India union budget 2016

KALYANIWALLA & MISTRY (Regd.)

CHARTERED ACCOUNTANTS

B u d g e t I n d i a , 2 0 1 6 I n c o m e T a x &

S e r v i c e T a x P r o p o s a l s


2 | P a g e Budget 2016 : Tax proposals

HIGHLIGHTS: FINANCE BILL, 2016

The Finance Bill, 2016 was presented before the Lok Sabha on February 29, 2016 and will be

taken up for consideration and passage in the Budget Session of Parliament. Some of the salient

and new provisions of the Bill have been touched upon in the attached analysis. We trust you

will find this to be an interesting and informative read.

This document is intended only for private circulation. All efforts have been made to ensure the accuracy of

information in this publication. The information contained in this document is published for the knowledge of

the recipient but is not to be relied upon as authoritative or taken in substitution for the exercise of judgment by

any recipient. The publication is a service to our clients to provide an overview of the Direct Tax Proposals and

shall not be construed as professional advice or an authoritative opinion. Whilst due care has been taken in the

preparation of this publication and information contained herein, we will not be responsible for any errors that

may have crept in inadvertently and do not accept any liability whatsoever, for any direct or consequential loss

howsoever arising from any use of this publication or its contents or otherwise arising in connection herewith.



INCOME TAX ACT All amendments specified hereinafter shall be deemed to have come into force on the 1st

day of April, 2016 unless specifically stated in the particular section.

TAX RATES

For Individuals, HUFs, AOPs, BOIs, Co-operative Societies, Firms and Local Authorities

There is no change in rate of tax as compared to the preceding financial year. However,

surcharge of 15% (earlier 12%) to be levied in case of Individuals, HUFs, AOPs, BOIs having

total income exceeding Rs.1 crore and no change in rate of surcharge in case of Co-operative

Societies, Firms and Local Authorities.

For Domestic Companies

Tax Rate Slabs (Total Turnover) Income Tax Rate

A.Y. 2016-17

Income Tax Rate

A.Y. 2017-18

Up to Rs.5 crore 30% 29%

Exceeding Rs. 5 crore 30% 30%

For Start-Up Companies in the Manufacturing Sector

Further for newly set-up domestic companies engaged in the business of manufacture or

production of article or thing, there are two options to pay income tax:-

Option 1:-

Pay tax at 30% (plus applicable surcharge & education cess) and it can claim deduction,

additional depreciation, etc available to it under the regular provisions of Income tax.

Option 2:-

It can opt for paying tax at the lower rate of 25% (plus applicable surcharge & education cess) as

per newly inserted section 115BA subject to the following conditions:-

i) the company has been setup and registered on or after March 1, 2016;

ii) the company is engaged in the business of manufacture or production of any article or

thing and is not engaged in any other business;

iii) it has not claimed any of the following benefits:-



a) deduction under section 10AA,

b) accelerated depreciation, additional depreciation, investment allowance,

expenditure on scientific research,

c) deduction in respect of certain income under Part-C of Chapter-VI-A, other than

deduction under section 80JJAA (deduction @30% of additional wages paid to the

new regular employee); and

d) the option to be taxed at the lower rate of 25% is furnished in the prescribed

manner before the due date of furnishing of income.

Place of Effective Management (POEM) - Section 6(3)

Finance Act, 2015 amended section 6(3) to introduce the concept of POEM for determining the

residential status of foreign companies. The amendment was effective from Assessment Year

2016-17. Memorandum to the Finance Bill 2015 proposed to issue a set of guidelines for

effective implementation of POEM. CBDT issued draft guidelines in December, 2015 for

determining the residential status of foreign companies in India.

Finance Act, 2016 has deferred the implementation of POEM to Assessment Year 2017-18, in

order to bring clarity on issues relating to implementation of POEM, to ensure smooth transition

in cases of foreign companies whose place of effective management is held to be in India and

such foreign companies are assessed to tax in India for the first time under the regular provisions

pertaining to computation of Income, applicability of provisions relating to advance tax, carry

forward and set off of losses, etc.

Foreign Companies resident in India - Section 115JH

Section 115JH has been introduced in respect of foreign companies whose place of effective

management (POEM) is considered to be India and it provides that the where a foreign company

is held to be a resident in India due to it having POEM in India, the provisions of this Act

relating to Computation of Total Income, treatment of unabsorbed depreciation, set off and

carry forward of losses, etc will apply with such exceptions, notifications and adaptions as the

Central Government may notify in this regard (hereinafter referred to as the transition

provisions). It further provides that where the determination regarding foreign company to be

resident in India has been made in the assessment proceedings relevant to any previous year,

then, the transition provisions shall also apply in respect of any other previous year, succeeding



such previous year, but ends on or before the date on which such assessment proceeding is

completed.

Income accruing to a foreign company which is in the business of mining of diamonds -

Section 9

It is proposed to amend Explanation 1 below section 9 by inserting a new clause to provide that

no income will accrue to a foreign diamond mining company whose activities are limited to the

display of uncut or unassorted diamonds in a special notified zone as notified by the Central

Government.

Certain activities of Eligible Investment Fund not constituting Business Connection in

India - Section 9A

Section 9A was introduced by Finance Act, 2015 to provide that an offshore investment fund

which carries out fund management activities in India through a eligible fund manager will not

be considered to have a business connection in India. It was also provided that even if the fund

manager is located in India, and undertakes fund management activities in India, the offshore

fund will not be considered to be a resident in India.

Finance Act, 2016 has amended the section to provide that the offshore fund can be incorporated

established or registered in any country or a specified territory notified by the Central

Government.

Finance Act 2015 provided that the offshore fund cannot carry on or control and manage any

business in India or from India and cannot engage in any activity which constitutes a business

connection in India.

Section 9A has been amended to provide that the condition of not carrying on or controlling and

managing any business in India or from India is now restricted only in the context of business in

India

Tax treatment for deposit certificates issued under the Gold Monetisation Scheme, 2015 -

Section 2(14) and 10(15)

Section 2(14) which defines capital asset has been amended to exclude Gold deposit certificates

issued under the Gold Monetisation scheme, 2015 from the definition and hence to exempt such



deposit certificates from capital gains tax. Further, section 10(15) has been amended to exempt

interest received on Gold deposit certificates.

Exemption on withdrawal of accumulated balance from Recognised Provident Funds,

National Pension Scheme and Superannuation Funds - Section 10(12), 10(12A), 10(13) and

80CCD

Particulars Taxability under existing

provisions

Taxability under amended

provisions

Accumulated balance received

from Recognized Provident

Fund

Section 10(12)

The entire amount withdrawn

is exempt from tax.

40%* of the accumulated

balance withdrawn by an

employee (other than an

excluded employee#) is

exempt from tax (relating to

contributions made on or after

April 1, 2016)


from National Pension

Scheme

Section 10(12A)


is taxable.

40%** of amount withdrawn

exempt from tax (relating to


April 1, 2016)


from Superannuation Fund

Section 10(13)


is exempt from tax.

40% amount withdrawn is

exempt from tax(relating to


April 1, 2016)

*However, a clarification has been given stating that only the interest that accrues on employee

provident fund contribution shall be taxable and the principal portion continues to be exempt.

Further, Public Provident Fund continues to enjoy 100% tax exempt status.

# ‘Excluded employee’ means an employee whose monthly salary does not exceed such amount,

as may be prescribed.

** As amended in Section 80CCD, in case of National Pension Scheme, the entire amount

received by the nominee on death of the taxpayer is exempt.



Transfer of accumulated balance of a recognized Provident Fund and/or Superannuation Fund to

National Pension System, shall be exempt from tax.

Exemption to Real Estate Investment Trust (REITs) / Infrastructure Investments Trusts

(InVITs) - Sections 10(38), 10(23FC) and 10(23FD)

i) Finance Act, 2014 had introduced a new chapter to provide a taxation regime for

business trusts (REITs and InVITS)

ii) In the erstwhile provisions, pass through status was granted to interest and rental

income earned by such trusts. Such income was exempt in the hands of the trust and

taxable in the hands of the unit holders i.e. investors.

iii) Under the amended provisions, dividend income received by the trust from a domestic

company in which the business trust holds the whole of the equity share capital shall be

exempt from tax. Such dividend is not taxable in the hands of the unit holder as well as

investors.

iv) Of the above two incomes, the trust shall be liable to deduct tax at source on interest

income paid to its unit holders.

a) In case of a resident at the rate of 10% and

b) In case of a Non-resident(not being a company) or a foreign company at the rate of

5%

Tax Treatment of Dividend Income - Sections 10(34) and 115BBDA

At present dividends are subject to tax on distribution by the Company at an effective rate of

20.92%, known as Dividend Distribution Tax (DDT). Such dividends are not further taxed in the

hands of the shareholder. In addition to the DDT leviable, it is proposed to levy an additional tax

at the rate of 10% on receipt of dividends in excess of Rs.10 Lakhs. Section 10(34) has been

amended to provide that the dividend income in excess of Rs.10 Lakhs is taxable at 10% under

section 115BBDA in the hands of resident shareholders being an individual, HUF or a Firm

(which includes LLP). Further, no deduction in respect of any expenditure or allowance or set

off of loss would be allowed in computing such taxable dividend income.

Exemption of income received by Investors from Securisation Trust - Sections 10(23DA)

and 10(35A), 194LBC and 115TCA

i) Finance Act, 2013 had introduced a new chapter to provide the taxation regime of

income of securitisation entities, set up as trust.



ii) Under the existing provisions, the securitisation trusts set up and regulated by the

Securities and Exchange Board of India (SEBI) and Reserve Bank of India (RBI) are

exempt from taxation. A securitization trust was required to pay tax on income

distributed to its investors at the rate of

a) 25% in case of individual/HUF

b) 30% in case of other persons

iii) Consequently, the investors in such trusts were not liable to pay tax on such distributed

income.

iv) Section 10(23DA) has been amended to provide that securitisation trust set-up in

accordance with the Securitisation and Reconstruction of Financial Assets and

Enforcement of Security Interest, 2002 shall also be exempt from tax.

v) Further, the trust shall not be liable to pay any additional income tax on income

distributed to its investors on or after June 1,2016. Consequently, the investor shall be

liable to pay tax on the distributed income.

vi) Tax shall be deducted by the securitisation trust on such income distributed to its

investors. The TDS rate in case of a resident individual or a resident HUF is 25% and

the rate will be 30% in case of other resident investors. In case of non-residents, TDS is

applicable at the rates in force.

Exemptions of Long Term Capital Gains on Equity Shares/ Units of Equity Oriented

Mutual Funds/units of a Business trust - Section 10(38)

Section 10(38) has been amended to provide that long term capital gains arising from sale of

Equity Shares/ Units of Equity Oriented Mutual Funds/units of a Business trust,through a

recognized stock exchange located in any “International Financial Services Centre” where the

consideration is received in foreign currency is exempt from tax even if Securities Transaction

Tax is not paid.

“International Financial Services Centre” is a hub of financial services within a country which

has laws and regulations different from rest of the country. Usually these centers have low tax

rates and flexible regulations for securities and currency trading, banking and insurance, which

makes them attractive for foreign investment.



Exemption to Foreign company from storage and sale of crude oil stored - Section 10(48A)

In order to encourage foreign national oil companies (NOCs) and multinational companies

(MNCs) to store and sell crude oil to resident assessee in India, the income from such

storage/sale has been exempted from tax subject to the following conditions:

i) there is an agreement or an arrangement entered into by the Central Government or

approved by the Central Government; and

ii) the foreign company and the agreement or arrangement are notified by the Central

Government in this behalf.

This amendment has been made with retrospective effect from Assessment Year 2016-17.

Amendment to Rule 8D

The Finance Minister has, in his budget speech, mentioned that a prospective change will be

made to Rule 8D for calculation of expense in relation to income exempt from tax. As per the

Finance Minister, disallowance under Rule 8D read with Section 14A shall be limited to 1% of

average monthly value of investments yielding exempt income, but not exceeding the actual

expenditure claimed.

INCOME FROM SALARY

Increase in exemption limit of Employer’s Contribution to Superannuation Fund - Section

17(2)(vii)

Section 17(2)(vii) has been amended to increase the exemption limit of employer’s contribution

to an approved superannuation fund from Rs.1,00,000/- to Rs.1,50,000/- per annum.

Insertion of monetary limit for Employer’s Contribution to Recognised Provident Fund -

Rule 6 of Schedule IV to the Income Tax Act

Under the existing Rule 6 of Schedule IV to the Income Tax Act, the employer’s contribution to

a Recognised Provident Fund upto 12% percent of salary was exempt in the hands of the

employee. After the amendment to Rule 6 of Schedule IV, contribution made by the employer to

a Recognised Provident Fund will be exempt from tax as follows:

i) Rs.1,50,000/- or

ii) 12% of Salary, whichever is less.



INCOME FROM HOUSE PROPERTY

Increase in time period for acquisition or construction of Self Occupied House Property

for claiming interest - Section 24(b)

As per the existing provisions of section 24(b), deduction of Rs.2,00,000/- is allowed in respect

of interest paid on capital borrowed for acquisition or construction of self-occupied house

property if the house property is acquired or constructed within 3 years from the end of the

financial year in which the capital was borrowed. If the above condition is not fulfilled, amount

of interest deductible is merely Rs.30,000/-.

In view of the fact that housing projects often get delayed and extend beyond 3 years and the

assessee stands to lose out on the higher interest deduction of Rs.2,00,000/-, Section 24(b) has

been amended to provide that the deduction of interest paid on capital borrowed for acquisition

or construction of self-occupied house property shall be available if the acquisition or

construction is completed within 5 years from the end of the financial year in which capital was

borrowed.

Taxation of unrealised rent and arrears of rent - Section 25A, 25AA and 25B

Sections 25A, 25AA and 25B have been merged under a single new section 25A which provides

that the amount of rent received in arrears or the amount of unrealized rent realised subsequently

by an assessee is chargeable to tax in the financial year in which such rent is received or

realised, irrespective of whether the assessee is the owner of the property or not in that financial

year. It is also proposed that the standard deduction of thirty per cent of the arrears of rent or the

unrealised rent realised will be available to the assessee for computing Income from House

Property.

PROFITS & GAINS OF BUSINESS OR PROFESSION

Phase out of Tax Benefits to SEZ units - Section 10AA

At present units in SEZs enjoy exemption from tax on their profits, subject to certain conditions.

It is proposed to phase out the exemption provided to such units by providing a sunset date of

March 31, 2020 for commencement of any specified activity.



Non Compete fees in case of profession - Section 28

Presently, any sum, received or receivable, in cash or kind, under an agreement for not carrying

out any activity in relation to any business, is chargeable to tax as business income. The section

is amended to similarly tax any sum received or receivable, in cash or kind, under an agreement,

for not carrying out any activity in relation to any profession.

Accelerated Depreciation - Section 32 read with rule 5 of Income-tax Rules, 1962

Presently, there are accelerated rates of depreciation available under the Act to incentivise

certain sectors. It is proposed to cap the highest rate of depreciation at 40%.

Additional Depreciation - Section 32(1)(iia)

An assessee engaged in the business of manufacture or production of any article or thing is

presently entitled to additional depreciation of 20% of the actual cost of new plant and

machinery This benefit was also available to an assessee engaged in generation or generation

and distribution of power. This benefit is extended to an assessee engaged in the business of

transmission or distribution of power.

Investment Allowance - Section 32AC

Section 32AC(1A) provides that any company engaged in the business of manufacture or

production of any article or thing, which acquires and installs new plant and machinery during

the year, whose actual cost exceeds Rs.25 crore, is allowed a deduction of 15% of the actual cost

of such new assets. To put to rest controversy as to whether the acquisition and installation must

necessarily be in the same year, the sub-section is amended to permit depreciation linked to the

installation of new assets at any time before 31st March, 2017, irrespective of the year of

acquisition. The deduction will be available in the year in which the new assets are installed.

The amendment will have retrospective effect from April 1, 2016.

Phasing out incentives in the form of weighted deduction and profit linked incentives

Simultaneous with phased reduction of corporate tax rates weighted deductions and profit linked

incentives are being phased out. The present deduction and the proposed deduction available as

per the amended sections is as under:



Section Nature of expenditure Present

deduction

Deduction from

A.Y. 2018-19

35(1)(ii) Amount paid to research association

having the object of undertaking scientific

research or to a university, college, or other

institution to be used for scientific research

175% of

amount

donated

150% of amount

donated (100% of

amount donated

from A.Y.2021-22)

35(1)(iia) Amount paid to a company to be used for

scientific research

125% of

amount

donated

100% of amount

donated

35(1)(iii) Amount paid to research association which

has as its object the undertaking of research

in social science or statistical research or to

a university, college or other institution to

be used for research in social science or

statistical research

125% of

amount

donated

100% of amount

donated

35(2AA) Amount paid to a National Laboratory,

university, Indian Institute of Technology

or a specified person to be used in

scientific research programme approved by

the prescribed authority

200% of

amount

donated

150% of amount

donated (100% of

amount donated

from A.Y. 2021-22)

35(2AB) Expenditure incurred by a company

engaged in the business of bio-technology,

manufacture or production of any article or

thing for in-house scientific research

200% of

amount

donated

150% of amount

donated (100% of

amount donated

from A.Y. 2021-22)

35AC Expenditure incurred on eligible social

development projects or schemes

100% of

expenditure

incurred

Nil

35AD Capital expenditure incurred for the

purpose of specified business

100% /150%

of expenditure

incurred

100% of

expenditure

incurred



35CCC Expenditure incurred on notified

agricultural extension project

150% of

expenditure

incurred

100% of

expenditure

incurred

35CCD Expenditure incurred on notified skill

development programme by a company

150% of

expenditure

incurred

150% of

expenditure

incurred (100% of

expenditure

incurred from A.Y.

2021-22)

80IA/

80IB/

80IC

Deduction in respect of profits derived

from

a. development, operation and

maintenance of an infrastructure facility

(80-IA)

b. development of special economic zone

(80-IAB)

c. production of mineral oil and natural

gas [80-IB(9)]

100% of the

profits

Nil if the activity

commences after

A.Y. 2018-19

Deduction for Expenditure Incurred for Obtaining Right to Use Spectrum for

Telecommunication Services - Section 35ABA

A new section is inserted to allow deduction to an assessee for the capital expenditure incurred

for acquiring any right to use spectrum for telecommunication services. The actual amount paid

is allowed as a deduction over the period of right to use the license. The deduction is allowed

from the previous year in which spectrum fee is actually paid. If the spectrum fee is actually

paid before the commencement of the business to operate telecommunication services, the

deduction is allowed starting from the previous year in which business commences.

The provisions relating to transfer of license, amalgamation and demerger as contained in

subsections (2) to (8) of Section 35ABB have also been made applicable.

Deduction in Respect of Expenditure Incurred on Specified Businesses - Section 35AD

Deduction under this section will be available for capital expenditure incurred for the business

of developing, or maintaining and operating, or developing, maintaining and operating a new



infrastructure facility, which commences its operation on or after 1st April, 2017, where such

business is:

i) Owned by a company registered in India or by a consortium of such companies or by an

authority or a board or corporation or any other body established or constituted under

any Central or State Act;

ii) the entity referred to above has entered into an agreement with the Central Government

or a State Government or a local authority or any other statutory body for developing or

operating and maintaining or developing, operating and maintaining, a new infrastructure

facility

“Infrastructure facility” is defined in the same manner as in Section 80IA(4).

This amendment is effective from A.Y. 2018-19.

Deduction to Non Banking Financial Company (NBFC) in Respect Of Provision Made for

Bad and Doubtful Debts - Section 36(1) (viiia)

Presently, deduction is available to Scheduled Banks, Foreign Banks, Public Financial

Institutions etc. for provision made for bad and doubtful debts. This benefit is now extended to

Non-Banking Finance Companies (NBFCs). An NBFC will be allowed a deduction of provision

made for bad and doubtful debts. The amount of deduction cannot exceed 5% of the total

income computed before making any deduction under this section and other sections of Chapter

VI-A.

Deduction Available on Actual Payment - Section 43B

Section 43B is amended to provide that deduction for any amount payable to Indian Railways

for use of railway assets shall be allowed in the year in which the amount is actually paid. This

restriction will however not apply, if the amount is paid by the assessee on or before the due date

of furnishing of the return of income in respect of the previous year in which the liability to pay

was incurred.

Maintenance of Accounts by Persons Carrying on Business or Profession - Section 44AA

Audit of Accounts of Persons Carrying on Business or Profession - Section 44AB

Presently any person carrying on profession is required to get his accounts audited if his gross

professional receipts exceed Rupees 25 Lakhs in a financial year. This limit is now increased to

Rupees 50 Lakhs.



In cases where the profits are not declared in accounts in accordance with provisions of Section

44AD or 44ADA, wherever applicable, the accounts will mandatorily be required to be audited

under section 44AB irrespective of turnover or gross receipts

Profits and Gains of Business Computed on Presumptive Basis - Section 44AD and 44AA

i) Presently a partnership firm declaring profits on presumptive basis is allowed to claim

deduction for salary and interest paid by the firm to its partners from the presumptive

profits. This deduction will no longer be available.

ii) Presently this section is applicable to business having turnover or gross receipts of less

than Rs. 1 Crore. This limit is increased to Rs. 2 Crore. Similar amendment to increase

the threshold limit is not made under section 44AB

iii) Any person who carries on eligible business and declares profit of 8 % of total turnover

or more for any previous year in accordance with this section, but does not declare profit

for any of the five subsequent assessment years in accordance with provisions of this

section, shall not be eligible to claim the benefit of this section for five assessment years,

subsequent to the assessment year in which the minimum profit of 8% of turnover has

not been declared.

iv) It is mandatory to maintain books of account for an assessee who carries on eligible

business and declares profit of 8 % of total turnover or more for any previous year in

accordance with the provisions of section 44AD but does not declare profit for any of the

five subsequent assessment years in accordance with provisions of section 44AD and

whose income for the year exceeds the basic exemption limit

Professional Income on Presumptive Basis - Section 44ADA

New Section 44ADA is introduced to extend the scope of presumptive taxation to cover

professionals having gross receipts of Rs 50 Lakhs or less. The salient features are:

i) The section is applicable to every resident assessee who is engaged in any profession

covered by section 44A(1) i.e legal, medical, engineering or architectural profession or

the profession of accountancy or technical consultancy or interior decoration or any other

profession as is notified by the Board in the Official Gazette. The Memorandum

explaining the provisions of Finance Bill states that this section is applicable only to

individuals, HUF and partnership firms. However the section does not make any such

distinction.



ii) Presumptive income shall be 50% of the total gross receipts or income claimed to have

been earned from such profession, whichever is higher.

iii) Deductions under section 30 to 38 will deemed to have been allowed and no further

deduction under these sections will be allowed.

iv) The written down value of any asset used for the purpose of profession shall be deemed

to have been calculated as if the depreciation is claimed and allowed as a deduction.

v) The assessee is required to maintain books of account and also get them audited if he

declares income below 50% of the gross receipts and if his total income exceeds the

basic exemption limit.

CAPITAL GAINS

Transactions not regarded as Transfer - Section 47

i) Clause (viic) has been inserted to provide that the redemption of Gold Sovereign Bonds

under the scheme by an individual shall not to be considered as transfer for the purpose

of charging capital gains. Further thereto, the benefit of indexation is available while

calculating long-term capital gains arising on transfer of Gold Sovereign Bonds to all the

other type of assesses.

ii) Clause (xix) has been inserted to provide that any transfer by a unitholder of a unit or

units, held by him due to a consolidating plan of a mutual fund scheme, made in

consideration of the allotment to him of a unit or units in the consolidated plan of that

scheme of the mutual fund, is not considered as a transfer.

Buyback of Shares – Section 115QA

Presently, tax is levied on a company making distribution to its shareholders pursuant to

buyback undertaken as per section 77A of the Companies Act, 1956. The tax is levied on the

difference between the consideration paid for buyback less any amount received by the company

at 20%. It is proposed that the aforesaid tax should be levied on any buyback scheme which is

not restricted to only section 77A of the Companies Act, 1956.

Conversion of a Company into a LLP - Section 47(xiiib)

The conversion of a company into a Limited Liability Partnership is not regarded as a transfer

under Section 47 of the Act provided certain conditions are fulfilled. Hence, to ensure that the

benefit of tax free conversion is restricted to small size companies, it is proposed to insert the

additional condition of maximum assets held by the Company whereby the Company should not



have held assets with cumulative book value of more than Rs.5 crores in the three years

preceding the year of conversion.

Special provision for full value of consideration in certain cases - Section 50C

The existing provision does not provide any relief where the seller has entered into an agreement

to sell the property much before the actual date of transfer of the immovable property and the

sale consideration is fixed in such agreement. It is now proposed to amend the provisions of

section 50C so as to provide that where the date of the agreement fixing the amount of

consideration for the transfer of immovable property and the date of registration are not the

same, the stamp duty value on the date of the agreement may be taken for the purposes of

computing the full value of consideration.

Further this provision shall apply only in a case where the amount of consideration has been

paid by way of an account payee cheque or account payee bank draft or use of electronic

clearing system through a bank account, on or before the date of the agreement for the transfer

of such immovable property.

Exemption from Long Term Capital Gains where the gains are invested in units of a

Specified Fund - Section 54EE

In order to promote the start-up ecosystem in the country, it is envisaged in 'start-up India

Action Plan' to establish a Fund of Funds which intends to raise Rs.2500 crores annually for four

years to finance the start-ups. Keeping this objective in view, it is proposed to insert a new

Section 54EE to provide exemption from capital gains tax if the long term capital gains proceeds

on transfer of the original asset are invested by an assessee within 6 months of such transfer in

units of such specified fund, as may be notified by the Central Government in this behalf,

subject to the condition that the amount remains invested for three years failing which the

exemption shall be withdrawn. The investment in the units of the specified fund shall be allowed

up to Rs.50 lakh.

Exemption from Long Term Capital Gains where the gains are invested in units of a

Specified Fund - Section 54GB

The existing provisions of section 54GB provide exemption from tax on long term capital gains

in respect of the gains arising on account of transfer of a residential property, if such capital

gains are invested in subscription of shares of a company which qualifies to be a small or



medium enterprise under the Micro, Small and Medium Enterprises Act, 2006 subject to other

conditions specified therein. It is proposed to amend section 54GB so as to provide that long

term capital gains arising on account of transfer of a residential property shall not be charged to

tax if such capital gains are invested in subscription of shares of a company which qualifies to be

an eligible start-up subject to the condition that the individual or HUF holds more than fifty per

cent shares of the company and such company utilises the amount invested in shares to purchase

new asset before due date of filing of return by the investor. It is also proposed to amend section

54GB so as to provide that the expression "new asset" includes computers or computer software

in case of technology driven start-ups so certified by the Inter-Ministerial Board of Certification

notified by the Central Government in the official Gazette.

Rupee Denominated Bond issued to Non-Residents - Section 48

With a view to facilitate Indian corporates to raise funds from outside India, any gains arising on

account of the appreciation of the rupee against a foreign currency at the time of redemption of

rupee denominated bond of an Indian company subscribed by him, shall be ignored for the

purposes of computation of the full value of the consideration while calculating capital gains.

Transfer of Rights to carry on Profession - Proviso to Section 28(va) and Section 55

Any receipts for transfer of right to carry on any profession will be chargeable under the head

“Capital Gains” and the cost of acquisition and improvement of such a right would be Nil.

Holding Period for Unlisted Securities

Capital gains tax on sale of assets depends on whether the asset is long term asset or short term

asset. The period of holding for unlisted securities to qualify for long term capital gains tax was

36 months. It is now proposed to reduce the holding period for unlisted securities to a period 24

months. Accordingly, where the shares of private limited companies are held for a period of 24

months or more, such shares would be subject to lower rate of tax as applicable to long term

capital gains tax. This proposed amendment was mentioned by the Finance Minister in his

Budget Speech, 2016 but there is no mention in the Finance Bill, 2016.

Definition of Unlisted Securities Clarified - Section 112

Presently, non-residents enjoy the reduced rate of long term capital gains tax of 10%, without

indexation, on sale of unlisted securities. It has been clarified that unlisted securities include

shares in a private or unlisted company.



Transfer of Shares in case of Demerger or Amalgamation - Section 56

The amendment has been inserted to clarify that any shares received by an Individual/HUF in

the resulting company as a consequence of demerger or amalgamation of a company is not

taxable under the provisions of Section 56(vii) of the Act.

DEDUCTIONS UNDER CHAPTER VI-A

Exemption in respect of amount received by nominee on death of the assessee - Section

80CCD

Under the existing provisions of section 80CCD relating to contribution to the National Pension

Scheme, any amount received by an assessee or his nominee on account of:

a) closure or opting out of the pension scheme; or

b) pension received from annuity plan purchased or taken on such closure or opting out

is the income of the assessee or his nominee and is chargeable to tax. Section 80CCD is

amended to the effect that any amount received by the nominee, on the death of the assessee, on

account of closure or opting out of the pension scheme ((a) above) would be exempt from tax.

Deduction in respect of interest on loan taken for residential House property - Section

80EE

As per the provisions of section 80EE existing till A.Y. 2015-16, deduction of housing loan

interest paid upto Rs. 1 lakh can be claimed by a first time home buyer. Section 80EE has been

substituted to provide deduction in respect of housing loan interest paid by first time home buyer

on the following lines:

i) The loan is sanctioned between 1st April, 2016 and 31st March, 2017.

ii) Interest deductible is Rs.50,000/- (against Rs.1,00,000/- earlier).

iii) The threshold limit for amount of loan has been increased from Rs.25,00,000/- to

Rs.35,00,000/-.

iv) The threshold limit for cost of residential house property has been increased from

Rs.40,00,000/- to Rs.50,00,000/-.

The interest deduction of Rs.50,000/- is over and above the interest of Rs.2,00,000/- deductible

for self-occupied property under section 24 of the Act.



Deduction in respect of Rents Paid - Section 80GG

Deduction under section 80GG is available to an assessee in respect of rent paid by him, if the

assessee does not own a house or does not receive the House Rent Allowance (HRA) from

his/her employer. Therefore, the said deduction is available inter alia to self-employed assessee

or employees not receiving HRA. The deduction has been increased from Rs.2,000/- per month

to Rs.5,000/- per month.

Deduction in respect of profits of Start-Up Companies - Section 80IAC

New Section has been inserted to provide:

i) 100% deduction in respect of Profit of eligible start-up.

ii) Eligible start-up has been defined as:

a) a company involved in a business which involves innovation, development,

deployment or commercialization of new products, processes or services driven by

technology or intellectual property of the assessee;

b) the company should be incorporated between 1st April, 2016 and 1st April, 2019;

c) the total turnover of the company does not exceed Rs.25 Crores in any financial year

between 1st April, 2016 to 31st March, 2021; and

d) it holds certificate of eligible business from Inter-Ministerial Board of Certification.

iii) That deduction can be claimed by the assessee for any three consecutive assessment years

out of five years beginning from the year in which the eligible-start-up is incorporated.

Deduction in respect of profits from housing projects – Section 80-IBA

A new Section has been inserted to provide 100% deduction in respect of profit arising from the

business of developing and building housing projects, subject to the following conditions:

i) The housing project is approved by the competent authority after 1st June, 2015 but before

31st March, 2019.

ii) The project is to be completed within 3 years from the date of approval.

iii) In case the project is located in the 4 metropolitan cities of India or within the 25

kilometers from the municipal limit of such cities, the project is on land measuring not

less than 1000 sq. meters and the area of such residential units does not not exceed 30 sq.

meters.

iv) In case project is situated in any other part of India, the land measuring not less than 2000

sq. meters and area of such residential units does not exceed 60 sq. meters.



v) Where residential unit is allotted to an individual, no other unit in such project is allotted

to him or any member of his family.

vi) The built up area of shops and other commercial establishments in the project does not

exceed 30% of the aggregate built up area.

Deduction in respect of employment of new workmen – Section 80JJA

Section 80JJA which provides deduction in respect of wages to new workmen has been

amended as under:

Sr.

No.

Particulars Existing Requirements New Requirements

1 Applicability in respect of:

i) Employee should be

ii) Employer should be

iii) Salary Limit

iv) Other condition

New workmen in excess

of 100 workmen

employed during the

Financial Year

Company engaged in

manufacture of goods

No limit

No such condition

Any new employee

(Condition of 100

workmen is done away

with)

An assessee to whom

section 44AB applies

Salary of the employee

should be ≤ Rs. 25,000/-

No deduction is available

if, entire contribution

under Employees’

Pension Scheme is paid

by the Government

2 Number of days of

employment

300 days 240 days

3 Increase in number of

employees

Deduction is available only if

there is 10% increase in

number of workmen

No such requirement



REBATES AND RELIEFS UNDER CHAPTER VIII

Increase in Rebate of Income-tax - Section 87A

As per the existing provisions, an amount of Rs. 2,000/- was allowed as a rebate from tax

payable if the total income of an assessee did not exceed Rs. 5,00,000/-. The rebate has been

increased to Rs.5,000/-.

APPLICABILITY OF MINIMUM ALTERNATE TAX TO FOREIGN COMPANY

PRIOR TO APRIL 1, 2015 – SECTION 115JB

Issues were raised regarding the applicability of the provisions of section 115JB to Foreign Institutional

Investors (FIIs) who do not have a Permanent Establishment (PE) in India. The Finance Act, 2015

amended the provisions of section 115JB to provide that the said provisions would not apply in case of a

foreign company, which does not have a Permanent Establishment in India. However, the amendment

was prospective and uncertainty relating to the period prior to April 1, 2015 still remained unresolved.

In view to provide certainty in taxation of foreign companies, Section 115JB has been amended

retrospectively with effect from April 1, 2001, to provide that the provisions of section 115JB

are not applicable to a foreign company if they satisfy the following conditions:

i) The foreign company is a resident of a country or a specified territory with which India

has an Double Taxation Avoidance Agreement or

ii) The foreign company is a resident of a country with which India does not have an

agreement of the nature referred to in clause (i) above and the foreign company is not

required to seek registration under any law in India for the time being in force relating to

companies

AMNESTY SCHEME FOR RESIDENTS - INCOME DECLARATION SCHEME, 2016

At present if a resident person defaults in payment of tax, such person would be liable to pay tax

at the rate of 30% (together with cess and surcharge) on such undisclosed income. In addition

thereto, such person was also be subject to interest and penalty at the rate of 100% to 300% of

the tax amount, at the discretion of the Assessing Officer and could also be liable for

prosecution.



It is proposed to offer a one-time opportunity to tax defaulters to regularize their tax compliance

by payment of a total tax at the rate of 45% of the undisclosed income. Defaulters electing for

the scheme would also enjoy immunity from prosecution and immunity under Benami

Transactions (Prohibition) Act, 1988. It is further provided that such scheme would not be

available for undisclosed income already under scrutiny in on-going proceedings or where the

information with respect to the undisclosed income has been received by the Income-tax

Department under an agreement with a foreign country or such cases are covered under the

Black Money Act, 2015.

GENERAL ANTI -AVOIDANCE RULE (GAAR)

The GAAR provisions shall be implemented from April 1, 2017.

BASE EROSION AND PROFIT SHIFTING (BEPS)

Base Erosion and Profit Shifting (BEPS) refers to tax planning strategies that exploit gaps in tax

rules to make profits 'disappear' for tax purposes. Multinational companies often engage in

aggressive tax planning. They are focused on shifting the profits from higher tax jurisdiction to

lower tax jurisdiction. A MNC may, through complex strategies moves its residence to a

different country or cause its profits to arise in a different country.

These aggressive tax planning to exploit loopholes in laws relating to cross border transaction

resulting into double non-taxation or negligible taxation have invited the attention of the tax

authorities world over.

To prevent treaty shopping and countering 'letter-box' companies, OECD launched a 15-point

Action Plan which will equip Governments with domestic and international instruments to

address tax avoidance and ensure that profits are taxed where economic activities generating the

profits are performed and where value is created.

India is one of the many non-member economies with which the OECD has a working

relationship. In order to meet its commitment to the BEPS initiatives of OECD, the Finance Bill,

2016 has brought the following amendments:-

Revised Standard of Transfer Pricing Documentation

Equalization levy to address BEPS concern over the digital economy

Nexus based Patent box regime



Revised Standard of Transfer Pricing Documentation

The OECD report on Action 13 of BEPS Action Plan provides for revised standards for transfer

pricing documentation and a template for country-by-country (CbC) reporting of income,

earnings, taxes paid and certain measure of economic activity. The CbC reporting is one of the

cornerstones of the OECD’s proposed approach for tackling BEPS. In line of the CbC reporting,

Section 286 has been introduced in the Income-tax Act to provide for furnishing of information

relating to the multinational group to which the taxpayer belongs.

The core concept has been incorporated in section 286 the detailed mechanism will be

prescribed in the Income Tax Rules.

A) Master File & Local File

The Memorandum to Finance Bill provides that the details for maintaining Master File

data and local file data would be prescribed. Such information and document would need

to be furnished to the prescribed authority within the time period and in the manner as may

be prescribed

B) Country-by-country reporting – Section 286

Reporting Requirements For Indian Multinationals

Section 286 mandates that where the ultimate parent entity of the international group is

resident in India, it shall produce the following information to the prescribed authority:-

In respect of each country or territory in which the group operates the aggregate

information of :-

a. amount of revenue,

b. profit or loss before income-tax,

c. amount of income-tax paid,

d. amount of income-tax accrued,

e. stated capital,

f. accumulated earnings,

g. number of employees,

h. tangible assets other than cash or cash equivalents and



i. any other information as may be prescribed.

With respect to each entity of the group following details are required to be

furnished:-

a. Country of Incorporation

b. Country where it is a resident

c. Main business activity

The prescribed authority may call for further information and documents to verify the

accuracy of the CbC report.

Due date: Above details are to be furnished on or before the due date of filing Return of

Income under section 139(1). Thus, the first CbC reporting for the assessment year 2017-

18 is due by 30th November, 2017.

An alternate entity can be designated by an international group to furnish the above details.

Threshold limit: Above reporting requirement apply only if the consolidated revenues of

the group in the preceding year, based on consolidated financial statement, exceeds € 750

million.

Reporting Requirement For Indian Entities of Foreign MNC Group

An Indian entity which is a part of the international group is required to furnish following

information:

Whether it is an alternate reporting entity of the international group.

Details of the parent entity or the alternate entity in the prescribed form.

If the ultimate parent entity of the MNC Group is resident of a country with which India

does not have an agreement for providing exchange of CbC report containing details as

mentioned above or if there is an agreement but the country has violated the said

agreement or the country has persistently failed to provide the report in its possession in

respect of any international group, then the CbC report in respect of the international group

shall be furnished by the associated Indian entity of the international group.



Penalties

Failure to keep and maintain information and documents etc. in respect of certain transactions - Section 271AA

This section has been amended vide the Finance Bill, 2016 by inserting sub-section (2) to

section 271AA. If any Indian entity of a foreign group fails to furnish the information and

the documents as required above, then person is liable to pay penalty of Rs.5,00,000/-.

Non furnishing of prescribed details - Section 271GB

For non-furnishing of details prescribed under section 286 by an entity a graded penalty

structure has been brought on the statute:-

a) if default is not more than a month, penalty is Rs.5,000/- per day;

b) if default is beyond one month, penalty is Rs.15,000/- per day for the period

exceeding one month;

c) for any default that continues even after service of order levying penalty either

under (a) or under (b), then the penalty for any continuing default beyond the date of

service of order shall be at the rate of Rs.50,000/- per day;

In case of delay in submission of further information called for by prescribed authority a

penalty of Rs.5,000/- per day is leviable. If default continues even after service of penalty

order, then penalty of Rs.50,000/- per day applies for default beyond date of service of

penalty order;

Penalty of Rs.5,00,000/- shall be levied if the entity has provided inaccurate information in

the CbC report.

Equalisation Levy - Chapter VIII Of Finance Bill, 2016

i) The provisions of this Chapter will be effective from such date as will be notified by the

Central Government.

ii) The OECD report on Action 1 of BEPS Action Plan addresses the tax challenges of the

digital economy. A particular concern for the taxing authorities is that a company can have

significant digital presence in the economy of a country without being liable to tax in that



country. In line with the recommendations of OECD, Finance Bill 2016, has vide Chapter

VIII, introduced "Equalisation Levy" (popularly known as the “Google Tax”).

iii) Equalisation levy of 6% has been imposed on amount paid by a resident / non-resident

having a PE India for specified services received from a non-resident not having

permanent establishment ('PE') in India.

iv) Equalisation levy is not leviable in case the amount paid to non-resident is less than

Rs.1,00,000/- in any financial year.

v) Specified Services include:

a) Online advertisement

b) Providing the digital advertising space

c) Any other service for the purpose of online advertisement

d) Other services as may be prescribed.

vi) Section 40(a)(ib) has been inserted in the Income-tax Act to provide that if the assessee

fails to deduct and deposit the equalisation levy then the amount of expense of specified

services shall not be allowed as a deduction from Income.

vii) A new section 10(50) has been inserted to provide for exemption to the non-residents

earning income from Specified Service which is subject to equalisation levy.

viii) Equalisation levy should be deposited within 7 days from the end of the month in which it

is deducted. Failure to do so will attract the simple interest at the rate of 1% for every

month or part thereof.

ix) Separate provisions are prescribed to deal with furnishing of statements by service

recipients and verification/ assessment of such statements.

x) There is a possibility that the foreign companies may not be able to claim the credit of such

levy in the home country as this levy is not in the nature of a withholding tax.



Penalties

Failure to deduct/deposit equalisation levy - Section 168 of the Finance Bill, 2015

i) Failure to deduct the equalisation levy - Penalty shall be equal to amount of equalisation

levy

ii) Failure to deposit the equalisation levy to the credit of the government – Penalty shall be

Rs.1,000/- per day till the failure continues. The maximum penalty shall be restricted to the

amount of equalisation levy.

Failure to deduct/deposit equalisation levy - Section 169 of the Finance Bill, 2015

Failure to furnish the statement within the prescribed time limit – Penalty shall be Rs.100/- per

day till the failure continues.

Taxation of Patents – Action Plan 5 Intellectual property (IP) Regime – Section 115BBF

i) Nexus approach has been recommended by the OECD, which prescribes that income

arising from exploitation of Intellectual property (IP) should be attributed and taxed in the

jurisdiction where substantial research & development (R&D) activities are undertaken

rather than the jurisdiction of legal ownership only.

ii) In line with the Action Plan 5 and to provide an additional incentive for companies to

retain and commercialize existing patents and to develop new innovative patented products

in India, concessional tax rate of 10% (plus applicable surcharge and cess) on royalty

income of an eligible assessee from patents developed and registered in India is

introduced.

iii) No expenditure shall be allowed in such royalty income.

iv) Assessee shall not be liable to pay MAT on such income.

v) Covered Assessee: Person resident in India who is the true and the first inventor of the

invention and whose name is entered on the patent register as the patentee under the

Patents Act, 1970.



PROCEDURAL PROVISIONS

Extension of time limit to Transfer Pricing Officer (TPO) in certain cases - Section

92CA(3A)

Presently, the TPO has to pass his order sixty days prior to the date on which the limitation for

making assessment expires. It is now proposed to extend the said time limit in cases where the

assessment proceedings are stayed by the court order or where a reference for exchange of

information has been made by the competent authority. In those cases, if the time period

remaining with the TPO to frame an order after excluding the time for which assessment

proceedings were stayed or the time taken for receipt of information, as the case may be, is less

than sixty days, then such remaining period shall be extended to sixty days.

This amendment will take effect from June 1, 2016.

Filing return of income - Section 139

i) It is proposed that every person whose income, without giving effect to long term capital

gains exceeds the maximum amount not chargeable to tax shall furnish the return of

income for the relevant assessment year within the due dates.

ii) It is proposed that the time limit to file a belated return has be curtailed from one year from

the end of relevant assessment year to the end of the relevant assessment year.

iii) It is proposed that a belated tax return can now be revised on or before expiry of one year

from the end of relevant assessment year or before the completion of assessment,

whichever is earlier.

iv) It is further proposed to provide that the return of income will not be regarded as defective

merely because self-assessment tax and associated interest have not been paid within the

statutory time limits.

The amendments will come into effect from April 1, 2017.

Assessments - Section 143

Addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been

included in computing the total income in the return.



i) No adjustment can be made by the Assessing Officer, unless intimation is given to

assessee and the Assessing Officer has to consider the response of the assessee before

making any adjustments. However, assessee needs to respond within 30 days.

ii) Processing of return u/s 143(1) made mandatory in cases where a notice u/s 143(2) is

issued.

Change in time limits for completion of Assessments - Section 153

i) Orders under section 143 or 144 needs to be passed before the completion of 21 months

from the end of the year in which income was assessable. In other words, the time limit for

completing assessments would be in December, preceding the month of March.

ii) Order under sec. 147 needs to be passed before completion of 9 months from the end of

the financial year in which the notice was served.

iii) The order of fresh assessment in pursuance of an order under sections 254, 263 or 264

setting aside or cancelling an assessment shall not be made later than 9 months from the

end of the financial year in which order under the said sections has been passed.

iv) Where reference has been made to a Transfer Pricing Officer under sub sec (1) of section

92CA, the time limit for completion of the said assessment will be extended by twelve

months and would be required to be completed within 33 months (as against 36 months)

from the end of the year in which income was assessable.

v) Where the Assessing Officer needs to give effect to an order under sec. 250 or 254 or 260

or 262 or 263 or 264 (except where it requires a fresh assessment or reassessment), the

same needs to be given effect within 3 months from the end of the month in which order

was passed. However, if the Assessing Officer is not in a position to pass the order within

the period prescribed above, he may be granted extension by 6 months by the

Commissioner on receipt of request from the Assessing Officer in writing. Further, the

Assessing Officer should have reasonable grounds for seeking such an extension.

However, if the order under sec. 250 or 254 or 260 or 262 or 263 or 264 is passed before

1st June 2016, the Assessing Officer is required to pass order giving effect to the same

before 31st March 2017.



vi) Where the Assessing Officer needs to do a fresh assessment or a reassessment to give

effect to an order under sec. 250 or 254 or 260 or 262 or 263 or 264, the same needs to be

completed within 12 months from the end of the month in which such order is received or

passed by the Commissioner. However, if such an order is passed before 1st June 2016, the

Assessing Officer needs to pass order giving effect to the same before 31st March 2017.

vii) Further, a new proviso has been inserted under Explanation to Section 153, whereby if the

period available to the Transfer Pricing Officer for making an assessment, reassessment or

re-computation is extended to 60 days and as a result, the period of limitation available to

the Assessing Officer for making an order of assessment, reassessment or re-computation

is less than 60 days, such remaining period shall be extended to 60 days to enable the

Assesssing Officer to get 60 days’ time limit to complete the assessment.

The above changes are effective from June 1, 2016.

Change in time limits for completion of Search Assessments - Section 153B

Orders under section 153A need to be passed before the completion of 21 months from the end

of the year in which the last of the authorisations for search under section 132 was executed. In

other words, the time limit for completing assessments would be in December, preceding the

month of March.

The above change is effective from June 1, 2016.

Paperless assessments – Amendment to Section 2

A new subsection (23C) has been introduced to define the term “hearing” to indicate

communication of data and documents through electronic mode.

In other words, the subsection intends to provide for e – assessment without interaction between

the Income Tax Officer and the assessee, unless specifically required.

Amendment to Sections 220, 273A and 273AA

Section 220 has been amended to provide a time limit for disposal of application by the assessee

to reduce or waive the interest under section 220(2).



Section 273A and Section 273AA is also being amended to provide a time limit for disposal of

application by the assessee to reduce or waive the penalty under section 273A and section

273AA. Further, no order rejecting the application of the assessee shall be passed without

giving the assesseee an opportunity of being heard.

SCHEME TO REDUCE LITIGATION AT THE FIRST APPELLATE LEVEL

The Commissioner of Income-tax – Appeals (CIT(A)) is the first appellate authority. The

pendency of cases before the CIT (A) is very high due to the number of cases filed before the

said authority. In order to reduce the number of pending cases and to curb litigation before the

CIT(A), it is proposed to introduce the Direct Tax Dispute Resolution Scheme, 2016. The

scheme provides for settlement of cases on waiver of interest and penalty or part penalty as the

case may be. The salient features of the Scheme are as follows:

i) The scheme shall be applicable to tax arrears which include the amount of tax together

with interest and penalty under the Income tax Act, 1961 or Wealth Tax Act, 1957.

ii) All appeals and writ petitions filed by the declarant before any higher authority have to be

withdrawn.

iii) The scheme would be applicable to an assessment order or penalty order which is pending

before the CIT(A) as on February 29, 2016.

iv) Where the disputed tax amount is less than Rs.10 Lakhs, the taxpayer would only be

required to pay the tax amount together with interest and the penalty would be waived.

v) Where the disputed tax amount is more than Rs.10 Lakhs, the taxpayer would be required

to pay the tax amount together with interest and penalty amounting to only 25% of the tax

amount instead of the possibility of being subject to penalty at the rate of 100% to 300% of

the tax amount.

vi) On filing of declaration such pending proceedings before the CIT(A) would deemed to be

withdrawn.

vii) Further, the declaration under the scheme would grant immunity from prosecution.

viii) Certain classes of assesses are not eligible for being covered under this Scheme.

ix) The designated CIT will receive the application and pass an order within 60 days

determining the amount payable and pursuant thereto, the declarant is required to pay the

amount within 30 days of the passing of the order.

x) The Central Government has been granted powers for proper administration of the

Scheme.



TAX DEDUCTION / COLLECTION AT SOURCE

Revision in TDS Threshold Limits

The threshold limits for deducting tax at source from payments made to residents under various

sections of the Income Tax Act, 1961 has been changed as under:

Section Existing

Threshold

Limit (Rs.)

Proposed

Threshold

Limit (Rs.)

192A – TDS on Payment of Accumulated Provident Fund

Balance due to an employee

30,000/- 50,000/-

194BB – TDS on Winnings from Horse Race 5,000/- 10,000/-

194C - TDS on Payments to Contractors Annual Limit

of 75,000/-

Annual Limit

of 1,00,000/-

194D – TDS on Insurance Commission 20,000/- 15,000/-

194G – TDS on Commission of sale of lottery tickets 1,000/- 15,000/-

194H - TDS on Commission or Brokerage 5,000/- 15,000/-

194LA – TDS on payment of Compensation of acquisition

of certain immovable property

2,00,000/- 2,50,000/-

The above amendments are applicable from June 1, 2016.

Revision in TDS Rate Limits

The rate of tax deducted at source has been changed as follows:

Section Existing TDS

Rate (%)

Proposed TDS

Rate (%)

194D – TDS on Insurance Commission 10 5

194DA – TDS in respect of Life Insurance Policy (not

exempt u/s.10(10D))

2 1

194EE – TDS on withdrawal from NSS Deposit A/c. 20 10

194G – TDS on Commission of sale of lottery tickets 10 5



194H - TDS on Commission or Brokerage 10 5

The above amendments are applicable from June 1, 2016.

TDS on payments made in respect of units of investment fund - Section 194LBB

Under the existing provisions of Section 194LBB, TDS at rate of 10% is stipulated on income

payable (other than income which is taxable at investment fund level) by an investment fund to

its unit holders (both resident as well as non-resident). Due to this, the non-resident investors are

not able to claim benefit of lower or NIL rate of taxation which is available to him under the

relevant Double Taxation Avoidance Agreement (DTAA). In order to avoid such hardships, the

Section is now amended to the effect that the rate of TDS for a resident would be 10% and in the

case of non-residents, TDS would be deductible at the “rates in force”.

The said amendment is applicable from June 1, 2016.

Lower Deduction Certificate - Section 197

Section 194LBB requires an Alternative Investment Fund (Category I or II) to deduct TDS on

income paid to its investors (unit holders). Section 194LBC requires a Securitisation Trust to

deduct TDS on income paid to its investors (unit holders). Section 197 which provides for

applying and obtaining a lower / Nil deduction certificate has been amended to provide that the

investors/ unit holders of Alternative Investment Funds or Securitisation Trust can apply for

lower/ Nil TDS Certificate.


Furnishing of Form Nos.15G / 15H - Section 197A

The provision of sub-section 194-I of the Act, inter alia, provides for tax deduction at source

(TDS) for payments in the nature of rent beyond the threshold of Rs.1,80,000 per financial year

for deduction of tax at source. The existing provisions of section 197A of the Income-tax Act,

inter alia provide that tax shall not be deducted at source, if the recipient of certain incomes on

which tax is deductible at source, furnishes to the payer a self- declaration in prescribed Form

Nos. 15G/15H declaring that the tax on his estimated total income of the relevant previous year

would be nil. Section 197A has been amended to provide that declaration u/s.197A can be

furnished in respect of rental income as well.




Requirement to furnish PAN - Section 206AA

Section 206AA provides for higher TDS at the rate of 20% in case the recipient does not have a

PAN in India. Section 206AA is amended to provide that the provisions of this section shall not

apply to non-residents, subject to the fulfilment such conditions as may be prescribed.


Tax Collection at Source - Section 206C

Section 206C has been amended to provide that tax needs to be collected at source in the

following transactions:

Nature of Transaction Monetary Limit

(Rs.)

Rate (%)

Sale of Motor Vehicle > 10 lakhs 1

Sale in cash of any goods (other than bullion and

jewellery)*

> 2 lakhs 1

Payment in cash for any services (other than payments on

which tax is deducted at source under Chapter XVII-B)

> 2 lakhs 1

It is also proposed to provide that TCS in relation to cash sale of any goods (other than bullion

and jewellery) or services shall not apply to certain class of buyers who fulfil such conditions as

may be prescribed.


It may be noted that under the existing provisions of Act, tax is required to be collected at source

where any amount is received in cash in excess of Rs.2 lakhs for sale of Bullion and Rs.5 lakhs

for sale of Jewellery.



SERVICE TAX

Rate of Service Tax

i) No change has been proposed in the rate of service tax. (prevalent rate 14% on value of

taxable service)

ii) No change has been proposed in the rate of Swachh Bharat Cess. (prevalent rate 0.50%

on value of taxable service)

iii) Krishi Kalyan Cess is proposed to be levied with effect from 1st June, 2016 on any or all

the taxable services at the rate of 0.5% on the value of such taxable services. (Benefit of

input credit will be available)

Review of general exemptions

New Exemptions

i) The services of life insurance business provided by way of annuity under the National

Pension System (NPS) regulated by Pension Fund Regulatory and Development

Authority (PFRDA) of India are being exempted from service tax.

ii) Services provided by Securities and Exchange Board of India (SEBI) set up under SEBI

Act, 1992, by way of protecting the interests of investors in securities and to promote the

development of, and to regulate, the securities market are being exempted from service

tax.

iii) Services provided by Employees‟ Provident Fund Organisation (EPFO) to employees

are being exempted from service tax.

iv) Services provided by Biotechnology Industry Research Assistance Council (BIRAC)

approved biotechnology incubators to the incubatees are being exempted from service

tax.

v) Services provided by National Centre for Cold Chain Development under Department of

Agriculture, Cooperation and Farmer‟s Welfare, Government of India, by way of

knowledge dissemination are being exempted from service tax.

vi) Services provided by Insurance Regulatory and Development Authority (IRDA) of India

are being exempted from service tax.

vii) Services of general insurance business provided under “Niramaya‟ Health Insurance

scheme launched by National Trust for the Welfare of Persons with Autism, Cerebral



Palsy, Mental Retardation and Multiple Disability in collaboration with private/public

insurance companies are being exempted from service tax.

viii) The threshold exemption limit of consideration charged for services provided by a

performing artist in folk or classical art forms of music, dance or theatre, is being

increased from Rs 1 lakh to Rs 1.5 lakh per performance

ix) Services provided by way of skill/vocational training by Deen Dayal Upadhyay Grameen

Kaushalya Yojana training partners are being exempted from service tax.

x) Services of assessing bodies empanelled centrally by Directorate General of Training,

Ministry of Skill Development & Entrepreneurship are being exempted from service tax.

xi) Services by way of construction, erection etc. of a civil structure or any other original

works pertaining to the “In-situ Rehabilitation of existing slum dwellers using land as a

resource through private participation” component of Housing for All (HFA) (Urban)

Mission / Pradhan Mantri Awas Yojana (PMAY), except in respect of such dwelling

units of the projects which are not constructed for existing slum dwellers, are being

exempted from service tax.

xii) Services by way of construction, erection etc., of a civil structure or any other original

works pertaining to the “Beneficiary-led individual house construction / enhancement”

component of Housing for All (HFA) (Urban) Mission/ Pradhan Mantri Awas Yojana

(PMAY) are being exempted from service tax.

xiii) Services by way of construction, erection, etc., of original works pertaining to low cost

houses up to a carpet area of 60 sq.m per house in a housing project approved by the

competent authority under the “Affordable housing in partnership” component of PMAY

or any housing scheme of a State Government are being exempted from service tax.

xiv) Services provided by the Indian Institutes of Management (IIM) by way of 2 year full

time Post Graduate Programme in Management (PGPM) (other than executive

development programme), admissions to which are made through Common Admission

Test conducted by IIMs, 5 year Integrated Programme in Management and Fellowship

Programme in Management are being exempted from service tax.

xv) Exemption from Service Tax provided to software recorded on media on which

affixation of Retail Sale Price is required under Legal Metrology Act, 2009 subject to

fulfillment of certain conditions.



Restoration of Exemption

i) Exemption from Service Tax on services provided to the Government, a local authority

or a governmental authority by way of construction, erection, etc. of -

a) a civil structure or any other original works meant predominantly for use other

than for commerce, industry, or any other business or profession;

b) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or

(iii) an art or cultural establishment;

c) a residential complex predominantly meant for self-use or the use of their

employees or other persons specified in the Explanation 1 to clause 44 of section

65B of the said Act;

which was withdrawn with effect from 1st April 2015 is now being restored

ii) Exemption from Service Tax on services by way of construction, erection, etc. of

original works pertaining to an airport, port which was withdrawn with effect from 1st

April 2015 is now being restored

Withdrawal of Exemption

i) Services provided by a senior advocate to an advocate or partnership firm of advocates,

and a person represented on an arbitral tribunal to an arbitral tribunal; - Service tax in

the above instances would be levied under forward charge. However, the existing

dispensation regarding legal services provided by a firm of advocates or an advocate

other than senior advocate is being continued. (w .e .f 1st April 2016)

ii) Exemption on transport of passengers, with or without accompanied belonging s, by

ropeway, cable car or aerial tramway is being withdrawn. ( w.e.f 1st April 2016)

iii) Exemption to construction, erection, commissioning or installation of original works

pertaining to monorail or metro is being withdrawn, in respect of contracts entered into

on or after 1st March 2016

OTHER LEGISLATIVE AMENDMENTS

Negative List - Section 66D

The below mentioned services which were in negative list are now part of exemption

notification.

i) Specified educational services which are presently covered under the negative list are

proposed to be omitted from the said list. However, the said services will be entitled to



exemption in the general exemption notification. (w.e.f the date on which the Finance

Bill, 2016 be enacted)

ii) Service of transportation of passengers, with or without accompanied belongings, by a

stage carriage” is proposed to be omitted with effect from 1.06.2016. However, such

services by a non-air-conditioned contract carriage will continue to be exempted by way

of general exemption notification. The service of transportation of passengers by air-

conditioned stage carriage is being taxed at the same level of abatement (60%) as

applicable to the transportation of passengers by a contract carriage, with same

conditions of non-availment of CENVAT credit.

iii) The services by way of transportation of goods by an aircraft or a vessel from a place

outside India up to the customs station of clearance is proposed to be omitted with effect

from 1.06.2016. However such services by an aircraft will continue to be exempted by

way of general exemption notification. The domestic shipping lines registered in India

will pay service tax under forward charge while the services availed from foreign

shipping line by a business entity located in India will get taxed under reverse charge at

the hands of the business entity. The service tax so paid will be available as credit with

the Indian manufacturer or service provider availing such services (subject to fulfilment

of the other existing conditions). It is clarified that service tax levied on such services

shall not be part of value for custom duty purposes. Consequently CENVAT credit will

be allowed for providing such services as per amended CENVAT credit Rules, 2004

Abatements with effect from 1st April 2016

i) Where the tour operator provides services solely of arranging or booking accommodation

for any person in relation to a tour, abatement of 90% is available with specified

conditions. However, this abatement of 90% cannot be claimed in such cases where the

invoice, bill or challan issued by the tour operator, in relation to a tour, only includes the

service charges for arranging or booking accommodation for any person and does not

include the cost of such accommodation. Abatement rates in respect of services by a tour

operator is being rationalised from 75% and 60% to 70%. Consequently, the definition of

“package tour” as provided in the relevant notification is being omitted.

ii) Services provided by foreman to a chit fund under the Chit Funds Act, 1982 are

proposed to be taxed at an abated value of 70% [i.e., with abatement of 30%], subject to

the condition that CENVAT credit of inputs, input services and capital goods has not

been availed.



iii) Currently, there is abatement of 60% on the gross value of renting of motor-cab services,

provided no CENVAT credit has been taken. Cost of fuel is now to be included in the

consideration charged for providing renting of motor-cab services for availing the

abatement.

iv) Currently there are two rates of abatement in respect of services of construction of

complex, building, civil structure, or a part thereof,- (a) 75% of the amount charged in

case of a residential unit having carpet area of less than 2000 square feet and costing less

than Rs 1 crore, and (b) 70% of the amount charged in case of other than (a) above, both

subject to fulfillment of certain conditions prescribed therein. A uniform abatement at the

rate of 70% is now being prescribed for services of construction of complex, building,

civil structure, or a part thereof, subject to fulfillment of the existing conditions.

v) Currently, service tax is leviable on 30% of the amount charged for the service of

transport of passengers by rail, without CENVAT credit of inputs, input services and

capital goods. Thus, abatement of 70% is presently available in respect of the said

services. It is proposed to continue with the same level of abatement with CENVAT

credit of input services for the said service.

vi) Currently, service tax is payable on 30% of the value of service of transport of goods by

rail without CENVAT credit on inputs, input services and capital goods. Thus, abatement

of 70% is presently available in respect of the said service. It is now proposed to

continue with the same level of abatement with CENVAT credit of input services for

transport of goods by rail (other than “transport of goods in containers by rail by any

person other than Indian Railway”). A reduced abatement rate of 60% with credit of

input services is being prescribed for transport of goods in containers by rail by any

person other than Indian Railway.

vii) Currently, service tax is leviable on 30% of the value of service of transport of goods by

vessel without CENVAT credit on inputs, input services and capital goods. Thus,

abatement of 70% is presently available in respect of the said service. It is now proposed

to continue with the same level of abatement with CENVAT credit of input services for

the said service.

viii) Abatement on transport of used household goods by a Goods Transport Agency (GTA) is

being rationalised at the rate of 60% without availment of CENVAT credit on inputs,

input services and capital goods by the service provider (as against abatement of 70%

allowed on transport of other goods by GTA).



Declared Services - Section 66E

Assignment by the Government of the right to use the radio-frequency spectrum and subsequent

transfers thereof is proposed to be declared as a service under section 66E of the Finance Act,

1994 so as to make it clear that assignment by Government of the right to use the spectrum as

well as subsequent transfers of assignment of such right to use is a service leviable to service tax

and not sale of intangible goods.

Rule making power - Section 67A

Section 67A is proposed to be amended to obtain specific rule making powers in respect of Point

of Taxation Rules, 2011. Point of Taxation Rules, 2011 is being amended accordingly. The

amendment in the rules would come into force with effect from the date of enactment of the

Finance Bill, 2016.

Limitation Period - Section 73

The limitation period for recovery of service tax not levied or paid or short- levied or short paid

or erroneously refunded, for cases not involving fraud, collusion, suppression etc. is proposed to

be enhanced by one year, that is, from eighteen months to thirty months by making suitable

changes to section 73 of the Finance Act, 1994.

Interest payment - Section 75

Section 75 of the Finance Act is proposed to be amended so that a higher rate of interest would

apply to a person who has collected the amount of service tax from the service recipient but not

deposited the same with the Central Government.

Closure of Penalty proceedings - Section 78A

It is proposed to provide that penalty proceedings under section 78A shall be deemed to be

closed in cases where the main demand and penalty proceedings have been closed under section

76 (failure to pay service tax) or section 78 (failure to pay service tax for reasons of fraud etc.)

by making suitable changes to section 78A by addition of an explanation.

Offences and Penalties - Section 89

The monetary limit for filing complaints for punishable offences is proposed to be enhanced to

Rs.2 crore from the existing limit of Rs.50 Lakh



Cognizance of Offence / Power to arrest - Section 90 and Section 91

The power to arrest in service tax law is proposed to be restricted only to situations where the

tax payer has collected the tax exceeding Rs.2 crore but not deposited it with the exchequer.

Amendments in Service Tax Rules, 1994 - w.e.f 1st April 2016

i) The benefits of (a) quarterly payment of service tax and (b) payment of service tax on

receipt basis, which are available to individual and partnership firms, are being extended

to One Person Company (OPC) whose aggregate value of services provided is up to Rs.

50 lakh in the previous financial year.

ii) The benefit of quarterly payment of service tax is also being extended to HUF. Rule 6 is

being amended accordingly.

iii) Senior advocate will be liable to discharge service tax on forward charge as per

amendment in Rule 2(1)(d) of Service Tax Rules, 1994.

iv) Single premium annuity policies, an insurer carrying on life insurance business shall be

liable to pay service tax @ 1.40% of the single premium charged from the policy holder.

v) Support services provided by the Government or Local authorities to the business entities

are presently taxable under the Reverse charge mechanism i.e. the recipient of the service

is liable to pay the tax. Post amendment, the word “support” shall stand deleted from the

Rule and therefore, any service provide provided by the Government or Local authorities

to the business entities are liable to pay tax under Reverse charge basis.

vi) It is proposed to introduce filing of an annual return above a certain threshold limit by

30th November of the succeeding year by the assessees. Further, such annual return can

be revised within one month from the date of its submission

Point of Taxation Rules (POTR) – w.e.f 1st March 2015

Due to amendment in Section 67A, consequent modifications have been made in this Rule:

i) Rule 5 of POTR applies when a new service comes into the service tax net. Although in

the case of new levy, provisions of Chapter V of the Finance Act, 1994, and rules made

thereunder, are invariably made applicable in relation to the levy and collection of the

new levy. However, doubts have been raised regarding its applicability in case of new

levy. Therefore, an Explanation is being inserted in Rule 5 stating that the same is

applicable in case of new levy on services.

ii) Further, in rule 5 of POTR, it is provided that in two specified situations the new levy

would not apply. Another Explanation is being inserted therein stating that in situations



other than those specified where new levy or tax is not payable, the new levy or tax shall

be payable.

Amendment in CENVAT Credit Rules, 2004

i) Goods falling under chapter 8606 92 of Central Excise Tariff being railway wagons have

been added in the definition of capital goods and therefore will be allowed as CENVAT

Credit.

ii) CENVAT Credit of appliances used in an office located within a factory are included in

the definition of capital goods.

iii) CENVAT credit on inputs and capital goods used for pumping of water, for captive use

in the factory, is being allowed even where such capital goods are installed outside the

factory.

iv) All capital goods having value up to Rs.10,000/- per piece are included in the definition

of inputs. This will allow to take whole credit on such capital goods in same year.

v) Service by way of transportation of goods by a vessel from customs station of clearance

in India to a place outside India is excluded from the definition of exempted service. This

would allow shipping lines to take credit on inputs and input services used in providing

the said service

Rule 6 of CENVAT Credit Rules

i) Rule 6 of CENVAT Credit Rules is redrafted with the objective of simplifying and

rationalizing the same without altering the established principles of reversal of such

credit.

ii) Reversal of credit to the extent of 6% of the value of exempted goods or 7% of the value

of exempted service cannot exceed the value of total credit taken.

iii) Under Rule 6(3A) i.e. proportionate reversal option, CENVAT Credit of only common

inputs / input services will have to be reversed.

iv) Manufacturer or provider of output service who has failed to give prior intimation, may

be allowed by a Central Excise officer to follow proportionate reversal option and pay

the amount along with interest calculated at the rate of 15% per annum from the due date

of each month till payment date.

v) Existing Rule 6 would continue to be in operation up to 30th June 2016, for the units who

are required to discharge the obligation in respect of financial year 2015-16.



vi) Banks and other financial institutions has been given option to reverse CENVAT Credit

in respect of exempted service either on the basis of 7% of value of exempted service or

proportionate reversal in addition to the option of 50% reversal.

vii) Exempt service will include activity which is not a 'service' as defined in section 65B(44)

of the Act for the purpose of CENVAT Credit under Rule 6.

viii) CENVAT credit of Capital Goods used for the manufacture of exempted goods or

provision of exempted service for two years from the date of commencement of

commercial production or provision of service shall not be allowed. Similar provision is

being made for capital goods installed after the date of commencement of commercial

production or provision of service. w.e.f. 1st April 2016.

Indirect tax Dispute Resolution Scheme, 2016

Indirect tax Dispute Resolution Scheme, 2016, wherein a scheme in respect of cases pending

before Commissioner (Appeals), the assessee, after paying the duty, interest and penalty

equivalent to 25% of duty, can file a declaration, is being introduced. In such cases the

proceedings against the assessee will be closed and he will also get immunity from prosecution.

However, this scheme will not apply in certain specified type of cases.

India union budget 2016

Economy & Finance

Transcript of India union budget 2016