such a case if the consideration received for issue of shares exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be chargeable to income tax under the head “Income from other sources.

However, this provision shall not apply where the consideration for issue of shares is received by a venture capital undertaking from a venture capital company or a venture capital fund.

Further, it is also proposed to provide the company an opportunity to substantiate its claim regarding the fair market value.

Accordingly, it is proposed that the fair market value of the shares shall be the higher of the value:

(i) as may be determined in accordance with the method as may be prescribed; or

(ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value of its assets,

including intangible assets, being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature.

Effective Date: This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013- 14 and subsequent assessment years.

Compulsory filing of income tax return in relation to assets located outside India
Existing Provision: Under the existing provisions of section 139, every person is required to furnish a return of income if his income during the previous year relevant to the assessment year exceeds the maximum amount which is not chargeable to tax.

Proposed: It is proposed to amend the provisions of section 139 so that furnishing of return of income under section 139 may be made mandatory for every resident having any asset (including financial interest in any entity) located outside India or signing authority in any account located outside India. Furnishing of return by such a resident would be mandatory irrespective of the fact whether the resident taxpayer has taxable income or not.

Effective Date: – This amendment will take effect retrospectively from the 1st day of April, 2012 and will accordingly apply to assessment year 2012-13 and subsequent assessment years.

Reassessment of income in relation to any assets located outside India

Existing Provision Under the provisions of section 149 of the Income-tax Act, the time limit for issue of notice for reopening an assessment on account of income escaping assessment is 6 years.

Proposed : It is proposed to amend the provisions of section 149 so as to increase the time limit for issue of notice for reopening an assessment to 16 years, where the income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment.

Amendments are also proposed to be made in section 147 of the Income-tax Act to provide that income shall be deemed to have escaped assessment where a person is found to have any asset (including financial interest in any entity) located outside India.

Effective Date: The provisions of sections 147 and 149 are procedural in nature and will take effect from 1st July, 2012 for enabling reopening of proceedings for and assessment year commencing prior to this date. This is proposed to be clarified through an Explanation stating that the provisions of these sections, as amended, by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012.

Penalty on undisclosed income found during the course of search
Existing Provision Under the existing provisions of section 271AAA of the Income-tax Act, no penalty is levied if the assessee admits the undisclosed income in a statement under sub-section (4) of section 132 recorded in the course of search and specifies the manner in which such income has been derived and pays the tax together with interest, if any, in respect of such income.

Proposed: In order to strengthen the penal provisions, it is proposed to provide that the provisions of section 271AAA will not be applicable for searches conducted on or after 1st July, 2012. It is also proposed to insert a new provision in the Act (section 271AAB) for levy of penalty in a case where search has been initiated on or after 1st July, 2012. The new section provides that,-

(i) If undisclosed income is admitted during the course of search, the taxpayer will be liable for penalty at the rate of 10% of undisclosed income subject to the fulfillment of certain conditions.

(ii) If undisclosed income is not admitted during the course of search but disclosed in the return of income filed after the search, the taxpayer will be liable for penalty at the rate of 20% of undisclosed income subject to the fulfillment of certain conditions.

(iii) In a case not covered under (i) and (ii) above, the taxpayer will be liable for penalty at the rate ranging from 30% to 90% of undisclosed income.

Effective Date: – These amendments will take effect from the 1st day of July, 2012 and will, accordingly, apply to any search and seizure action taken after this date.

Amendments for Tax Incentives and Reliefs:
Removal of cascading effect of Dividend Distribution Tax:
Existing Provision: Section 115-O of the Act provides that dividend liable for DDT in case of a company is to be reduced by an amount of dividend received from its subsidiary after payment of DDT if the company is not a subsidiary of any other company. This removes the cascading effect of DDT only in a two-tier corporate structure.

Proposed: With a view to remove the cascading effect of DDT in multi-tier corporate structure, it is proposed to amend Section 115-O of the Act to provide that in case any company receives, during the year, any dividend from any subsidiary and such subsidiary has paid DDT as payable on such dividend, then, dividend distributed by the holding company in the same year, to that extent, shall not be subject to Dividend Distribution Tax under section 115-O of the Act.

Effective Date: This amendment will take effect from 1st July, 2012.
Extending benefit of initial depreciation to the power sector:
Existing provision: Section 32(1)(ilia) provides for allowance of initial depreciation (in addition to normal depreciation) at the rate of 20% of the actual cost on new machinery or plant (other than ships and aircraft) to the assessee engaged in the business of manufacture or production of any article or thing in the year of acquisition and instalment.

Proposed: In order to encourage new investment by the assessee engaged in the business of generation or generation and distribution of power, it is proposed to amend this section to provide that an assessee engaged in the business of generation or generation and distribution of power shall also be allowed initial depreciation at the rate of 20% of actual cost of new machinery or plant (other than ships and aircraft) acquired and installed in a previous year.

Effective Date: This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.

Weighted Deduction for Scientific Research and Development:

Existing Provision: Under the existing provisions of Section 35(2AB) of the Income-tax Act, a company is allowed weighted deduction at the rate of 200% of expenditure (not being in the nature of cost of any land or building) incurred on approved in-house research and development facilities. These provisions are applicable only in respect of any expenditure incurred by a company up to the financial year ending on 31st March, 2012.

Proposed: It is proposed to amend this section to extend the benefit of the weighted deduction for a further period of five years i.e. up to 31st March, 2017

Effective Date: This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years up to assessment year 2017-18.

Weighted Deduction for expenditure incurred on Agricultural Extension project:

Existing Provision: No provision for deduction in respect of such expenditure.

Proposed: it is proposed to insert a new provision in the Income-tax Act to by way of Section 35CCC allow weighted deduction of 150% of the expenditure incurred on agricultural extension project. The agricultural extension project eligible for this weighted deduction shall be notified by the Board in accordance with the prescribed guidelines.

Effective Date: This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013- 14 and subsequent assessment years.

Weighted Deduction for expenditure on skill Development:

Existing Provision: No provision for deduction in respect of such expenditure.

Proposed: it is proposed to insert a new Section 35CCD to provide weighted deduction of 150% of expenses (not being expenditure in the nature of cost of any land or building) incurred on skill development project. The skill development project eligible for this weighted deduction shall be notified by the Board in accordance with the prescribed guidelines.

Effective Date: The proposed amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.

Turnover or Gross Receipts for Audit of Accounts and Presumptive Taxation:

Existing Provision: Under the existing provisions of section 44AB, every person carrying on business is required to get his accounts audited if the total sales, turnover or gross receipts in the previous year exceed Rs.60,00,000/- Similarly, a person carrying on a profession is required to get his accounts audited if the total sales, turnover or gross receipts in the previous year exceeds Rs.15,00,000/-.

Proposed: it is proposed to increase the threshold limit of total sales, turnover or gross receipts, specified under section 44AB for accounts audited, from Rs. Sixty Lacs to Rs. One Crore in the case of persons carrying on business and from Rs.15,00,000/- to Rs.25,00,000/- in the case of persons carrying on profession.

It is also proposed that for the purposes of presumptive taxation under section 44AD, the threshold limit of total turnover or gross receipts would be increased from Rs. Sixty Lacs to Rs. One Crore.

Effective Date: These amendments will take effect from 1st April, 2013 and will, accordingly, apply to the assessment year 2013-14 and subsequent assessment years.

Relief from long term capital gain tax on transfer of residential property if invested in a manufacturing SME:

Existing Provision: Under the existing provisions, there is no such relief.

Proposed: It is proposed to insert a new section 54GB so as to provide rollover relief from long term capital gains tax to an individual or an HUF on sale of a residential property (house or plot of land) in case of re-investment of sale consideration in the equity of a new start-up SME company in the manufacturing sector which is utilized by the company for the purchase of new plant and machinery.

The relief is subject to certain conditions prescribed under the section would be available in case of any transfer of residential property made on or before 31st March, 2017.

Effective Date: The proposed amendments in the provisions of the Income-tax Act shall be effective from 1st April, 2013 and would accordingly apply to assessment year 2013-14 and subsequent assessment years.

Deduction in respect of capital expenditure on specified business:

Existing Provision: Under the existing provisions of section 35AD of the Income-tax Act, investment-linked tax incentive is provided by way of allowing 100% deduction in respect of the whole of any expenditure of capital nature (other than on land, goodwill and financial instrument) incurred wholly and exclusively, for the purposes of the “specified business” during the previous year in which such expenditure is incurred.

Proposed: It is proposed to include three new businesses as “specified business” for the purposes of the investment-linked deduction under section 35AD, namely:-

(a) Setting up and operating an inland container depot or a container freight station notified or approved under the Customs
Act, 1962 (52 of 1962);

(b) bee-keeping and production of honey and beeswax; and

(c) Setting up and operating a warehousing facility for storage of sugar.

The dates of commencement of the “specified business” are detailed in section 35AD (5). It is proposed that the date of commencement of operations for availing investment linked deduction in respect of the three new specified businesses shall be on or after 1st April, 2012.

It is also proposed that the following specified businesses commencing operations on or after the 1st of April, 2012 shall be allowed a deduction of 150% of the capital expenditure under section 35AD of the Income-tax Act, namely:-

(i) Setting up and operating a cold chain facility;

(ii) Setting up and operating a warehousing facility for storage of agricultural produce;

(iii) Building and operating, anywhere in India, a hospital with at least one hundred beds for patients;

(iv) Developing and building a housing project under a scheme for affordable housing framed by the Central Government or a State Government, as the case may be, and notified by the Board in this behalf in accordance with the guidelines
as may be prescribed; and

(v) production of fertilizer in India.

Effective Date: These amendments will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.

Extension of sunset date for tax holiday for power sector:
Existing Provision: Under the existing provisions of section 80-IA (4) (iv) of the Income-tax Act, a deduction from profits and gains is allowed to an undertaking which is set up for the generation and distribution of power if it begins to generate power at any time during the period beginning on 1st April, 1993 and ending on 31st March, 2012.

Proposed: It is proposed to amend the above provision to extend the terminal date for a further period of one year, i.e., up to 31st March, 2013.

Effective Date: This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to assessment year 2013-14.

Deduction for expenditure on preventive health check-up:
Existing Provision: Under the existing provisions contained in section 80D of the Income-tax Act, a deduction is allowed in respect of premium paid towards a health insurance policy for insurance of self, spouse and dependent children or any contribution made to the Central Government Health Scheme, up to a maximum of Rs.15,000 in aggregate. A further deduction of Rs.15, 000 is also allowed for buying a health insurance policy in respect of parents.

Proposed: It is proposed to amend this section to also include any payment made by an assessee on account of preventive health check-up of self, spouse, dependent children or parents(s) during the previous year as eligible for deduction within the overall limits prescribed in the section. However, the proposed deduction on account of expenditure on preventive health check-up (for self, spouse, dependent children and parents) shall not exceed in the aggregate Rs.5, 000.

It is further proposed to provide that for the purpose of the deduction under section 80D, payment can be made

(i) by any mode, including cash, in respect of any sum paid on account of preventive health check-up and

ii) By any mode other than cash, in all other cases.

Effective Date: These amendments will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.

Deduction in respect of interest on saving deposits:
Existing Provision: There is no such deduction under the existing provisions.
Proposed: Under the proposed new section 80TTA of the Income-tax Act, a deduction up to Rs.10,000/- shall be allowed to an assessee, being an individual or a Hindu undivided family, in respect of any income by way of interest on deposits (not being time deposits) in a savings account with a Bank, Co-operative Society or a post office.

However, where the aforesaid income 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 in respect of such income in computing the total income of any partner of the firm or any member of the association or body.

Effective Date: This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.

Reduction in the rate of Securities Transaction Tax:

Existing Provision: The Securities Transaction Tax is payable at the Rate of 0.125% for Delivery based purchase or sale of equity shares in a company or units of equity oriented fund, through the recognized stock exchange in India.

Proposed: It is proposed to reduce the STT in Cash Delivery Segment by 20%. Thus, the proposed rate of STT would be 0.1% for all delivery based purchase or sale transactions.

Effective Date: The proposed amendments in the rates of Securities Transaction Tax (STT) will be effective from the 1st day of July, 2012 and will accordingly apply to any transaction made on or after that date.

AMENDMENTS FOR WEALTH TAX:

Exemption of Residential House allotted to employee etc. of a Company

Existing Provision: Under the existing provisions of section 2 of the Wealth-tax Act, the specified assets for the purpose of levy of wealth tax do not include a residential house allotted by a company to an employee or an officer or a whole time director if the gross annual salary of such employee or officer, etc. is less than Rs.5,00,000/-.

Proposed: it is proposed to increase the existing threshold of gross salary from Rs.5,00,000/- to Rs.10,00,000/- for the purpose of levying wealth-tax on residential house allotted by a company to an employee or an officer or a whole time director.

Effective Date: This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.

Reassessment in relation to any asset located outside India:
Exisiting Provision: Under Section 17 of the Wealth Tax Act, The time limit for issue of notice for reopening of assessements is 6 years, in case the net wealth in relation to any asset which has escaped assessment.
Proposed: It is proposed to amend the provisions of section17 so as to increase the time limit for issue of notice for reopening an assessment to 16 years, in the case the net wealth in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment
Year.”

This is proposed to be clarified through an Explanation stating that the provisions of these sections, as amended, by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012.

Effective Date: These amendments will take effect from the 1st day of July, 2012.

Exemption from Wealth Tax- RBI

Existing Provision: Under the existing provisions of the Wealth-tax Act, wealth-tax is levied on individual, HUF and company.
The definition of “Company” under the Act includes a corporation established by or under the Central, State or Provincial Act. Therefore, the Reserve Bank of India (RBI), being a corporation established under the Central Act, would be deemed as company for the purpose of levy of wealth-tax and shall be liable to pay wealth-tax.

There is no provision for exempting RBI from the levy of wealth-tax either in the Wealth-tax Act or in Reserve Bank of India Act, 1934.