Circular
Income-tax Act
Certain clarification regarding Tax holiday under section 10B of the Income-tax Act to 100% Export Oriented Undertaking
CIRCULAR
NO. 1/2005, DATED 6-1-2005
1. Section 10B of the Income-tax Act provides for
100% deduction of profits derived by a hundred per cent Export Oriented
Undertaking, from export of articles or things or computer software
manufactured or produced by it. The deduction is available for a period of ten
consecutive assessment years beginning with the assessment year relevant to the
previous year in which the undertaking begins to manufacture or produce
articles or things or computer software. However, no deduction under section
10B is available after assessment year 2009-10.
2. The deduction under section 10B is available
to an undertaking which fulfils all the following conditions:
(i) it manufactures or produces any article or thing or computer software;
(ii) it is not formed by the splitting up, or the reconstruction, of a business already in existence except in the circumstances specified under section 33B of the IT Act.
(iii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose.
3. Representations have been received from
various quarters as to whether an undertaking set up in Domestic Tariff Area,
which is subsequently approved as 100% EOU by the Board appointed by the
Central Government in exercise of powers conferred under section 14 of the Industries
(Development and Regulation) Act, 1951, is eligible for deduction under
section10B of the Income-tax Act.
4. The matter has been examined and it is hereby
clarified that an undertaking set up in Domestic Tariff Area (DTA) and deriving
profit from export of articles or things or computer software manufactured or
produced by it, which is subsequently converted into a EOU, shall be eligible
for deduction under section 10B of the IT Act, on getting approval as 100%
export oriented undertaking. In such a case, the deduction shall be available
only from the year in which it has got the approval as 100% EOU and shall be
available only for the remaining period of ten consecutive assessment years,
beginning with the assessment year relevant to the previous year in which the
undertaking begins to manufacture or produce articles or things or computer
software, as a DTA unit. Further, in the year of approval, the deduction shall
be restricted to the profits derived from exports, from and after the date of
approval of the DTA unit as 100% EOU. Moreover, the deduction to such units in
any case will not be available after assessment year 2009-10.
5. To clarify the above position, certain
illustrations are given as under:
(i) Undertaking A is set up in Domestic Tariff Area and starts manufacture or production of computer software in Financial Year 1999-2000 relevant to assessment year 2000-01. It gets approval as 100% EOU on 10th September, 2004 in the financial year 2004-05 relevant to assessment year 2005-06. Accordingly, it shall be eligible for deduction under section 10B from assessment year 2005-06 i.e., the year in which it fulfils the basic condition of being a 100% EOU. Further, the deduction shall be available only for the remaining period of ten years i.e. from assessment year 2005-06 to assessment year 2009-10. This deduction under section 10B for assessment year 2005-06 shall be restricted to the profits derived from exports, from and after the date of approval of the DTA unit as 100% EOU.
(ii) Undertaking B set up in Domestic Tariff Area, begins to manufacture or produce computer software in financial year 1996-97 relevant to assessment year 1997-98. It gets approval as 100% EOU in financial year 2007-08 relevant to assessment year 2008-09. No deduction under section 10B shall be admissible to undertaking B as the period of 10 years expires in financial year 2005-06 relevant to assessment year 2006-07, prior to its approval as 100% EOU.
(iii) Undertaking C is set up in Domestic Tariff Area in the financial year 2000-01 relevant to assessment year 2001-02 and engaged in the business of providing computer related services, other than those notified by the Board for the purposes of section 10B. In financial year 2002-03, it acquires more than 20% of old plant and machinery and starts manufacturing computer software. It also gets approval as 100% EOU in financial year 2002-03. Undertaking C shall not be eligible for deduction under section 10B, as there has been transfer of old plant and machinery.
(iv) Undertaking D is set up and starts producing computer software in financial year 2003-04 relevant to assessment year 2004-05. It gets approval as 100% EOU in financial year 2006-07 relevant to assessment year 2007-08. It shall be eligible for deduction under section 10B from assessment year 2007-08. However, the deduction shall not be available after assessment year 2009-10.
(v) Undertaking E is set up and starts producing computer software prior to 31-3-1994. It gets approval as 100% EOU in financial year 2004-05 relevant to assessment year 2005-06. Undertaking E shall not be eligible for deduction under section 10B as the period of deduction of 10 years expires prior to assessment year 2005-06.
Circular
Income-tax Act
Submission of certificate for claiming deductions under section 80G of the Income-tax Act, 1961 in respect of donation made by an employee to the Prime Ministers National Relief Fund, the Chief Ministers Relief Fund and the Lieutenant Governors Relief Fund
Circular
No. 2/2005, dated 12-1-2005
In cases where
employees make donations to the Prime Ministers National Relief Fund, the Chief
Ministers Relief Fund or the Lieutenant Governors Relief Fund through their respective
employers, it is not possible for such funds to issue separate certificate to
every such employee in respect of donations made to such funds as contributions
made to these funds are in the form of a consolidated cheque. An employee who
makes donations towards these funds is eligible to claim deduction under
section 80G of the Income-tax Act, 1961. It is, hereby, clarified that the
claim in respect of such donations as indicated above will be admissible under
section 80G of the Income-tax Act, 1961 on the basis of the certificate issued
by the Drawing and Disbursing Officer (DDO)/ Employer in this behalf.
press note, dated 12-1-2005
As per Circular
No. 2/2005, dated 12th January, 2005, issued by the Central Board of Direct
Taxes, it has been clarified that in cases where employees make donations to
the Prime Ministers National Relief Fund, the Chief Ministers Relief Fund or
the Lieutenant Governors Relief Fund through their respective employers, the
claim in respect of such donations will also be admissible under section 80G of
the Income-tax Act, 1961 on the basis of the certificate issued by the Drawing
and Disbursing Officer (DDO)/Employer in this behalf.
Circular
Finance Act, 2005 - BCTT
Finance Act, 2005 - Explanatory Notes on the provisions relating to
Banking Cash Transaction Tax
Circular No.
3/2005, DATED 3-6-2005
The Finance Act, 2005 (hereafter referred to as Act) has introduced a new
levy, namely, the Banking Cash Transaction Tax (hereafter referred to as BCTT)
on certain banking transactions. The provisions relating to levy of this tax
are contained in Chapter VII (sections 93 to 112) of the Act. Section 111 of
the Act empowers the Central Government to make the rules for carrying out the
provisions of this Chapter. The rules have since been formulated and notified vide
S.O. 737 (E), Dated 30-5-2005. The salient features of this levy are
explained in the following sections.
2. Objective
2.1 The Finance Minister, in para 177 of his
speech while presenting the Budget 2005-2006, stated as under:
The NCMP requires the Government to introduce special schemes to unearth
black money and assets. I am obliged to carry out the mandate, but without
giving undeserved relief or an amnesty. I am concerned about large cash
transactions, especially withdrawals of cash, when there is no ostensible
purpose to withdraw such large amounts of cash. These cash withdrawals leave no
trail, and presumably become part of the black economy. Therefore, I propose to
introduce two anti-tax-evasion measures: Firstly, I propose to levy a tax on
withdrawal of cash on a single day of over Rs. 10,000 or more from banks at the
rate of 0.1 per cent. Thus, a person withdrawing Rs. 10,000 in cash would have
to pay a small sum of Rs. 10.
2.2 The Finance Minister while replying to the
debate on the Finance Bill, 2005 in both Houses of Parliament, reiterated this
objective. Undoubtedly, therefore, the objective of the banking cash
transactions tax is to prevent generation and laundering of black money through
the banking channels.
3. Tax Base (What
is liable to tax?)
3.1 The tax base for the purposes of BCTT is the
value of taxable banking transaction. A taxable banking transaction has been
defined in clause (8) of section 94 of the Finance Act, 2005. Broadly, there
are two categories of transactions: cash withdrawal and receipt of cash on
encashment of term deposits.
3.2 A cash withdrawal would fall within the
scope of a taxable banking transaction if it satisfies the following
conditions:
(i) The cash withdrawal (by whatever mode)
is from an account other than a savings bank account.
(ii) The account is maintained with any
scheduled bank.
(iii) The amount of cash withdrawn on a single
day from the same account should exceed Rs. 25,000 in the case of an individual
or a HUF or Rs. 1,00,000 in the case of any other person.
Similarly, a receipt of cash on encashment of term deposits would fall
within the scope of a taxable banking transaction if it satisfies the following
conditions:
(i) The cash is received on encashment of a
term deposit or deposits.
(ii) The term deposit or deposits are in any
scheduled bank.
(iii) The amount of cash received in a single
day exceeds Rs. 25,000 in the case of a deposit or deposits in the name of an
individual or a HUF or Rs. 1,00,000 in case of any other person.
For this purpose scheduled bank means the State Bank of India constituted
under the State Bank of India Act, 1955, a subsidiary bank as defined in the
State Bank of India (Subsidiary Banks) Act, 1959, a corresponding new bank
constituted under section 3 of the Banking Companies (Acquisition and Transfer
of Undertakings) Act, 1970, or under section 3 of the Banking Companies
(Acquisition and Transfer of Undertakings) Act, 1980, or any other bank being a
bank included in the Second Schedule to the Reserve Bank of India Act, 1934.
3.3 The value of the taxable banking transaction
shall be the amount of cash withdrawal or the amount of cash received on
encashment of a term deposit or deposits, as the case may be, on any single
day.
3.4 Multiple withdrawals of cash from the same
account or multiple receipts of cash on encashment of a term deposit or
deposits in the name of the same person on any single day shall be treated as a
single taxable banking transaction. Therefore, if an individual were to
withdraw Rs. 80,000 in a single day in multiples of Rs. 20,000 from one
account, he would be liable to BCTT on the aggregate cash withdrawal of Rs. 80,000.
However, if the individual maintains two or more accounts in a bank and
withdraws upto Rs. 25,000 from each account in a single day, he would not be
liable to the banking cash transaction tax.
3.5 Transactions of withdrawal of cash from a
bank account or receipt of cash on encashment of term deposit or deposits (with
a scheduled bank) on any single day not exceeding Rs. 25,000 in the case of
individuals and HUFs and one lakh rupees in the case of any other person, are
exempt from levy of this tax. However, in respect of transactions in excess of
these limits, no benefit is available in respect of the exemption limit. For
example, in respect of a transaction of withdrawal of cash of thirty thousand
rupees on any single day from a current account maintained by an individual
with a scheduled bank, BCTT is leviable on the amount of Rs. 30,000 and not on
the excess of Rs. 5,000 over the exemption limit.
3.6 It is also clarified that where the cash
withdrawals are from different branches of a bank on a single day, such
withdrawals will not be aggregated for the purposes of levy of BCTT. Similarly,
cash receipts on encashment of term deposits with different branches of a bank
on a single day will also not be aggregated for the purposes of this levy.
Further, transactions of cash withdrawal and cash receipts on encashment of
term deposits on a single day will also not be aggregated for the purposes of
this levy.
3.7 Further, if cash is withdrawn by using a
credit card, such withdrawals will not be subject to BCTT. However, if cash is
withdrawn by using a debit card, such withdrawals from any account other than a
savings bank account will be liable to BCTT.
4. Taxable
Entities (Who is liable to pay the tax?)
4.1 The banking cash transaction tax is payable
by every person as defined in clause (31) of section 2 of the Income-tax
Act. It also includes an office or establishment of the Central Government or
the Government of a State. Therefore, amongst others, the following persons are
liable to the banking cash transaction tax:
(i) an individual,
(ii) a Hindu undivided family,
(iii) a company,
(iv) a firm,
(v) an association of persons or a body of
individuals, whether incorporated or not,
(vi) a local authority,
(vii) every artificial juridical person, not falling
within any of the preceding items, and
(viii) an office or establishment of the Central
Government or the Government of a State.
4.2 If the transaction relates to withdrawal of
cash from an account with a scheduled bank, the BCTT is payable by the person
in whose name such account is maintained. Similarly, if the transaction relates
to receipt of cash on encashment of term deposit or deposits, the BCTT is
payable by the person who receives such cash.
5. Territorial
jurisdiction
5.1 BCTT is applicable to the whole of
5.2 If a person withdraws cash outside
6. Tax rate
6.1 The rate of BCTT is 0.1 per cent (10 basis
points) of the value of the taxable banking transaction.
7. Point of
collection (When is the tax to be collected by the bank?)
7.1 The tax is to be collected by the bank at
the time of the transaction. For example, when cash is withdrawn in excess of
the specified limit, the bank will debit the amount of cash withdrawn and also
the amount of BCTT payable thereon. Similarly, in the case of receipt of cash
on encashment of term deposit, the bank is required to deduct the amount of
BCTT payable thereon and pay the balance to the person encashing the term
deposit.
7.2 The responsibility for collecting the BCTT
rests with the bank in which the transaction takes place. In the event of
failure to do so, the amount of BCTT, which was otherwise collectible, is
required to be paid by that Bank to the credit of the Central Government.
8. Remittance of
tax (When is the tax payable to the account of the Central Government?)
8.1 The BCTT collected by a scheduled bank
during a calendar month will have to be paid by the bank to the credit of the
Central Government by the fifteenth day of the month immediately following that
month. For example, the tax collected/collectible by the bank during the month
of June 2005 will have to be paid by 15-7-2005.
8.2 Further, it is clarified that the scheduled
bank will have to pay to the Central Government the tax collected by all its
branches. The branches are not required to directly remit the tax collected by
them to the account of the Central Government. For example, if a bank has ten
branches, a single remittance of the aggregate collection is required to be
made and not ten separate remittances to the account of the Central Government.
9. Commencement
9.1 The BCTT is applicable in respect of all
taxable banking transactions entered into on or after 1-6-2005.
10. Information
system
10.1 The information system will comprise of
three databases: the primary database, secondary database, and the tertiary
database. The primary database will comprise of the original transaction
records, like bank ledger, cheques and daily scrolls of the bank. This will not
be required to be transmitted to the tax authorities. However, it will have to
be made available to the tax authorities as and when required. Since the banks
are otherwise required to maintain these details/records, no additional
responsibility has been cast under the BCTT.
10.2 The secondary database will comprise of a
computerized banking scroll summarizing the primary data so as to reflect
transaction-wise information relating to BCTT. The secondary database is
designed so as to provide such information as provided in Form No. 1 notified
under the BCTT Rules, 2005. This database will not be required to be
transmitted to the tax authorities. However, it will have to be made available
to the tax authorities as and when required.
10.3 The tertiary data will be a monthly summary
of the secondary data and will be structured along the pattern indicated in
Form No. 2. This database does not provide for transaction-wise details. The
tertiary data will be required to be furnished by a bank in respect of all its
branches on a magnetic media like a computer floppy or CD-ROMs, etc., every
month to a designated authority, namely Director General of Income-tax
(Investigation), Delhi within one month from the end of the relevant month.
10.4 The annual return required under section 98
shall be the annual summary of secondary data as in Form No. 3 and shall be
furnished on a computer media by 31st July immediately following the Financial
Year in respect of which such return is to be furnished. If the bank fails to
file the annual return, the Assessing Officer is required to send him a notice
calling for such annual return.
11. Assessment
11.1 The law provides for assessment on the basis
of annual return filed by the bank. For this purpose, the Assessing Officer
shall make an assessment of the value of taxable banking transactions entered
into in a scheduled bank during the relevant financial year on the basis of the
return filed by the bank (assessee) and on the basis of such accounts or
documents or other evidence as may be submitted by the assessee. Assessing
Officer shall determine the amount of BCTT payable or refundable on the basis
of such assessment. Forms of notice of demand have been prescribed in rule 7.
12. Refund of
Taxes
12.1 If a bank deposits to the account of the
Central Government BCTT in excess of its final liability determined on
assessment, the excess amount will be refunded to the bank. However, the bank
is required to refund the same to the persons from whom it was collected within
30 days of receipt of refund from the Government.
13. Appeal
13. The law provides for appeal against the assessment
order to the Commissioner of Income-tax (Appeals). Further, where the assessee
is aggrieved by the order of the Commissioner of Income-tax (Appeals), he can
file an appeal to the Appellate Tribunal. The forms for filing of appeal are
prescribed in the rules.
Applicability of
the provisions of the Income-tax Act
14. Section 106 of the said Chapter provides that
sections 120, 131, 133A, 156, 178, 220 to 227, 229, 232, 260A, 261, 262, 265 to
269, 278B, 282 and 288 to 293 of the Income-tax Act, 1961, shall apply in
relation to the banking cash transaction tax as they apply in relation to
income-tax.
Miscellaneous
15. Other provisions of Chapter VII of the Act
and the rules are self explanatory and are not being explained here.
16. Deduction
under Income-tax Act
16.1 Consequent upon levy of BCTT, section 36 of
the Income-tax Act has been amended so as to provide that the BCTT paid during
a year by a person on taxable banking transactions entered into by him during
the course of business or profession shall be allowed as deduction in computing
the income from business or profession for the purposes of the Income-tax Act.
Circular
Income-tax Act
Filing of returns of Tax Deduction at Source and Tax Collection at Source on Computer Media for deductions/collections up to 31st March, 2005
CIRCULAR NO. 4/2005, DATED 27-6-2005
1. Finance Act, 2003 amended section 206 of the
Income-tax Act, 1961 to provide for mandatory filing of returns of tax deduction
at source in computer media by principal officers of companies responsible for
deducting tax in accordance with a scheme to be notified by the Board in the
Official Gazette. The Electronic Filing of Returns of Tax Deducted at Source
Scheme, 2003 was notified vide S.O. No. 974(E), dated 26-8-2003.
Suitable amendments were made in the various rules and forms prescribed under
the Income-tax Rules, 1962.
2. Finance (No. 2) Act, 2004 has further amended
sub-section (2) of section 206 to extend the mandatory filing of returns of tax
deducted at source to cases where deduction is made by the prescribed officer
in the case of every office of the Government.
3. Finance (No. 2) Act, 2004 has also amended
sub-sections (5A), (5B) and (5C) of section 206C of the Income-tax Act which
pertain to filing of returns of tax collected at source. Consequent to this
amendment, an annual return of tax collected at source will be required to be
filed for tax collected during the financial year 2004-05 as against the earlier
requirement of furnishing of half yearly returns.
4. The provisions of sub-sections (5B) and (5C)
of section 206C which provided for furnishing of returns of tax collected at
source on computer media have also been amended to provide for furnishing of such
returns in computer media in accordance with a scheme to be notified by the
Board by notification in the Official Gazette. The filing of such returns has
been made mandatory in the case of companies, the Central Government and State
Government. The Electronic Filing of Returns of Tax Collected at Source Scheme,
2005 has been notified vide S.O. No. 453(E), dated 30th March, 2005.
5. With a view to ensure that the TDS returns
filed on computer media conform to the required specifications, the person
responsible for deduction or collection of tax at source and filing of TDS/TCS
return on computer media shall ensure the following:
(i) Form No. 27A (in the cases of tax deduction at source) or Form No. 27B (in the case of tax collection at source) is duly filled in, verified and enclosed in paper format with the return on computer media.
(ii) Tax deduction and collection account number (TAN) of the person responsible for deducting/collecting tax at source is clearly mentioned in Form No. 27A or Form No. 27B, as the case may be, as also in the TDS/TCS return, as required by sub-section (2) of section 203A of the Income-tax Act.
(iii) The particulars relating to deposit of tax at source in bank are correctly and properly filled in the table at item no. 6 of Form No. 24 or item no. 4 of Form No. 26 or item no. 4 of Form No. 27 or item no. 4 of Form No. 27E, as the case may be.
(iv) The data structure of the return for tax deduction at source in Form No. 24 or Form No. 26 or Form No. 27 and for tax collection at source in Form No. 27E prepared on computer readable media conforms to the data structure prescribed by the e-filing Administrator authorized under the scheme for electronic filing of TDS/TCS returns notified by the Board.
(v) The Control Totals of the amount paid and the tax deducted at source as mentioned at item No. 4 of Form No. 27A tally with the corresponding totals in the return for tax deduction at source in Form No. 24 or Form No. 26 or Form No. 27, as the case may be.
(vi) The Control Totals of the amount paid and the tax collected at source as mentioned at item No. 4 of Form No. 27B tally with the corresponding totals in the return for tax collection at source in Form No. 27E.
6. In case the return on the computer readable
media is found to be corrupted or does not fulfil any of the above guidelines,
the computer readable media shall be returned to the deductor for appropriate
correction and resubmission.
7. The guidelines returns to filing of returns
relating to tax deduction at source and tax collection at source on computer
media laid down in Boards earlier Circulars shall stand modified to the above
extent.
Finance
(No. 2) Act, 2004 - Explanatory Notes on provisions relating to Direct Taxes
Circular No. 05/2005, dated 15-7-2005
Introduction
1. The Finance (No. 2) Act, 2004 as passed by
the Parliament, received the assent of the President on the 10th September,
2004 and has been enacted as Act No. 23 of 2004. This circular explains the
substance of the provisions of the Act relating to direct taxes.
2. Changes
made by the Finance (No. 2) Act, 2004
2.1 The Finance (No. 2) Act, 2004 (hereinafter
referred to as the Act) has,
(i) amended sections 2, 7, 10, 12AA, 17, 32, 33AC, 35AC, 40, 48,
56, 71, 80DD, 80-IA, 80-IB, 80U, 87, 88, 90, 94, 115AD, 115JB, 115R, 119, 139,
139A, 153, 153B, 194C, 197, 198, 199, 200, 202, 203, 204, 205, 206, 206C,
206CA, 245RR, 246A, 253, 272A, 272B, 272BBB, 273B, 278B, 279 and Thirteenth
Schedule of the Income-tax Act, 1961;
(ii) inserted new sections 80CCD, 88D, 88E, 111A, 142A, 194LA,
203AA, 271FA, 277A and new Chapter XII-G in the Income-tax Act, 1961;
(iii) substituted new sections 203A, 285BA of the Income-tax Act,
1961;
(iv) amended section 35HA of the Wealth-tax Act, 1957;
(v) introduced a new Chapter VII to levy Securities Transaction
Tax.
3. Provisions
in brief
3.1 The provisions of the Act in the sphere of
direct taxes relate to the following matters:
(i) Prescribing the rates of income-tax on income liable to tax
for the assessment year 2004-05; the rates at which the tax will be deductible
at source in the financial year 2004-05 from interest (including interest on
securities), winnings from lotteries or cross-word puzzles, winnings from horse
races, insurance commission and other categories of income liable for tax
deduction at source under the Income-tax Act, rates for computing advance tax,
deduction of income-tax from Salaries and charging of income-tax on current
income in certain cases for the financial year 2004-05.
(ii) Amendment of the Income-tax Act, 1961, with a view to :
- modifying
the definition of income to include any sum of money exceeding Rs. 25,000
received without any consideration by an individual or HUF.
- providing
a sunset provision to section 10(4)(ii) relating to interest in a
Non-Resident (External) Account.
- reintroducing
exemption under section 10(6BB).
- exempting
income payable to the European Investment Bank on loans granted in pursuance of
the framework agreement.
- providing
a sunset provision to section 10(15)(iv)(fa) relating to interest
on Foreign Currency Deposits.
- withdrawing
exemption under section 10(15A).
- exempting
family pension received by the family members of armed forces personnel killed
in action in certain circumstances.
- modifying
the definition of venture capital undertaking.
- providing
for taxation on income of infrastructure capital company under section 115JB.
- providing
for exemption on capital gains arising from compulsory acquisition of agricultural
land situated within specified urban limits.
- explicitly
providing power to the Commissioner for cancelling registration under section
12AA.
- introducing
a new provision to give effect to the New Pension Scheme.
- reducing
the limit for increase in installed capacity for the purposes of additional
depreciation.
- providing
for additional ground for withdrawal of approval granted to
associations/institutions or withdrawal of notification of eligible project or
scheme by the National Committee.
- providing
for disallowance of certain amounts while computing income under the head
Profits and gains of business or profession if tax has not been deducted at
source.
- not
allowing set-off of business loss against income from salary.
- providing
deduction in respect of maintenance including medical treatment of a dependent
being a person with disability or severe disability suffering from autism,
cerebral palsy or multiple disabilities.
- extending
tax benefits under section 80-IA in the case of substantial renovation and
modernization of transmission and distribution lines in the power sector.
- extending
the time limit for providing telecommunication services, etc. for the purpose
of tax holiday under section 80-IA.
- extending
the time-limit for setting up of industries in the State of Jammu and Kashmir
for the purpose of tax holiday under section 80-IB.
- extending
the time-limit for the purpose of tax holiday under section 80-IB to any
company carrying on scientific research and development.
- extending
the time-limit for obtaining approval of housing projects for the purpose of
tax holiday under section 80-IB, and allowing deduction for redevelopment or
reconstruction of existing buildings in slum areas.
- providing
tax holiday for agro-processing industry.
- giving
incentive to an undertaking building, operating and maintaining a hospital in a
rural area.
- providing
for deduction in respect of a person with disability or severe disability
suffering from autism, cerebral palsy or multiple disabilities.
- giving
rebate for repayment of housing loans taken from an authority established by a
Central or State Act.
- introducing
a new provision for allowing deduction from tax payable for individuals having
total income up to rupees one lakh.
- amending
section 90.
- curbing
tax avoidance via dividend and bonus stripping.
- reducing
the opportunity of arbitrage for the companies.
- continuing
exemption to open-ended equity oriented funds without any time-limit.
- amending
section 119 relating to instructions to subordinate authorities.
- clarifying
provisions regarding estimates by Valuation Officer in certain cases.
- excluding
the time taken by the Authority for Advance Rulings in rejecting an application
or pronouncing an advance ruling from the period of limitation for making an
assessment.
- amending
section 194C relating to tax deduction at source from payments made to
contractors and sub-contractors.
- providing
for deduction of tax at source from compensation or enhanced compensation paid
on acquisition of certain immovable property other than agricultural land.
- providing
for common identification number in cases of tax deduction at source and tax
collection at source.
- amending
the provision for filing of returns of tax deducted at source.
- expanding
the scope of collection of tax at source.
- amending
the provisions for filing of returns of tax collected at source.
- inserting
a new chapter for special provisions relating to income of shipping companies.
- enabling
de-materialisation of TDS and TCS certificates.
- providing
for prosecution in case of falsification of books of account or documents etc.
- Rationalising
provisions relating to offences by a company.
- modifying
the provisions for filing of annual information return.
(iii) Introduction of provisions for levy of Securities Transaction
Tax and to provide :
- exemption
from income-tax on long-term capital gain arising from transactions chargeable
to securities transaction tax;
- concessional
rate of income-tax on short-term capital gain arising from transaction
chargeable to securities transaction tax;
- rebate
of securities transaction tax paid on transactions forming part of business
against income-tax liability on business income arising from such transactions.
Rate Structure
4. Rates of income-tax in respect of incomes
liable to tax for the assessment year 2004-05.
In respect of incomes
of all categories of taxpayers (corporate as well as non-corporate) liable to
tax for the assessment year 2004-05, the rates of income-tax have been
specified in Part I of the First Schedule to the Act and are the same as those
laid down in Part III of the First Schedule to the Finance Act, 2003 for the
purposes of computation of advance tax, deduction of tax at source from
Salaries and charging of tax payable in certain cases during the financial year
2003-04. It has also been specified that in the case of individuals, Hindu
undivided families, association of persons and body of individuals having total
income exceeding Rs. 8,50,000, the tax so computed after rebate under Chapter
VIII-A, shall be enhanced by a surcharge of ten per cent for purposes of the
Union. In the case of every artificial juridical person, the tax computed shall
be enhanced by a surcharge of ten per cent. In case of a firm, a local
authority, a co-operative society and a company, the tax computed shall be
enhanced by a surcharge of two and one-half per cent.
Rates for
deduction of income-tax at source during the financial year 2004-05 from income
other than Salaries
The rates for
deduction of income-tax at source during the financial year 2004-05 from
incomes other than Salaries have been specified in Part II of the First
Schedule to the Act. These rates apply to income by way of interest on
securities, interest other than interest on securities, insurance commission,
winnings from lotteries or crossword puzzles, winnings from horse races and
income of non-residents (including non-resident Indians). These rates are
broadly the same as those specified in Part II of the First Schedule to the
Finance Act, 2003, for the purposes of deduction of income-tax at source during
the financial year 2003-04. The tax deducted at source in each case shall be
increased by a surcharge for purposes of the
(i) in the case of every individual, Hindu undivided family,
association of persons and body of individuals, at the rate of ten per cent of
such tax where the income or the aggregate of such incomes paid or likely to be
paid exceeds Rs. 8,50,000;
(ii) in the case of every co-operative society, firm, local
authority and company, at the rate of two and one-half per cent of such tax;
and
(iii) in the case of every artificial juridical person, at the rate
of ten per cent of such tax.
An additional
surcharge to be called the Education Cess is to be levied at the rate of two
per cent on the amount of tax deducted, inclusive of surcharge if any.
Rates for
deduction of income-tax at source from Salaries, computation of advance tax and
charging of Income-tax in special cases during the financial year 2004-05
The rates for
deduction of income-tax at source from Salaries during the financial year
2004-05 and also for computation of advance tax payable during that year in the
case of all categories of taxpayers have been specified in Part III of the
First Schedule to the Act. These rates are also applicable for charging
income-tax during the financial year 2004-05 on current incomes in cases where
accelerated assessments have to be made, e.g., provisional assessment of
shipping profits arising in India to non-residents, assessment of persons
leaving India for good during that financial year, assessment of persons who
are likely to transfer property to avoid tax, or assessment of bodies formed
for short duration, etc.
An additional
surcharge, to be called the Education Cess, is to be levied at the rate of two
per cent on the amount of tax deducted or advance tax paid, inclusive of
surcharge if any. However, so far as the liability of the deductor is
concerned, education cess in the case of tax deducted at source, is to be
levied only in respect of tax deducted at source on payments made or credited
on or after 10th September, 2004, i.e., the day on which the Finance
(No. 2) Act, 2004 received the assent of the President. To reiterate, the payee
shall be liable to an additional surcharge, i.e., education cess on the
tax payable on the total income of the whole of the financial year.
The salient
features of the rates specified in the said Part III are indicated in the
following paragraphs:
A.
Individuals, Hindu undivided families, etc.
Paragraph A of
Part III of the First Schedule specifies the rates of income-tax in the case of
individuals, Hindu undivided families, association of persons, body of
individuals or every artificial juridical persons other than a co-operative
society, firm, local authority and company.
No change has
been made in the rate structure. The tax payable would be enhanced by a
surcharge for the purposes of the Union at the rate of ten per cent of the tax
payable (after allowing rebate under Chapter VIII-A) in cases of individuals,
Hindu undivided families, association of persons, body of individuals having
total income exceeding Rs. 8,50,000. No surcharge would be payable by persons
having incomes of Rs. 8,50,000 or below. Marginal relief would be provided to
ensure that the additional amount of income-tax payable, including surcharge,
on the excess of income over Rs. 8,50,000 is limited to the amount by which the
income is more than Rs. 8,50,000. No marginal relief shall, however, be
available in respect of the Education Cess. In the case of every artificial
juridical person other than a co-operative society, firm, local authority and
company, surcharge would be levied at ten per cent of the income-tax payable.
Section 22 of the
Act has inserted a new section 88D in the Income-tax Act to provide for rebate
of the entire amount of tax payable in case of a resident individual having
total income up to Rs. 1,00,000. Consequently, resident individuals having
taxable income up to Rs. 1,00,000 will not be required to pay any income-tax.
Marginal relief has also been provided for in the section.
The Table below
gives the income slabs and the rates of income-tax. Column (a) specifies
the rates given in Paragraph A of Part I of the First Schedule to the Act; and
column (b) specifies the rates given in Paragraph A of Part III of the
First Schedule to the Act.
Table
|
(a) |
(b) |
||
|
Income slab |
Rates as
specified in Part I of First Schedule to the Act (i.e., existing rates) |
Income slab |
Rates as
specified in Part III of First Schedule to the Act (i.e., new rates) |
|
Up to Rs.
50,000 |
Nil |
Up to Rs.
50,000 |
Nil |
|
Rs. 50,001 to
Rs. 60,000 |
10% |
Rs. 50,001 to
Rs. 60,000 |
10% + 2%
Education Cess |
|
Rs. 60,001 to
Rs. 1,50,000 |
20% |
Rs. 60,001 to
Rs. 1,50,000 |
20% + 2%
Education Cess |
|
Above Rs.
1,50,000 |
30% + Surcharge
@ 10% in cases where total income exceeds Rs. 8.5 lakhs |
Above Rs.
1,50,000 |
[30% +
Surcharge @ 10% in cases where total income exceeds Rs. 8.5 lakhs] + 2%
Education Cess |
B.
Co-operative societies
In the case of co-operative
societies, the rates of income-tax have been specified in Paragraph B of Part
III of the First Schedule to the Act. These rates are the same as those
specified in the corresponding Paragraph of Part I of the First Schedule to the
Act. The tax payable would be enhanced by a surcharge for the purposes of the
C. Firms
In the case of firms,
the rate of income-tax has been specified in Paragraph C of Part III of the
First Schedule to the Act. This rate remains at 35 per cent. The tax payable by
firms would be enhanced by a surcharge for the purposes of the
D. Local
authorities
In the case of
local authorities, the rate of income-tax has been specified in Paragraph D of
Part III of the First Schedule to the Act. This rate is the same as that
specified in the corresponding Paragraph of Part I of the First Schedule to the
Act. The tax payable would be enhanced by a surcharge for the purposes of the
E. Companies
In the case of
companies, the rate of income-tax has been specified in Paragraph E of Part III
of the First Schedule to the Act. There is no change in the existing rates of
thirty-five per cent for domestic companies and forty per cent for foreign
companies. The tax payable by all companies would be enhanced by a surcharge at
the rate of two and one-half per cent of the tax payable. The additional
surcharge called Education Cess is to be levied at 2% on tax and surcharge.
[Sections 2,
22 and First Schedule]
Modification
of the definition of income to include any sum of money exceeding twenty-five thousand
rupees received without consideration
In order to curb
bogus capital-building and money-laundering, a new sub-clause has been inserted
in section 56 to provide that any sum received without consideration on or
after the 1st day of September, 2004, by an individual or a Hindu undivided
family from any person, shall be treated as income from other sources. A
threshold limit of twenty-five thousand rupees has also been provided. If the
amount so received exceeds this limit, the whole of the amount shall become
taxable.
In order to avoid
hardship in genuine cases, certain sums have been excluded. The sums which
shall not be included in the income are : (a) the sums received (i)
from any relative, or (ii) on the occasion of marriage of the
individual, or (iii) under a will or by way of inheritance, or (iv)
in contemplation of death of the payer. The expression relative has also been
defined for the purposes of this clause.
Section 2 has
also been amended to provide that income defined in clause (24) shall
also include the income referred to in the new sub-clause (v) of clause
(2) of section 56.
This amendment
has taken effect from 1st April, 2005, and applies in relation to the
assessment year 2005-06 and subsequent assessment years.
[Section 3]
Discontinuation
of the exemption under sub-clause (ii) of clause (4) of section 10 in
respect of interest on deposits in a Non-Resident (External) Account
Under the
existing provisions contained in section 10(4)(ii), in the case of an
individual, any income by way of interest on moneys standing to his credit in a
Non-Resident (External) Account in any bank in India is not to be included in
computing his total income.
The Finance (No.
2) Act, 2004 has amended clause (4)(ii) of section 10 to provide that
this exemption will not be available in respect of such income paid to him or
credited to his Non-Resident (External) account in any bank in India, on or
after the 1st day of April, 2005.
This amendment
has become applicable in relation to the assessment year 2006-07 and subsequent
assessment years.
[Section 5(a)]
Exemption for
European Investment Bank
Under the
existing provisions, the interest payable to the European Investment Bank on
developmental loans granted by it, is taxable.
With a view to
honour the commitment given under a sovereign agreement, the interest payable
to the European Investment Bank on loans granted in pursuance of the framework
agreement for financial co-operation entered into by the Central Government
with the said Bank on 25-11-1993 has been exempted from income-tax by insertion
of a new sub-clause (iiic) of clause (15) of section 10.
This amendment
takes effect from 1st April, 2005.
[Section 5(c)(A)]
Sunset
provision to section 10(15)(iv)(fa) relating to interest on Foreign Currency
Deposits
Under the
existing provisions contained in section 10(15)(iv)(fa), the
interest payable by a scheduled bank to a non-resident or to a person who is
not ordinarily resident on deposits in foreign currency where the acceptance of
such deposits by the bank is approved by the Reserve Bank of India shall not be
included in computing his total income.
The Finance (No.
2) Act, 2004 has amended clause (15)(iv)(fa) of section 10 to
provide that this exemption will not be available in respect of such interest
payable on or after the 1st day of April, 2005.
This amendment
has become applicable in relation to the assessment year 2006-07 and subsequent
assessment years.
[Section 5(c)(B)]
Re-introduction
of exemption under section 10(6BB) and withdrawal of exemption under section
10(15A)
Under the
existing provisions of section 10(6BB), tax paid by an Indian company,
engaged in the business of operation of aircraft on income derived by the
Government of a foreign State or a foreign enterprise as consideration of acquiring
an aircraft or an aircraft engine on lease by the Indian concern under an
agreement entered after the 31st day of March, 1997 but before the 1st day of
April, 1999 and approved by the Central Government in this behalf, and the tax
on such income is payable by such Indian company under the terms of that
agreement to the Central Government, is not included in computing the total
income of the foreign enterprise.
The Finance (No.
2) Act, 2004 has amended clause (6BB) of section 10 to provide that the
said exemption shall also be allowed in respect of such agreements entered into
on or after the 1st day of April, 2005.
Under the
existing provisions of section 10(15A), any payment made by an Indian
company engaged in the business of operation of aircraft, to acquire an
aircraft or an aircraft engine on lease from Government of a foreign State or a
foreign enterprise under an agreement, not being an agreement entered into
between the 1st day of April, 1997 and 31st day of March, 1999, and approved by
the Central Government is not included in computing the total income.
This exemption is
being withdrawn in respect of the agreements entered into on or after the 1st
day of April, 2005.
These amendments
apply in relation to the assessment year 2006-07 and subsequent assessment
years.
[Sections 5(b) and 5(d)]
Exemption of
family pension received by the family members of armed forces personnel killed
in action in certain circumstances
Under the
existing provisions contained in clause (18) of section 10, the pension
income received by the recipients of Param Vir Chakra, Mahavir Chakra, Vir
Chakra or certain other notified gallantry awards, as well as the family
pension received by specified family members of such individuals is not
included in computing the total income of such individuals.
In the interest
of the welfare of the armed forces personnel, a new clause (19) has been
inserted in the said section so as to provide that where the death of a member
of the armed forces (including para-military forces) of the Union has occurred
in the course of operational duties, in such circumstances and subject to such
conditions as may be prescribed, the family pension received by the widow or
children or nominated heirs, as the case may be, shall be exempt from tax. Circumstances
and conditions have been prescribed in rule 2BBA of the Income-tax Rules, 1962.
The proposed
amendment takes effect from the 1st April, 2005 and applies in relation to
assessment year 2005-06 and subsequent years.
[Section 5(e)]
Modification
of definition of venture capital undertaking
Under the
existing provisions contained in section 10(23FB), Venture Capital
Undertaking (VCU) is defined to mean a domestic company whose shares are not
listed in the recognized stock exchange in India and which is engaged in the
business of providing services, production or manufacture of an article or
thing but does not include such activities or sectors which are specified by
the Securities and Exchange Board of India (SEBI) with the approval of Central
Government by way of notification in the Official Gazette. This definition was
intended to be in line with the definition in the Securities and Exchange Board
of
In order to
eliminate the process involving a time lag, the amendment to clause (c)
of Explanation seeks to define VCU as one referred to in the Securities and
Exchange Board of India (Venture Capital Funds) Regulation, 1996 made under the
Securities and Exchange Board of India Act, 1992 and notified in the Official
Gazette by the Central Board of Direct Taxes for this purpose. In this regard,
the Board has issued Notification S.O. No. 1060(E), dated 28th September, 2004.
This amendment
has taken effect from 1st October, 2004.
[Section 5(f)]
Income of
infrastructure capital company liable to tax under section 115JB
Under the
existing provisions contained in clause (23G) of section 10, any income
by way of dividends, other than dividends referred to in section 115-O,
interest, or long term capital gains of an infrastructure capital fund or an
infrastructure capital company or a co-operative bank from investments made in
any undertaking engaged in an infrastructure project or a housing project or a
hotel or hospital project is excluded from the total income.
With a view to
rationalise the provision, a proviso has been inserted in the said clause so as
to provide that in the case of an infrastructure capital company the
abovementioned incomes shall be taken into account in computing the book profit
for the purpose of section 115JB and for payment of tax under that section.
Consequential amendments have been made in section 115JB.
These amendments
take effect from 1st April, 2005 and apply in relation to the assessment year
2005-06 and subsequent years.
[Sections 5(g), 28]
Providing for
exemption on capital gains arising from compulsory acquisition of agricultural
land situated within specified urban limits
Section 10 of the
Income-tax Act, 1961, relates to incomes which do not form part of total
income.
In order to
provide relief to the farmers, a new clause (37) has been inserted in
section 10 providing exemption on capital gains arising to a Hindu undivided
family or to an individual from the transfer of agricultural land [being
capital asset within the meaning of clause (14) of section 2] by way of
compulsory acquisition under any law or under a transfer of such land, the
consideration for which is determined or approved by the Central Government or
the Reserve Bank of India. Such exemption shall be available where the
compensation/enhanced compensation/enhanced consideration or consideration has
been received on or after 1st April, 2004, and such land, during the period of
two years immediately preceding the date of transfer was being used for
agricultural purposes by such Hindu undivided family or individual or a parent
of his.
This amendment
takes effect from 1st April, 2005 and applies in relation to the assessment
year 2005-06 and subsequent years.
[Section 5(h)]
Power to the
Commissioner for cancelling registration under section 12AA
Section 12AA
provides for the procedure for registration of a trust or institution by the
Commissioner of Income-tax. Although the power of cancellation of registration
flows from the power to register, there has been unnecessary litigation on this
issue.
This section has
been amended so as to specifically provide that if the Commissioner of
Income-tax is satisfied that the activities of any trust or institution are not
genuine or are not being carried out in accordance with the objects of the
trust or institution, he shall, after giving reasonable opportunity of being
heard to the concerned trust or institution, pass an order in writing
cancelling the registration granted under the said section.
This amendment
takes effect from 1st October, 2004.
[Section 6]
New provision
to give effect to the New Pension Scheme
A New Pension
Scheme applicable to new entrants to Central Government service (except Armed
Forces in the first stage) has been notified by the Central Government
(Department of Economic Affairs) on 22nd December, 2003 and has become
effective from 1-1-2004. As per the scheme it is mandatory for persons entering
the service of the Central Government on or after 1st January, 2004, to
contribute ten per cent of salary every month towards a non-withdrawable
pension tier-I account. A matching contribution is required to be made by the
Government to the said account.
To give effect to
the New Pension Scheme of the Central Government, a new section 80-CCD has been
inserted to provide for a deduction from the total income of an individual
employed by the Central Government on or after 1st January, 2004, of the
amounts paid or deposited by him in the non-withdrawable pension tier-I
account, which do not exceed ten per cent of his salary in the previous year.
The employee has been provided a further deduction, equal to the matching
contribution made by the Central Government to the said account. For the
purposes of section 80CCD, salary includes dearness allowance, if the terms of
employment so provide, but excludes all other allowances and perquisites.
The amounts
standing to the credit of the assessee in the tier-I account, for which a
deduction has already been allowed to him, and accretions to such account,
shall be taxed as income in the year in which such amounts are received by the
assessee or his nominee on closure of the account or his opting out of the
tier-I account or on receipt of pension from the annuity plan purchased or
taken on closure or opting out of the said account.
No rebate is
allowed under section 88 in respect of amounts on which deduction has been claimed
under section 80CCD.
Sections 7 and 17
have also been amended to provide that the contribution made by the Central
Government in the previous year to the non-withdrawable pension tier-I account
of an employee participating in the New Pension Scheme, shall be deemed to be
income received in the previous year and shall be chargeable to tax under the
head salary.
The proposed
amendments take effect retrospectively from 1st April, 2004 and apply in
relation to the assessment year 2004-05 and subsequent years.
[Sections 4, 7
and 15]
Relaxation of
the conditions for allowing initial depreciation
Under the
existing provisions of clause (iia) of sub-section (1) of section 32 of
the Income-tax Act, a further deduction at the rate of fifteen per cent of the
actual cost of new plant and machinery other than ships and aircrafts acquired
and installed on or after 1-4-2002 is allowed. This deduction is available to
(i) a new industrial undertaking during any previous year in
which it begins to manufacture produce any article or thing on or after
1-4-2002;
(ii) an undertaking existing before 1-4-2002, in the previous year
in which it achieves not less than 25% increase in installed capacity.
Installed
capacity has been defined to mean the capacity of production as existing on the
31st day of March, 2002.
With a view to
give a thrust to investment in the manufacturing sector, the minimum requisite
increase in installed capacity has been reduced to 10% from the existing level
of 25%.
This amendment
takes effect from 1st April, 2005 and applies in relation to the assessment
year 2005-06 and subsequent years.
[Section 8]
Withdrawal of
approval granted to associations/institutions or withdrawal of notification of
eligible project or scheme by the National Committee
Under the
existing provisions of section 35AC of the Income-tax Act, a deduction of the
amount of expenditure incurred during the previous year by way of payment of
any sum to a public sector company or a local authority or to an association or
institution approved by the National Committee for carrying out any eligible
project or scheme is allowed. Sub-section (4) of the said section provides that
where National Committee is satisfied that the project or scheme is not being
carried on in accordance with all or any of the conditions, it may withdraw the
approval earlier granted to the association or institution. Sub-section (5)
similarly provides for withdrawal of the notification of the eligible project
or scheme if it is not being carried out in accordance with all or any of the
conditions on the basis of which such project or scheme was notified.
Certain cases
have come to notice where the projects or schemes are not implemented or have
been abandoned midway. In some cases donations raised have not been used on the
eligible projects are the projects and schemes were not implemented in proper
manner.
With a view to
ensure effective monitoring in cases where associations/institutions are
approved or eligible projects or schemes have been notified, the Act has
substituted sub-sections (4) and (5) to provide for an additional mechanism for
withdrawal of approval granted to associations/institutions or withdrawal of
notification of eligible project or scheme by the National Committee. It has
been provided that where an association or institution, to which approval has
been granted, fails to furnish a progress report in the prescribed form within
the prescribed time after the end of each financial year to the National
Committee, the Committee may, at any time, after giving a reasonable
opportunity of showing cause, withdraw the approval. It has also been provided
that the notification of an eligible project or scheme may be withdrawn by the
National Committee, after giving a reasonable opportunity of being heard in
case a report in the prescribed form in respect of such project or scheme is
not furnished within the prescribed time after the end of each financial year.
It has also been provided that a copy of the order withdrawing the approval or
notification through which the notification of eligible project or scheme is
withdrawn shall be forwarded to the Assessing Officer having jurisdiction over
the concerned association or institution or local autho-rity or public sector
company. This power of withdrawal will be in addition to the existing power of
withdrawal of approvals or notifications in case the project or scheme is not
being carried out in accordance with all or any of the conditions subject to
which the approval was granted or project/scheme notified.
This amendment
takes effect from 1st October, 2004.
[Section 10]
Certain
amounts not to be allowed as deduction while computing income under the head
Profits and gains of business or profession if tax not deducted at source
Under the
existing provisions of sub-clause (i) of clause (a) of section 40
of the Income-tax Act, no deduction is allowed in the computation of income on
account of interest, royalty, fees for technical services or any other sum
which is payable outside India, or in India to a non-resident or to a foreign
company, if tax is not deducted at source from payments of these sums or after
deduction of tax at source, payment is not made to the account of the Central
Government before the expiry of time prescribed under sub-section (1) of
section 200 and in accordance with other provisions of Chapter XVII-B.
Deduction of the sum is, however, allowed where tax has been deduced, or after
deduction has been paid in any subsequent year in computing the income of that
previous year.
With a view to
rationalize the provisions of sub-clause (i), the Act has substituted
the said sub-clause to provide that in any case in which tax has been deducted
in any subsequent year or, has been deducted in the previous year but paid in
any subsequent year after the expiry of time prescribed under sub-section (1)
of section 200, the sum from which tax has been so deducted or paid shall be
allowed as deduction in computing the income of the previous year in which the
tax has been paid to the account of the Central Government.
Further, with a
view to augment compliance of TDS provisions in the case of residents and curb
bogus payments to them it has been provided that no deduction will be allowed
in the computation of income where tax is not deducted from payments of
interest, commission or brokerage, fees for professional services or fees for
technical services and payments to a contractor or sub-contractor for carrying
out any work (including supply of labour for carrying out any work), on which
tax is deductible at source under Chapter XVII-B and such tax has not been
deducted or, after deduction, has not been paid during the previous year, or in
the subsequent year before the expiry of the time prescribed under sub-section
(1) of section 200.
It has, however,
been provided that in any case where tax has been deducted from the payments of
any of the aforementioned sums to residents in any subsequent year or has been
deducted in the previous year but paid in any subsequent year after the expiry
of the time prescribed under sub-section (1) of section 200, the sum of payment
shall be allowed as a deduction in computing the income of the previous year in
which the tax has been paid to the account of the Central Government.
These amendments take
effect from 1st April, 2005 and apply in relation to the assessment year
2005-06 and subsequent assessment years.
[Section 11]
No set-off of
business loss against income from salary
Under the
existing provisions of sub-section (1) of section 71 of the Income-tax Act,
loss computed in current year under the head Profits and gains of business or
profession can be set off against salary income.
In order to
prevent abuse of the provisions of set-off of losses, the Act has amended
section 71 by way of insertion of a new sub-section (2A) to provide that an
assessee shall not be entitled to set off any loss under the head Profits and
gains of business or profession against income under the head Salaries.
This amendment
takes effect from 1-4-2005 and applies in relation to the assessment year
2005-06 and subsequent years.
[Section 14]
Deduction in
respect of maintenance including medical treatment of a dependent being a
person with disability or severe disability suffering from autism, cerebral
palsy or multiple disabilities
Under the
existing provisions contained in section 80DD, an assessee, who is resident in
India, being an individual or Hindu undivided family, is allowed a deduction of
an amount of rupees fifty thousand, if the assessee has during the previous
year, incurred any expenditure for the medical treatment, training and
rehabilitation in respect of a dependent, being a person with disability, as
defined under the Persons with Disability (Equal Opportunities, Protection of
Rights and Full Participation) Act, 1995. A deduction of rupees seventy-five
thousand is allowed, where such dependent is a person with severe disability
suffering from eighty per cent or more of one or more disabilities. A person
claiming deduction under this section is required to furnish a copy of the
certificate issued by the medical authority along with the return of income.
The Explanation
to the said section defines, inter alia, the expressions,
disability, medical authority, person with disability and person with severe
disability with reference to the relevant provisions of the Persons with
Disabilities (Equal Opportunities, Protection of Rights and Full Participation)
Act, 1995.
With a view to
extend the benefits under section 80DD to persons suffering from autism,
cerebral palsy and multiple disability, the said Explanation has been
amended so as to expand these definitions to include the abovementioned
expressions as provided for under the National Trust for Welfare of Persons
with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act,
1999.
The amendments
take effect from 1-4-2005 and apply in relation to the assessment year 2005-06
and subsequent years.
[Section 16]
Extension of
tax benefit under section 80-IA in the case of substantial renovation and
modernization of transmission and distribution lines in the power sector
Under the
existing provisions contained in clause (iv) of sub-section (4) of
section 80-IA, an undertaking engaged in the generation, generation and
distribution, or the transmission or distribution of power which begins such
generation or transmission before 31-3-2006, is allowed a hundred per cent
deduction of the profits for any ten out of fifteen assessment years beginning
from the year in which the undertaking starts generating power or commences
transmission or distribution of power. However, the deduction is only available
to a new undertaking and not to an undertaking formed by way of reconstruction
or splitting up of a business already in existence. Further, the deduction is not
available in the case of the transfer of old plant and machinery to the new
business.
Recognising the
need to encourage investment in renovation and modernization of the
transmission and distribution network, the tax benefit under the section has
been extended to undertakings which undertake substantial renovation and
modernization of the existing network of transmission or distribution lines
during the period beginning on 1-4-2004 and ending on 31-3-2006. Substantial
renovation and modernisation means 50 per cent increase in the book value of
plant and machinery in the network of transmission or distribution lines, as on
1-4-2004.
Further, in view
of the on-going reforms of the State Electricity Boards, the restrictions
imposed on the transfer of old plant and machinery and splitting up or
reconstruction of an old business shall no longer be applicable in the case of
splitting up or, reconstruction, or re-organisation of State Electricity
Boards. However, this benefit shall be available only in such cases where the
splitting up or reconstruction or reorganization of the State Electricity
Board(s) has taken place on or after 1-4-2004.
The proposed
amendments take effect from 1-4-2005 and apply in relation to the assessment
year 2005-06 and subsequent years.
[Section
17(a), 17(b)(B) and 17(c)(B)]
Extension of
time limit for providing telecommunication services, etc. for the purpose of
tax holiday under section 80-IA
Under the
existing provision contained in clause (ii) of sub-section (4) of
section 80-IA, an undertaking which has started or starts providing
telecommunication services, whether basic or cellular, including radio paging,
domestic satellite service, network of trunking, broadband network and internet
services, before the 31-3-2004, is allowed a deduction for any ten consecutive
assessment years out of fifteen years beginning from the year in which the
undertaking starts providing telecommunication services. The amount of
deduction is one hundred per cent of profits for the first five years, and thereafter
thirty per cent of profits for the next five years. Further, this deduction is,
inter alia, available to an undertaking providing telecommunication
services if such undertaking is formed by splitting up or the reconstruction of
a business already in existence or by the transfer to a new business of old
plant and machinery.
With a view to
give incentive to the telecom sector, the terminal date for the eligible
undertaking to start providing telecommunication services, etc. has been
extended from 31-3-2004 to 31-3-2005. Further, in order to rationalize the
provisions of the section and prevent misuse, the deduction shall be available
to an undertaking which begins to provide telecommunication services on or
after 1-4-2004 subject to, inter alia, the conditions that it is not
formed by the transfer of old plant and machinery or splitting up or
reconstruction of a business already in existence. However, the condition
introduced by the Finance (No. 2) Act, 2004 will not apply to undertakings,
which have started providing telecommunication services prior to 1-4-2004.
Therefore, if an undertaking is formed by the transfer of old plant and
machinery or splitting up or reconstruction of a business already in existence
but has started providing telecommunication services prior to 1-4-2004, it will
continue to get the tax benefit available under section 80-IA of the Income-tax
Act.
This amendment
takes effect from 1-4-2005 and applies in relation to the assessment year
2005-06 and subsequent years.
[Section 17(b)(A)
and 17(c)(A)]
Extension of
time limit for setting up of industries in the State of Jammu and Kashmir for
the purpose of tax holiday under section 80-IB
Under the
existing provisions contained in sub-section (4) of section 80-IB, industrial
undertakings engaged in manufacture or production or operation of a cold
storage plant and set up during the period 1-4-1993 to 31-3-2004 in the
industrially backward States as listed in the VIII Schedule, including the
State of Jammu and Kashmir, are eligible for a 100 per cent deduction of
profits for a period of 5 years, followed by 25 per cent (30 per cent in the
case of a company) for the next 5 years. The deduction is not available to
industries set up after 31-3-2004.
The terminal date
for setting up of industrial undertakings in the State of
These amendments
take effect from 1-4-2005 and apply in relation to the assessment year 2005-06
and subsequent years.
[Sections
18(b) and 64]
Extension of time
limit for the purpose of tax holiday under section 80-IB to any company
carrying on scientific research and development
Under the
existing provision of sub-section (8A) of section 80-IB, any company carrying
on scientific research and development is allowed a deduction of hundred per
cent of the profits and gains of such business for a period of ten consecutive
assessment years, if such company is for the time being approved by the
prescribed authority after 31-3-2000, but before 1-4-2004. For this purpose,
the prescribed authority is the Secretary, Department of Scientific and
Industrial Research, Ministry of Science and Technology, Government of India.
With a view to
encourage scientific research and development in the country, the deduction is
being extended to companies carrying on scientific research and development,
which are approved by the prescribed authority before 1-4-2005.
This amendment
takes effect from 1-4-2005 and applies in relation to assessment year 2005-06
and subsequent years.
[Section
18(c)]
Extension of
the time limit for obtaining approval of housing projects for the purpose of
tax holiday under section 80-IB, and allowing deduction for redevelopment or
reconstruction of existing buildings in slum areas
Under the existing
provisions contained in sub-section (10) of section 80-IB, a deduction equal to
one hundred per cent of the profits of an undertaking developing and building
housing projects is allowed if the housing project is approved by a local
authority before 31-3-2005. The deduction is subject to the conditions that the
undertaking should have commenced development of the housing project on or
after the 1-10-1998, the project should be on a size of a plot of land which
has a minimum area of one acre, and that the residential unit should have a
maximum built-up area of one thousand square feet where such residential unit
is situated in Delhi or Mumbai and one thousand and five hundred square feet at
other places.
This tax
incentive was provided to increase the stock of houses for lower and middle
income groups. Keeping in view the fact that there is still a huge shortage of
houses, the time limit for obtaining approval from the local authority has been
extended from 31-3-2005 to 31-3-2007. However, a time limit has been introduced
for completion of the housing project, where development and construction has
commenced or commences on or after 1-10-1998. Such housing project approved by
the local authority before 1-4-2004 has to be completed on or before 31-3-2008
and the housing project approved on or after 1-4-2004 should be completed
within four years from the end of the financial year in which the project is
approved by the local authority. For this purpose the date of approval shall be
the date on which the building plan is first approved by the local authority
and the date of completion of the housing project, shall be the date on which
the completion certificate is issued by such authority. It has also been
provided that the built-up area of the shops and other commercial
establishments included in the housing project should not exceed five per cent
of the aggregate built-up area of the housing project or 2000 sq. ft.,
whichever is less. The expression built-up area has also been defined for this
purpose.
This section does
not specifically provide area limit for the garden, the development plan roads,
internal means of access, etc. in the housing project. Therefore, the same
should conform to the project plan approved by the local authority in
accordance with the regulations in force. Also the area limit of the plot has
to be construed with reference to the area of the site on which the housing
project is constructed and not with reference to the demarcation of land done
by the land development authority.
Further, with a
view to encourage the redevelopment of slum dwellings, the condition of minimum
plot size of one acre and also the time limit for completion of the
construction has been relaxed in the case of a housing project, carried out in
accordance with a scheme framed by the Central Government or a State Government
for reconstruction or redevelopment of existing buildings in areas declared to
be slum areas under any law in force, and notified by the Board in this behalf.
These amendments
take effect from 1-4-2005 and apply in relation to the assessment year 2005-06
and subsequent years.
[Section 18(d)
and 18(g)]
Tax holiday
for agro-processing industry
Under the
existing provisions of section 80-IB(11A), an undertaking deriving profit from
the integrated business of handling, storage and transportation of foodgrains,
is allowed a deduction of hundred per cent of such profits for a period of five
assessment years and thereafter twenty five per cent (thirty per cent in the
case of companies) for the next five years. Since the agro-processing industry
is an important source of employment, especially in the rural areas, the
deduction has been extended to undertakings engaged in the business of
processing, preservation and packaging of fruits or vegetables.
This amendment
takes effect from 1-4-2005 and applies in relation to the assessment year
2005-06 and subsequent years.
[Section 18(e)
and 18(g)]
Deduction in
the case of an undertaking operating and maintaining a hospital in rural area
The existing
provisions of section 80-IB provide for a deduction in respect of profits and
gains from certain industrial undertakings, other than infrastructure
development undertakings, engaged in the business of building, owning and
operating multiplex theatres or convention centres, developing and building
housing projects, or which are engaged in the integrated business of handling,
storage and transportation of foodgrains or the production or refining of
mineral oil.
With a view to
increase the penetration of medical services in the rural areas, a new
sub-section (11B) in the said section has been inserted so as to provide that
the profits derived by an undertaking or an enterprise from the business of
operating and maintaining a hospital in a rural area shall be eligible for a
deduction of hundred per cent of such profits and gains. The deduction shall be
available for a period of five assessment years beginning from the assessment
year in which the undertaking or enterprise begins to provide medical services.
The undertaking or enterprise shall be eligible for the deduction if such
hospital is constructed during the period beginning on the 1-10-2004 and ending
on the 31-3-2008, in accordance with the local regulations in force, and has at
least one hundred beds for patients. Further, for claiming the deduction, the
assessee has to file an audit report in the prescribed form, i.e., in
Form No. 10CCBC along with the return of income.
This amendment
takes effect from 1-4-2005 and applies in relation to the assessment year
2005-06 and subsequent years.
[Section 18(f)
and 18(g)]
Deduction in
respect of a person with disability or severe disability suffering from autism,
cerebral palsy or multiple disabilities
Under the
existing provisions contained in section 80U, a deduction of fifty thousand
rupees is allowed to a resident individual who is a person with disability, as
defined under the Persons with Disability (Equal Opportunities, Protection of
Rights and Full Participation) Act, 1995. A deduction of seventy-five thousand
rupees is allowed where such individual is a person with severe disability
suffering from eighty per cent or more of one or more disabilities. An
individual claiming deduction under this section is required to furnish a copy
of the certificate issued by the medical authority along with the return of
income.
The Explanation
to the said section defines, inter alia, the expressions,
disability, medical authority, person with disability and person with severe
disability with reference to the relevant provisions of the Persons with
Disabilities (Equal Opportunities, Protection of Rights and Full Participation)
Act, 1995.
With a view to
extend the benefits under section 80U to persons suffering from autism,
cerebral palsy and multiple disability, the said Explanation has been
substituted so as to expand these definitions to include the abovementioned
expressions as provided for under the National Trust for Welfare of Persons
with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act,
1999.
The amendment takes
effect from 1-4-2005 and applies in relation to the assessment year 2005-06 and
subsequent years.
[Section 19]
Rebate for
repayment of housing loans taken from an authority established by a Central or
State Act
Section 88 of the
Income-tax Act provides for a deduction from the tax payable on the total
income of an individual or a Hindu undivided family, which is equal to a fixed
percentage of sums paid or deposited in specified schemes.
The existing
provisions contained in sub-clause (c) of clause (xv) of
sub-section (2) of section 88 provide for tax rebate for repayment of loans
taken for purchase or construction of a residential house property, up to a
limit of Rs. 20,000 in one year within the overall investment ceiling of Rs.
70,000. Repayment of the amount borrowed, however, has to be to the Central
Government, or any State Government, or any bank including a Co-operative Bank,
or the Life Insurance Corporation, or the National Housing Bank, or any public
company engaged in the business of housing finance, or from an employer who is
a public company, or a public sector company, or a university, or a local
authority or a co-operative society.
However,
employees of a number of autonomous bodies established under the State or
Central Acts were not eligible for rebate under section 88 of the Income-tax
Act on account of repayment of housing loan from their employers.
With a view to
rationalize the provision, the sub-clause (c) of clause (xv) of
sub-section (2) of section 88 has been amended so as to include within the
purview to tax rebate under section 88, any sum paid on account of repayment of
the amount borrowed by the assessee for the purchase or construction of a
residential house property, from an authority or a board or a corporation or
any other body established or constituted under a Central or State Act.
The amendment
takes effect from 1-4-2005 and applies in relation to assessment year 2005-06
and subsequent years.
[Section 21]
New provision
for allowing deduction from tax payable for individuals having total income up
to rupees one lakh
To provide relief
to assessees belonging to the lower income group, a new section 88D has been
inserted providing for a rebate of the entire amount of the income-tax payable
by an individual, resident in India whose total income does not exceed one
hundred thousand rupees. Marginal relief has also been provided to ensure that
the tax liability does not exceed the amount by which the total income is in
excess of one lakh rupees.
The amendment
takes effect from 1-4-2005 and applies in relation to the assessment year
2005-06 and subsequent years.
[Section 22]
Amendment of
section 90
Under the
existing provisions contained in the Explanation to section 90 it is
declared that the charge of tax in respect of a foreign company at a rate
higher than the rate at which a domestic company is chargeable, shall not be
regarded as less favourable charge or levy of tax in respect of such foreign
company, where such foreign company has not made the prescribed arrangement for
declaration and payment within India, of the dividends (including dividends on
preference shares) payable out of its income in India.
The words where
such foreign company has not made the prescribed arrangement for declaration
and payment within
This amendment
takes effect from 1-4-1962, and applies in relation to the assessment year
1962-63 and subsequent assessment years.
[Section 24]
Measures to
curb tax avoidance via dividend and bonus stripping
The existing
provisions contained in sub-section (7) of section 94 provide that where a
person buys or acquires any securities or unit within a period of three months
prior to the record date fixed for declaration of dividend or income in respect
of such security or unit, and sells or transfers the same within a period of
three months after such record date, and the dividend or income received or
receivable on such securities or unit is exempt, then the loss, if any, arising
from such purchase and sale shall be ignored to the extent such loss does not
exceed the amount of such dividend or income for the purposes of computing the
income chargeable to tax of such person.
It was felt that
for units, the holding period of three months prior to sale as specified in the
said sub-section did not provide sufficient deterrence to tax avoidance.
The Finance (No.
2) Act, 2004, has amended sub-section (7) of section 94 so as to increase the
holding period in respect of units from three months to nine months after the
record date.
With a view to
curb tax avoidance via bonus stripping, Finance (No. 2) Act, 2004 has inserted
a new sub-section (8) in section 94 so as to provide that where a person buys
or acquires any units within a period of three months prior to the record date
and he is allotted additional units on the basis of such units without making
any payment, and thereafter he sells or transfers within a period of nine
months after such date all or any of such units while continuing to hold all or
any of the additional units, then, the loss, if any, arising to him on account
of such purchase and sale of units shall be ignored for the purposes of
computing income chargeable to tax of such person and the amount of loss so
ignored shall be deemed to be the cost of purchase or acquisition of such
additional units as are held by him on the date of such transfer or sale.
These amendments
take effect from 1st April, 2005 and apply in relation to the assessment year
2005-06 and subsequent years.
[Section 25]
Additional
income-tax on income distributed by the specified company and Mutual Funds
Under the
existing provisions of sub-section (2) of section 115R, any amount of income
distributed by the specified company or a mutual fund to its unit holders is
chargeable to tax and they are liable to pay additional income-tax on such
distributed income at the rate of twelve and one-half per cent.
Section 115R(2)
has been amended so that while the specified company or a mutual fund shall
continue to pay income-tax on such distributed income at the rate of twelve and
one-half per cent. If distribution is made to any individual or Hindu undivided
family, the rate shall be twenty per cent. If income is distributed to any
person, other than individual or HUF.
This amendment
takes effect from 9th July, 2004.
[Section
29(a)]
Exemption to
open-ended equity oriented funds
Under the
existing provisions of sub-section (2) of section 115R, no additional tax was
to be levied in respect of any income distributed to the unit holders of
open-ended equity oriented funds in respect of any distribution made from such
funds for a period of one year commencing from 1st April, 2003.
With a view to
encourage investment in such funds, the limit of one year has been done away
with. The exemption shall continue without any time limit.
This amendment takes
effect retrospectively from 1-4-2004 and is relevant for assessment year
2005-06 and subsequent assessment years.
[Section
29(b)]
Amendment of
section 119 relating to instructions to subordinate authorities
The existing
provisions contained in clause (a) of sub-section (2) of section 119 of
the Income-tax Act, empower the Board to issue instructions or directions to
subordinate authorities for relaxation, inter alia, of provisions of
section 158BFA, sub-section (1A) of section 201, section 234A, sections 234B
and 234C relating to charging of interest in case of block assessments, regular
assessments and tax deduction at source.
With a view to
empower the Board to issue orders of waiver of interest in cases of
distribution tax where a company or a mutual fund may become liable to interest
under section 115P or 115S, as the case may be, the Act has amended clause (a)
of sub-section (2) of section 119 so as to enable the Central Board of Direct
Taxes to issue such directions as the Board deems fit for relaxation of the
provisions of sections 115P and 115S.
This amendment
takes effect from 1st October, 2004.
[Section 31]
Clarificatory
amendments regarding estimates by Valuation Officer in certain cases
The existing
provisions of section 131 provide that the Assessing Officer shall have the
same powers as are vested in a Court under the Code of Civil Procedure, 1908,
when trying a suit. One such power which has been provided in clause (d)
of sub-section (1) of section 131, is the power to issue commissions. Section
75 of CPC and order XXVI of the Schedule thereto lays down the power of issuing
commission, which inter alia, empowers the Court to make a local
investigation and also to hold a scientific, technical and expert
investigation. Using this power, the Assessing Officer has been making a
reference to the Valuation Officer for estimating the cost of construction of
properties.
The scope of
power vested in an Assessing Officer under section 131 to make a reference to
the Valuation Officer for estimating the cost of construction of properties has
been a subject-matter of litigation.
A new section
142A has been inserted by the Finance (No. 2) Act, 2004 to specifically provide
that an Assessing Officer has the power to make a reference to the Valuation
Officer for estimating the value of investment, expenditure, etc. This section
has been inserted with retrospective effect from 15th November, 1972 to save
the cases where such references have been made in the past and are still
pending in litigation at one stage or the other.
Sub-section (1)
of the new section provides that where an estimate of the value of any
investment referred to in section 69 or section 69B or the value of any
bullion, jewellery or other valuable article referred to in section 69A or
section 69B is required to be made for the purposes of making any assessment or
re-assessment, the Assessing Officer may require the Valuation Officer to make
an estimate of the same and report to the Assessing Officer.
Sub-section (2)
of the new section provides that the Valuation Officer to whom such a reference
is made under sub-section (1) shall, for the purpose of dealing with such
reference, have all the powers that he has under section 38A of the Wealth-tax
Act, 1957.
Sub-section (3)
of the new section provides that on receipt of the report from the Valuation
Officer, the Assessing Officer may after giving the assessee an opportunity of
being heard, take into account such report in making such assessment or
re-assessment.
It has been
provided in the proviso to the new section that the provisions of the same
shall not apply in respect of an assessment made on or before the 30th day of
September, 2004 and where such assessment has become final and conclusive on or
before that date, except in cases where a reassessment is required to be made
in accordance with the provisions of section 153A.
This amendment
takes effect retrospectively from 15th November, 1972.
[Section 34]
Allowing for
time taken by the Authority for Advance Rulings in rejecting an application or pronouncing
an advance ruling to be excluded from the period of limitation for making an
assessment
The existing
provisions contained in sections 245Q and 245R provide that the Authority for
Advance Rulings shall on receipt of an application for advance ruling, forward
the same to the Commissioner and if necessary call for the relevant records.
The authority may either reject the application or pronounce its advance ruling
after examining the application and the records. The existing provisions of
section 245RR provide that no income-tax authority or the Appellate Tribunal
shall proceed to decide any issue in respect of which an application has been
made by a resident to the Authority for Advance Rulings.
Finance (No. 2)
Act, 2004 has inserted clause (vi) in Explanation 1 to section
153 so as to provide that the period commencing on the date on which
application has been filed to the Authority for Advance Rulings and ending on
the date on which the order rejecting the application is received by the
Commissioner shall be excluded for computing the period of limitation under
this section.
Finance (No. 2)
Act, 2004 has inserted clause (vii) in Explanation 1 to section
153 so as to provide that the period commencing on the date on which
application has been filed to the Authority for Advance Rulings and ending on
the date on which the order pronouncing the advance ruling is received by the
Commissioner shall be excluded for computing the period of limitation under
this section.
Similarly, two
new clauses (v) and (vi) in Explanation to section 153B
have also been inserted so as to provide that the period commencing on the date
on which application has been filed to the Authority for Advance Rulings and
ending on the date on which the order rejecting the application or pronouncing
the advance ruling is received by the Commissioner shall be excluded for
computing the period of limitation under this section.
This amendment
takes effect from 1st October, 2004.
[Sections 35
& 36]
Amendment of section
194C relating to tax deduction at source from payments made to contractors and
sub-contractors
The existing
provisions contained in sub-section (3) of section 194C of the Income-tax Act, inter
alia, provide that no deduction of tax is to be made at source from any sum
credited or paid in pursuance of any contract, the consideration for which does
not exceed twenty thousand rupees.
It had been
reported that composite contracts were being split up into contracts valued at
less than Rs. 20,000 each to escape the provisions of TDS.
To prevent this
practice, the Act has amended section 194C to provide that tax will be required
to be deducted at source where the amount credited or paid or likely to be
credited or paid to a contractor or sub-contractor exceeds Rs. 20,000 in a
single payment or Rs. 50,000 in aggregate during a financial year.
This amendment
takes effect from 1st October, 2004.
[Section 37]
Tax to be
deducted at source from compensation or enhanced compensation paid on
acquisition of certain immovable property other than agricultural land
With the growing
development and rapid urbanization in the country, large areas of land and many
residential buildings are being acquired by various agencies including
Government agencies and other local authorities from the owners who are
compensated.
With a view to
curb the tendency of evading taxes by not reporting the income comprised in the
compensation or enhanced compensation, the Act has inserted a new section 194LA
in the Income-tax Act with effect from 1-10-2004 requiring deduction of tax at
the rate of ten cent on the sum of compensation or enhanced compensation
received.
It has also been
provided that no deduction of tax shall be made where the immovable property is
agricultural land, whether situated within municipal limits or not, and where
the amount of compensation or enhanced compensation paid is less than one
hundred thousand rupees.
Section 197 of
the Income-tax Act relating to certificate for deduction of tax at lower rates
or no deduction of tax from the Assessing Officer has also been amended to
include a reference to the newly inserted section 194LA. Consequential
amendments have also been made in sections 198, 199, 200, 202, 203, 204 and 205
of the Income-tax Act.
These amendments
take effect from 1-10-2004.
[Sections 38,
39, 40, 41(a), 42(1), 43, 44(a), 47 and 48]
Common
identification number in cases of tax deduction at source and tax collection at
source
Under the
existing provisions of section 203A of the Income-tax Act, every person
responsible for deduction of tax under the provisions of Chapter XVII-B is
required to apply to the Assessing Officer for the allotment of a tax deduction
account number if he has not been allotted such number.
Similarly, every
person responsible for collection of tax in accordance with the provisions of
section 206C of the Income-tax Act is required to apply to the Assessing
Officer for the allotment of tax collection account number under section 206CA.
Penalty is levied
under sections 272BB and 272BBB for failure to comply with the provisions of
sections 203A and 206CA (provisions of section 206CA are not applicable on or
after 1-10-2004) respectively.
The purpose of
obtaining tax deduction account number and tax-collection account number is
identification of the deductor or the person responsible for collection of tax,
as the case may be. Multiplicity of identification numbers is reported to have
created confusion and resulted in procedural delays. Moreover, there is a
single form, namely Form No. 49B, for the allotment of tax-deduction account
number and tax collection account number.
The Act has,
therefore, amended section 206CA to do away with the requirement of obtaining
tax collection account number separately on or after 1-10-2004. Section 203A
has been substituted to provide that persons required to deduct tax at source
and collect tax at source shall be required to obtain a common tax deduction
and collection account number. The amended section also provides where such
number shall be required to be quoted.
Consequently,
section 272BBB has also been amended to restrict it to cases of default prior
to 1-10-2004.
These amendments
take effect from 1-10-2004.
[Sections 45,
51 and 58]
Filing of
returns of tax deducted at source
Under the existing
provisions of sub-section (1) of section 206, the pres-cribed person in the
case of every Government office, principal officer in the case of every
company, the prescribed person in the case of every local authority or other
public body or association, every private employer or every other person
responsible for deducting tax is required to prepare and deliver or cause to be
delivered to the prescribed income-tax authority, such returns in such form and
verified in such manner and setting forth such particulars as may be prescribed
within the prescribed time after the end of every financial year.
Further
sub-section (2) of the said section provides for filing of such returns in
accordance with such scheme as may be specified by the Board in this behalf by notification
in the Official Gazette on a floppy, diskette, magnetic cartridge, CD-ROM or
any other computer media. The filing of TDS returns on computer media under the
said scheme is mandatory in the case of a company.
The Act has
amended sub-section (1) of section 206 to provide for filing of return of tax
deducted at source with an authority or agency as may be prescribed. It has
also been provided that the Board may, if it considers necessary or expedient
so to do, frame a scheme for the purposes of filing of return with such other
authority or agency referred to in sub-section (1). A scheme for furnishing
paper returns of Tax Deducted at Source was notified vide Notification
No. 179/2005, dated 30-6-2005.
These amendments
take effect from the 1-10-2004.
The Act has also
amended sub-section (2) of section 206 to provide that the prescribed person in
the case of every office of Government shall also be required to deliver or
cause to be delivered within the prescribed time (rule 37) after the end of
each financial year, TDS returns on computer media under the scheme notified by
the Board. A scheme for electronic filing of returns of Tax Deducted at Source
was notified vide Notification No. 205/2003, dated 26-8-2003.
This amendment
takes effect from 1-4-2005.
[Section 49]
Collection of
tax at source in respect of parking auctions, toll auctions, mining or
quarrying leases
Under the
existing provisions of sub-section (1) of section 206C of the Income-tax Act,
collection of tax is required to be made by the seller of certain specified
goods from any amount payable by the buyer to the seller at the specified
percentage.
The Act has
amended the said section by inserting a new sub-section (1C) to provide for
collection of tax at the rate of two per cent by every person who grants a
lease or a license or enters into a contract or otherwise transfers any right
or interest in any parking lot or toll plaza or mining to another person, other
than a public sector company for the use of such parking lot or toll plaza or mining
for the purposes of business. The tax shall be collected from the licensee or
lessee of any such license, contract of lease of the specified nature, at the
time of debiting of the amount payable by the licencee or lessee to the account
of the licencee or lessee or at the time of such receipt of such amount from
the said licencee or lessee in cash or by the issue of a cheque or draft or by
any other mode, whichever is earlier.
Consequential
amendments have also been made in sub-sections (2), (3), (5) and (9) of section
206C.
Sub-sections (5C)
and (5D) of section 139A relating to permanent account number have also been
amended so as to require the licensee or lessee, referred to in sub-section (1C)
of section 206C to intimate his permanent account number and require every
person collecting tax to quote such permanent account number in all the
certificates furnished under sub-section (5) of section 206C and all returns
under sub-section (5A) or (5B) of section 206C.
This amendment
takes effect from 1-10-2004.
[Sections
33(b) and 50]
Filing of
returns of tax collected at source
Under the
existing provisions of sub-section (5A) of section 206C of the Income-tax Act,
every person collecting tax at source is required to furnish half-yearly
returns for the periods ending on 30th September and 31st March, in each
financial year, and deliver or cause to be delivered to the prescribed
income-tax authority such returns in such form and verified in such manner and
setting for the such particulars and within such time as may be prescribed
(rule 37E).
Sub-section (5B)
of the said section further provides that the returns of tax collected at
source may be filed on computer readable media such as floppies, diskettes,
magnetic cartridge tapes, etc. as may be specified by the Board and that the
information in such returns shall be admitted in evidence in any proceeding
under the Income-tax Act.
Sub-section (5C)
of the said section provides for the requirement of checking and authenticating
of the return by the Assessing Officer and due care by him for preservation of
the return in the computer media by duplicating, transferring, mastering or
storage without loss of data.
With a view to
bring the provisions relating to filing of TCS returns at par with those
relating to filing of TDS returns, the Act has amended sub-section (5A) of
section 206C to provide for filing of returns of tax collected at source within
the time, as may be prescribed. With this amendment, the requirement of filing
the half-yearly return of TCS has been dispensed with and an annual return is
to be filed.
It has also been
provided that return of tax collected at source can be filed with any authority
or agency as may be specified and that the Board may, if it considers necessary
or expedient so to do, frame a scheme for the purposes of filing of returns
with such other authority or agency. A scheme for furnishing of paper returns
of Tax Collected at Source was notified vide Notification No. 180/2005,
dated 30-6-2005.
These amendments
take effect from 1-10-2004.
The Act has also
substituted sub-section (5B) to provide that the person responsible for
collecting tax other than in the case of company, the Central Government or a
State Government may, at his option, deliver or cause to be delivered such
return to the prescribed Income-tax authority in accordance with such scheme as
may be specified by the Board in this behalf, by notification in the Official
Gazette, and subject to such conditions as may be specified therein, on or
before the prescribed time after the end of each financial year, on a floppy,
diskette, magnetic cartridge etc, CD-ROM or any other computer media and in the
manner as may be specified in that scheme. The filing of TCS return on computer
media under the said scheme has been made mandatory in cases where a company,
the Central Government or a State Government, collects the tax. A scheme for
Electronic filing of returns of Tax Collected at Source was notified vide
Notification No. 121/2005, dated 30-3-2005.
Sub-section (5C)
has also been substituted to provide that a return filed on computer media
shall be deemed to be a return for the purposes of sub-section (5A) of section
206C and the rules made thereunder and shall be admissible in any proceedings
thereunder, without further proof of production of the original, as evidence of
any contents of the original or of any fact stated therein.
A new sub-section
(5D) has also been inserted which provides that where the Assessing Officer considers
that the return delivered or cause to be delivered under sub-section (5B) is
defective, he may intimate the defect to the person responsible for collecting
tax and give him an opportunity of rectifying the defect within a period of
fifteen days from the date of such intimation or within such further period
which, on an application made in this behalf, the Assessing Officer may, at his
discretion, allow; and if the defect is not rectified within the said period of
fifteen days or, as the case may be, the further period so allowed, then,
regardless of anything contained in any other provision of this Act, such
return will be treated as an invalid return and the provision of this Act shall
apply as if such person had failed to deliver the return.
These amendments
take effect from 1-4-2005.
[Section 50]
Special
provisions relating to income of shipping companies
A new chapter
XII-G has been inserted in the Income-tax Act containing sections 115V to
115VZC. This Chapter has special provisions for taxation of the income of
shipping companies. The Chapter has seven parts and thirty sections from
sections 115V to 115VZC.
Section 115V
defines certain expressions used in the Chapter.
Section 115VA
provides that a company, may at its option, compute the income from the
business of operating qualifying ships in accordance with the provisions of
Chapter XII-G and the income thus computed shall be deemed to be the income
chargeable to tax under the head Profits and gains of business or profession.
Section 115VB
stipulates when a company is to be considered as operating a ship. A company is
regarded as operating a ship if it operates a ship, whether owned or chartered
by it, and includes a case where even a part of the ship has been chartered in
by it in an arrangement for slot charter, space charter or joint charter. A
company is not considered as operating a ship if the ship has been chartered
out by it on bareboat charter-cum-demise terms or on bare boat charter
terms for a period exceeding three years.
Section 115VC
provides that a company shall be a qualifying company if it is
(i) an Indian company;
(ii) the place of effective management of the company is in
(iii) it owns at least one qualifying ship; and
(iv) the main object of the company is to carry on the business of
operating ships.
The expression
place of effective management of the company has been defined in the
Explanation to mean the place where the board of directors of the company or
its executive directors, as the case may be, make their decisions; or in a case
where the board of directors routinely approve the commercial and strategic
decisions made by the executive directors or officers of the company, the place
where such executive directors or officers of the company perform their functions.
Section 115VD
deals with what is a qualifying ship. A ship is a qualifying ship if it is a
sea going ship or vessel of 15 net tons or more; is registered under the
Merchant Shipping Act, 1958, or is a ship registered outside India in respect
of which a licence has been issued by the Director-General of Shipping under
section 406 or section 407 of the Merchant Shipping Act, 1958; and a valid
certificate indicating the net tonnage of the ship has been issued by the
Director General (Shipping).
[Section 115VX
provides that the tonnage of a ship shall be determined in accordance with a
valid certificate indicating its tonnage and also gives the meaning of valid
certificate in case of ships registered in
Section 115VD
also provides for exclusion of certain ships/vessels from the category of
qualifying ships. The exclusions are
(i) a sea going ship or vessel if the main purpose for which it
is used is the provision of goods or services of a kind normally provided on land;
(ii) fishing vessels;
(iii) factory ships;
(iv) pleasure crafts;
(v) harbour and river ferries;
(vi) offshore installations;
(vii) dredgers;
(viii) a qualifying ship which is used as fishing vessel for a period of
more than thirty days during a previous year.
Section 115VE
gives the manner of computation of tax under tonnage tax scheme. The business
of operating qualifying ships giving rise to relevant shipping income [referred
to in sub-section (1) of section 115V-I] is to be considered as a separate
business distinct from all other activities or business carried on by the
company. It has also been provided that the profits referred to in sub-section
(1) are to be computed separately from the profits and gains from any other
business. A tonnage tax company engaged in the business of operating qualifying
ships is required to compute the profits from the business of operating
qualifying ships under the tonnage tax scheme and such profits are required to
be computed separately from the profit and gains from any other business. The
scheme is to apply only if an option is made in accordance with the provisions
of section 115VP. The profits and gains of a company engaged in the business of
qualifying ships but not covered under the tonnage tax scheme or, which has not
made an option, shall be computed in accordance with the other provisions of
the Income-tax Act.
Section 115VF
stipulates that the tonnage income shall be computed in accordance with the
provisions of section 115VG and the income so computed shall be deemed to be
the income of a tonnage tax company chargeable to tax under the head Profits
and gains of business or profession. The relevant shipping income referred to
in sub-section (1) of section 115V-I is not chargeable to tax. The provisions
of section 115V-I only intend to specify and segregate profits from the core
activities of a tonnage tax company and profits from incidental activities.
Charging provision is under section 115VA read with section 115VF and 115VG.
Section 115VG
deals with the method of computation of tonnage income. After computation of
the tonnage income, tonnage tax is to be determined by applying the prevailing
corporation tax rate on the notional profit computed in accordance with this
section. For the purpose of computing the tonnage income, first the daily
income is to be calculated for each qualifying ship on the basis of the
following rates:
|
Qualifying
ship having net tonnage |
Amount of
daily tonnage income |
|
(1) |
(2) |
|
up to 1,000 |
Rs. 46 for each
100 tons |
|
exceeding 1,000
but not more than 10,000 |
Rs. 460 plus
Rs. 35 for each 100 tons exceeding 1,000 tons |
|
exceeding
10,000 but not more than 25,000 |
Rs. 3,610 plus
Rs. 28 for each 100 tons exceeding 10,000 tons |
|
exceeding
25,000 |
Rs. 7,810 plus
Rs. 19 for each 100 tons exceeding 25,000 tons. |
The tonnage
income for each ship is to be derived by multiplying the daily tonnage income
by the number of days in the previous year or the number of days the ship is
operated by the company as a qualifying ship.
The tonnage
income so arrived at in case of all ships will then be aggregated. The tonnage
income shall be further increased by the deemed tonnage which is to be computed
in the manner prescribed in rule 11Q. Deemed tonnage means, the tonnage in
respect of an arrangement of purchase of slots, slot charter and an arrangement
of sharing of break bulk vessels. The prevailing corporation tax rate in
respect of the year is to be applied on the total tonnage income to derive the
tax liability.
An example of how
the tonnage tax liability is to be computed is given below:
Suppose a tonnage
tax company operates only one qualifying ship throughout the year. The ship has
a net tonnage of 25,000 tons and the corporation tax rate for that year is 35
per cent. Tonnage tax liability of such company would be calculated as follows:
|
|
|
Daily profit: |
(Rs.) |
|
|
|
|
|
For the first
1,000 tons |
460 |
|
|
|
|
|
For 1,001 to
10,000 tons |
3,150 |
|
|
|
|
|
For remaining
15,000 tons |
4,200 |
|
|
|
|
|
Total |
7,810 |
|
|
|
|
Notional annual
profit: |
|
|||
|
|
|
Rs. 7810 365
days |
|
Rs. 28,50,650 |
|
|
|
Tonnage tax: |
|
|||
|
|
|
Rs. 28,50,650 35/100= |
|
Rs. 9,97,727 |
|
|
|
|
|
|
|
|
The section also provides
for rounding off of the tonnage. It has also been provided that notwithstanding
anything contained in any other provisions of the Income-tax Act, no deduction
or set off is to be allowed in computing the tonnage income under this Chapter.
Section 115VH
provides for computation in case of joint operation. The said section provides
that where a qualifying ship is operated by two or more companies by way of
joint interest in the ship or by way of an agreement for the use of the ship
and their respective shares and definite and ascertainable, the tonnage income
of each such company shall be an amount equal to a share of income
proportionate to its share of that interest. It has also been provided that
where two or more companies are operators of a qualifying ship, the tonnage
income of each company shall be computed as if each had been the only operator.
Section 115V-I
relates to relevant shipping income. It has been provided that relevant
shipping income of a tonnage tax company means its profits from core activities
and its profits from incidental activities. It has been provided that where the
aggregate of all the incidental activities exceeds one-fourth per cent of the
turnover from core activities, such excess shall not form part of relevant
shipping income for the purposes of this chapter and shall be taxable under the
other provisions of the Act.
Core activities
of a tonnage tax company have been specified in sub-section (2) of the said
section. These include its activities from operating qualifying ships and other
ship related activities being
(i) shipping contracts in respect of earning from pooling
arrangements and contracts of affreightment;
(ii) specific shipping trades being on-board or on shore activities
of passenger ships comprising of fares and food and beverages consumed on
board; and slot charters, space charters, joint charters, feeder services,
container box leasing of container shipping.
It has also been
provided that the Central Government, if it considers necessary or expedient so
to do, may, by notification in the Official Gazette, exclude any of the other
ship related activities which have been referred to in clause (ii) of
sub-section (2) of the said section or prescribe the limit up to which such
activities shall be included in the core activities for the purposes of the
section. It is also provided that every notification issued under sub-section
(3) shall be laid before Parliament.
The incidental
activities of the tonnage tax company shall be activities which are incidental
to the core activities and are prescribed in rule 11R. It has been provided
that the relevant shipping income attributable to operating non-qualifying
ships shall be taxable under other provisions of this Act. It has also been
provided that where any goods or services held for the purposes of tonnage tax
business are transferred to any other business carried on by a tonnage tax
company, or where any goods or services held for the purposes of any other
business carried on by such tonnage tax company are transferred to the tonnage
tax business and, in either case, the consideration, if any, for such transfer
as recorded in the accounts of the tonnage tax business does not correspond to
the market value of such goods or services as on the date of the transfer, the
relevant shipping income under this section shall be computed as if the
transfer, in either case had been made at the market value of such goods or
services as on that date. Where, in the opinion of the Assessing Officer, the
computation of the relevant shipping income in the manner hereinbefore
specified presents exceptional difficulties, the Assessing Officer may compute
such income on such reasonable basis as he may deem fit. It has also been
provided that where it appears to the Assessing Officer that, owing to the
close connection between the tonnage tax company and any other person, or for
any other reason, the course of business between them is so arranged that the
business transacted between them produces to the tonnage tax company more than
the ordinary profits which might be expected to arise in the tonnage tax
business, the Assessing Officer shall, in computing the relevant shipping
income of the tonnage tax company for the purpose of this Chapter, take the
amount of income as may be reasonably deemed to have been derived therefrom.
The relevant shipping income of a tonnage tax company shall include a loss and
such loss shall be deemed to have never accrued for the purposes of the Act.
Principles
pertaining to arms length price will be applicable to transactions between
tonnage tax companies and unconnected (as well as connected) non-tonnage and
tonnage tax entities. This principle will also apply within a single company as
between its tonnage tax activities and its non-tonnage tax activities (if any).
Section 115VJ
relates to treatment of common cost. Common costs and losses will be
apportioned on a just and reasonable basis to determine what is attributable to
a companys shipping and non-shipping activities. It has also been provided that
where any asset, other than qualifying ship, is not exclusively used for the
tonnage tax business by the tonnage tax company, depreciation on such asset
shall be allocated between its tonnage tax business and other business on a
fair proportion to be determined by the Assessing Officer, having regard to the
use of such asset for the purpose of the tonnage tax business and for the other
business.
Section 115VK
provides that the depreciation for the first previous year of the tonnage tax
scheme shall be computed on the written down value of the qualifying ships
which will be computed in accordance with the provisions of sub-section (2).
The written down value of the block of assets, being ships, as on the first day
of the previous year, shall be divided in the ratio of the book written down
value of the qualifying ships and the book written down value of the
non-qualifying ships. The block of qualifying assets shall constitute a
separate block of assets. The manner of computation of the book written down
value of the block of qualifying assets and the block of other assets has been
specified in sub-section (4). This is as follows:
Step 1
The assets
falling within each of the new blocks, i.e., block of qualifying assets
and block of other assets, would be identified and their book WDV listed.
Step 2
Total of book WDV
of assets falling in each of the new blocks will be determined.
Step 3
The WDV as per
the Income-tax Act of the existing common block (as on the last day of
immediately preceding previous year) be allocated to each of the new blocks in
ratio of their respective book WDVs.
To illustrate
the above process, the following example may be taken:
(i) The WDV of the existing block is Rs. 70 crores. This
comprises three qualifying assets (Q) and two non-qualifying assets (NQ). The
book WDV of each of the qualifying and the non-qualifying assets is identified
as under as the first step:
|
|
Assets |
Book WDV |
|
||||
|
|
Q1 |
30 |
|
|
|||
|
|
Q2 |
20 |
|
|
|||
|
|
Q3 |
30 |
|
80 |
|
||
|
|
|
|
|
|
|||
|
|
NQ1 |
|
15 |
|
|
||
|
|
NQ2 |
|
5 |
|
20 |
|
|
|
|
|
|
|
|
|
|
|
(ii) Book WDV of all the existing qualifying assets is Rs. 80
crores and that for the non-qualifying is Rs. 20 crores.
(iii) Thus, the ratio of book WDV of qualified assets to that of
non-qualifying assets is 4:1.
(iv) In the final step, the existing WDV of the common block, which
is Rs. 70 crores, is to be allocated in this ratio of qualifying block and
non-qualifying blocks. Accordingly, WDV of qualifying block would be Rs. 56
crores and that of non-qualifying block would be Rs. 14 crores.
The method of
allocation of depreciation in a case where an asset forming part of the block
of qualifying assets begins to be used for purposes other than the tonnage tax
business and in a case where an asset forming part of the block of other assets
begins to be used for tonnage tax business has been given in sub-sections (5),
(6) and (7). It has also been provided that for the purposes of the Act,
depreciation on the block of qualifying assets and block of other assets so
created shall be allowed as if such written down value has been brought forward
from the preceding previous year. The expression book written down value has
been defined.
Section 115VL
relates to general exclusion of deduction and set off, etc. It has been
provided that sections 30 to 43B and section 57 shall apply as if every loss
allowance or deduction referred to therein and relating to or allowable for any
of the relevant previous years, had been given full effect to for that previous
year itself: no loss referred to in sub-sections (1) and (3) of section 70 or
sub-sections (1) and (2) of section 71 or sub-section (1) of section 72 or
sub-section (1) of section 72A, in so far as such loss relates to the business
of operating qualifying ships of the company, shall be carried forward or set
off where such loss relates to any of the previous years when the company is
under the tonnage tax scheme; no deduction shall be allowed under Chapter VI-A
in relation to the profits and gains from the business of operating qualifying
ships; and in computing the depreciation allowance under section 32 of this
Act, the written down value of any asset used for the purposes of the tonnage tax
business shall be computed as if the company has claimed and has been actually
allowed the deduction in respect of depreciation for the relevant previous
year.
Section 115VM
provides that section 72 shall apply in respect of any losses that have been
accrued to a company before its entry in tonnage tax scheme and are
attributable to its tonnage tax business as if such losses had been set off
against the relevant shipping income in any of the previous years when the
company is under the tonnage tax scheme. The losses referred to in sub-section
(1) shall not be available for set off against any income other than relevant
shipping income in any previous year beginning on or after the company
exercises its option under section 115VP. It has also been provided that any
apportionment necessary to determine the losses referred to in sub-section (1)
shall be made on a reasonable basis.
Section 115VN
relates to chargeable gains from transfer of tonnage tax assets. The said
section provides that profits or gains arising from the transfer of a capital
asset being an asset forming part of the block of qualifying assets shall be
chargeable to income-tax in accordance with the provisions of section 45, read
with section 50, and the capital gains so arising shall be computed in
accordance with the provisions of sections 45 to 51.
Section 115V-O
provides for exclusion of book profits or loss derived from the activities of a
tonnage tax company referred to in sub-section (1) of section 115V-I from
section 115JB.
Section 115VP relates
to method and time of opting for tonnage tax scheme. A qualifying company may
opt for the tonnage tax scheme by making an application to the Joint
Commissioner having jurisdiction over the company in the Form No. 65 and manner
prescribed in Rule 11P. The initial period in which a company will be able to
opt for the scheme will be for a period of three months starting from 1st
October, 2004 and ending on 31st December, 2004. After the end of the initial
period, only those companies which are incorporated after the initial period or
which become qualifying companies after the initial period for the first time
(in case of existing companies) shall be able to opt for the scheme. In such
cases, however, the application for exercising the option will have to be made
within three months of the date of the incorporation or, as the case may be,
the date on which the company became a qualifying company.
The Joint
Commissioner may call for such information or documents as may be necessary for
the purpose of satisfying himself regarding the eligibility of the company to
exercise the option and after satisfying himself, he shall pass an order in
writing either approving the option for the scheme or refusing the approval for
such option. The order granting or refusing the option shall be passed within
one month of filing the application. Where an order granting approval has been
passed, the provisions of the Chapter shall apply from the assessment year
relevant to the previous year in which the option for tonnage tax scheme is
exercised.
The company in
whose case the tonnage tax option is denied, may file an appeal before the CIT
(Appeals).
Section 115VQ
provides that an option for tonnage tax scheme, after it has been approved
under section 115VP shall remain in force for a period of ten years. It has
also been provided that an option for the tonnage tax scheme shall cease to
have effect in cases where the qualifying company ceases to be a qualifying
company or gives a declaration in writing to the Assessing Officer to the
effect that the provisions of the Chapter may not be made applicable to it or
defaults with regard to provisions relating to tonnage tax reserves, charter in
limits and training requirements. The tonnage tax scheme will also cease to
have effect in case the tonnage tax company is excluded from the scheme by an
order under section 115VZC or the conditions pertaining to amalgamation in
respect of tonnage tax companies are not complied with. In such cases, the
profits and gains of the company from the business of operating qualifying
ships shall be computed in accordance with the other provisions of the
Income-tax Act.
Section 115VR
relates to renewal of tonnage tax scheme and it provides that an option for the
tonnage tax scheme which has been approved under sub-section (3) of section
115VP may be renewed within one year from the end of the previous year in which
the option ceases to have effect. It has also been provided that the provisions
relating to method and time of opting for tonnage tax scheme (section 115VP)
and the period for which tonnage tax option to remain in force (section 115VQ)
shall apply in relation to a renewal of the option as they apply in relation to
the approval of option for the tonnage tax scheme.
Section 115VS
provides that a qualifying company, if it leaves the scheme at any time,
whether voluntary or through expulsion, will not be eligible to opt for the
tonnage tax scheme for a period of ten years from the date of opting out or
default or expulsion, as the case may be. The reasons for the prohibition are
(i) default in complying with the provisions relating to creation
of reserves;
(ii) being excluded from the scheme on grounds of abuse of the
tonnage tax scheme;
(iii) default in complying with the training requirements for more
than five consecutive years; and
(iv) exceeding the limit for charter in of tonnage for more than two
consecutive years.
Section 115VT
relates to transfer of profits to tonnage tax reserve account. Sub-section (1)
of the said section provides that a tonnage tax company shall be required to
credit to a reserve account an amount not less than twenty per cent of the book
profits derived from the activities referred to in clauses (i) and (ii)
of sub-section (1) of section 115V-I in each previous year. The amount credited
to the reserve account are to be utilized in the manner laid down in the
section. It has been provided that a tonnage tax company may transfer a sum in
excess of twenty per cent of the book profits and such excess sum transferred
shall also be utilized in the manner laid down in the section. The explanation
below sub-section (1) defines the expression book profit. It has further been
provided under sub-section (2) that where the company has book profits from the
business of operating qualifying ships and book loss from any other sources,
and consequently, the company is not in a position to create the full or any
part of the reserves under sub-section (1), the company shall create the reserves
to the extent permissible in that previous year and the shortfall, if any,
shall be added to the amount of the reserves required to be created for the
following previous year and such shortfall shall be deemed to be part of the
reserve requirement of that following previous year. Sub-section (3) of the
said section provides for the manner in which the amount credited to the
reserve account under sub-section (1) shall be utilized by the company.
Sub-section (4) of the said section provides for taxing of an appropriate
portion of the relevant shipping income in case where any amount credited to
the reserve account under sub-section (1) has been utilized for any purpose
other than that referred to in clause (a) or clause (b) of
sub-section (3) or (b) has not been utilized for the purpose specified
in clause (a) or sub-section (3); or (c) has been utilized for
the purpose of acquiring a new ship as specified in clause (a) of
sub-section (3), but such ship is sold or otherwise transferred, other than in
any scheme of demerger by the company to any person at any time before the
expiry of three years from the end of the previous year in which it was
acquired. Sub-section (5) of the said section provides for taxing of a
proportion of the relevant shipping income in case of shortfall of credit to
the reserve account. Sub-section (6) of the said section provides that if the
reserve required to be created under sub-section (1) is not created for any two
consecutive previous years of a tonnage tax company, the companys option for
tonnage tax scheme shall cease to have effect from the start of the previous
year following the second consecutive previous year in which the failure to
create the reserve under sub-section (1) occurred and the company will be
prohibited from exercising the option for tonnage tax scheme for a period of
ten years in accordance with the provisions of section 115VS. Explanation
to section 115VT defines the expression new ship.
Section 115VU
relates to minimum training requirement for tonnage tax companies. The said
section provides that a tonnage tax company, after its option has been approved
under sub-section (3) of section 115VP, shall be required to comply with the
minimum training requirement in respect of trainee officers in accordance with
the guidelines framed by the Director General of Shipping and notified in the
Official Gazette by the Central Government. A copy of the certificate issued by
the Director General of Shipping to the effect that such company has complied
with the minimum training requirement in accordance with the guidelines
referred to in sub-section (1) for the previous year shall be required to be
furnished along with the return of income. It has also been provided that if
the minimum training requirement is not complied with for any five consecutive
previous years, the companys option for tonnage tax scheme shall cease to have
effect from the start of the previous year following the fifth consecutive year
in which the failure to comply with the minimum training requirement under
sub-section (1) occurred and the company will be prohibited from exercising the
option for tonnage tax scheme for a period of ten years in accordance with the
provisions of section 115VS.
Section 115VV
relates to limit for charter-in of tonnage. Sub-section (1) of the section
provides that in the case of every company which has opted for tonnage tax
scheme, not more than forty nine per cent of the net tonnage of the qualifying
ships operated by it during any previous year shall be chartered-in. Sub-section
(2) of the said section provides that the proportion of net tonnage referred in
sub-section (1) in respect of a previous year shall be calculated based on the
average of net tonnage during that previous year . Sub-section (3) provides
that the average of net tonnage shall be computed in the manner prescribed in
Rule 11S. Sub-section (4) of the said section provides that where the net
tonnage of ships chartered-in exceeds the limit under sub-section (1) during
any previous year, the total income of such company in relation to that
previous year shall be computed as if the option for tonnage tax scheme does
not have effect for that previous year. Sub-section (5) of the said section
provides that where the limit under sub-section (1) is exceeded in any two
consecutive previous years. The option for tonnage tax scheme shall cease to
have effect from the beginning of the previous year following the second
consecutive previous year in which the limit was exceeded. Further, as per the
provisions of section 115VS, the company will not be eligible to opt for the
tonnage tax scheme for a period of 10 years.
Section 115VW
relates to maintenance and audit of accounts. The section provides that an
option for tonnage tax scheme by a tonnage tax company shall not have effect in
relation to a previous year unless such company maintains separate books of
account in respect of the business of operating qualifying ships and furnishes,
along with the return of income for that previous year, the report of an
accountant, in Form No. 66 (Rule 11T) duly signed and verified by such
accountant.
Section 115VX
relates to determination of tonnage. The said section provides that tonnage of
a ship shall be determined in accordance with the valid certificate indicating
its net tonnage. Clause (b) of the section specifies the certificates
for the said purpose in respect of the both, i.e., in the case of ships
registered in
Section 115VY
relates to amalgamation. The said section provides that in case of
amalgamation, the provisions relating to the tonnage tax scheme shall, as far
as may be, apply to the amalgamated company, if it is a qualifying company. It
has also been provided that where the amalgamated company is not a tonnage tax
company, it shall exercise an option for tonnage tax scheme under sub-section
(1) of section 115VP within six months of the date of the approval of the
scheme of amalgamation. It has also been provided that where the amalgamating
companies are tonnage tax companies, the provisions of this Chapter shall, as
far as may be, apply to the amalgamated company for such period as the option
for tonnage tax scheme which has the longest unexpired period continues to be
in force. It has also been provided that where one of the amalgamating
companies is a qualifying company on the date on 1-10-2004 and which has not
exercised option for tonnage tax scheme within the initial period, the
provisions of this Chapter shall not apply to the amalgamated company and the
income of the amalgamated company from the business of operating qualifying
ships shall be computed in accordance with the other provisions of the
Income-tax Act.
Section 115VZ
relates to demerger. The section provides that in a scheme of demerger, the
tonnage tax scheme shall, as far as may be, apply to the resulting company for
the unexpired period if it is a qualifying company. It has also been provided
that the option for tonnage tax scheme in respect of the demerged company shall
remain in force for the unexpired period of the tonnage tax scheme if it
continues to be a qualifying company.
Section 115VZA
provides that a temporary cessation of operating any qualifying ship by a
company shall not be considered as a cessation of operating of such qualifying
ship and the company shall be deemed to be operating such qualifying ship for
the purposes of this Chapter. It has also been provided that where a company
continues to operate a ship which temporarily ceases to be a qualifying ship,
such ship shall not be considered as qualifying ship for the purpose of the
Chapter.
Section 115VZB
relates to avoidance of tax. The said section provides that the tonnage tax
scheme shall not apply where a tonnage tax company is a party to any
transaction or arrangement which amounts to an abuse of the tonnage tax scheme.
Sub-section (2) of the said section specifies that a transaction or arrangement
shall be considered as an abuse of the tonnage tax scheme if the entering into
or the application of the transaction or arrangement results in a tax advantage
being obtained for a person other than a tonnage tax company or a tonnage tax
company in respect of its non-tonnage tax activities. The Explanation to
the said sub-section defines the expression tax advantage.
Section 115VZC
relates to exclusion from tonnage tax scheme. Sub-section (1) of the said
section provides that where a tonnage tax company is a party to any transaction
or arrangement referred to in sub-section (1) of section 115VZA, the Assessing
Officer shall, by an order in writing, exclude such company from the tonnage
tax scheme after giving an opportunity of being heard to such company. It has
also been provided that no order under this sub-section shall be passed without
the previous approval of the Chief Commissioner. Sub-section (2) of the said
section provides that the section shall not apply where the company shows to
the satisfaction of the Assessing Officer that the transaction or arrangement
were bona fide commercial transaction and had not been entered into for
the purpose of obtaining tax advantage under this Chapter. Sub-section (3) of
the said section provides that where an order has been passed under sub-section
(1) by the Assessing Officer excluding the tonnage tax company from the tonnage
tax scheme the option for tonnage tax scheme shall cease to be in force from
the 1st day of April of the previous year in which the transaction or
arrangement was entered into and the income from the business of operating
ships shall be computed in accordance with the other provisions of this Act.
Consequential amendments have also been made to provide for appeal to the
Appellate Tribunal against the orders of expulsion in cases of abuse of the
scheme.
Section 33AC of
the Income-tax Act relating to reserves for shipping business which provides
for hundred per cent deduction of the profits derived from the business of
operation of ships has also been amended to provide that no deduction shall be
allowed under the said section from assessment year 2005-06 onwards.
These amendments
take effect from 1-4-2005 and apply in relation to assessment year 2005-06 and
subsequent years.
[Sections 9,
30, 53 and 54]
Dematerialisation
of TDS and TCS certificates
Under the
existing provisions of the Income-tax Act, for the purpose of claiming credit
for tax deducted at source or tax collected at source, TDS or TCS certificates,
as the case may be, are required to be filed along with the return of income.
Returns are deemed to be defective in case they are not accompanied with proof
of tax claimed to have been deducted/collected at source.
With a view to
computerising the TDS and TCS functions as also enable the process of
dematerialisation of TDS and TCS certificates, the Act has incorporated certain
amendments in the provisions relating to tax deduction at source and tax
collection at source.
Section 199 of
the Income-tax Act which provides for credit for tax deducted on production of
TDS certificate has been amended to provide that in cases where tax is deducted
on or after 1st April, 2005 and is paid to the credit of the Central
Government, the amount of tax deducted and specified in the statement referred
to in section 203AA shall be treated as tax paid on behalf of the persons from
whose income-tax has been deducted or in respect of whose income the tax has
been paid and credit shall be given to such persons for the amounts so deducted
in the assessment made for the assessment year for which the income is
assessable without the production of a certificate. Similar amendments have
also been made in sub-section (4) of section 206C. Consequently, section 139(9)
has also been amended to provide that returns will not be deemed to be
defective if they are not accompanied by a TDS certificate in respect of tax
claimed to have been deducted at source on or after 1st April, 2005.
Section 200
relating to duty of person deducting tax has also been amended by way of
insertion of a new sub-section (3) to provide that any person deducting any sum
on or after 1st April, 2005 or any person being an employer referred to in sub-section
(1A) of section 192 shall be required to prepare quarterly statements for the
period ending on the 30th June, the 30th September, the 31st December and the
31st March in each financial year and deliver or cause to be delivered such
statement in such form and verified in such manner and setting forth such
particulars and within such time as may be prescribed to the prescribed
income-tax authority or the person authorized by such authority (Rule 31A). In
respect of cases of tax collection at source, similar amendments have been made
in sub-section (3) of section 206C. Further, sub-section (2) of section 272A
relating to penalty for failure to answer questions, sign statements, furnish
information, returns or statements, allow inspection, etc. has also been
amended by way of insertion of a new clause (k) to provide for a penalty
of hundred rupees for every day for failure to deliver or cause to be delivered
the quarterly statements.
Section 203
relating to certificate for tax deducted has also been amended to provide that
there shall be no requirement to furnish a certificate referred to in the said
section where the tax has been deducted or paid on or after 1st April, 2005.
Similar amendments have also been made in sub-section (5) of section 206C by way
of insertion of the first proviso.
A new section
203AA relating to furnishing of statement of tax deducted has been inserted in
the Income-tax Act to provide that the prescribed income-tax authority or the
person authorized by such authority to whom the quarterly statements shall be
delivered, shall, within the prescribed time after the end of each financial
year beginning on or after 1st April, 2005 prepare and deliver to every person
from whose income-tax has been deducted or in respect of whose income-tax has
been paid, a statement in the prescribed form specifying the amount of tax
deducted or paid and such other particulars as may be prescribed (Rule 31AB).
Similar amendments have also been made in sub-section (5) of section 206C by
way of insertion of the second proviso.
All assessees,
including non-residents, will be required to intimate the permanent account
number to the person deducting or collecting tax in the absence of which credit
for TDS or TCS cannot be given. Hence, the first proviso to sub-section (5A) of
section 139A not requiring quoting of PAN by non-residents, has been omitted.
Section 272B
relating to penalty for failure to comply with the provisions of section 139A
has been amended so as to provide for a penalty of a sum of ten thousand rupees
in case a person who is required to intimate his permanent account number as
required by sub-section (5C) intimates a number which is false and which he
either knows or believes to be false or does not believe to be true.
These amendments
take effect from 1st April, 2005.
[Sections 32,
33(a), 42(b), 44(b),
46, 50, 57 and 56]
Measures to
provide for prosecution in case of falsification of books of account or
documents etc.
Under the
existing provisions of section 278 a person can be punished for abetting or
inducing any other person to evade tax. To establish a charge of abetment in
the case of first person it is necessary to establish that tax has been evaded
by the other person.
Provisions of section
278 do not provide adequate deterrence against making false entries in books of
account or documents by a person enabling another person to evade tax, when in
fact there is no underlying transaction. Many a times, even the confession made
by a person that he has made false entries in books of account or documents to
enable the other person to evade tax is not held to be sufficient evidence to
substantiate tax evasion by such other person.
Finance (No. 2)
Act, 2004 has inserted a new section 277A providing that a person who wilfully
and with intent to enable any other person to evade any tax or interest or
penalty chargeable or imposable under the Income-tax Act, 1961, makes or causes
to be made any entry or statement which is false and which the other person
either knows to be false, or does not believe to be true, in any books of
account or other document then such person shall be punished with rigorous
imprisonment for a term not less than three months but which may extend to
three years and with fine.
It has been
clarified in the Explanation to the said section that to establish
charge under this section it shall not be necessary to prove that the second
person has actually evaded any tax, penalty or interest chargeable or imposable
under the Act.
Reference of the
said section has been made in section 279 of the Income-tax Act, 1961, relating
to prosecution to be at the instance of the Chief Commissioner or Commissioner
of Income-tax.
This amendment
takes effect from 1st October, 2004. [Sections 60, 62]
Rationalisation
of provisions relating to offences by a company
The existing
provisions of section 278B provide that where an offence has been committed by
a company, the company as well as the person who was in charge of, and was
responsible for the conduct of the business of the company at the time when the
offence was committed will be deemed to be guilty of the offence. The said
section also provides that where the offence has been committed with the
consent or connivance of any director, manager, secretary or other officer of
the company, such director or other officer shall also be deemed to be guilty
of the offence.
In respect of
some of the offences [wilful attempt to evade tax (section 276C), false
statement in verification (section 277), failure to deposit tax deducted at
source with the Government (section 276B), etc.] it has been provided that the
person found guilty shall be punishable with rigorous imprisonment and with
fine. There has been a judicial controversy as to whether a company, being a
juristic person, can be punished with imprisonment where the statute refers to
punishment of imprisonment and fine. In the case of M/s. M.V. Javali v.
Mahajan Borewell & Co. [1998] 230 ITR 1, the Honble Supreme Court held
that on a harmonious interpretation of section 276B read with section 278B, a
company, which cannot be punished with imprisonment can be punished with fine
only. However, in a subsequent decision by majority in the case of ACIT v.
Velliappa Textiles Ltd. 263 ITR 550, dated 16-9-2003, the
In order to plug
the loopholes pointed out by the Honble Supreme Court in the case of ACIT v.
Velliappa Textiles Ltd. (supra), a new sub-section (3) has been
inserted in section 278B by the Finance (No. 2) Act, 2004, so as to provide
that if an offence under the Act has been committed by a person being the
company, and the punishment for such offence is imprisonment and fine, then,
such company shall be punished with fine and any other person who was in-charge
and was responsible for the conduct of business of the company, or any
director, manager, secretary or other officer of the company shall be liable
for punishment of imprisonment and fine, wherever so provided. (It may be relevant
to mention here that the Honble Supreme Court in the case of Standard
Chartered Bank v. Directorate of Enforcement and Other Appeals and a
Writ petition [275 ITR 81, 5th May, 2005] has overruled its decision in the
case of ACIT v. Velliappa Textiles [supra].
Section 35HA of
the Wealth-tax Act has also been similarly amended.
This amendment
takes effect from 1st October, 2004.
[Section 61]
Modification
of the provisions for filing of annual information return
Under the
existing provisions of the section 285BA as inserted by the Finance Act, 2003
any assessee who enters into any financial transaction, as may be prescribed,
with any other person is required to furnish an annual information return in
such form and manner, as may be prescribed, in respect of such financial
transactions entered into by him during any previous year.
With a view to
gather information from Government agencies and other authorities who are
valuable sources of information, the Finance (No. 2) Act, 2004, has substituted
the said section by a new section. The substituted section 285BA provides that
an assessee or certain agencies responsible for registering or maintaining
books of account or other documents containing a record of any specified
financial transaction, under any law for the time being in force, shall furnish
an annual information return in respect of such specified financial transaction
as may be prescribed by the Board. The return shall be furnished in respect of
transactions registered or recorded on or after the 1st day of April, 2004.
Sub-section (2)
of the said section provides that the annual information return shall be
furnished within the prescribed time after the end of such financial year and
in such form and manner as may be prescribed.
Sub-section (3)
of the said section defines the specified financial transaction to mean any
transaction of purchase, sale or exchange of goods or property or right or
interest in a property or transaction for rendering any service or transaction
under a works contract or transaction by way of an investment made or
expenditure incurred or a transaction for taking or accepting any loan or
deposit as may be prescribed.
It has also been
provided that the Board may prescribe different monetary values for different
transactions in respect of different persons. The said sub-section further
provides that the value or the aggregate value of such transactions during a
financial year so prescribed shall not be less than fifty thousand rupees.
Sub-section (5)
of the said section provides that the where any person who is require to
furnish an annual information return has not furnished the same within the
prescribed time, the prescribed Income-tax authority may serve upon such person
a notice requiring him to furnish such return within a period not exceeding
sixty days from the date of service of such notice.
Vide Notification S.O. No. 1316(E), dated
1-12-2004, a new section 114E relating to furnishing of Annual Information
Return has been prescribed. The form and manner in which the annual information
return shall be furnished has been prescribed in the said rule. Further, it has
also been prescribed in the said rule that every person mentioned in column (2)
of the Table below shall furnish an Annual Information Return in respect of
transactions specified in the corresponding entry of column (3) of the said
table.
Table
|
Sl. No. |
Class of
person |
Nature and
value of transaction |
|
(1) |
(2) |
(3) |
|
1. |
A Banking
company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including
any bank or banking institution referred to in section 51 of that Act). |
Cash deposits aggregating to ten lakh rupees or more in a year in any savings account of a person maintained in that bank. |
|
2. |
A Banking
company to which the Banking Regulation Act, 1949 (10 of 1949), applies
(including any bank or banking institution referred to in section 51 of that
Act) or any other company or institution issuing credit card. |
Payments made
by any person against bills raised in respect of a credit card issued to that
person, aggregating to two lakh rupees or more in the year. |
|
3. |
A trustee of a
Mutual Fund or such other person managing the affairs of the Mutual Fund as
may be duly authorised by the trustee in this behalf. |
Receipt from any
person of an amount of two lakh rupees or more for acquiring units of that
Fund. |
|
4. |
A company or
institution issuing bonds or debentures. |
Receipt from
any person of an amount of five lakh rupees or more for acquiring bonds or
debentures issued by the company or institution. |
|
5. |
A company
issuing shares through a public or rights issue. |
Receipt from
any person of an amount of one lakh rupees or more for acquiring shares
issued by the company. |
|
6. |
Registrar or Sub-Registrar
appointed under section 6 of the Registration Act, 1908. |
Purchase or
sale by any person of immovable property valued at thirty lakh rupees or
more. |
|
7. |
A person being
an officer of the Reserve Bank of |
Receipt from
any person of an amount or amounts aggregating to five lakh rupees or more in
a year for bonds issued by the Reserve Bank of |
It has also been provided in the said rule that Annual Information Return shall be furnished on or before 31st August immediately following the financial year in which transaction is registered or recorded.
Finance (No. 2)
Act, 2004 has inserted a new section 271FA providing for penalty for failure to
furnish the annual information return. The said section provides that where any
person who is required to furnish the annual information return fails to
furnish the same within the prescribed time, the prescribed income-tax
authority may direct that such person shall pay by way of penalty a sum of one
hundred rupees for every day during which the failure continues.
Reference of the
newly inserted section 271FA has been made in section 273B of the Income-tax
Act, 1961, relating to penalty not to be imposed where assessee proves that
there was reasonable cause for the failure.
[Sections 55,
59, 63]
New provisions
for levy of Securities Transaction Tax
Chapter VII of
the Finance (No. 2) Act, 2004 contains provisions relating to Securities
Transaction Tax. It provides, inter alia, that the provisions of the
Chapter shall come into force on such date as may be notified by the Central
Government in the Official Gazette. Accordingly, the Central Government has notified
the 1st day of October, 2004 as the date of commencement, vide
notification S.O. No. 1058(E) dated 28th September, 2004.
This Chapter
provides that Securities Transaction Tax shall be charged in respect of the
following transactions at the rates as under:
(i) @ 0.075% on the value of transactions of delivery-based
purchase of an equity share in a company or a unit of an equity oriented fund,
entered in a recognised stock exchange, to be paid by the buyer,
(ii) @ 0.075% on the value of transactions of delivery-based sale
of an equity share in a company or a unit of an equity oriented fund, entered
in a recognised stock exchange, to be paid by the seller,
(iii) @ 0.015% on the value of transactions of non-delivery based
sale of an equity share in a company or a unit of an equity oriented fund,
entered in a recognised stock exchange to be paid by the seller,
(iv) @ 0.01%, on the value of transactions of derivatives entered in
a recognised stock exchange to be paid by the seller,
(v) @ 0.15% on the value of transactions of sale of units of an
equity oriented fund to the mutual fund to be paid by the seller.
Equity oriented
fund has been defined to mean a fund where the investible funds are invested by
way of equity shares in domestic companies to the extent of more than 50% of
the total proceeds of such funds and which has been set up under a scheme of a
mutual fund. It has been provided that the percentage of equity shareholding of
the fund shall be computed with reference to the annual average of the monthly
averages of the opening and closing figures.
It has been
provided in the said Chapter that the Board may specify by rules the method of
determining the value of taxable securities transaction.
Securities
Transaction Tax Rules, 2004, notified by the Central Government vide
notification S.O. No. 1059(E) dated 28th September, 2004, lay down the method
for determining the price in respect of transactions of purchase and sale of
equity shares and units in three modes of settlement, i.e., netted
settlement mode, trade to trade settlement mode and auction settlement mode in
a recognized stock exchange.
Section 100 of
Chapter VII of Finance (No. 2) Act, 2004, provides that every recognised stock
exchange and the prescribed person in case of every mutual fund shall collect
the securities transaction tax. These persons are required to pay the same to
the credit of the Central Government by the seventh day of the month
immediately following the calendar month in which tax is collected.
Section 101 of
the said Chapter provides that the recognised stock exchange on the prescribed
person in case of the mutual fund shall within the prescribed time, furnish a
return in such form and verified in such manner as may be prescribed by the
Board, in respect of all taxable securities transactions entered into during
any financial year.
In respect of
mutual fund, it has been provided in the rules that the trustee of the mutual
fund or such other person managing the affairs of the mutual fund as may be
duly authorised by the trustee in this behalf shall be responsible for
collection and payment of securities transaction tax.
It has been
provided in the rules that the return of taxable securities transaction shall
be furnished by the recognised stock exchange in Form No. STTS-1 and by the
mutual fund in Form No. STTS-2. The format of the Form No. STTS-1 and Form No.
STTS-2 has also been prescribed. The return of taxable securities transaction
entered into during a financial year shall be furnished on or before 30th June
of the financial year immediately following the financial year in relation to
which taxable securities transactions are to be reported.
The following
persons shall be required to sign the return
(i) in case of a corporate recognized stock exchange, the
managing director or a director,
(ii) in case of any other recognized stock exchange, the principal
officer thereof,
(iii) in case of a mutual fund, the trustee or such other person
managing the affairs of the mutual fund as may be duly authorised by the
trustee.
It has been
provided that in cases where the return of taxable securities transaction has
not been filed in time by any assessee, the Assessing Officer may issue a
notice to such assessee requiring him to furnish the return within thirty days
of date of service of notice.
Section 102 of
the said Chapter provides that the Assessing Officer shall make an assessment
of the value of taxable securities transactions made during any relevant
financial year and determine the amount of securities transaction tax payable
or refundable on the basis of the return filed by the assessee and on the basis
of such accounts or documents or other evidence as may be submitted by the
assessee.
Forms of notice
of demand have been prescribed in the Securities Transaction Tax Rules, 2004.
In sub-section
(3) of section 102, it has been provided that in case any amount is refunded on
assessment to the assessee, then the assessee shall within the time prescribed
refund the same to the concerned person from whom the amount was collected.
It has been
provided in the rules that such amount shall be refunded by the assessee to the
persons from whom it was collected within thirty days of receipt of same from
the Government.
Section 103
relates to rectification of mistakes apparent from the record, by the Assessing
Officer in any order passed by him.
Section 104
provides for charging of simple interest @ one per cent per month of delay in
paying the securities transaction tax to the account of the Government within
specified time.
Sections 105 to
108 relates to levy of penalty for certain failures.
Section 110
provides for filing of appeal to the Commissioner of Income-tax (Appeals), in
such form and verified in such manner as may be prescribed by the Board, in
cases where the assessee is aggrieved by any assessment order/rectification
order passed by the Assessing Officer.
Section 111
provides for filing of appeal to the Appellate Tribunal in such form and
verified in such manner as may be prescribed by the Board, in cases where the
assessee is aggrieved by any order passed by the Commissioner of Income-tax
(Appeals).
Forms for filing
of appeal to the Commissioner of Income-tax (Appeals) and Income-tax Appellate
Tribunal have been prescribed in the Rules.
Section 109 of
the said Chapter provides that sections 120, 131, 133A, 156, 178, 220 to 227,
229, 232, 260A, 261, 262, 265 to 269, 278B, 282 and 288 to 293 of the
Income-tax Act, 1961, shall apply in relation to the Securities Transaction Tax
as they apply in relation to income-tax.
Consequent upon
the levy of Securities Transaction Tax, the following amendments have been
brought in the Income-tax Act.
(i) A new clause (38) has been inserted in section 10
providing for exemption for income from the long term capital gains arising out
of transfer of an equity share in company, or unit of an equity oriented fund,
where such transfer takes place on or after the date on which Chapter VII of
the Finance (No. 2) Act, 2004 comes into force and such transaction is
chargeable to Securities Transaction Tax under the said Chapter.
(ii) A new section 111A has been inserted so as to provide that
short term capital gains arising out of transfer of an equity share in a
company, or unit of an equity oriented fund, where such transfer takes place on
or after the date on which Chapter VII of the Finance (No. 2) Act, 2004 comes
into force and such transaction is chargeable to Securities Transaction Tax
under the said Chapter, shall be charged at the rate of 10%.
(iii) Section 115AD of the Income-tax Act, 1961, relates to tax on
income of Foreign Institutional Investors from securities or capital gains
arising from their transfer. Section 115AD has been amended so as to provide
that income by way of short term capital gains referred to in the newly inserted
section 111A shall be charged at the rate of 10%.
(iv) A new proviso has been inserted in section 48 providing that
any sum paid on account of securities transaction tax under Chapter VII of the Finance
(No. 2) Act, 2004, shall not be allowed as a deduction for the purposes of
computing the income chargeable under the head Capital gains.
(v) A new section 88E has been inserted providing that where the
total income of the assessee in a previous year includes any income chargeable
under the head Profits and gains of business or profession arising from
transactions chargeable to securities transaction tax, he shall be allowed a
deduction of an amount equal to the securities transaction tax paid by him in
respect of transactions chargeable to securities transaction tax entered into
in the course of his business during that previous year, from the amount of
income-tax on such income arising from such transactions.
It has further been
provided that no deduction under this section shall be allowed unless the
assessee furnishes along with the return of income, evidence of payment of STT
in the prescribed form. Rule 20AB has prescribed that evidence of payment of
securities transaction tax on transactions entered in a recognized stock
exchange shall be furnished in Form No. 10DB and evidence of payment of
securities transaction tax on transactions of sale of unit of equity oriented
fund to the mutual fund shall be furnished in Form No. 10DC.
(vi) A new sub-clause (ib) has been inserted in clause (a)
of section 40 providing that any sum paid on account of securities transaction
tax under Chapter VII of the Finance (No. 2) Act, 2004, shall not
be allowed as a deduction for the purposes of computing the income
chargeable under the head Profits and gains of business or profession.
[Chapter VII, sections 5(h), 11, 12, 23, 26, 27]
order
Income-tax
Act
Finance
Act, 2005 - Provisions relating to Banking Cash Transaction Tax
Circular No. 6/2005, dated 25-7-2005
The Finance Act,
2005 has, with effect from 1st June, 2005, introduced a new levy, namely, the
Banking Cash Transaction Tax (BCTT) at the rate of 0.1 per cent on the
following transactions,
(i) withdrawal of cash from an account (other than a saving
account) maintained with a scheduled bank on any single day exceeding Rs.
25,000 by an individual or HUF and Rs. 1,00,000 by other persons;
(ii) receipt of cash on encashment of term deposits with a
scheduled bank on any single day exceeding Rs. 25,000 by an individual or HUF
and Rs. 1,00,000 by other persons.
2. It has been brought to the notice of the
Government that scheduled banks are also collecting BCTT on the transactions of
withdrawals of cash made by other banks (both scheduled and non-scheduled,
including co-operative banks) from their accounts maintained with the scheduled
banks. Ordinarily, such withdrawals are purely for enabling the drawer banks to
meet their normal banking requirements, and such transactions cannot be equated
with cash transaction of regular account holders. As there is no intention to
levy BCTT on bank-to-bank transactions, the Government has decided that
transactions of withdrawal of cash from an account maintained by a scheduled
bank or non-scheduled bank (including a co-operative bank) with a scheduled
bank will not be liable to BCTT. Similarly, the transactions of receipt of cash
from any scheduled bank on encashment of term deposits in the name of a
scheduled bank or non-scheduled bank (including a co-operative bank) will also
not be liable to BCTT. Accordingly, all the scheduled banks are advised not to
collect BCTT on such bank-to-bank transactions.
3. For this purpose, a non-scheduled bank means
a banking company as defined in clause (c) of section 5 of the Banking
Regulation Act, 1949, which is not a scheduled bank.
F.No. 414/76/2005-IT(Inv. I)
Government of
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
Dated : 24th
August, 2005
Subject:
Furnishing of Annual Information return under section 285BA of the Income tax Act, 1961
Section 285BA of
the Income-tax Act, 1961 requires certain specified persons (filers) to file an
Annual Information Return (AIR) in respect of specified financial transactions
registered or recorded by him during a financial year. The nature of the
transactions and the threshold value above which information has to be
submitted in the AIR are prescribed in the Table in Rule 114E of IT Rules,
1962, a copy of which is enclosed as Annexure
A. Rule 114E has been amended vide notification
no.182/2005 dated 11.7.2005. The form in which the return is to be filed is
Form no.61A, notified vide notification no.185/2005, a copy of which is
enclosed as per Annexure B. The C.B.D.T. has authorized M/s National
Securities Depositories Ltd. (NSDL), Trade World, 4th Floor, Kamala Mills
Compound, Lower Parel, Mumbai 400 013 as the agency authorized to receive AIRs
on behalf of the Commissioner of Income-tax (Central Information Branch).The
filers can furnish the AIR with the facilitation centres of NSDL located in
different parts of the country. The addresses of these facilitation centres are
available on the website www.incometaxindia.gov.in and www.tin.nsdl.com.
2. The filer is
required to quote his Folio number in para 3 of Part A of form 61A and para 4
of Part B of the form 61A for filing of AIR. This folio number will be the
unique identity of the filer for all purposes of AIR. It has been decided that
the folio number will be, in the case of government filers, the TAN of the
filer, and in the case of non-government filers the TAN of the principal office
of the person filing the AIR. Persons filing AIR should quote TAN as above in
both Part A and Part B of form no.61A in the relevant column of AIR. It is
further clarified that persons filing annual information return should furnish
only one return even if they may have more than one branch.
3. Item no. 1 of the
Table in Rule 114E specifies that transactions involving aggregate cash
deposits of ten lakh rupees or more in a savings account of a person are to be
reported by the filer. It is clarified that only the aggregate of all the cash
deposits in the savings account of a person is required to be reported as one
transaction and the date for the transaction is to be mentioned as the last
date of the financial year, i.e 31.3.05 in respect of transactions for the
financial year 2004-05.
4. Item no. 2 of the
Table in Rule 114E specifies that transactions involving aggregate payments of
two lakh rupees or more in respect of credit card of a person are to be
reported by the filer. It is clarified that only the aggregate of all the
payments by a person to the credit card company is required to be reported as
one transaction and the date for the transaction is to be mentioned as the last
date of the financial year, i.e 31.3.05 in respect of transactions for the
financial year 2004-05.
5. Item nos (3), (4)
& (5) of the Table in Rule 114E specify Receipt from any person of any
amount of rupees or more for acquiring.. Situations may arise where the filer
receives from a transacting party an amount higher than the threshold limit for
allotment of units, bonds, debentures or shares but the actual allotment may
have been made of an amount lower than the threshold value. It is hereby
clarified that all such transactions where the receipt is more than the
threshold limit specified are to be reported in the AIR. It is further clarified
that the amount actually received from a transacting party, and not the amount
relating to the allotment, is to be reported in the AIR.
6. Item no. 6 of the
Table in rule 114E specifies that transactions of purchase or sale by any
person of immovable property valued at thirty lakh rupees or more are to be
reported by the filer. Situations may arise where the transaction is in respect
of a property valued at more than rupees thirty lakhs involving joint parties
and the value for one or more party is less than rupees thirty lakhs. It is
clarified that all such transactions are to be reported in the AIR, giving
requisite details in respect of all the joint parties, even though the value of
the transaction in the hands of one or more of the joint parties is less than
the threshold limit specified in item no. 6 of Table in Rule 114E.
7. Item no. 7 of the
Table in Rule 114E specifies that transactions involving aggregate Receipt from
any person of an amount or amounts aggregating to five lakh rupees or more in a
year for bonds issued by the Reserve Bank of
8. As per sub-rule
(2) of rule 114C, every person receiving any document relating to a transaction
specified in rule 114B has to ensure, after verification, that the PAN has been
duly and correctly quoted in the document. All persons furnishing AIR should,
therefore, verify the PAN quoted by the transacting party before furnishing the
annual information return under section 285BA.
9. With a view to
ensuring that the annual information return conforms to the required
specifications, the person(s) responsible for filing return shall ensure the
following:-
i) Form No. 61A
-Part A is duly filled in and verified and enclosed in paper format with the form no. 61A -Part B in
computer media
ii) The data
structure of the AIR conforms to the data structure prescribed by the
Administrator- Annual Information Return authorized by the Board.
iii) The computer media containing AIR is readable, clean, virus
free and not corrupt
iv) Permanent Account
Number (PAN) of the person responsible for filing AIR (except in cases of
Government departments) is mentioned in Form No. 61A (Part A and Part B).
v) Tax Deduction Account Number (TAN) of the office of the
Principal Officer of the person responsible for filing AIR is mentioned in Form
No. 61A (Part A and Part B) as the folio number for non-government filers and
of the filer in case of government filers. In case TAN is not allotted, the
return should be accompanied by a copy of acknowledgement of application made
for allotment of TAN or duly filled in form no. 49B with the requisite fees
(only for government filers).
vi) The Control Totals of total number of transactions and total
value of all transactions mentioned at item no. 8 and 9 of Form No. 61A(Part A)
tally with the corresponding total at item No. 7 and 8 of Form No. 61A(Part B).
vii) The PAN, name, address, date of transaction, mode of
transaction and amount of the transacting party or each of the joint parties in
respect of every transaction are correctly and properly filled in at item no. 9
of Form 61A (Part B). Where PAN is not required to be obtained under the law,
it shall be mentioned in the form as to whether the transacting party is a government
department or consular office or Form 60 or Form 61, as the case may be, has
been received.
In case the AIR
on the computer readable media is found to be corrupted or does not fulfill the
above guidelines, the filer is expected to make appropriate correction and
resubmit the Return.
(Vikram Sahay)
Secretary to the CBDT
To,
1. The Chairman,
Members and all other officers in CBDT of the rank of Under Secretary and above
2. All Chief Commissioners
and Director Generals of income tax
3. 100 copies to
DIT(RSP & PR) for printing in the quarterly tax bulletin and for circulation as per their usual
mailing list
4. DIT(Recovery),
DIT(Systems), DIT(DOMS), DIT(Vigilance) and DIT(IT)
5. The Comptroller
and Auditor General of
CIRCULAR
FINANCE ACT, 2005 - FBT
Finance Act, 2005 - Explanatory Notes on the
Provisions relating to Fringe Benefit Tax
CIRCULAR
NO. 8/2005, DATED 29-8-2005
The Finance Act, 2005 has introduced a new levy, namely, Fringe Benefit Tax (hereafter referred to as FBT) on the value of certain fringe benefits. The provisions relating to levy of this tax are contained in Chapter XII-H (sections 115W to 115WL) of the Income-tax Act, 1961. This circular seeks to provide a harmonious, purposive and contextual interpretation of the provisions of the Finance Act, 2005 relating to the FBT so as to further the objective of this levy.
2. Objective
2.1 The taxation of perquisites or fringe benefits is justified both on grounds of equity and economic efficiency. When fringe benefits are under-taxed, it violates both horizontal and vertical equity. A taxpayer receiving his entire income in cash bears a higher tax burden in comparison to another taxpayer who receives his income partly in cash and partly in kind, thereby violating horizontal equity. Further, fringe benefits are generally provided to senior executives in the organization. Therefore, under-taxation of fringe benefits also violates vertical equity. It also discriminates between companies which can provide fringe benefits and those which cannot thereby adversely affecting market structure. However, the taxation of fringe benefits raises some problems primarily because-
(a) all benefits cannot be individually attributed to employees, particularly in cases where the benefit is collectively enjoyed;
(b) of the present widespread practice of providing perquisites, wherein many perquisites are disguised as reimbursements or other miscellaneous expenses so as to enable the employees to escape/reduce their tax liability; and
(c) of the difficulty in the valuation of the benefits.
2.2 In India, prior to assessment year 1998-99, some perquisites/fringe benefits were included in salary in terms of section 17 and accordingly taxed under section 15 of the Income-tax Act in the hands of the employee and a large number of fringe benefits were taxed by the employer-based disallowance method where the quantum of the disallowance was estimated on a presumptive basis.
In practice, taxation of fringe benefits by the employer-based disallowance method resulted in large-scale litigation on account of ambiguity in defining the tax base. Therefore, the taxation of fringe benefits by the employer-based disallowance method was withdrawn by the Finance Act, 1997.
However, the withdrawal of the provisions relating to taxation of fringe benefits by the employer-based disallowance method resulted in significant erosion of the tax base. The Finance Act, 2005 has introduced a new levy, namely, the FBT as a surrogate tax on employer, with the objective of resolving the problems enumerated in para 2.1 above, expanding the tax base and maintaining equity between employers.
3. Tax base (What is liable to FBT?)
3.1 The tax base for the purposes of FBT is the value of fringe benefits provided or deemed to have been provided by an employer to his employees during the previous year. The determination of the tax base comprises three elements:
(a) the scope of the term fringe benefits provided;
(b) the scope of the term fringe benefits deemed to have been provided; and
(c) the basis of valuation of (a) and (b)
It is based on a presumptive method applied to certain heads of expenditure as a measure/indicator of fringe benefits.
3.2 The scope of the term fringe benefits provided is defined in sub-section (1) of section 115WB to mean any consideration for employment provided by way of-
(a) any privilege, service, facility or amenity, directly or indirectly, provided by an employer, whether by way of reimbursement or otherwise, to his employees (including former employee or employees);
(b) any free or concessional ticket provided by the employer for private journeys of his employees or their family members; and
(c) any contribution by the employer to an approved superannuation fund for employees.
3.3 As pointed out in para 2.1, many perquisites are disguised as reimbursements or other miscellaneous expenses so as to enable employees to escape/reduce tax on their real income. There are two alternate methods to identify such disguised payments to employees: the presumptive method and the discretionary method. Under the presumptive method, the FBT base can be estimated on a presumptive basis by using certain indicators like sales, number of employees, number of cars, number of houses, certain items of expenses, etc. Such a method has the virtue of simplicity, minimum disputes, low compliance cost, and less administrative burden. Accordingly, the scope of the term fringe bene-fits deemed to have been provided is defined in sub-section (2) of section 115WB so as to provide that fringe benefits shall be deemed to have been provided by the employer if he has incurred any expense on, or made payment for, the purposes summarized below:-
(A) entertainment;
(B) provision of hospitality of every kind to any person, whether by way of food or beverages or in any other manner excluding food or beverages provided to the employees in the office or factory or non-transferable paid vouchers usable only at eating joints or outlets;
(C) conference excluding fee for participation by the employees in any conference;
(D) sales promotion including publicity but excluding specified expenditure on advertisement;
(E) employee welfare excluding any expenditure or payment made to fulfil any statutory obligations or mitigate occupational hazards or provide first aid facilities in the hospital or dispensary run by the employer;
(F) conveyance, tour and travel (including foreign travel);
(G) use of hotel, boarding and lodging facilities;
(H) repair, running (including fuel) and maintenance of motor cars and the amount of depreciation thereon;
(I) repair, running (including fuel) and maintenance of aircrafts and the amount of depreciation thereon;
(J) use of telephone (including mobile phone) other than expenditure on leased telephone lines;
(K) maintenance of any accommodation in the nature of guest house other than accommodation used for training purposes;
(L) festival celebrations;
(M) use of health club and similar facilities;
(N) use of any other club facilities;
(O) gifts; and
(P) scholarships.
3.4 The method of computation of the value of fringe benefits provided or deemed to have been provided for purposes of levy of the FBT is provided for in sub-section (1) of section 115WC. In terms of the said provision, the value of the fringe benefits provided or deemed to have been provided shall be the aggregate of:-
(a) cost of free or concessional ticket for private journeys of the employees or their family members as provided by the employer to the general public as reduced by the amount, if any, paid by, or recovered from, his employee or employees;
(b) the actual amount of contribution made by the employer to an approved superannuation fund for the employees; and
(c) a specified percentage of each of the expenses enumerated as items (A) to (P) in the earlier paragraph. In case of the items (A) to (K), the specified percentage is 20% and for items (L) to (P) it is 50% of the expenses referred to therein, subject to the following exceptions :
(i) Where the employer is engaged in the business of hotel, a lower rate of 5% of the expenses incurred on hospitality have been specified for purposes of calculating the liability under the FBT;
(ii) Where the employer is engaged in the construction business, 5% of the expenses in the nature of conveyance, tour and travel (including foreign travel) have been specified;
(iii) In the case of an employer engaged in the manufacture or production of pharmaceuticals or computer software, the value of fringe benefit under the heads conveyance, tour and travel (including foreign travel) and use of hotel, boarding and lodging facilities is restricted to 5% of such expenses;
(iv) Where the employer is engaged in the carriage of passengers or goods by motor car, a lower rate of 5% of expenses on repair, running (including fuel) and maintenance of motor cars and depreciation thereon has been specified;
(v) In the case of an employer engaged in the
carriage of passengers or goods by aircraft, the value of fringe benefits under
the head expenses on repair, running (including fuel) and maintenance of
aircrafts and depreciation shall be Nil.
3.5 Further, sub-section (3) of section 115WB provides that the privilege, service, facility or amenity referred to in sub-section (1) of the said section does not include perquisites in respect of which tax is paid or payable by the employee.
4. Taxable Entities (Who is liable to pay the tax?)
4.1 The FBT is payable by an employer who is,-
(i) a company;
(ii) a firm;
(iii) an association of persons or a body of individuals, excluding any fund, trust or institution eligible for exemption under clause (23C) of section 10 or registered under section 12AA;
(iv) a local authority; or
(v) an artificial juridical person.
4.2 The tax on fringe benefits is payable by the employer even if he is not liable to pay income tax on his total income computed in accordance with the provisions of the Income-tax Act other than the provisions of Chapter XII-H.
Tax Rate
5. FBT shall be payable at the rate of 30% of the value of fringe benefits computed in the manner provided in section 115WC.
6. Payment of FBT
6.1 The FBT is to be paid in advance during any financial year in respect of the current fringe benefits which would be chargeable to tax in the assessment year following that financial year. The employer is required to pay advance tax at the rate of 30% of the current fringe benefits paid or payable in each quarter. The advance tax is to be paid on or before the 15th of the month following that quarter. However, in the case of the last quarter ending on the 31st of March of the financial year, the advance tax shall be payable on or before the 15th day of March of that year. The advance tax for the first three quarters is to be paid on the basis of actual expenditure incurred in each quarter. However, the last instalment of the advance tax may be paid on an estimate basis, as the same has to be paid before the closure of the financial year.
6.2 Failure to pay advance tax for any quarter, or payment less than 30% of the value of fringe benefits in that quarter, will attract interest at the rate of 1% on the shortfall, for each month or part of the month for which such shortfall continues.
7. Return of Fringe Benefits
7.1 An employer who has paid or made provision for payment of fringe benefits to his employees during the previous year is required to furnish a return of fringe benefits in the prescribed form and manner to the Assessing Officer before the due date. In the case of a company or an employer other than a company whose accounts are required to be audited, the due date is the 31st of October of the assessment year. In the case of any other employer, the due date for filing the return of fringe benefits is the 31st of July of the assessment year. After the due date, the Assessing Officer may issue a notice to the assessee requiring him to furnish a return in the prescribed form and manner within a period of thirty days.
7.2 Failure to furnish a return of fringe benefits or delayed filing of such return will result in the levy of interest at the rate of 1% for each month of delay or till the assessment is made, on the amount of tax on the value of fringe benefits.
8. Assessment
8.1 The Assessing Officer is required to make an assessment of the return of fringe benefits furnished by the employer under section 115WE and determine the tax or interest payable by him or refund due to him. The procedure for assessment under this section is similar to the corresponding provisions for assessment of a return of income under section 143 of the Act.
8.2 Where the employer fails to furnish a return of fringe benefits or fails to comply with the terms of a notice issued under section 115WE(2), the Assessing Officer is required to make the assessment to the best of his judgment, after giving the assessee a reasonable opportunity of being heard. The provisions of section 115WF correspond to the provisions of section 144 in relation to assessment of a return of income.
8.3 Where the Assessing Officer has reason to believe that any fringe benefits chargeable to tax have escaped assessment for any assessment year, section 115WG provides for the reassessment of such fringe benefits which have escaped assessment. This provision corresponds to section 147 of the Act in relation to income escaping assessment.
8.4 Section 115WH requires the Assessing Officer to serve a notice on the assessee before making an assessment or reassessment under section 115WG requiring the assessee to file a return in the prescribed form and manner. The notice can be issued after the Assessing Officer records his reasons in writing for doing so. However, no notice can be issued for an assessment year beyond 6 years from the relevant assessment year. Further, in a case where the assessment has been completed under sub-section (3) of section 115WE or section 115WG for the relevant assessment year, the Assessing Officer cannot issue a notice for reopening the assessment after the expiry of 4 years, without the approval of the Chief Commissioner or the Commissioner.
9. Application of other provisions of the Act
9.1 All other provisions of the Act relating to income-tax authorities, appeal, collection and recovery of taxes, penalties, prosecution, etc., shall apply to fringe benefits also, unless otherwise provided in Chapter XII-H.
10. Treatment of FBT
10.1 The FBT shall not be allowed as a deduction in computing the income chargeable under the head profits and gains of business or profession.
11. Frequently asked questions
11.1 A number of issues were raised by the trade and industry at different fora after the presentation of the Finance Bill, 2005 and also after its enactment. The questions and answers in the following section seek to clarify these issues.
What are the pre-requisites for the levy of FBT?
1. FBT is payable by a person if he satisfies the following conditions:-
(i) He is an employer;
(ii) He has employees based in
(iii) He is a company or a firm or an association of persons or a body of individuals or a local authority or an artificial juridical person;
(iv) His income is not exempt under section 10(23C) of the Income-tax Act or he is not registered under section 12AA;
(v) He has provided the following fringe benefits:-
(a) contributes to an approved superannuation fund for employees;
(b) provides free or concessional tickets for private journeys of employees or their family members;
(vi) He has, during the course of his business or profession (including any activity whether or not such activity is carried on with the object of deriving income, profits or gains) incurred any expense on, or made any payment for, the purposes referred to in clauses (A) to (P) of sub-section (2) of section 115WB of the Income-tax Act. These purposes are enumerated in para 3.3 of this circular.
Whether employer-employee relationship is a
pre-requisite for the levy of FBT?
2. Yes.
Whether FBT is payable by an entity having no
employee? For example, will law firms having retainer-relationship arrangements
and no employees be liable to pay FBT?
3. An entity, which does not have any employee on its rolls, will not be liable to FBT. Therefore, law firms having retainer-relationship arrangements and no employees will not be liable to FBT.
Whether FBT is leviable on a company (registered
under section 25 of Companies Act) even if it is registered u/s 12AA or its
income is exempt
u/s 10(23C)?
4. FBT is not payable by a trust, fund or institution if its income is exempt under section 10(23C) or it is registered under section 12AA of the Income-tax Act. Therefore, a company registered under section 25 of the Companies Act will also not be liable to FBT if its income is exempt under section 10(23C) or such company is registered under section 12AA of the Income-tax Act.
FBT is a presumptive tax. Is the presumption
rebuttable?
5. FBT is payable by an entity if it is an employer. There is no presumption in law regarding an entity being an employer. Therefore, whether an entity is an employer or not is rebuttable.
The value of fringe benefit is determined by a
presumptive method by applying the proportions specified in section 115WC to
the fringe benefits provided and deemed to have been provided by the employer
and enunciated in section 115WB. The presumption implicit in the proportions
specified in section 115WC is not rebuttable.
However, the amount of expense incurred or payment made, for the purposes listed in clauses (b) and (c) of sub-section (1) and clauses (A) to (P) of sub-section (2) of section 115WB, is to be determined according to the books of account.
What happens if the value of fringe benefits is
more than determined on presumptive basis? Will the assessee not be obliged to
pay tax on the actual expenditure on fringe benefits?
6. The tax base relating to FBT is calculated on a presumptive basis as a proportion of the expenses incurred for the purposes referred to in sub-section (2) of section 115WB. Whether the actual expenditure on fringe benefits is more or less than the value of the fringe benefits calculated on the presumptive basis is of no consequence/relevance.
Whether the deeming provisions of sub-section (2)
of section 115WB quantify the fringe benefits referred to in clause (a) of
sub-section (1) of section 115WB ? If not, how are the benefits referred to in
the said clause to be valued?
7. In terms of the provisions of sub-section (1)
of section 115WA, an employer in
(a) provided by him to his employees; and
(b) deemed to have been provided by him to his employees.
The scope of fringe benefits provided or deemed to have been provided is defined in section 115WB. Sub-section (1) of the said section defines the scope of fringe benefits provided by the employer to his employees. Similarly, sub-section (2) of the said section defines the scope of fringe benefits deemed to have been provided by the employer to his employees. Therefore, sub-section (2) expands the scope of sub-section (1) through a deeming provision.
The provision relating to the computation of the value of the fringe benefits is contained in section 115WC. It is a settled principle of law that where the computation provision fails, the charging section cannot be effectuated. Therefore, if there is no provision for computing the value of any particular fringe benefit, such fringe benefit, even if it may fall within clause (a) of sub-section (1) of section 115WB, is not liable to FBT.
Whether the value of any benefit provided by the
employer to its employees by way of allotment of shares, debentures, or
warrants directly or indirectly under any Employees Stock Option Plan or Scheme
of the company, is liable to FBT?
8. The value of any benefit provided by the employer to its employees by way of allotment of shares, debentures, or warrants directly or indirectly under any Employees Stock Option Plan or Scheme of the company is a fringe benefit within the meaning of clause (a) of sub-section (1) of section 115WB. However, in the absence of a computation provision in respect of such benefits, the charging section fails. Therefore, the value of such benefits is not liable to FBT.
Whether reimbursement of expenditure to an
employee purely of a business nature is liable to FBT? (For example, payment of
sales tax or stamp duty paid on behalf of the employer and reimbursed later to
him).
9. Reimbursement of expenditure to an employee is a fringe benefit provided to an employee within the meaning of clause (a) of sub-section (1) of section 115WB. However, the FBT is payable only in respect of such reimbursements which are for the purposes listed in clauses (A) to (P) of sub-section (2) of section 115WB and for which the computation is provided in section 115WC. If computation is not provided in respect of any fringe benefit provided or deemed to have been provided, such benefit is not liable to FBT.
Does section 115WB create two classes of fringe
benefits under sub-sections (1) and (2) i.e., fringe benefits and deemed fringe
benefits?
10. Section 115WB defines fringe benefits. Sub-section (1) refers to the specific fringe benefits provided by the employer to employees, whereas sub-section (2) provides that fringe benefits shall be deemed to have been provided by the employer to his employees if the employer incurs any expense on or makes any payment for the purposes enumerated in clauses (A) to (P).
What is the meaning of the word purposes in the
term for the following purposes referred to in sub-section (2) of section
115WB?
11. The word purposes in the term for the following purposes referred to in sub-section (2) of section 115WB refers to the proximate purpose and not the distant purpose. For example, if expenditure is incurred on travel for discussing an advertisement plan for a product, such expenditure shall be construed to have been incurred for the proximate purpose of travelling and not the ultimate purpose of advertisement and accordingly liable to FBT.
If a company incurs expenditure on travelling,
hotel etc. wholly and exclusively for executing an assignment for its client
and the client reimburses the company for such out of pocket expenses, whether
the company would be liable for FBT in respect of such out of pocket expenses?
12. Since the expenditure on travelling, hotel etc. is incurred by the company and not by the client, the company is liable to FBT in respect of such expenditure. However, the client will not be liable to FBT in respect of payment for such expenditure.
Whether expenditure incurred by a professional
like a lawyer or auditor on conveyance, tour and travel, and reimbursed by the
client, is liable to FBT in the hands of the client?
13. The reimbursement of expenditure incurred for the purposes of conveyance, tour and travel is essentially a component of professional fee paid by the client to the lawyer or auditor. Accordingly, such expenditure is not liable to FBT in the hands of the client.
Do the words any expense in sub-section (2) of
section 115WB refer to all expenses or restricted to those incurred on the
employees and their families?
14. Under sub-section (2) of section 115WB, fringe benefits shall be deemed to have been provided by the employer to his employees, if the conditions specified therein are satisfied. Hence, if the employer has incurred any expense for any one of the purposes enumerated in clauses (A) to (P) of sub-section (2) of section 115WB, the whole of that expense falling under the relevant head shall be deemed to have been provided. No segregation as expenses incurred on employees or expenses incurred on others is permissible.
Whether the expenses need to be segregated into
those incurred for official purposes and those for personal purposes?
15. Fringe benefit is deemed to have been provided if the employer has incurred expenses for any of the purposes referred to in sub-section (2) of section 115WB. A proportion (20% or 50% or 5% as the case may be) of the whole of the expenses falling under the relevant head in sub-section (2) of section 115WB will be taken as the taxable value of the fringe benefits. There is no requirement to segregate the various expenses referred to in section 115WB, between those incurred for official purposes and personal purposes.
Whether pre-operative expenses falling within the
categories specified in section 115WB(2) would be covered in the scope of
fringe benefits?
16. Any expenditure incurred for the purposes referred to in clauses (A) to (P) of sub-section (2) of section 115WB is liable to FBT irrespective of whether such expenditure is incurred prior to commencement of the business or thereafter.
Whether FBT needs to be shown above the line or
below the line in the profit and loss account?
17. For the purposes of computation of total income under the Income-tax Act, FBT is not an allowable deduction under sub-clause (ic) of clause (a) of section 40 of the Income-tax Act. However, the accounting treatment of FBT for the purposes of reporting to shareholders and complying with the obligations under the Companies Act will be governed by the Accounting Standards issued by the Institute of Chartered Accountants of India.
Whether FBT would apply to payment of advance
towards expenses to be incurred in the future?
18. FBT would be payable in the year in which the expenditure is incurred. Therefore, FBT would not be payable on payment of advance towards expenses to be incurred in the future.
In a case where the expenses are capitalized and
amortized over a period, whether FBT will be payable over the whole of the
amount capitalized or restricted to the amount amortized during the year?
19. FBT is payable in the year in which the expenditure is incurred irrespective of whether the expenditure is capitalized or not. However, the same expenditure will not be liable to FBT again in the year in which it is amortized and charged to profit.
Is FBT payable by an Indian company having
employees based both in and outside India on its total (global) expenditure
incurred by it for the purposes referred to in clauses (A) to (P) of
sub-section (2) of section 115WB?
20. FBT is payable on the value of fringe
benefits provided or deemed to have been provided to employees based in India
and determined on a presumptive basis in accordance with the provisions of
section 115WC of the Income-tax Act. The value of such fringe benefits is
determined, inter alia, as a proportion of the total amount of expenses
incurred for some identified purposes. In the case of an Indian company having
employees based both in India and in a foreign country, FBT is payable on the
proportion (50 per cent, 20 per cent or 5 per cent, as the case may be) of the
total amount of expenses incurred for the purposes referred to in clauses (A)
to (P) of sub-section (2) of section 115WB and attributable to the
operations in India. If the company maintains separate books of account for its
Indian and foreign operations, FBT would be payable on the amount of expenses
reflected in the books of account relating to the Indian operations. If
however, no separate accounts are maintained, the amount of expenses
attributable to Indian operations would be the proportionate amount of the
global expenditure. Further, such proportionate amount shall be determined by
applying to the global expenditure the proportion which the number of employees
based in
Whether an Indian company carrying on business
outside
21. An Indian company would be liable to the FBT
in
Does FBT apply to foreign companies?
22. FBT will apply to foreign companies if it has
employees based in
Whether FBT is chargeable from an entity even if
its income is exempt under a Double Taxation Avoidance Agreement (DTAA)?
23. Exemption, if any, under a DTAA is only in respect of income of the entity. However, FBT is a liability of an entity qua employer. Therefore, FBT is payable by a non-resident employer if it fulfils the various conditions relating to its chargeability laid down in Chapter XII-H of the Income-tax Act.
Whether foreign companies sending their employees
on tour to
24. If a foreign company is not an employer in
Whether a foreign company not having any PE in
25. A foreign company not having any permanent
establishment in
Does FBT apply to liaison offices?
26. FBT will apply to liaison offices of foreign
companies in
If foreign company has a permanent establishment
(PE) in
27. In a case where a foreign company has a permanent establishment in India, FBT is payable on the expenditure incurred or payment made for the purposes referred to in clauses (A) to (P) of sub-section (2) of section 115WB and attributable to the operations of the permanent establishment of the foreign company in India irrespective of whether the expenditure attributable to the operations of the permanent establishment are incurred in India or outside India.
Whether credit for FBT would be available in the
foreign country of residence?
28. The credit for FBT paid in
Salary allowance/benefits to persons posted in
overseas countries attract tax in those countries. However, such persons are
exempt from taxation in
29. The introduction of FBT will have no adverse
effect on the tax liability of persons posted in overseas countries. Such
persons will continue to pay tax in the foreign countries and enjoy the benefit
of DTAA, if any, in
Whether FBT is payable by foreign companies
deputing personnel to
30. A foreign company deputing personnel to
1. the salary, as defined in section 17 of the
Income-tax Act, of such employees is liable to income-tax in
2. the company has employees based in
Further, if the foreign company incurs expenditure and claims reimbursement for such expenditure, the foreign company would be liable to FBT on expenditure so incurred for the purposes enumerated in sub-section (2) of section 115WB. However, if the Indian entity bears the expenses of such personnel deputed by the foreign company and includes those expenses under the appropriate head in clauses (A) to (P) of sub-section (2) of section 115WB, such expenses will be subjected to FBT since it is a presumptive tax.
Whether FBT is payable by a foreign company even
if its employee(s) are not taxable in terms of the Article relating to
dependent personal services in any treaty?
31. If a foreign company has employees based in
Whether gross expenses or net expenses (i.e. net
of recovery) are to be considered for the purposes of FBT? For example, part of
the expenses on various items like travel, may be recovered from the employees.
Therefore, whether FBT would be levied on the gross travel expenditure or on
the net travel expenditure?
32. Where the employer recovers from its employees, any amount of expenditure incurred for the purposes listed in clauses (A) to (P) of sub-section (2) of section 115WB, the value of the fringe benefits shall be determined with reference to the net expenditure and not gross expenditure. For example, if an employer incurs a total expenditure of Rs. 10 lakhs on repair, running and maintenance of motor-cars, and recovers Rs. 1 lakh from its employees, the value of the fringe benefit in respect of repair, running and maintenance of motor-cars shall be calculated on the basis of the net expenditure of Rs. 9 lakhs (i.e., Rs. 10 lakhs minus Rs. 1 lakh).
At times, an employer could have cost sharing
agreement with its group companies wherein a particular item of cost will be shared
in an agreed proportion. In such a case, for administrative convenience, the
employer may pay for the total cost and claim reimbursement from other group
companies. Whether the employer making the payment is liable to FBT on the
whole amount or only in respect of his share?
33. The share of each of the group companies in the total expenditure is the expenditure incurred by the respective company though the payment is made by one company. Hence, the company making the payment shall be liable for FBT only in respect of its share. Similarly, the other group companies will be liable to FBT in respect of their respective shares.
Section 115WC(1)(a) provides for valuation of
fringe benefits referred to in section 115WB(1)(b), at cost at which such
benefits is provided by the employer to the general public. Does section
115WB(1)(b) therefore, apply only to a situation where the employer is in the
business of carrying passengers, i.e., airline companies, surface transport
companies, etc.?
34. The provisions of clause (b) of sub-section (1) of section 115WB read with the provisions of clause (a) of sub-section (1) of section 115WC make it clear that they are intended to apply only to employers engaged in the carriage of passengers or goods or to agents of such employers. These provisions are not applicable to any other employer. Expenditure on free or concessional ticket by such other employers will fall within the scope of clause (F) of sub-section (2) of section 115WB and will be liable to FBT.
Whether expenses disallowed under section 37 of
the Income-tax Act on the plea that the expenses are personal in nature, would
also be liable to FBT?
35. Section 37 of the Income-tax Act provides that any expenditure laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head profits and gains of business or profession. Accordingly, any expenditure that is incurred for personal purposes is not allowable as deduction. Sub-section (2) of section 115WB provides for a levy on fringe benefits estimated on a presumptive basis using certain expenses as a measure. To the extent the expenses incurred by the employer are personal in nature and have, therefore, been disallowed under section 37 of the Income-tax Act, such disallowance would not be liable to FBT. For example, let us assume a firm, being an employer, has incurred an expenditure of Rs. 100 towards tour and travel, of which Rs. 40, is personal in nature. Therefore, the amount of Rs. 40, being personal in nature, will be disallowed under section 37 of the Income-tax Act, and FBT will be levied on 20 per cent of the amount of Rs. 60 (Rs. 100 - Rs. 40).
Whether expenditure identified as bogus
expenditure in income tax assessment will be liable to FBT?
36. Sub-section (2) of section 115WB provides that fringe benefits shall be deemed to have been provided by the employer to his employees if the employer incurs any expense on or makes any payment for the purposes referred to in clauses (A) to (P) of the said sub-section.
If an expenditure is found to be bogus on the plea that it has not been actually incurred, the same is not allowed as a deduction under section 37 of the Income-tax Act. Accordingly, FBT will be levied only on such expenditure as is actually incurred for the purposes referred to in sub-section (2) of section 115WB. For example, if an employer has incurred Rs. 1000 towards travel, of which Rs. 200 is disallowed under section 37 of the Income-tax Act on the plea that it is bogus, FBT will be payable on 20 per cent of Rs. 800 (Rs. 1000 minus Rs. 200).
Whether, for the purposes of payment of advance
tax, depreciation should be taken on a pro rata basis or lumped in the last
quarter?
37. For the purposes of payment of advance tax on fringe benefits tax depreciation should be taken on a pro rata basis for payment of advance FBT.
Would contributions to approved gratuity fund or
provident fund attract FBT?
38. Section 115WB read with section 115WC does not specifically contain any provision for chargeability of contribution to approved gratuity fund or provident fund to FBT. Accordingly, the contribution to the aforesaid funds would not attract levy of FBT.
Whether the provisions of FBT will apply to an
assessee who has practically closed the business but is in the process of
winding up?
39. Every employer, who incurs any expenditure of the nature referred to in sub-section (1) or sub-section (2) of section 115WB, would be liable to FBT.
Whether the FBT will be applicable to a company or
a firm which is deriving income from house property like warehouses, IT park
etc. and provides lot of other facilities in the course of letting out?
40. FBT is payable in respect of the fringe benefits provided or deemed to have been provided by an employer to his employees. Accordingly, every company or firm, being an employer is liable to FBT.
What should be the basis for allocating common
expenditure in the case of an employer having multiple businesses including
specified business such as hotels, construction, and pharmaceuticals which
attract lower rate of FBT?
41. FBT is payable by an entity qua employer. Therefore, the expenditure incurred or payment made, for the various purposes referred to in clauses (A) to (P) of sub-section (2) of section 115WB, should be attributed to the various businesses on the basis of the share of the expenditure on wages and salaries in a particular business in the total expenditure on wages and salary in all businesses. Where separate books of account are maintained for different business activities, the expenditure of the nature referred to in clauses (A) to (P) of sub-section (2) of section 115WB shall be taken with reference to each business activity.
How should the accounting records be modified in
order to comply with the FBT?
42. There are no special requirements for
accounting records under the FBT. However, the Institute of Chartered
Accountants of
Whether an employer is liable to FBT only if it is
engaged in business and profession?
43. An employer is liable to FBT if it is engaged in business or profession or any activity, whether or not such activity is carried on with the object of deriving income, profits or gains.
Whether payment of leave travel concession or
assistance to employees is liable to FBT?
44. The value of any travel concession or assistance received by an employee normally fall within the meaning of salary as defined in clause (1) of section 17 of the Income-tax Act. These benefits are taxable under the head Salaries subject to the exemption under clause (5) of section 10 of the Income-tax Act. Accordingly, it would not be liable to FBT. However, if the leave travel concession/assistance is not included in salary as defined in section 17 will be classified as an expense for the purposes referred to clause (F) of sub-section (2) of section 115WB and will accordingly be liable to FBT.
How will the value of a free air ticket provided
by an employer engaged in the business of carriage of passengers or goods by
aircraft be taken e.g., normal fare or concessional fare e.g. apex fare or
senior citizens concessional fare or the actual cost of the ticket to the employer?
45. In terms of the provisions of clause (a) of sub-section (1) of section 115WC, the value of a free or concessional ticket is the cost at which the ticket is provided by the employer to the general public as reduced by the amount, if any, paid by, or recovered from his employees. The cost at which the ticket is provided by the employer to the general public shall be the price of the ticket which an ordinary passenger is expected to pay on the date of purchase of the ticket for the date, time and the class of travel. Similarly, in a case where an open ticket is issued a number of days in advance but the reservation is generally confirmed a few hours before departure, the value of the free or concessional ticket shall be the cost of the ticket which an ordinary passenger seeking reservation a few hours before departure is liable to pay as reduced by the amount, if any, paid by or recovered from the employees.
Whether section 115WB(1)(b) covers only free or
concessional ticket and not leave travel assistance?
46. Section 115WB(1)(b) covers only free or concessional ticket provided by the employer for the private journeys of his employees or their family members.
Whether expenditure incurred by way of allowance to
the employees, of the nature referred to in sub-clause (ii) of clause (14) of
section 10 and specified in sub-rule (2) of rule 2BB like children education
allowance, transport allowance (Rs. 800) granted to employees, which are exempt
in the hands of the employee, liable to FBT?
47. The allowances granted to the employees, of the nature referred to in sub-clause (ii) of clause (14) of section 10 and specified in sub-rule (2) of rule 2BB of Income-tax Rules are neither contributions to an approved superannuation fund nor represent the cost of free and concessional tickets for private journeys of employees or their family members. These allowances fall within the meaning of salary as defined in clause (1) of section 17 of the Income-tax Act and, any expenditure incurred for the purposes of salary, does not fall within the scope of sub-section (2) of section 115WB. Therefore, the allowances of the nature referred to in sub-clause (ii) of clause (14) of section 10, fall outside the scope of clauses (b) and (c) of sub-section (1) as well as sub-section (2) of section 115WB.
Whether lease rent paid or payable for lease of
accommodation for staff (including brokerage paid for the same), against a
fixed sum recoverable from employees, is liable to FBT?
48. The perquisites in the nature of accommodation taken on lease or rent by the employer is neither contribution to an approved superannuation fund nor represent the cost of free and concessional tickets for private journeys of employees or their family members. Such perquisites fall within the meaning of salary as defined in clause (1) of section 17 of the Income-tax Act and, any expenditure incurred for the purposes of salary, does not fall within the scope of sub-section (2) of section 115WB. Therefore, such perquisites fall outside the scope of clauses (b) and (c) of sub-section (1) as well as sub-section (2) of section 115WB.
What is the scope of the expression entertainment
in clause (A) of section 115WB(2)?
49. The meaning of the word entertainment in clause (A) of sub-section (2) of section 115WB is of wide import. It includes all expenditure in connection with exhibition, performance, amusement, game or sport, for affording some sort of amusement and gratification.
An employer has an exclusive training centre which
is used to train its employees on various topics. Would any expenditure in the
nature of food or beverages provided by the employer at such training centre to
the employees attending the training be excluded from fringe benefits by virtue
of the exception provided by section 115WB(2)(B)(i) or (ii)?
50. If an employer owns an exclusive training centre used to train its employees, such training centre shall be construed as an office or a factory within the meaning of the exclusion provided in sub-clause (i) of clause (b) of sub-section (2) of section 115WB. Accordingly, any expenditure on food or beverages provided by the employer at such training centre to the employees is not liable to FBT. However, if the exclusive training centre is hired by the employer on a temporary basis, such training centre cannot be construed as an office or a factory within the meaning of the exclusion provided in sub-clause (i) of clause (b) of sub-section (2) of section 115WB. Therefore, any expenditure on food or beverages provided by the employer at such training centre to the employees is liable to FBT.
Whether expenditure incurred during in-house
employee training would be considered as conference expense and liable to FBT?
51. The FBT is not envisaged for levy on the expenditure incurred for the purposes of imparting in-house training to employees. However, FBT would be payable on any expenditure incurred towards food and beverage, tour and travel, and lodging and boarding in connection with such in-house training of employees.
At times, employees order for food and beverages
in the office premises while working after office hours. The employer
reimburses the cost of such food and beverages to the employee. Would such
reimbursement be considered as any expenditure on, or payment for food or
beverages provided by the employer to his employees in office or factory as per
the exceptions provided by section 115WB(2)(B)(i) so as to be excluded from
fringe benefits? In other words, for the exclusion to operate is it necessary that
the employer has to pay to the supplier directly and not reimburse the
employee?
52. The provisions of sub-clause (i) of clause (B) of sub-section (2) of section 115WB of the Income-tax Act provide for exemption from FBT only in respect of expenditure incurred on food or beverages procured by the employer for providing to his employees in an office or factory. Therefore, if an employer reimburses to the employee expenditure on food or beverages consumed by the employee in the office, such reimbursement would not fall within the scope of sub-clause (i) of clause (B) of sub-section (2) of section 115WB of the Income-tax Act and will be liable to FBT.
Whether expenditure on food vouchers would be
liable to FBT?
53. In terms of the provisions of sub-clause (ii) of clause (B) of sub-section (2) of section 115WB, any expenditure on or payment made through paid vouchers which are not transferable and used only at eating joints or outlets, is not liable to FBT.
Whether expenditure incurred for attending
training programmes organized by trade bodies or institutions is liable to FBT?
54. A training programme entails congregation of a number of persons for discussion or exchange of views. Therefore, expenditure incurred for attending training programmes organized by trade bodies or institutions or any other agency falls within the scope of the provisions relating to expenditure incurred for the purposes of conference contained in clause (C) of sub-section (2) of section 115WB and will be liable to FBT.
Whether expenditure in the nature of fee for
participation by the employees in any conference is liable to FBT?
55. In terms of the provisions of clause (C) of sub-section (2) of section 115WB, expenditure in the nature of fee for participation by the employees in any conference is not liable to FBT. However, if the participation fee includes any expenditure of the nature referred to in clauses (A), (B) and (D) to (P) of sub-section (2) of section 115WB, such expenditure will be liable to FBT.
Whether FBT will apply to the expenditure incurred
for the purposes of conferences of the agents or dealers or development
advisors?
56. In terms of the provisions of clause (C) of sub-section (2) of section 115WB, any expenditure incurred for the purposes of conference is liable to FBT irrespective of whether the conference is of agents or dealers or development advisors or any other persons. Therefore, the expenditure incurred for the purposes of agents or dealers or development advisors is liable to FBT.
Whether payment, for use of brand or to a brand
ambassador or for celebrity endorsement would be expenditure on sales promotion
and publicity and therefore liable to FBT?
57. All expenditure incurred for the purposes of sales promotion and publicity would fall within the scope of clause (D) of sub-section (2) of section 115WB other than any expenditure on advertisement referred to in clauses (i) to (vi) of the proviso to the said clause. Since the expenditure on brand or brand ambassador or celebrity endorsement does not fall within the scope of the proviso to clause (D) of sub-section (2) of section 115WB, such expenditure is liable to FBT.
Whether "sales promotion expenses"
includes brokerage and selling commission in relation to sales paid to direct
selling agents/direct marketing agents and, if so, whether FBT is payable
thereon?
58. Brokerage and selling commission paid for selling goods have been held by courts to be in the nature of ordinary selling expenses. Therefore, the expenditure on brokerage and selling commission is not expenditure for the purposes of sales promotion including publicity within the meaning of clause (D) of sub-section (2) of section 115WB. Accordingly, FBT is not payable on brokerage and selling commission paid for selling goods.
Whether FBT is leviable on expenditure relating to
salesmen appointed by distributors for companys products reimbursed through
credit notes?
59. If the salesmen are the employees of the distributors, reimbursement (by whatever means) of expenses relating to such salesman, is a component of commission/brokerage/service charges/margin to distributors and therefore in the nature of ordinary selling expenses. Such selling expenses do not fall within the meaning of sales promotion including publicity referred to in clause (D) of sub-section (2) of section 115WB and, therefore, not liable to FBT.
Whether sales promotion includes sales discount or
rebates to wholesalers or customers or bonus points given to credit card
customers and, if so, whether FBT is payable thereon?
60. Sales discount or rebates allowed to wholesale dealers or customers from the listed retail price merely represent lesser realization of the sale price itself. The bonus points given to credit card customers are also in the nature of deferred sale discount. Therefore, discounts or rebates or bonus points allowed to customers or wholesale dealers are in the nature of selling expenses and outside the scope of the provisions of clause (D) of sub-section (2) of section 115WB of the Income-tax Act. Accordingly, such discounts or rebates are not liable to FBT.
Whether expenditure on incentives given to
distributors for meeting quantity targets (including free goods for achieving
certain sales target like, 100 free televisions for achieving a target sale of
10,000 televisions and cash incentives adjustable against future supplies) is
liable to FBT?
61. Incentives given to distributors for meeting sales targets (including free goods given as incentive to distributors for achieving certain sales and cash incentives adjustable against future supplies) are in the nature of performance-based commission. Such performance-based commission is in the nature of ordinary selling cost. Therefore, expenditure incurred for the purpose of providing incentives given to distributors for meeting sales targets (including free goods for achieving certain sales target and cash incentives adjustable against future supplies) do not fall within the scope of clause (D) of sub-section (2) of section 115WB and, therefore, not liable to FBT.
Whether product marketing research expenses will
be covered under sales promotion?
62. The expenditure incurred on product marketing research is in the nature of expenditure for the purposes of testing the efficacy of the product. Therefore, such expenditure is outside the scope of the provisions of clause (D) of sub-section (2) of section 115WB relating to sales promotion. Accordingly, expenditure incurred on product-marketing research is not liable to FBT.
For example, if an employer undertakes a product marketing research through a separate marketing agency, the employer is not liable to FBT on payment (including reimbursement) to the marketing agency. However, if the employer carries out the research through its own employees, the expenditure falling under any of the clauses (A) to (P) of sub-section (2) of section 115WB will be liable to FBT in view of the legal maxim that a specific provision in law will override the general provisions of the law. This will be so, notwithstanding the expenditure is for the ultimate purpose of conducting product-marketing research.
Whether expenditure in the nature of call centre
charges for canvassing sales (cold calls) or carrying out post-sales activities
is liable to FBT?
63. Any expenditure in the nature of call centre charges for canvassing sales (cold calls) and carrying out post-sale activities is in the nature of selling cost and therefore, outside the scope of the provisions of clause (D) of sub-section (2) of section 115WB relating to sales promotion. Accordingly, such expenditure is not liable to FBT.
Whether expenditure on distribution of free
medical or other product samples is liable to FBT?
64. The term sales promotion and publicity has not been defined in the Income-tax Act and hence, it should be given its natural meaning. The term is of wide import. Following Honble Supreme Courts decision in the case of Eskayef Ltd. Etc. (245 ITR 116), any expenditure on free medical samples distributed to doctors is in the nature of sales promotion. Therefore, it would be liable to FBT. Similarly, any expenditure on free samples of other products distributed to trade or consumers would also be liable to FBT.
Whether expenditure on making ad-film is liable to
FBT?
65. An ad-film is a medium for advertisement and therefore falls within the scope of clause (i) of the proviso to clause (D) of sub-section (2) of section 115WB. Therefore, any expenditure on making an ad-film is not liable to FBT.
Whether expenditure on free offers (with products)
such as freebies like tattoos, cricket cards or similar products, to trade or
consumers (excluding employees) is liable to FBT? Further, whether expenditure
incurred on the artwork or for payment of royalty charges in respect of such
freebies is liable to FBT?
66. Any expenditure (including expenditure on artwork and royalty charges) on free offers (with products) such as freebies like tattoos, cricket cards or similar products, to trade or consumers (excluding employees) is for the purposes of sales promotion and, publicity and accordingly, liable to FBT.
Whether expenditure incurred for hotel stay, air
ticket charges etc. in relation to customer/clients is liable to FBT?
67. Any expenditure incurred for the purposes of lodging and boarding or travel of customer/clients could be classified either under the provisions of clause (D) or clause (G) of sub-section (2) of section 115WB and, accordingly, liable to FBT.
Whether FBT is payable on payment by the employer
for Group Personal Accident/Workman Compensation Insurance?
68. If the expenditure incurred or payment made by the employer for the purpose of Group Personal Accident/Workman Compensation Insurance is a statutory obligation in terms of the provisions of the Explanation to clause (E) of sub-section (2) of section 115WB, such expenditure will not be liable to FBT. However, if such expenditure is not a statutory obligation, the same would be liable to FBT.
Whether medical reimbursement up to Rs. 15,000
(exempt in the hands of the employees) and medical reimbursement over Rs.
15,000 (taxed as perquisite in the hands of the employee) is liable to FBT?
69. At present, if any sum is paid by the employer for expenditure actually incurred by the employee for medical treatment in an unapproved hospital and it exceeds Rs. 15,000 during the year, such sum is salary as defined in clause (1) of section 17 of the Income-tax Act and liable to income-tax in the hands of the employee. There is no change in this position. Since such sum is taxable in the hands of the employee, the same is not liable to FBT.
However, if any sum is paid by the employer for expenditure actually incurred by the employee for medical treatment in an unapproved hospital and it does not exceed Rs. 15,000 during the year, such sum does not fall within the meaning of salary as defined in clause (1) of section 17 of the Income-tax Act and not liable to income-tax in the hands of the employee. There is no change in this position. Since such sum is not taxable in the hands of the employee, the same is liable to FBT.
Whether expenditure by the employer on Group
Health Insurance or Group Medical Insurance or Group Life Insurance is liable
to FBT?
70. Expenditure by the employer on Group Health Insurance or Group Medical Insurance or Group Life Insurance is for the purposes of employee welfare and, therefore, falls within the scope of clause (E) of sub-section (2) of section 115WB of the Income-tax Act. Accordingly, such expenditure is liable to FBT. However, if such expenditure is a statutory obligation, the same would not be liable to FBT.
Whether expenditure incurred at a
hospital/dispensary, not maintained by the employer, for injuries incurred
during the course of employment, is liable to FBT?
71. In terms of the Explanation to clause (E) of sub-section (2) of section 115WB, any expenditure incurred or payment made to provide first aid facilities in a hospital or dispensary run by the employer is not considered as expenditure for employees welfare. Therefore, if the expenditure is incurred for treatment of injuries suffered in the course of performance of duties but the treatment is at a hospital/dispensary not maintained by the employer, such expenditure is liable to FBT. However, if such expenditure is pursuant to a statutory obligation, it will not be liable to FBT.
Whether subsidy provided to a school not meant
exclusively for employees children is liable to FBT?
72. Any subsidy provided to a school not meant exclusively for employees children is in the nature of expenditure incurred for the proximate purposes of promoting employee welfare. Therefore, such subsidy falls within the scope of clause (E) of sub-section (2) of section 115WB relating to employees welfare and accordingly liable to FBT.
Whether expenditure incurred on provision and
maintenance of facilities like garden, site cleaning, light decoration, school,
library, mess, television, cable connection etc. in employees colonies is
liable to FBT?
73. Any expenditure incurred for the provision of facilities like garden, site cleaning, light decoration, school, library, mess, television, cable connection etc. in employees colonies is for the purposes of promoting employee welfare. Therefore, such expenditure falls within the scope of clause (E) of sub-section (2) of section 115WB relating to employees welfare and accordingly liable to FBT.
Whether FBT is payable on expenditure incurred on
providing safety shoes or uniforms or equipments to the employees or for the
purposes of reimbursement of washing charges?
74. Any expenditure incurred for meeting the employers statutory obligations under the Employment Standing Orders Act, 1948, fall within the scope of the exclusion in the Explanation to clause (E) of sub-section (2) of section 115WB. Therefore, expenditure incurred on providing safety shoes or uniform or equipment to the employees or incurred for the purposes of reimbursement of washing charges, is exempt from FBT to the extent such expenditure is incurred to meet such statutory obligation.
Whether reimbursement of expenditure on books and
periodicals to employees is liable to FBT?
75. Any reimbursement of expenditure on books and periodicals to employees is in the nature of expenditure for the purposes of employee welfare and, accordingly, falls within the scope of clause (E) of sub-section (2) of section 115WB. Hence, such reimbursement is liable to FBT.
Whether expenditure incurred on prizes/rewards to
employees for achievements is liable to FBT?
76. Any expenditure incurred on prizes/rewards to employees for achievements would fall within the scope of clause (E) of sub-section (2) of section 115WB relating to employee welfare and accordingly be liable to FBT.
Whether expenditure incurred on transportation
facility provided to the children of employees is liable to FBT?
77. The expenditure incurred for the purpose of providing transport facility to the children of employees is in the nature of expenditure on employees welfare within the meaning of clause (E) of sub-section (2) of section 115WB. Accordingly, such expenditure is liable to FBT.
Whether the reimbursement in respect of car
expenses on the basis of bills submitted and drivers salary on the basis of a
declaration provided, booked as salary, though treated as non-taxable
reimbursement, attract FBT?
78. The reimbursement in respect of car expenses on the basis of bills submitted and drivers salary on the basis of declaration provided fall outside the scope of salary within the meaning of clause (1) of section 17 of the Income-tax Act. Therefore, any expenditure towards such reimbursement is effectively expenditure incurred by the employer for the purposes of conveyance, tour and travel. Since the expenditure for such reimbursement is for the purposes referred to in clause (F) of sub-section (2) of section 115WB relating to conveyance, tour and travel, and is liable to FBT.
On some occasions, employers prefer to give a per
diem allowance for meeting the expenditure on lodging and boarding rather than
making payments on actual basis. The per diem allowance is exempt from tax
under section 10(14). Would this be subject to FBT?
79. Since the per diem allowance is paid for the purposes of use of hotel, boarding and lodging facilities, it would fall within the scope of clause (G) of sub-section (2) of section 115WB. However, the employees will not be liable to pay income-tax on any surplus accruing to him from such allowance.
Where the business consists partly of software
development and partly of manufacture of say, FMCG products, whether the
benefit of valuation at a lower rate of 5% instead of 20% of conveyance and
travel expenditure for charge of FBT be available, and if yes, on what quantum?
80. FBT is a tax qua employer. Therefore, the expenditure of the nature referred to in clauses (A) to (P) of sub-section (2) of section 115WB is to be taken into account with reference to nature of the business. Accordingly, the expenditure relatable to the business of manufacture or production of computer software would alone qualify for lower rate for valuation of fringe benefits relating to expenses referred to in items (F) and (G) of sub-section (2) of section 115WB. Expenditure relating to manufacture of FMCG products would be liable to FBT in accordance with sub-section (1) of section 115WC of the Income-tax Act.
Whether employees will be liable to income-tax on
the perquisite value of motor car provided by the employer in terms of rule
3(7)(vii) of the Income-tax Rules relating to use of movable asset ?
81. Since expenditure on running and maintenance of motor cars is liable to FBT, the employees will not be liable to income-tax on the perquisite value of motor car provided by the employer in terms of rule 3(7)(vii) of the Income-tax Rules relating to use of movable asset.
Whether FBT is payable on any rent paid or payable
for hiring or leasing of motor-cars?
82. Rent paid or payable for an operating lease of a motor-car is expenditure for the purposes of conveyance, tour and travel. Accordingly, it shall be treated as expenditure within the scope of clause (F) of sub-section (2) of section 115WB. However, rent paid or payable for a financial lease of a motor-car is in the nature of expenditure on running or maintaining of a motor-car. Therefore, such rent shall be treated as expenditure within the scope of clause (1) of sub-section (2) of section 115WB.
Whether the amount of depreciation on motor-car or
any other asset should be the amount calculated as per the Income-tax Act or as
per commercial accounting? If tax depreciation, how is the same to be computed
in view of the concept of block of assets?
83. The depreciation on motor-car or any other asset for the purposes of FBT shall be the depreciation computed under the provisions of section 32 of the Income-tax Act. Further, such amount shall be the whole of the amount of depreciation in respect of the relevant block of assets. For example, for the purposes of depreciation on motor-car, the amount of depreciation relating to the block of assets - motor-cars - shall be included within the scope of clause (H) of sub-section (2) of section 115WB.
Whether expenditure by way of interest on loans
taken for purchase of cars is liable to FBT?
84. Interest on loans taken for purchase of cars falls within the scope of clause (H) of sub-section (2) of section 115WB relating to repair, running and maintenance of motor cars. Accordingly, expenditure by way of interest on loans taken for purchase of cars is liable to FBT.
Whether expenditure on repair, running and
maintenance of delivery/display vans, trucks/lorries, ambulances and tractors
is liable to FBT?
85. Delivery/display vans, trucks/lorries, ambulance and tractor are not "motorcars" within the meaning of clause (H) of sub-section (2) of section 115WB. Therefore, expenditure on the running, repair and maintenance of such vehicles is not liable to FBT.
Whether the amount of depreciation on the club
building is liable to FBT?
86. Where the legislature has intended to subject the amount of depreciation on any capital asset to FBT, it has specifically provided for it as in clauses (H) and (I) of sub-section (2) of section 115WB. Therefore, in the absence of any legislative intent to subject the amount of depreciation in respect of the club building to FBT, such depreciation amount is not liable to FBT.
Whether salary paid to a driver of a motor car or
a pilot of an aircraft is liable to FBT?
87. The salary paid to a driver of motor car or a pilot of an aircraft is for the purposes of running and maintenance of motor car or aircraft as the case may be and accordingly such payment of salary would have to be classified either in clause (H) or clause (I), as the case may be, of sub-section (2) of section 115WB. Therefore, it would be liable to FBT.
Will fringe benefits include rent paid for garages
or parking slots or airport tarmac/hanger charges?
88. The rent paid for garages or parking slots or airport tarmac or hanger is for the purposes of running and maintenance of motorcar or aircraft as the case may be and accordingly such payment of rent would fall within the scope of clause (H) or (I) of sub-section (2) of section 115WB. Therefore, it would be liable to FBT.
Whether capital expenditure falling within the
categories specified in section 115WB (2) would be covered in the scope of
fringe benefits?
89. Expenditure on any capital asset in respect of which depreciation is allowable under section 32 of the Income-tax Act does not fall within the scope of sub-section (2) of section 115WB of the Income-tax Act since the proximate objective of incurring such expenditure is the acquisition of a capital asset. Therefore, such expenditure is not included in reckoning the value of fringe benefits [except depreciation on motor cars or aircrafts referred to in clauses (H) and (I) of sub-section (2) of section 115WB] and is not liable to FBT.
Whether expenditure for use of telephone includes
(i) expenditure for use of telephone installed in the office and (ii) payment
of telephone (including mobile phone) bills in the name of the company directly
made by the company?
90. In terms of the provisions of clause (J) of sub-section (2) of section 115WB, expenditure incurred or payment made for the purposes of use of telephone (including mobile phone) other than expenditure on leased telephone lines is liable to FBT. Therefore, expenditure on use of telephones (including mobile phones) installed in the office is liable to FBT. This is so, irrespective of whether the telephone is in the name of the company or not and also whether payment for its use is made directly or indirectly by the company.
Will expenditure on capital items (e.g., fridges,
TVs) in a guesthouse be liable for FBT?
91. Expenditure on items like refrigerators, televisions, furniture and similar items in a guesthouse would not fall within the scope of clause (K) of sub-section (2) of section 115WB since the proximate objective of incurring such expenditure is the acquisition of a capital asset. Further, depreciation on these assets would also not be liable to FBT in the absence of any specific charge.
Would maintenance of a guest house include payment
of rent for the guest house?
92. Any rent paid for maintaining a guest house would fall within the scope of clause (K) of sub-section (2) of section 115WB and, accordingly, is liable to FBT.
Whether expenditure on all guest houses is liable
to FBT or restricted to expenditure on holiday homes?
93. In terms of the provisions of clause (K) of sub-section (2) of section 115WB, FBT is payable on expenditure incurred for the purposes of maintenance of any accommodation in the nature of guest house other than accommodation used for training purposes. Therefore, expenditure on all guest houses is liable to FBT irrespective of whether they are used as holiday homes or not.
Whether the following expenses are liable to FBT:
- expenditure on provision of food at the guest
house maintained by the employer;
- contract charges paid to guest house staff; and
- depreciation/rent of guest house building
94. In terms of the provisions of clause (K) of sub-section (2) of section 115WB, any expenditure incurred for the purposes of maintaining any accommodation in the nature of guest house other than accommodation used for training purposes is liable to FBT. Since the expenditure on provision of food at the guest house maintained by the employer, contract charges paid to guest house staff and rent paid or payable in respect of the guest house building, are all for the purposes of maintenance of the guest house, such expenses are liable to FBT.
As regards the taxability of the amount of depreciation on the guest house building, where the legislature has intended to subject the amount of depreciation on any capital asset to FBT, it has specifically provided for it as in clauses (H) and (I) of sub-section (2) of section 115WB. Hence, in the absence of any legislative intent to subject the amount of depreciation in respect of the guest house building to FBT, such depreciation amount is not liable to FBT.
Whether expenditure on meeting of employees and
their families on the occasion of a festival like Navratri would be expenditure
on festival or expenditure on employee welfare?
95. Expenditure on meeting/get-togethers of employees and their family members on the occasion of any festival like Navratri, Diwali Id, Christmas or New Year is expenditure on festival celebrations. Such expenditure would, therefore, fall within the scope of clause (L) of sub-section (2) of section 115WB. Expenditure on meeting/get-togethers of employees and their families on non-festival occasions (including annual day), may be classified as expenditure on entertainment within the meaning of clause (A) of sub-section (2) of section 115WB or as expenditure on employees welfare within the meaning of clause (E) of sub-section (2) of section 115WB of the Income-tax Act. Such expenditure is liable to FBT. However, expenditure on celebration of Independence Day and Republic Day will not be liable to FBT because they are not festivals as normally understood.
Whether payment of entrance or membership fee of a
club or health club or similar facility would be expenditure incurred on use of
such facilities?
96. Entrance or membership fee of a club or health club or similar facility is a fixed levy allowing for use of some basic club facilities (like the lounge facilities). Therefore, such payments are also expenditure incurred on use of club or health or similar facilities and accordingly liable to FBT.
Whether expenditure on gifts under trade schemes
or for promotion of companys products to distributors/retailers is liable to
FBT?
97. Ordinarily, a gift is defined as anything given or presented without consideration. Therefore, expenditure on gifts under trade schemes or for promotion of companys products to distributors/retailers, falls within the scope of the provisions of clause (O) of sub-section (2) of section 115WB and, accordingly, is liable to FBT.
Does a gift to customer fall under sales promotion
or gift?
98. In terms of the rules of interpretation of a statute, a specific provision in law overrides a general provision. Therefore, a gift to a customer, even though for the purposes of sales promotion, would fall within the scope of the specific provision of clause (O) of sub-section (2) of section 115WB relating to gift.
Whether expenditure incurred on gifts provided to
employees, on the occasion of marriage, liable to FBT?
99. Any expenditure incurred on gifts provided to employees, whether on the occasion of marriage or otherwise, falls within the scope of clause (O) of sub-section (2) of section 115WB and, accordingly, is liable to FBT.
Is a gift in kind excluded? If included, how is
its valuation to be done?
100. As per provisions of clause (O) of sub-section (2) of section 115WB any expenditure incurred or payment made for the purposes of gift is liable to FBT. The cost to the employer of the gift would be taken into account for the purposes of valuation of such fringe benefit.
If, say, 8 employees are sent to an educational
institution - whether the expenditure on their education will fall within the
scope of employee welfare or scholarship?
101. Ordinarily, scholarship is defined as payments to a person for pursuing education. Further, in terms of the rules of interpretation of a statute, a specific provision in law overrides a general provision. Therefore, expenditure on the education of employees sent to an educational institution, even though for the purposes of promoting employee welfare, would fall within the scope of the specific provision of clause (P) of sub-section (2) of section 115WB relating to scholarships.
Whether FBT is payable on scholarships awarded to
students and trainees?
102. FBT is payable on the expenditure incurred or payment for the purposes of scholarship irrespective of whether the recipient is an employee or his relative or any other person.
Whether FBT would be allowable deduction while
computing book profit under section 115JB?
103. FBT is a liability qua employer. It is an expenditure laid out or expended wholly and exclusively for the purposes of the business or profession of the employer. However, sub-clause (ic) of clause (a) of section 40 of the Income-tax Act expressly prohibits the deduction of the amount of FBT paid, for the purposes of computing the income under the head profits and gains of business or profession. This prohibition does not apply to the computation of book profit for the purposes of section 115JB. Accordingly, the FBT is an allowable deduction in the computation of book profit under section 115JB of the Income-tax Act.
Whether expenditure incurred by the employer for
the purposes of providing free or subsidized transport for journeys to
employees from their residence to the place of work or such place of work to
the place of residence would attract FBT ?
104. The free or subsidized transport provided to employees for journeys from their residence to the place of work or such place of work to the place of residence is in lieu of conveyance/transportation allowance, which is not liable to FBT. Accordingly, the expenditure incurred by the employer for the purposes of providing free or subsidized transport for journeys to employees from their residence to the place of work or such place of work to the place of residence will not be liable to FBT.
What is the meaning of the term computer software
as referred to in section 115WC? Will it include information technology enabled
services?
105. Clause (d) of sub-section (2) of section 115WC provides for a lower percentage for valuation of fringe benefits for the purposes referred to in clauses (F) and (G) of sub-section (2) of section 115WB in the case of an employer engaged in the business of manufacture or production of computer software. In the absence of a specific definition in the said clause, the term computer software will assume its natural meaning, i.e., recording of programmes on any disc, tape or perforated media or other information storage device. Accordingly, information technology enabled services will not fall within the scope of the term computer software for the purposes of section 115WC of the Income-tax Act.
What is the meaning of the term business of
construction - whether only civil construction or even other construction work
like construction of plants, telecommunication infrastructure, etc., are also
covered?
106. The term business of construction must be understood by giving the ordinary English language meaning to the words. Hence, all activities involving construction would be covered within the scope of the term business of construction referred to in section 115WC of the Income-tax Act.
Whether
excess advance tax paid for the preceding quarter can be adjusted against
advance tax for the subsequent quarter(s)?
107. Any excess advance tax paid for the preceding quarter can be adjusted against the advance tax for the subsequent quarter(s).
Definition of port as infrastructural facility for the purpose of sections 10(23G) and 80-Ia of the Income-tax Act, 1961
INCOME-TAX DEDUCTION FROM SALARIES DURING THE FINANCIAL YEAR 2005-2006
UNDER SECTION 192 OF THE INCOME-TAX
ACT, 1961
CIRCULAR NO.: 9/ 2005, dated 30-11-2005
Reference is invited to Circular No. 6/2004 dated 6.12.2004 wherein the
rates of deduction of income-tax from the payment of income under the head
"Salaries" under Section 192 of the Income-tax Act, 1961, during the
financial year 2004-2005, were intimated. The present Circular contains the
rates of deduction of income-tax from the payment of income chargeable under
the head "Salaries" during the financial year 2005-2006 and explains
certain related provisions of the Income-tax Act. The relevant Acts, Rules,
Forms and Notifications are available at the website of the Income Tax
Department-
www.incometaxindia.gov.in.
2. FINANCE
ACT,2005
According to the Finance Act, 2005, income-tax is required to be
deducted under Section 192 of the Income-tax Act 1961 from income chargeable
under the head "Salaries" for the financial year 2005-2006 (i.e.
Assessment Year2006-2007) at the following rates:
RATES OF
INCOME-TAX
A.
1. Where the
total income does not Nil
exceed Rs.1,00,000/-.
2. Where the
total income exceeds 10 per cent, of the
Rs.1,00,000
but does not exceed amount by which
the
Rs.1,50,000/-.
total income exceeds
Rs.1,00,000/-
3. Where the
total income exceeds Rs.5,000/- plus 20
Rs.1,50,000/-
but does not exceed per cent of the
Rs.2,50,000/-.
amount by which the
total
income exceeds
Rs.1,50,000/-.
4. Where the
total income exceeds Rs.25,000/- plus 30
Rs.2,50,000/-.
per cent of the
amount by which the
total income exceeds
Rs.2,50,000/-.
B. Rates
of tax for a woman, resident in
1. Where the
total income does not Nil
exceed
Rs.1,35,000/-.
2. Where the
total income exceeds 10 per cent, of the
Rs.1,35,000 but does not exceed amount by which the
Rs.1,50,000/-. total
income exceeds
Rs.1,35,000/-
3. Where the
total income exceeds Rs.1,500/- plus 20
Rs.1,50,000/- but does not exceed per cent of the
Rs.2,50,000/-. amount
by which the
total
income exceeds
Rs.1,50,000/-.
4. Where the
total income exceeds Rs.21,500/- plus 30
Rs.2,50,000/-. per
cent of the
amount
by which the
total income exceeds
Rs.2,50,000/-.
C. Rates of tax for an individual, resident
in
1. Where the
total income does not Nil
exceed Rs.1,85,000/-.
2. Where the
total income exceeds 20 per cent, of the
Rs.1,85,000 but does not exceed amount by which the
Rs.2,50,000/-. total
income exceeds
Rs.1,85,000/-
3. Where the
total income exceeds Rs.13,000/- plus 30
Rs.2,50,000/-. per
cent of the
amount
by which the
total income
exceeds
Rs.2,50,000/-.
Surcharge on income tax:
The amount
of income-tax computed in accordance with the preceding provisions of this
paragraph shall be increased by a surcharge at the rate of ten percent of such
income tax where the total income exceeds ten lakh rupees.
However,
the total amount payable as income-tax and surcharge shall not exceed the total
amount payable as income tax on a total income of Rs.10,00,000/- by more than
the amount of income that exceeds Rs.10,00,000/-.
The amount of income-tax as increased by
surcharge, if any, mentioned above shall be further increased by an additional
surcharge ( Education Cess on Income Tax) at the rate of two percent of the
income-tax and surcharge.
Surcharge
and Education Cess are payable by both resident and non-resident assessees.
3. SECTION 192 OF THE
INCOME-TAX ACT,1961: BROAD SCHEME OF TAX DEDUCTION AT SOURCE FROM
"SALARIES".
Method of Tax Calculation:
3.1 Every person who is responsible for paying any income chargeable
under the head "Salaries" shall deduct income-tax on the estimated
income of the assessee under the head "Salaries" for the financial
year 2005-2006. The income-tax is required to be calculated on the basis of the
rates given above and shall be deducted on average at the time of each payment.
No tax will, however, be required to be deducted at source in any case unless
the estimated salary income including the value of perquisites, for the
financial year exceeds Rs.1,00,000/- or Rs.1,35,000/- or Rs.1,85,000/-, as the
case may be, depending upon the age and gender of the employee.(Some typical
examples of computation of tax are given at Annexure-I).
Payment of Tax on Non-monetary
Perquisites by Employer:
3.2 An option has been given to the employer to pay the tax on
non-monetary perquisites given to an employee. The employer may, at his option,
make payment of the tax on such perquisites himself without making any TDS from
the salary of the employee. The employer will have to pay such tax at the time
when such tax was otherwise deductible i.e. at the time of payment of income
chargeable under the head salaries to the employee.
Computation of Average Income Tax:
3.3 For the
purpose of making the payment of tax mentioned in para 3.2 above, tax is to be
determined at the average of income tax computed on the basis of rate in force
for the financial year, on the income chargeable under the head
"salaries", including the value of perquisites for which tax has been
paid by the employer himself.
ILLUSTRATION:
Suppose that
the income chargeable under the head salary of a male employee below sixty-five
years of age for the year inclusive of all perquisites is Rs.2,40,000/-, out of
which, Rs.40,000/- is on account of non-monetary perquisites and the employer
opts to pay the tax on such perquisites as per the provisions discussed in para
3.2 above.
STEPS:
Income Chargeable under the
head Salaries
inclusive of all perquisites: Rs. 2,40,000
Tax on Total Salaries : Rs.
23,000
Average Rate of Tax
[(23,000/2,40,000) X 100]: 9.58%
Tax payable on Rs.40,000/-
( 9.58% of 40,000) : Rs. 3,833
Amount required to be deposited
each month: Rs. 319
(3,833/ 12)
The tax so paid by the employer shall be deemed to be TDS made from the
salary of the employee.
Salary From More Than One Employer:
3.4 Sub- section (2) of section 192 deals with situations where an
individual is working under more than one employer or has changed from one
employer to another. It provides for deduction of tax at source by such
employer (as the tax payer may choose) from the aggregate salary of the
employee who is or has been in receipt of salary from more than one employer.
The employee is now required to furnish to the present/chosen employer details
of the income under the head "Salaries" due or received from the
former/ other employer and also tax deducted at source therefrom, in writing
and duly verified by him and by the former/other employer. The present/ chosen
employer will be required to deduct tax at source on the aggregate amount of
salary (including salary received from the former or other employer).
Relief When Salary Paid in Arrear or
Advance:
3.5 Under
sub-section (2A) of section 192 where the assessee, being a Government servant
or an employee in a company, co-operative society, local authority, university,
institution, association or body is entitled to the relief under Sub-section
(1) of Section 89, he may furnish to the person responsible for making the
payment referred to in Para (3.1), such particulars in Form No. 10E duly
verified by him, and thereupon the person responsible as aforesaid shall
compute the relief on the basis of such particulars and take the same into
account in making the deduction under Para(3.1) above.
Explanation
:- For this purpose "University means a University established or
incorporated by or under a Central, State or Provincial Act, and includes an
institution declared under section 3 of the University Grants Commission Act,
1956(3 of 1956), to be University for the purposes of the Act.
Furnishing of Declaration by Taxpayer in
Form 12C
3.6 (i)
Sub-section (2B) of section 192 enables a taxpayer to furnish particulars of
income under any head other than "Salaries" and of any tax deducted
at source thereon in the prescribed form No.12C (Annexure II). (Form no. 12C has since been omitted from the Income
Tax Rules. However, the particulars may now be furnished in a simple statement,
which is properly verified by the taxpayer in the same manner as in Form 12C.)
(ii) Such income should not be a loss under any such head other than the
loss under the head "Income from House Property" for the same
financial year. The person responsible for making payment (DDO) shall take such
other income and tax, if any, deducted at source from such income, and the
loss, if any, under the head "Income from House Property" into
account for the purpose of computing tax deductible under section 192 of the
Income-tax Act. However, this sub-section shall not in any case have the effect
of reducing the tax deductible (except where the loss under the head
"Income from House Property" has been taken into account) from income
under the head "Salaries" below the amount that would be so
deductible if the other income and the tax deducted thereon had not been taken
into account'. In other words, the DDO can take into account any loss (negative
income)only under the head income from House Property and no other head for
working out the amount of total tax to be deducted. While taking into the
account the loss from House Property, the DDO shall ensure that the assessee
files the declaration referred to above and encloses therewith a computation of
such loss from House Property.
(iii)
Sub-section (2C) lays down that a person responsible for paying any income
chargeable under the head salaries shall furnish to the person to whom such
payment is made a statement giving correct and complete particulars of
perquisites or profits in lieu of salary provided to him and the value thereof
in form no. 12BA. (Annexure-III ).
Form no. 12BA along with form no. 16, as issued by the employer, are required
to be filed by the employee along with the return of income for the relevant
year.
Conditions for Claim of Deduction of Interest on Borrowed Capital
for Computation of Income From House Property
3.7(i) For
the purpose of computing income / loss under the head `Income from House
Property' in respect of a self-occupied residential house, a normal deduction
of Rs.30,000/- is allowable in respect of interest on borrowed capital.
However, a deduction on account of interest up to a maximum limit of
Rs.1,50,000/- is available if such loan has been taken on or after 1.4.1999 for
constructing or acquiring the residential house and the construction or
acquisition of the residential unit out of such loan has been completed within
three years from the end of the financial year in which capital was borrowed.
Such higher deduction is not allowable in respect of interest on capital
borrowed for the purposes of repairs or renovation of an existing residential
house. To claim the higher deduction in respect of interest upto Rs.1,50,000/-,
the employee should furnish a certificate from the person to whom any interest
is payable on the capital borrowed, specifying the amount of interest payable
by such employee for the purpose of construction or acquisition of the
residential house or for conversion of a part or whole of the capital borrowed,
which remains to be repaid as a new loan.
3.7(ii)The
essential conditions necessary for availing higher deduction of interest of
Rs.1,50,000/- are that the amount of capital must have been borrowed on or
after 01.4.1999 and the acquisition or construction of residential house must
have been completed within three years from the end of the financial year in
which capital was borrowed. There is no stipulation regarding the date of
commencement of construction. Consequently, the construction of the residential
house could have commenced before 01.4.1999 but, as long as its construction/acquisition
is completed within three years, from the end of the financial year in which
capital was borrowed the higher deduction would be available in respect of the
capital borrowed after 1.4.1999. It may also be noted that there is no stipulation
regarding the construction/ acquisition of the residential unit being entirely
financed by capital borrowed on or after 01.4.1999.The loan taken prior to
01.4.1999 will carry deduction of interest up to Rs.30,000/ only. However, in
any case the total amount of deduction of interest on borrowed capital will not
exceed Rs.1,50,000/- in a year.
Adjustement for Excess or Shortfall of
Deduction:
3.8 The
provisions of sub-section (3) of Section 192 allow the deductor to make
adjustments for any excess or shortfall in the deduction of tax already made
during the financial year, in subsequent deductions for that employee within
that financial year itself.
TDS on Payment of Balance Under Provident Fund and Superannuation
Fund:
3.9 The
trustees of a Recognized Provident Fund, or any person authorized by the
regulations of the Fund to make payment of accumulated balances due to
employees, shall, in cases where sub-rule(1) of rule 9 of Part A of the Fourth
Schedule to the Act applies, at the time when the accumulated balance due to an
employee is paid, make therefrom the deduction specified in rule 10 of Part A
of the Fourth Schedule.
3.10 Where
any contribution made by an employer, including interest on such contributions,
if any, in an approved Superannuation Fund is paid to the employee, tax on the
amount so paid shall be deducted by the trustees of the Fund to the extent
provided in rule 6 of Part B of the Fourth Schedule to the Act.
Salary Paid in Foreign Currency:
3.11 For the purposes of deduction of tax on salary payable in foreign
currency, the value in rupees of such salary shall be calculated at the
prescribed rate of exchange.
4.PERSONS
RESPONSIBLE FOR DEDUCTING TAX AND THEIR DUTIES:
4.1. Under clause (i) of Section 204 of the Act the
"persons responsible for paying" for the purpose of Section 192 means
the employer himself or if the employer is a Company, the Company itself
including the Principal Officer thereof.
4.2. The tax determined as per para 6 should be deducted from the
salary u/s 192 of the Act.
Deduction of Tax at Lower Rate:
4.3. Section
197 enables the tax-payer to make an application in form No.13 to his Assessing
Officer, and, if the Assessing Officer is satisfied that the total income of
the tax-payer justifies the deduction of income-tax at any lower rate or no
deduction of income tax, he may issue an appropriate certificate to that effect
which should be taken into account by the Drawing and Disbursing Officer while
deducting tax at source. In the absence of such a certificate furnished by the
employee, the employer should deduct income tax on the salary payable at the
normal rates: (Circular No. 147 dated
28.10.1974.)
Deposit of Tax Deducted:
4.4. According to the provisions of section 200, any person deducting
any sum in accordance with the provisions of Section 192 or paying tax on
non-monetary perquisites on behalf of the employee under Section 192(1A), shall
pay the sum so deducted or tax so calculated on the said non-monetary
perquisites, as the case may be, to the credit of the Central Government in
prescribed manner (vide Rule 30 of the Income-tax Rules,1962). In the case of
deductions made by, or, on behalf of the Government, the payment has to be made
on the day of the tax-deduction itself. In other cases, the payment has to be
made within one week from the last day of month in which deduction is made.
Penalty for Failure to Deposit Tax
Deducted:
4.5 If a
person fails to deduct the whole or any part of the tax at source, or, after
deducting, fails to pay the whole or any part of the tax to the credit of the
Central Government within the prescribed time, he shall be liable to action in
accordance with the provisions of section 201. Sub-section (1A) of section 201
lays down that such person shall be liable to pay simple interest at twelve per
cent per annum w.e.f. 08.9.2003 on the amount of such tax from the date on
which such tax was deductible to the date on which the tax is actually paid.
Section 271C lays down that if any person fails to deduct tax at source, he
shall be liable to pay, by way of penalty, a sum equal to the amount of tax not
deducted by him. Further, section 276B lays down that if a person fails to pay
to the credit of the Central Government within the prescribed time the tax
deducted at source by him, he shall be punishable with rigorous imprisonment
for a term which shall be between 3 months and 7 years, and with fine.
Furnishing of Certificate for Tax
Deducted:
4.6 According
to the provisions of section 203, every person responsible for deducting tax at
source is required to furnish a certificate to the payee to the effect that tax
has been deducted and to specify therein the amount deducted and certain other
particulars. This certificate, usually called the TDS certificate, has to be
furnished within a period of one month from the end of the relevant financial
year. Even the banks deducting tax at the time of payment of pension are
required to issue such certificates. In the case of
employees
receiving salary income (including pension), the certificate has to be issued
in Form No.16. However, in the case of an employee who is resident in India and
whose income from salaries, before allowing standard deduction, does not exceed
Rs.1,50,000/-, the certificate of deduction of tax shall be issued in Form No.
16AA ( Specimen form 16AA enclosed as ANNEXURE-IV). It is, however,
clarified that there is no obligation to issue the TDS certificate (Form 16 or
Form 16AA) in case tax at source is not deductible/deducted by virtue of claims
of exemptions and deductions. As per section 192, the responsibility of
providing correct and complete particulars of perquisites or profits in lieu of
salary given to an employee is placed on the person responsible for paying such
income i.e., the person responsible for deducting tax at source. The form and
manner of such particulars are prescribed in Rule 26A, Form 12BA, Form 16 and
Form 16AA of the Income-tax Rules .
Information
relating to the nature and value of perquisites is to be provided by the
employer in Form no. 12BA in case of salary above Rs.1,50,000/-. In other
cases, the information would have to be provided by the employer in Form 16
itself. In either case, Form 16 with Form 12BA or Form 16 by itself will have
to be furnished within a period of one month from the end of relevant financial
year.
An employer,
who has paid the tax on perquisites on behalf of the employee as per the
provisions discussed in paras 3.2 and 3.3, shall furnish to the employee
concerned a certificate to the effect that tax has been paid to the Central
Government and specify the amount so paid, the rate at which tax has been paid
and certain other particulars in the amended Form 16.
The obligation cast on the employer under Section 192(2C) for
furnishing a statement showing the value of perquisites provided to the
employee is a serious responsibility of the employer, which is expected to be
discharged in accordance with law and rules of valuation framed thereunder. Any
false information, fabricated documentation or suppression of requisite
information will entail consequences therefore provided under the law. The
certificates in form no.12BA and form no. 16 are to be issued on tax-deductor's
own stationery within one month from the close of the financial year i.e. by
April 30 of every year. If he fails to issue these certificates to the person
concerned, as required by section 203, he will be liable to pay, by way of
penalty, under section 272A, a sum which shall be Rs.100/- for every day during
which the failure continues.
Mandatory Quoting of PAN and TAN:
4.7
According to the provisions of section 203A of the Income-tax Act, it is
obligatory for all persons responsible for deducting tax at source to obtain
and quote the Tax-deduction Account No. (TAN) in the Challans,
TDS-certificates, returns etc. Detailed instructions in this regard are
available in this Department's Circular No.497 (F.No.275/118/87-IT(B) dated
9.10.1987). If a person fails to comply with the provisions of section 203A, he
will be liable to pay, by way of penalty, under section 272BB, a sum of ten
thousand rupees. Similarly, as per Section 139A(5B), it is obligatory for
persons deducting tax at source to quote PAN of the persons from whose income
tax has been deducted in the statement furnished u/s 192(2C), certificates
furnished u/s 203 and all returns prepared and delivered as per the provisions
of Section 206 of the Income Tax Act, 1961.
Annual Return of TDS:
4.8.
According to the provisions of section 206 of the Income-tax Act, read with
rules 36A and 37 of the Income-tax Rules, the prescribed person in the case of
every office of Government, the principal officer in the case of every company,
the prescribed person in the case of every local authority or other public body
or association, every private employer and every other person responsible for
deducting tax under section 192, from "Salaries" shall, after the end
of each financial year, prepare and deliver, by 30th June following
the financial year, an annual return of deduction of tax to the
designated/concerned Assessing Officer. It is now mandatory for all offices
of the Government and all companies to file the annual return of TDS on
computer media only in accordance with the Electronic Filing of Returns of Tax
Deducted at Source Scheme, 2003 as notified vide Notification No. S.O. 974 (E)
dated 26.8.2003. (ANNEXURE-V) . Accordingly, the annual TDS return for
financial year 2005-06, which would be required to be filed by 30.6.2006, would
be filed by the Government deductors in electronic format only with the e-TDS
Intermediary at any of the TIN Facilitation Centres, particulars of which are
available at www.incometaxindia.gov.in and at http://tin.nsdl.com . If a
person fails to furnish the annual return in due time, he shall be liable to
pay by way of penalty under section 272A, a sum which shall be Rs.100/- for
every day during which the failure continues. However, this sum shall not
exceed the amount of tax which was deductible at source.
4.9. A
return filed on the prescribed computer readable media shall be deemed to be a
return for the purposes of section 206 and the Rules made thereunder, and shall
be admissible in any proceeding thereunder, without further proof of production
of the original, as evidence of any contents of the original.
Challans
for Deposit of TDS:
4.10. While
making the payment of tax deducted at source to the credit of the Central
Government, it may be ensured that the correct amount of income-tax is recorded
in the relevant challan. It may also
be ensured that the right type of challan
is used. The relevant challan for
making payment of tax deducted at source from salaries is challan no.
ITNS-281. Where the amount of tax deducted at source is credited to the
Central Government through book adjustment, care should be taken to ensure that
the correct amount of income-tax is reflected therein.
TDS on Income from Pension:
4.11. In the
case of pensioners who receive their pension from a nationalized bank, the
instructions contained in this circular shall apply in the same manner as they
apply to salary-income. The deductions from the amount of pension under section
80C on account of contribution to Life Insurance, Provident Fund, NSC etc., if
the pensioners furnish the relevant details to the banks, may be allowed.
Necessary instructions in this regard were issued by the Reserve Bank of India
to the State Bank of India and other nationalized Banks vide RBI's Pension
Circular(Central Series) No.7/C.D.R./1992 (Ref. CO: DGBA: GA (NBS)
No.60/GA.64(11CVL)-/92) dated the 27th April, 1992, and, these instructions
should be followed by all the branches of the Banks, which have been entrusted
with the task of payment of pensions. Further all branches of the banks are
bound u/s 203 to issue certificate of tax deducted in Form 16 to the pensioners
also vide CBDT circular no. 761 dated
13.1.98.
Important Circulars:
4.12. Where
Non-Residents are deputed to work in India and taxes are borne by the employer,
if any refund becomes due to the employee after he has already left India and
has no bank account in India by the time the assessment orders are passed, the
refund can be issued to the employer as the tax has been borne by it :Circular No. 707 dated 11.7.1995.
4.13. TDS
certificates issued by Central Government departments which are making payments
by book adjustment, should be accepted by the Assessing Officers if they
indicate that credit has been effected to the Income Tax Department by book
adjustment and the date of such adjustment is given therein. In such cases, the
Assessing Officers may not insist on details like challan numbers, dates of payment into Government Account etc., but
they should in any case satisfy themselves regarding the genuineness of the
certificates produced before them : Circular
No. 747 dated 27.12.1996.
4.14 There
is a specific procedure laid down for refund of payments made by the deductor
in excess of taxes deducted at source, vide Circular No. 285 dated 21.10.1980.
4.15 In respect of non-residents, the salary paid for services rendered
in
New
Procedure for TDS Returns and Quarterly Statements with effect from 1st of
April, 2005:
4.16.
a) The person deducting the tax
(employer in case of salary income), is required to file Quarterly Statements
for the periods ending on 30th June, 30th September, 31st
December and 31st March of each financial year, duly verified, to
the Director General of Income Tax (Systems) or M/s National Securities
Depository Ltd (NSDL). These statements are
required to be filed on or before the 15th July, the 15th
October, the 15th January in respect of the first three quarters of
the financial year and on or before the 15th June following
the last quarter of the financial year.
b) The
Quarterly Statements are be filed on computer media only in accordance with
rule 31A of the Income-tax Rules, 1962. In case of failure in filing of the
Quarterly Statement, the person deducting the tax shall be liable for a penalty
under section 272A(2)(k) of Rs.100 for each day of default. These Quarterly
Statements compulsorily require quoting of the Tax Deduction Account Number
(TAN) of the tax deductor and the Permanent Account Number(PAN) of the
employees whose tax has been deducted. Therefore, all Drawing and Disbursing
Officers of the Central and State Governments/ Departments, who have not yet
obtained TAN, must immediately apply for and obtain TAN. Similarly, all
employees (including non-resident employees) from whose income, tax is to be
deducted may be advised to obtain PAN, if not already obtained, and to quote
the same correctly, as otherwise the credit for the tax deducted cannot be
given. A penalty under section 272B of Rs.10,000/- has been prescribed for
willfully intimating a false PAN.
5. ESTIMATION
OF INCOME UNDER THE HEAD "SALARIES"
5.1 Income
chargeable under the head "Salaries".
(1) The following income shall be
chargeable to income-tax under the head "Salaries" :
(a) any salary due from an employer or a former
employer to an assessee in the previous year,
whether paid or not;
(b) any salary paid or allowed to him in the
previous year by or on behalf of an employer or
a former employer though not due or before it
became due to him.
(c) any arrears of salary paid or allowed to him in
the previous year by or on behalf of an
employer or a former employer, if not charged
to income-tax for any earlier previous year.
(2)
For the removal of doubts, it is clarified that where any salary paid in
advance is included in the total income of any person for any previous year it
shall not be included again in the total income of the person when the salary
becomes due. Any salary, bonus, commission or remuneration, by whatever name
called, due to, or received by, a partner of a firm from the firm shall not be
regarded as "Salary".
Definition of Salary:
(3)
"Salary" includes wages, fees, commissions, perquisites, profits in
lieu of, or, in addition to salary, advance of salary, annuity or pension,
gratuity, payments in respect of encashment of leave etc. It also includes the
annual accretion to the employee's account in a recognized provident fund to
the extent it is chargeable to tax under rule 6 of Part A of the Fourth
Schedule of the Income-tax Act.
Contributions made by the employer to the account of the employee in a
recognized provident fund in excess of 12% of the salary of the employee, along
with interest applicable, shall be included in the income of the assessee for
the previous year. Any contribution made by the Central Government to the
account of the employee under the New Pension Scheme as notified vide
Notification No. F.N. 5/7/2003- ECB&PR dated 22.12.2003 (copy enclosed as
Annexure-VA) and referred to in section 80CCD (para 5.4(E) of this Circular)
shall also be included in the salary income. Other items included in
salary, profits in lieu of salary and perquisites are described in Section 17
of the Income-tax Act. The scope of the term profit in lieu of salary has been
amended so as not to include interest on contributions or any sum received
under a Keyman insurance policy including the sum allocated by way of bonus on
such policy. For the purposes of this sub-clause, the expression Keyman
insurance policy shall have the meaning assigned to it in clause (10D) of
section 10. It may be noted that, since salary includes pensions, tax at source
would have to be deducted from pension also, if otherwise called for. However,
no tax is required to be deducted from the commuted portion of pension as
explained in clause (3) of para 5.2 of this Circular.
(4) Section
17 defines the terms "salary", "perquisite" and
"profits in lieu of salary".
Perquisite includes:
a)
a)
The value of rent free accommodation provided to the employee by his
employer;
b)
b)
The value of any concession in the matter of rent in respect of any
accommodation provided to the employee by his employer;
c)
c)
The value of any benefit or amenity granted or provided free of cost or
at concessional rate in any of the following cases:
i)
i)
By a company to an employee who is a director of such company;
ii)
ii) By a company to an
employee who has a substantial interest in the company;
iii) iii) By an
employer (including a company)to an employee, who is not covered by (i) or (ii)
above and whose income under the head Salaries ( whether due from or paid or
allowed by one or more employers), exclusive of the value of all benefits and
amenities not provided by way of monetary payment, exceeds Rs.50,000/_.
The rules
relating to valuation of such benefits and amenities have been prescribed in
Rule 3. It is further provided that 'profits in lieu of salary' shall include
amounts received in lump sum or otherwise, prior to employment or after
cessation of employment for the purposes of taxation. The rules for valuation
of perquisite are as under : -
I. Accommodation :- For purpose
of valuation of the perquisite of unfurnished accommodation, all employees are
divided into two categories: I) Govt. & State Govt. employees; and
ii)Others.
For employees of the Central and State government the
value of perquisite shall be equal to the licence fee charged for such accommodation
as reduced by the rent actually paid by the employee.
For all
others, i.e., those salaried taxpayers not in employment of the Central
government and the State government, the valuation of perquisite in respect of
accommodation would be at prescribed rates, as discussed below:
a.
a.
Where the accommodation provided to the employee is owned by the
employer, the rate is 20% of 'salary' in cities having population exceeding
four lakh as per the 2001 census. For other places, the perquisite value would
be 15% of salary.
b.
b.
Where the accommodation so provided is taken on lease/ rent by the
employer, the prescribed rate is 20% of the
salary or the actual amount of lease rental payable by the employer,
whichever is lower, as reduced by any amount of rent paid by the employee.
For furnished
accommodation, the value of perquisite as determined by the above method
shall be increased by-
i)
i)
10% of the cost of furniture, appliances and equipments, or
ii)
ii)
where the furniture, appliances and equipments have been taken on hire,
by the amount of actual hire charges payable.
-
as reduced by any charges paid by the employee himself.
The scope of
the word "accommodation" has been widened to include a house, flat,
farm house, hotel accommodation, motel, service apartment guest house, a
caravan, mobile home, ship etc. However, the value of any accommodation
provided to an employee working at a mining site or an on-shore oil exploration
site or a project execution site or a dam site or a power generation site or an
off-shore site will not be treated as a perquisite. However, such accommodation
should either be located in a remote area or where it is not located in a
remote area, the accommodation should be of a temporary nature having plinth
area of not more than 800 square feet and should not be located within 8
kilometers of the local limits of any municipality or cantonment board. A
project execution site for the purposes of this sub-rule means a site of
project up to the stage of its commissioning. A "remote area" means
an area located at least 40 kilometers away from a town having a population not
exceeding 20,000 as per the latest published all-India census. Off-shore sites
of similar nature do not have to meet any requirement of distance.
If an accommodation is provided by an employer in a hotel the value of
the benefit in such a case shall be 24% of the annual salary or the actual
charges paid or payable to such hotel, whichever is lower, for the period
during which such accommodation is provided as reduced by any rent actually
paid or payable by the employee. However, where in cases the employee is
provided such accommodation for a period not exceeding in aggregate fifteen
days on transfer from one place to another, no perquisite value for such
accommodation provided in a hotel shall be charged. It may be clarified that
while services provided as an integral part of the accommodation, need not be
valued separately as perquisite, any other services over and above that for
which the employer makes payment or reimburses the employee shall be valued as
a perquisite as per the residual clause. In other words, composite tariff for
accommodation will be valued as per these Rules and any other charges for other
facilities provided by the hotel will be separately valued under the residual
clause. Also, if on account of an employee's transfer from one place to
another, the employee is provided with accommodation at the new place of posting
while retaining the accommodation at the other place, the value of perquisite
shall be determined with reference to only one such accommodation which has the
lower value as per the table prescribed in Rule 3 of the Income Tax Rules, for
a period up to 90 days. However, after that the value of perquisite shall be
charged for both accommodations as prescribed.
II Personal attendants etc.: The
value of free service of all personal attendants including a sweeper, gardener
and a watchman is to be taken at actual cost to the employer. Where the
attendant is provided at the residence of the employee, full cost will be taxed
as perquisite in the hands of the employee irrespective of the degree of
personal service rendered to him. Any amount paid by the employee for such
facilities or services shall be reduced from the above amount.
III Gas, electricity &
water: For free supply of gas, electricity and water for household
consumption, the rules provide that the amount paid by the employer to the
agency supplying the amenity shall be the value of perquisite. Where the supply
is made from the employer's own resources, the manufacturing cost per unit
incurred by the employer would be taken for the valuation of perquisite. Any
amount paid by the employee for such facilities or services shall be reduced
from the above amount.
IV Free or
concessional education: Perquisite on account of free or concessional
education shall be valued in a manner assuming that such expenses are borne by
the employee, and would cover cases where an employer is running, maintaining
or directly or indirectly financing the educational institution. Any amount
paid by the employee for such facilities or services shall be reduced from the
above amount. However, where such educational institution itself is maintained
and owned by the employer or where such free educational facilities are
provided in any institution by reason of his being in employment of that
employer, the value of the perquisite to the employee shall be determined with
reference to the cost of such education in a similar institution in or near the
locality if the cost of such education or such benefit per child exceeds
Rs.1000/- p.m.
V Interest free or
concessional loans - It is common practice, particularly in financial institutions,
to provide interest free or concessional loans to employees or any member of
his household. The value of perquisite arising from such loans would be the
excess of interest payable at prescribed interest rate over interest, if any,
actually paid by the employee or any member of his household. The prescribed
interest rate would now be the rate charged per annum by the State Bank of
However,
small loans up to Rs. 20,000/- in the aggregate are exempt. Loans for medical
treatment specified in Rule 3A are also exempt, provided the amount of loan for
medical reimbursement is not reimbursed under any medical insurance scheme.
Where any medical insurance reimbursement is received, the perquisite value at
the prescribed rate shall be charged from the date of reimbursement on the
amount reimbursed, but not repaid against the outstanding loan taken
specifically for this purpose.
VI Use of assets: It
is common practice for an asset owned by the employer to be used by the
employee. This perquisite is to be charged at the rate of 10% of the original
cost of the asset as reduced by any charges recovered from the employee for
such use. However, the use of Computers and Laptops would not give rise to any
perquisite.
VII Transfer of assets:
Often an employee or member of his household benefits from the transfer of
movable asset (not being shares or securities) at no cost or at a cost less
than its market value from the employer. The difference between the original
cost of the movable asset(not being shares or securities) and the sum, if any,
paid by the employee, shall be taken as the value of perquisite. In case of a movable
asset, which has already been put to use, the original cost shall be reduced by
a sum of 10% of such original cost for every completed year of use of the
asset. Owing to a higher degree of obsolescence, in case of computers and
electronic gadgets, however, the value of perquisite shall be worked out by
reducing 50% of the actual cost by the reducing balance method for each
completed year of use. Electronic gadgets in this case means data storage and
handling devices like computer, digital diaries and printers. They do not
include household appliance (i.e. white goods) like washing machines, microwave
ovens, mixers, hot plates, ovens etc. Similarly, in case of cars, the value of
perquisite shall be worked out by reducing 20% of its actual cost by the reducing
balance method for each completed year of use.
VIII. Employee Stock Option Plan:
Prior to Finance Act, 2000, stock options were taxed at two stages i.e., as
perquisite (on the amount representing the difference between the exercise
price and the fair market value on the date of exercise), and as capital gains
at the time of transfer of the same. With effect from 1.4.2001 (relevant to
assessment year 2001-2002) onward, stock options issued as per guidelines of
the Central Government are to be taxed only once, at the time of sale, as
capital gains. In cases, where perquisite has been assessed with reference to
exercise of the option by the employee under Section 17(2), the fair market
value at the time of exercise of the option shall be the cost of acquisition of
share for working out the capital gains. The relevant guidelines of the Central
Government have been issued vide Notification No.1021(E) dt.11.10.2001. Stock
options not in conformity with the above guidelines (non-qualified stock options)
shall continue to be taxed at both the stages.
It is pertinent to mention that benefits specifically exempt u/s
10(13A), 10(5), 10(14), 17 etc. would continue to be exempt. These include
benefits like travel on tour and transfer, leave travel, daily allowance to
meet tour expenses as prescribed, medical facilities subject to conditions.
5.2 Incomes not
included in the Head "Salaries"(Exemptions)
Any income falling within any of the following clauses shall not be
included in computing the income from salaries for the purpose of Section 192
of the Act :-
(1) The value of any travel
concession or assistance received by or due to an employee from his
employer or former employer for himself and his family, in connection with his
proceeding (a) on leave to any place in India or (b) on retirement from
service, or, after termination of service to any place in India is exempt under
clause (5) of Section 10 subject, however, to the conditions prescribed in rule
2B of the Income-tax Rules, 1962.
For the purpose of this clause, "family" in
relation to an individual means :
(i) The spouse and children of the individual; and
(ii) the parents, brothers and sisters of the
individual or any of them, wholly or mainly
dependent on the individual.
It may also be
noted that the amount exempt under this clause shall in no case exceed the
amount of expenses actually incurred for the purpose of such travel.
(2) Death-cum-retirement
gratuity or any other gratuity which is exempt to the extent specified from
inclusion in computing the total income under clause (10) of Section 10.
(3) Any payment in commutation
of pension received under the Civil Pension(Commutation) Rules of the
Central Government or under any similar scheme applicable to the members of the
civil services of the Union, or holders of civil posts/posts connected with
defence, under the Union, or civil posts under a State, or to the members of
the all India services/Defence Services, or, to the employees of a local
authority or a corporation established by a Central, State or Provincial Act,
is exempt under sub-clause (i) of clause (10A) of Section 10. As regards
payments in commutation of pension received under any scheme of any other
employer, exemption will be governed by the provisions of sub-clause (ii) of
clause (10A) of section 10.
(4) Any payment received by an employee of the Central Government or a
State Government, as cash-equivalent of
the leave salary in respect of the period of earned leave at his credit at
the time of his retirement on superannuation or otherwise, is exempt under
sub-clause(i) of clause (10AA) of Section 10. In the case of other employees,
this exemption will be determined with reference to the leave to their credit
at the time of retirement on superannuation, or otherwise, subject to a maximum
of ten months' leave. This exemption will be further limited to the maximum
amount specified by the Government of India Notification No.S.O.588(E) dated
31.05.2002 at Rs. 3,00,000/- in relation to such employees who retire, whether
on superannuation or otherwise, after 1.4.1998.
(5) Under Section 10(10B), the retrenchment
compensation received by a workman is exempt from income-tax subject to
certain limits. The maximum amount of retrenchment compensation exempt is the sum
calculated on the basis provided in section 25F(b) of the Industrial Disputes
Act, 1947 or any amount not less than Rs.50,000/- as the Central Government may
by notification specify in the official gazette, whichever is less. These
limits shall not apply in the case where the compensation is paid under any
scheme which is approved in this behalf by the Central Government, having
regard to the need for extending special protection to the workmen in the
undertaking to which the scheme applies and other relevant circumstances. The
maximum limit of such payment is Rs. 5,00,000 where retrenchment is on or after
1.1.1977.
(6) Under
Section 10(10C), any payment received or receivable (even if received in
instalments) by an employee of the following bodies at the time of his
voluntary retirement or termination of his service, in accordance with any
scheme or schemes of voluntary
retirement or in the case of public sector company , a scheme of voluntary
separation, is exempted from income-tax to the extent that such amount does not
exceed five lakh rupees:
a) A public sector company;
b) Any other company;
c) An Authority established under a Central,
State or Provincial Act;
d) A Local Authority;
e) A Cooperative Society;
f) A university established or incorporated or
under a Central, State or Provincial Act,
or, an Institution declared to be a
University under section 3 of the University
Grants Commission Act, 1956;
g) Any Indian Institute of Technology within
the meaning of Clause (g) of Section 3 of
the
h) Such
Central Government may by notification in
the Official Gazette, specify in this
behalf.
It may also be noted that where this exemption has been allowed to any
employee for any assessment year, it shall not be allowed to him for any other
assessment year. The exemption of amount received under VRS has been extended
to employees of the Central Government and State Government employees and
employees of notified institutions having importance throughout
(7) Any sum received under a
Life Insurance Policy, including the sum allocated by way of bonus on such
policy other than:
i)
i)
any sum received under sub-section (3) of section 80DD or sub-section
(3) of section 80DDA
or,
ii)
ii)
any sum received under Keyman insurance policy
or,
iii) any sum received under an insurance policy issued on or after
1.4.2003 in respect of which the premium payable for any of the years during the
term of the policy exceeds 20 percent of the actual capital sum assured.
However, any sum received under such policy on the death of a person would
still be exempt.
(8) any payment from a Provident
Fund to which the Provident Funds Act, 1925 ( 19 of 1925), applies ( or
from any other provident fund set up by the Central Government and notified by
it in this behalf in the Official Gazette).
(9) Under Section 10(13A) of the Income-tax Act, 1961,any special
allowance specifically granted to an assessee by his employer to meet expenditure incurred on payment of rent
(by whatever name called) in respect of residential accommodation occupied by
the assessee is exempt from Income-tax to the extent as may be prescribed,
having regard to the area or place in which such accommodation is situated and
other relevant considerations. According to rule 2A of the Income-tax Rules,
1962, the quantum of exemption allowable on account of grant of special
allowance to meet expenditure on payment of rent shall be:
(a) The actual amount of such allowance received by an
employer in respect of the relevant period; or
(b) The actual expenditure incurred in payment of rent
in excess of 1/10 of the salary due for the
relevant period; or
(c) Where such accommodation is situated in
to the employee for the relevant period; or
(d) Where such accommodation is situated in any other
place, 40% of the salary due to the employee for
the relevant period,
whichever is the least.
For this purpose, "Salary" includes dearness
allowance,
if the terms of employment so provide, but excludes all
other
allowances and perquisites.
It has to be noted that only the expenditure actually
incurred on payment of rent in respect of residential
accommodation occupied by the assessee subject to the
limits laid down in Rule 2A, qualifies for exemption from
income-tax. Thus, house rent allowance granted to an
employee who is residing in a house/flat owned by him is
not exempt from income-tax. The disbursing authorities
should satisfy themselves in this regard by insisting on
production of evidence of actual payment of rent before
excluding the House Rent Allowance or any portion thereof
from the total income of the employee.
Though incurring actual expenditure on payment of rent
is a pre-requisite for claiming deduction under section
10(13A), it has been decided as an administrative measure
that salaried employees drawing house rent allowance upto
Rs.3000/- per month will be exempted from production of
rent receipt. It may, however, be noted that this
concession is only for the purpose of tax-deduction at
source, and, in the regular assessment of the employee,
the
Assessing Officer will be free to make such enquiry as he
deems fit for the purpose of satisfying himself that the
employee has incurred actual expenditure on payment of
rent.
(10) Clause (14) of section 10 provides for exemption of the following
allowances :-
(i) Any special allowance or benefit granted to an
employee to meet the expenses
incurred in the
performance of his
duties as prescribed under Rule
2BB subject to the extent to which such expenses
are actually incurred for that purpose.
(ii) Any allowance granted to an employee either to
meet his personal expenses at the place of his
posting or at the place he ordinarily resides or
to compensate him
for the increased cost of
living, which
may be prescribed and to the extent
as may be prescribed.
However, the allowance
referred to in (ii) above should
not be in the nature of a
personal allowance granted to the
assessee to
remunerate or compensate him for performing
duties of a
special nature relating to his office or
employment unless such
allowance is related to his place of
posting or residence.
The CBDT has prescribed guidelines for the purpose of
clauses (i) and (ii) of Section 10(14) vide notification
No.SO617(E) dated 7th July, 1995 (F.No.142/9/95-TPL)which
has been amended vide notification SO No.403(E) dt
24.4.2000 (F.No.142/34/99-TPL). The transport allowance
granted to an employee to meet his expenditure for the
purpose of commuting between the place of his residence
and
the place of duty is exempt to the extent of Rs.800 per
month vide notification S.O.No. 395(E) dated 13.5.98.
(11) Under Section 10(15)(iv)(i) of the Income-tax Act, interest
payable by the Government on deposits made by an employee of the Central
Government or a State Government or a public sector company from out of his
retirement benefits, in accordance with such scheme framed in this behalf by
the Central Government and notified in the Official Gazette is exempt from
income-tax. By notification No.F.2/14/89-NS-II dated 7.6.89, as amended by
notification
No.F.2/14/89-NS-II dated 12.10.89, the Central Government has notified a scheme
called Deposit Scheme for Retiring
Government Employees, 1989 for the purpose of the said clause.
(12)Clause (18) of Section 10 provides for exemption of any income by
way of pension received by an individual or family pension received by any member of the family of an
individual who has been in the service of the Central Government or State
Government and has been awarded "Param Vir Chakra" or "Maha Vir
Chakra" or "Vir Chakra" or such other gallantry ward as may be
specifically notified by the Central Government. Such notification has been
made vide Notifications No.S.O.1948(E) dated 24.11.2000 and 81(E) dated
29.1.2001 which are enclosed as per Annexure- VIA & VIB
(13) Under Section 17 of the Act, exemption from tax will also be
available in respect of:-
(a) the
value of any medical treatment
provided to an employee or any member of his family, in any hospital maintained
by the employer;
(b) any
sum paid by the employer in respect of any expenditure actually incurred by the
employee on his medical treatment or of any member of his family:
(i) in any hospital
maintained by the Government or any local authority or any other hospital
approved by the Government for the purposes of medical treatment of its
employees;
(ii)in respect
of the prescribed diseases or ailments as provided in Rule 3A(2) of I.T. Rules
1962 , in any hospital approved by the Chief Commissioner having regard to the
prescribed guidelines as provided in Rule 3(A)(1)of I.T. Rule, 1962 :
In a case falling in sub-clause (ii)above, the employee shall attach
with his return of income a certificate from the hospital specifying the
disease or ailment for which medical treatment was required and the receipt for
the amount paid to the hospital.
(c) premium
paid by the employer in respect of medical
insurance taken for his employees (under any scheme approved by the
Central Government) or reimbursement of insurance premium to the employees who
take medical insurance for themselves or for their family members (under any
scheme approved by the Central Government);
(d)
reimbursement, by the employer, of the amount spent by an employee in obtaining
medical treatment for himself or any member of his family from any doctor, not
exceeding in the aggregate Rs.15,000/- in an year.
(e) As regards medical treatment abroad, the actual expenditure on stay
and treatment abroad of the employee or any member of his family, or, on stay
abroad of one attendant who accompanies the patient, in connection with such
treatment, will be excluded from perquisites to the extent permitted by the
Reserve Bank of
For the
purpose of availing exemption on expenditure incurred on medical treatment,
"hospital" includes a dispensary or clinic or nursing home, and
"family" in relation to an individual means the spouse and children
of the individual. Family also includes parents, brothers and sisters of the
individual if they are wholly or mainly dependent on the individual.
5.3 Deductions
u/s 16 of the Act
Entertainment
Allowance:
A deduction is also allowed under clause (ii) of section 16 in respect
of any allowance in the nature of an entertainment allowance specifically
granted by an employer to the assessee, who is in receipt of a salary from the
Government, a sum equal to one-fifth of his salary(exclusive of any allowance,
benefit or other perquisite) or five thousand rupees whichever is less. The
deduction hitherto available to non-government employees has been withdrawn.
Tax On Employment:
The tax on employment (Professional Tax) within the meaning of clause
(2) of Article 276 of the Constitution of India, leviable by or under any law,
shall also be allowed as a deduction in computing the income under the head
"Salaries".
It may be clarified that Standard Deduction from
gross salary income of Rs. 30,000/- or Rs. 20,000/-, depending upon the amount
of salaries, which was being allowed up to financial year 2004-05 shall not be
allowed from financial year 2005-06 onwards.
5.4 Deductions under chapter VI-A of the Act
In computing
the taxable income of the employee, the following deductions under Chapter VI-A
of the Act are to be allowed from his gross total income:
A. As per section 80C, an employee will be entitled to deductions for the whole
of amounts paid or deposited in the current financial year in the following
schemes, subject to a limit of Rs.1,00,000/-:
(1) Payment of insurance premium to effect or to keep in force an insurance on the
life of the individual, the spouse or any child of the individual.
(2) Any payment made to
effect or to keep in force a contract for a deferred annuity, not being an annuity plan as is referred to in
item (7) herein below on the life of the individual, the spouse or any child of
the individual, provided that such contract does not contain a provision for
the exercise by the insured of an option to receive a cash payment in lieu of
the payment of the annuity;
(3) Any sum deducted from the salary
payable by, or, on behalf of the Government to any individual, being a sum
deducted in accordance with the conditions of his service for the purpose of
securing to him a deferred annuity
or making provision for his spouse or children, in so far as the sum deducted
does not exceed 1/5th of the salary;
(4)
Any contribution made :
(a)
by an individual to any Provident Fund
to which the
Provident
Fund Act, 1925 applies;
(b) to any provident fund set up by the
Central Government, and notified by it in this behalf in the Official Gazette,
where such contribution is to an account standing in the name of an individual,
or spouse or children ;
[The
Central Government has since notified Public Provident Fund vide Notification
S.O. No. 1559(E) dated 3.11.05.]
(c)
by an employee to a Recognized Provident Fund;
(d)
by an employee to an approved superannuation
fund;
It
may be noted that "contribution" to any Fund shall
not
include any sums in repayment of loan;
(5) Any subscription :-
(a) to any such security of the Central Government or
any such deposit scheme as the Central Government
may, by notification in the Official
Gazette,
specify in this behalf;
(b) to any such saving certificates as defined under
section 2(c) of the Government Saving
Certificate
Act, 1959 as the Government may, by
notification in
the Official Gazette, specify in this
behalf.
[The
Central Government has since notified National Saving Certificate (VIIIth
Issue) vide Notification S.O. No.
1560(E) dated 3.11.05.]
(6) Any sum paid as contribution in the
case of an individual, for himself, spouse or any child,
(a) for participation in the Unit Linked Insurance Plan, 1971 of the
Unit Trust of India;
(b) for participation in any unit-linked insurance plan of the LIC
Mutual Fund notified by the Central Government under clause (23D) of
section 10.
[The
Central Government has since notified Unit Linked Insurance Plan (formerly
known as Dhanraksha, 1989) of LIC Mutual Fund vide Notification S.O. No.
1561(E) dated 3.11.05.]
(7) Any subscription
made to effect or keep in force a contract for such annuity plan of the Life Insurance Corporation as the Central
Government may by notification in the Official Gazette, specify;
[The Central Government has since
notified New Jeevan Dhara, New Jeevan Dhara-I, New Jeevan Akshay, New Jeevan
Akshay-I and New Jeevan Akshay-II vide Notification S.O. No. 1562(E) dated
3.11.05.]
(8) Any subscription
made to any units of any Mutual Fund,
notified under clause(23D) of section 10, or from the Administrator or the
specified company referred to in Unit Trust of India (Transfer of Undertaking
& Repeal) Act, 2002 under any plan formulated in accordance with any scheme
as the Central Government, may, by notification in the Official Gazette, specify
in this behalf;
[The
Central Government has since notified the Equity Linked Saving Scheme, 2005 for
this purpose. The Notification issued in this regard is available at the
website of the Income Tax Department at www.incometaxindia.gov.in]
The
investments made after 1.4.2005 in plans formulated in accordance with Equity
Linked Saving Scheme, 1992 or Equity Linked Saving Scheme, 1998 shall also
qualify for deduction under section 80C
(9). Any contribution made by an
individual to any pension fund set
up by any Mutual Fund notified under clause (23D) of section 10, or, by the
Administrator or the specified company referred to in Unit Trust of India
(Transfer of Undertaking & Repeal) Act, 2002, as the Central Government
may, by notification in the Official Gazette, specify in this behalf;
[The
Central Government has since notified UTI-Retirement Benefit Pension Fund vide
Notification S.O. No. 1564(E) dated 3.11.05.]
(10) Any subscription made to any such deposit scheme
of, or, any contribution made to any such pension fund set up by, the National Housing Bank, as the Central
Government may, by notification in the Official Gazette, specify in this
behalf;
(11) Any subscription made to any such deposit scheme, as
the Central Government may, by notification in the Official Gazette, specify
for the purpose of being floated by (a) public
sector companies engaged in providing long-term finance for construction or
purchase of houses in India for residential purposes, or, (b) any authority
constituted in India by, or, under any law, enacted either for the purpose of
dealing with and satisfying the need for housing accommodation or for the
purpose of planning, development or improvement of cities, towns and villages,
or for both.
(12) Any
sums paid by an assessee for the purpose of purchase or construction of a residential house property, the
income from which is chargeable to tax under the head "Income from house
property" (or which would, if it has not been used for assessee's own
residence, have been chargeable to tax under that head) where such payments are
made towards or by way of any instalment or part payment of the amount due
under any self-financing or other scheme of any Development Authority, Housing
Board etc.
The deduction will also be allowable in respect of re-payment of loans
borrowed by an assessee from the Government, or any bank or Life Insurance
Corporation, or National Housing Bank, or certain other categories of
institutions engaged in the business of providing long term finance for
construction or purchase of houses in
The stamp duty, registration fee and other expenses incurred for the
purpose of transfer shall also be covered. Payment towards the cost of house
property, however, will not include, admission fee or cost of share or initial
deposit or the cost of any addition or alteration to, or, renovation or repair
of the house property which is carried out after the issue of the completion
certificate by competent authority, or after the occupation of the house by the
assessee or after it has been let out. Payments towards any expenditure in
respect of which the deduction is allowable under the provisions of section 24
of the Income-tax Act will also not be included in payments towards the cost of
purchase or construction of a house property.
Where the house property in respect of which deduction has been allowed
under these provisions is transferred by the tax-payer at any time before the
expiry of five years from the end of the financial year in which possession of
such property is obtained by him or he receives back, by way of refund or
otherwise, any sum specified in section 80C(2)(xviii), no deduction under these
provisions shall be allowed in respect of such sums paid in such previous year
in which the transfer is made and the aggregate amount of deductions of income
so allowed in the earlier years shall be added to the total income of the
assessee of such previous year and shall be liable to tax accordingly.
(13) Tuition fees, whether at
the time of admission or thereafter, paid to any university, college, school or
other educational institution situated in India, for the purpose of full-time
education of any two children of the employee.
It is
clarified that any payment towards any development fees or donation or payment
of similar nature does not qualify for deduction under these provisions.
(14) subscription to equity
shares or debentures
forming part of any eligible issue
of capital made by a public company or by any public finance institution ,
which is approved by the Board.
(15) Subscription to any units of
any mutual fund referred to in clause (23D) of Section 10 and approved by
the Board for this purpose.
It
may be clarified that the amount of premium or other payment made on an
insurance policy [other than a contract for deferred annuity mentioned in
sub-para (2)] shall be eligible for deduction only to the extent of 20 percent
of the actual capital sum assured. In calculating any such actual capital sum,
the following shall not be taken into account:
i)
i)
the value of any premiums agreed to be returned, or
ii)
ii)
any benefit by way of bonus or otherwise over and above the sum actually
assured which may be received under the policy.
B.
As per section 80CCC, where an
assessee being an individual has in the previous year paid or deposited any
amount out of his income chargeable to tax to effect or keep in force a
contract for any annuity plan of Life
Insurance Corporation of India or any other insurer for receiving pension from
the Fund referred to in clause (23AAB) of section 10, he shall, in accordance
with, and subject to the provisions of this section, be allowed a deduction in
the computation of his total income, of the whole of the amount paid or
deposited (excluding interest or bonus accrued or credited to the assessee's
account, if any) as does not exceed the amount of ten thousand rupees in the previous year.
Where any amount paid or deposited by the assessee has been taken into
account for the purposes of this section, a rebate/ deduction with reference to
such amount shall not be allowed under section 88 up to assessment year 2005-06
and under section 80C from assessment year 2006-07 onwards.
C. As per the provisions of section 80CCD,
where an assessee, being an individual employed by the Central Government
on or after the 1st day of January, 2004, has in the previous year paid or
deposited any amount in his account under a pension scheme as notified vide
Notification No. F.N. 5/7/2003- ECB&PR dated 22.12.2003 (copy enclosed as
Annexure-VA), he shall be allowed a deduction in the computation of his
total income, of the whole of the amount so paid or deposited as does not
exceed ten per cent of his salary in the previous year.
Where, in the case of such
an employee, the Central Government makes any contribution to his account under
such pension scheme, the employee shall be allowed a deduction in the
computation of his total income, of the whole of the amount contributed by the
Central Government as does not exceed ten per cent of his salary in the
previous year.
Where any amount standing to the credit of the assessee in his account
under such pension scheme, in respect of which a deduction has been allowed as
per the provisions discussed above, together with the amount accrued thereon,
if any, is received by the assessee or his nominee, in whole or in part, in any
financial year,
(a)
on account of closure or his opting out of such pension scheme; or
b)
as pension received from the annuity plan purchased or taken on such closure or
opting out,
the whole of the amount
referred to in clause (a) or clause (b) above shall be deemed to be the income
of the assessee or his nominee, as the case may be, in the financial year in
which such amount is received, and shall accordingly be charged to tax as
income of that financial year.
For
the purposes of deduction under section 80CCD, salary includes dearness
allowance, if the terms of employment so provide, but excludes all other
allowances and perquisites.
The aggregate amount of
deduction under sections 80C, 80CCC and 80CCD shall not exceed Rs.1,00,000/-
(Section 80CCE)
D. Under section 80D, in the case of the
following categories of persons, a deduction can be allowed for a sum not
exceeding Rs.10,000/- per annum to the extent payment is made by cheque out of
their income chargeable to tax to keep in force an insurance on the health of the categories of persons mentioned
below provided that such insurance shall be in accordance with a scheme framed
in this behalf by -
(a) the General Insurance Corporation of India formed under Section 9
of the General Insurance Business (Nationalization)Act, 1972 and approved by
the Central Government in this behalf; or
(b) any other insurer and approved by the Insurance Regulatory and
Development Authority established under sub-section (1) of Section 3 of the
Insurance Regulatory and Development Authority Act, 1999.
The categories of persons are :
(i) where the assessee is an individual, any sum paid to
effect or to keep in force an insurance on the health
of the assessee or on the health of the wife or
husband, dependent parents or dependent children of the
assessee.
(ii) where the assessee is a Hindu Undivided Family, any
sum
paid to effect or to keep in force an insurance on the
health of any member of the family.
However, the deduction can be allowed for a sum not
exceeding Rs. 15,000/- per annum where the assessee or
his
wife or husband, or dependent parents or any member of
the
family (in case the assessee is a Hindu Undivided Family)
is
a senior citizen which means an individual resident in
who is of the age of sixty-five years or more at any time
during the relevant previous year.
E. Under section 80DD,
where an assessee, who is a resident in
(a) incurred any expenditure for the medical treatment (including nursing), training and
rehabilitation of a dependant, being a person with disability; or
(b) paid or deposited any amount under a scheme
framed in this behalf by the Life Insurance Corporation or any other insurer or
the Administrator or the specified company subject to the conditions specified
in this regard and approved by the Board in this behalf for the maintenance of
a dependant, being a person with disability,
the assessee shall be allowed a deduction of a sum
of fifty thousand rupees from his gross total income of that year, subject to
the conditions listed below:
However, where such dependant is a person with
severe disability, an amount of seventy-five thousand rupees shall be allowed
as deduction subject to the specified conditions.
The deduction under this section shall be allowed
only if the following conditions are fulfilled:-
A.
(i) the scheme referred to in clause (b) above
provides for payment of annuity or lump sum amount for the benefit of a
dependant, being a person with disability, in the event of the death of the
individual in whose name subscription to the scheme has been made;
(ii) the assessee nominates either the dependant,
being a person with disability, or any other person or a trust to receive the
payment on his behalf, for the benefit of the dependant, being a person with
disability.
However, if the dependant, being a person with
disability, predeceases the assessee, an amount equal to the amount paid or
deposited under sub-para (3)(b) above shall be deemed to be the income of the
assessee of the previous year in which such amount is received by the assessee
and shall accordingly be chargeable to tax as the income of that previous year.
B. The assessee, claiming a deduction under this
section, shall furnish a copy of the certificate issued by the medical
authority in the prescribed form and manner, along with the return of income
under section 139, in respect of the assessment year for which the deduction is
claimed:
In cases where the condition of disability requires
reassessment of its extent after a period stipulated in the aforesaid
certificate, no deduction under this section shall be allowed for any
subsequent period unless a new certificate is obtained from the medical
authority in the prescribed form and manner and a copy thereof is furnished
along with the return of income.
For the purposes of section 80DD,
(a) Administrator
means the Administrator as referred to in clause (a) of section 2 of the Unit
Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002) ;
(b) dependant
means
(i) in the
case of an individual, the spouse, children, parents, brothers and sisters of
the individual or any of them;
(ii) in the case of a Hindu undivided family, a
member of the Hindu undivided family,
dependant
wholly or mainly on such individual or Hindu undivided family for his support
and maintenance, and who has not claimed any deduction under section 80U in
computing his total income for the assessment year relating to the previous
year;
(c) disability
shall have the meaning assigned to it in clause (i) of section 2 of the Persons
with Disabilities (Equal Opportunities, Protection of Rights and Full
Participation) Act, 1995 (1 of 1996) and includes autism, cerebral
palsy and multiple disability referred to in clauses (a), (c) and (h) of
section 2 of the National Trust for Welfare of Persons with Autism, Cerebral
Palsy, Mental Retardation and Multiple Disabilities Act, 1999 (44 of 1999);
(d) Life
Insurance Corporation shall have the same meaning as in clause (iii) of
sub-section (8) of section 88;
(e) medical
authority means the medical authority as referred to in clause (p) of section 2
of the Persons with Disabilities (Equal Opportunities, Protection of Rights and
Full Participation) Act, 1995 (1 of 1996) or such other medical
authority as may, by notification, be specified by the Central Government for
certifying autism, cerebral palsy, multiple disabilities, person with
disability and severe disability referred to in clauses (a), (c), (h), (j) and
(o) of section 2 of the National Trust for Welfare of Persons with Autism,
Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999 (44 of
1999);
(f) person
with disability means a person as referred to in clause (t) of section 2 of the
Persons with Disabilities (Equal Opportunities, Protection of Rights and Full
Participation) Act, 1995 (1 of 1996) or clause (j) of section 2 of the National
Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation
and Multiple Disabilities Act, 1999 (44 of 1999);
(g) person
with severe disability means
(i) a
person with eighty per cent or more of one or more disabilities, as referred to
in sub-section (4) of section 56 of the Persons with Disabilities (Equal
Opportunities, Protection of Rights and Full Participation) Act, 1995 (1 of
1996); or
(ii) a
person with severe disability referred to in clause (o) of section 2 of the
National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental
Retardation and Multiple Disabilities Act, 1999 (44 of 1999);
(h) specified
company means a company as referred to in clause (h) of section 2 of the Unit
Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002).]
F. Under Section 80E of the Act a deduction will be allowed in respect of repayment of interest on loan taken for
higher education, subject to the following conditions:
(i)In computing the total income of an assessee, being an individual,
there shall be deducted, in accordance with and subject to the provisions of
this section, any amount paid by him in the previous year, out of his income
chargeable to tax, by way of interest on loan, taken by him from any financial
institution or any approved charitable institution for the purpose of pursuing
his higher education.
(ii) The deduction specified above shall be allowed in computing the
total income in respect of the initial assessment year and seven assessment
years
immediately
succeeding the initial assessment year or until the interest referred to above
is paid in full by the assessee , whichever is earlier.
.
For this purpose -
(a) "approved charitable institution" means an
institution established for charitable purposes and
notified by the Central Government under clause (2C)
of section 10, or, an institution referred to in
clause (a) of sub-section (2) of Section 80G.
(b) "financial institution" means a banking
company to
which the Banking Regulation Act, 1949 (10 of 1949)
applies (including any bank or banking institution
referred to in section 51 of that Act); or any other
financial institution which the Central Government
may, by notification in the Official Gazette, specify
in this behalf;
(c) "higher education" means full-time studies
for any
graduate or post-graduate course in engineering
medicine,
management, or, for post-graduate course in
applied sciences or pure sciences, including
mathematics and statistics;
(d) "initial assessment year" means the
assessment year
relevant to the previous year, in which the assessee
starts paying the interest on the loan.
G. No deduction should be allowed by the
D.D.O. from the salary income in respect of any donations made for charitable
purposes. The tax relief on such donations as admissible under section 80G
of the Act, will have to be claimed by the tax payer in the return of income.
However, D.D.O. on due verification may allow donations to following bodies to
the extent of 50% of the
contribution:
i) Jawaharlal Nehru Memorial Fund.
ii)The Prime Minister's Drought Relief Fund
iii)The National Children's Fund,
Iv)The Indira Gandhi Memorial Trust,
v) The Rajiv Gandhi Foundation.
and to the following bodies to the extent of 100% of
the contribution:
i. National Defence Fund or The Prime Minister's
National Relief Fund.
ii. The Prime Minister's Armenia Earthquake Relief
Fund.
iii. The Africa (Public Contributions -
iv. The National Foundation for Communal Harmony.
v. Chief
Minister's Earthquake Relief Fund -
vi. National Blood
Transfusion Council.
vii. State Blood
Transfusion Council.
viii. Army
Central Welfare Fund.
ix. Indian Naval
Benevolent Fund.
x. Air Force
Central Welfare Fund.
xi. The Andhra Pradesh Chief Minister's Cyclone
Relief Fund - 1996.
xii. The National
Illness Assistance Fund.
xiii. The Chief Minister's Relief Fund or Lieutenant
Governor's Relief Fund in respect of any State or Union Territory as the case
may be, subject to certain conditions.
xiv. The University or Educational Institution of
national eminence approved by the Prescribed Authority.
xv. The National Sports Fund to be set up by Central
Government.
xvi. The National Cultural Fund Set up by the
Central Government.
xvii. The Fund for Technology Development and
Application set by the Central Govt.
xviii. The National Trust for Welfare of persons
with Autism, Cerebral Palsy, Mental Retardation and Multiple disabilities.
H.
Under Section 80GG of the Act an
assessee is entitled to a deduction in respect of house rent paid by him for his own residence. Such deduction is
permissible subject to the following conditions :-
(a) the assessee has not been in receipt of any House
Rent Allowance specifically granted to him which
qualifies for exemption under section 10(13A) of
the Act;
(b) the assessee files the declaration in Form No.10
BA. (Annexure-VII )
(c) He will be entitled to a deduction in respect of
house rent paid by him in excess of 10 per cent of
his total income, subject to a ceiling of 25 per
cent thereof or Rs. 2,000/- per month, whichever
is less. The total income for working out these
percentages will be computed before making any
deduction under section 80GG.
(d) The assessee does not own:
(i) any residential accommodation himself or by his
spouse or minor child or where such assessee is a
member of a Hindu Undivided Family, by such family,
at the place where he ordinarily resides or
performs duties of his office or carries on his
business or profession; or
(ii) at any other place, any residential accommodation being
accommodation in the occupation of the assessee, the value of which is to be
determined under clause (a) of sub section (2) or, as the case may be, clause
(a) of sub-section (4) of section 23:
The Drawing and Disbursing Authorities should satisfy
themselves that all the conditions mentioned above are
satisfied before such deduction is allowed by them to the
assessee. They should also satisfy themselves in this
regard by insisting on production of evidence of actual
payment of rent.
I. Under section
80U, in computing the total income of an individual, being a resident, who,
at any time during the previous year, is certified by the medical authority to
be a person with disability, there
shall be allowed a deduction of a sum of fifty thousand rupees.
However, where such individual is a person with
severe disability, a higher deduction of seventy-five thousand rupees shall be
allowable.
Every individual claiming a
deduction under this section shall furnish a copy of the certificate issued by
the medical authority in the prescribed form and manner along with the return
of income, in respect of the assessment year for which the deduction is
claimed.
In cases where the condition of disability requires
reassessment of its extent after a period stipulated in the aforesaid
certificate, no deduction under this section shall be allowed for any
subsequent period unless a new certificate is obtained from the medical
authority in the prescribed form and manner and a copy thereof is furnished
along with the return of income.
For the purposes of this section, the expressions
disability, medical
authority, person with disability and person with severe disability shall have
the same meaning as given in section 80DD (sub-para E of para 5.4 of this
Circular).
DDOs
to satisfy themselves of the genuineness of claim:
(21) The Drawing and Disbursing Officers should satisfy themselves
about the actual deposits/ subscriptions / payments made by the employees, by
calling for such particulars/ information as they deem necessary before
allowing the aforesaid deductions. In case the DDO is not satisfied about the
genuineness of the employee's claim regarding any deposit/subscription/payment
made by the employee, he should not allow the same, and the employee would be
free to claim the deduction/ rebate on such amount by filing his return of
income and furnishing the necessary proof etc., therewith, to the satisfaction
of the Assessing Officer.
6. CALCULATION OF INCOME-TAX
TO BE DEDUCTED:
6.1 Salary income for the purpose of Section 192 shall be computed as
follow:-
(a) First compute the gross salary as mentioned in
para 5.1 excluding all the incomes mentioned in
para 5.2;
(b) Allow deductions mentioned in para 5.3 from the
figure arrived at (a) above.
(c) Allow deductions mentioned in para 5.4 from the figure arrived at
(b) above ensuring that aggregate of the deductions mentioned in para 5.4 does
not exceed the figure of (b) and if it exceeds, it should be restricted to that
amount.
This will be the amount of income from salaries on which income tax
would be required to be deducted. This income should be rounded off to the
nearest multiple of ten rupees.
6.2 Income-tax on such income shall be calculated at the rates given
in para 2 of this Circular keeping in view the age and gender of the employee.
6.3 The amount of tax payable so arrived at shall be
increased by surcharge (if applicable) and additional surcharge (Education
Cess) at the prescribed rate to arrive at the total tax payable.
6.4 The amount of tax as arrived at para 6.3 should be deducted every
month in equal installments. Any excess or deficit arising out of any previous
deduction can be adjusted by increasing or decreasing the amount of subsequent
deductions during the same financial year.
7. MISCELLANEOUS:
7.1 These instructions are not exhaustive and are issued only with a
view to helping the employers to understand the various provisions relating to
deduction of tax from salaries. Wherever there is any doubt, reference may be
made to the provisions of the Income-tax Act, 1961, the Income-tax Rules, 1962
and the Finance Act 2005.
7.2 In case any assistance is required, the Assessing
Officer/the local Public Relation Officer of the Income-tax Department may be
contacted.
7.3 These instructions may be brought to the notice of
all Disbursing Officers and Undertakings including those under the control of
the Central/ State Governments.
8.4 Copies of this Circular are available with the Director of
Income-tax(Research, Statistics & Publications and Public Relations), 6th
Floor, Mayur Bhavan, Indira Chowk, New Delhi-110 001 and at the following
websites:
www.finmin.nic.in
www.incometaxindia.gov.in
(R.K. SAGAR)
Under Secretary(Budget)
Central Board of Direct Taxes
1. All State
Governments(including Administration of
Union Territories)
2. All Ministries/Departments of Government of India etc.
3. President's Secretariat
4. Vice-President's Secretariat
5. Prime Minister's Office
6. Lok Sabha Secretariat
7. Rajya Sabha Secretariat
8. Cabinet Secretariat
9. Secretary, U.P.S.C., Dholpur House, New Delhi
10.Secretary,
Staff Selection Commission, Lodhi Complex, New Delhi
11.Supreme Court of India, New Delhi
12.Election Commission, New Delhi
13.Planning Commission, New Delhi
14.Secretariat
of Governors/Lt.Governors of all States/Union Territories
15.All
Integrated Financial Advisors to Ministries/Departments of Government of India
16.All Heads of Departments & Offices subordinate to
the
Department of Revenue CBDT, CBEC etc.
17.Army Headquarters, New Delhi
18.Air Headquarters, New Delhi
19.Naval Headquarters, New Delhi
20.Director-General of Posts & Telegraphs, New
Delhi(10
copies)
21.Comptroller & Auditor General of India (50 copies)
22.Accountant General - I, Andhra Pradesh, Hyderabad
23.Accountant General-II, Andhra Pradesh, Hyderabad
24.Accountant General, Assam, Shillong
25.Accountant General-I, Bihar, Ranchi
26.Accountant General-II, Bihar, Patna
27.Accountant General-I, Gujarat, Ahmedabad
28.Accountant General-II, Gujarat, Rajkot
29.Accountant General, Kerala, Trivandrum
30.Accountant General, Madhya Pradesh, Gwalior
31.Accountant General, Tamil Nadu, Chennai
32.Accountant General-I, Maharashtra, Mumbai
33.Accountant General-II, Maharashtra, Nagpur
34.Accountant General, Karnataka, Bangalore
35.Accountant General, Orissa, Bhubneshwar
36.Accountant General, Punjab, Chandigarh
37.Accountant General, Himachal Pradesh, Simla
38.Accountant General, Rajasthan, Jaipur
39.Accountant General-I, II & III, Uttar Pradesh,
Allahabad
40.Accountant General, West Bengal, Calcutta
41.Accountant General, Haryana, Chandigarh
42.Accountant General, Jammu & Kashmir, Srinagar
43.Accountant General, Manipur, Imphal
44.Accountant General, Tripura, Agartala
45.Accountant General, Nagaland, Kohima
46.Director of Audit(Central)Kolkatta
47.Director of Audit(Central Revenue), New Delhi
48.Director of Audit (Central), Mumbai
49.Director of Audit, Scientific & Commercial
Department,
Mumbai
50.All Banks (Public Sector, Nationalised including State
Bank of India)
51.Secretary, Reserve Bank of India Central Office
P.B.No.406, Mumbai-400001(25 copies for distribution to
its Branches).
52.Accounts Officer, Inspector General of Assam Rifles,
(Hqrs), Shillong
53.All Chambers of Commerce & Industry
54.Lok Sabha /Rajya Sabha Secretariat Libraries(15 copies
each)
55.All Officers and Sections in Techinical Wing of CBDT
56.Controller of Accounts, Department of Economic
Affairs,
New Delhi
57.Manager, Reserve Bank of India, Public Debt
Office, Ahmedabad/Bangalore/Bhubneshwar/Mumbai(Fort)/
Mumbai(Central)/Mumbai-8, Kolkatta/Hyderabad/Kanpur/
Jaipur/Chennai/Nagpur/NewDelhi/Patna/Guwahati/
Trivandrum
58.Asst.Chief Inspector, R.B.I. Inspection Department
Regional audit Cell/Mumbai/Kolkatta/Chennai/New
Delhi/Kanpur
59.Accountant General, Post & Telegraph, Simla
60.Controller General of Defence Accounts, New Delhi
61.Dir.of Audit, Defence Services, New Delhi
62.World Health Organisation, New Delhi
63.International Labour Office, India Branch, New Delhi
64.Secretary, Indian Red Cross Society, India, New Delhi
65.Atomic Energy Department, Mumbai
66.Secretary, Development Board, Ministry of Commerce
&
Industry, New Delhi
67.National Savings Organisation, Nagpur
68.Deputy Accountant General, Post & Telegraph,
Kolkatta
69.The Legal Adviser, Export - Import Bank of India, Post
Box No.19969, Nariman Point, Mumbai-400021
70.The Deputy Finance Manager(Headquarters), Indian
Airlines(H) - Airlines House, 11, Gurudwara Rakabganj
Road, New Delhi-110001
71.Manager, State Bank of India, Local Head Office:-
i) Jeevan Deep Building, 1,Middleton Street, Kolkatta
ii)Circle Top House, Rajaji Salai, Chennai-600001
iii)Lucknow, Uttar Pradesh
iv) Bank Street, Hyderabad-500001
v) Hamida Road, Bhopal-462001
vi)Shop Nos.101 to 105, Sector 17-B, Chandigarh
vii)New Amn.Building, Madam Cama Road, Mumbai-400021
viii) 9, Parliament Street, New Delhi-110001
ix) Bhedru, Ahmedabad-380001
x) Judges Court Road, Post Box No.103, Patna-800001
xi) 59, Forest Park, Bhubneshwar and Gauhati, Assam
xii) Gauhati, Assam
72.Chief Controller of Accounts, CBDT, Lok Nayak Bhawan,
Khan Market, New Delhi
73.State Bank of Patiala, (Head Office), The Mall,
Patiala
74.State Bank of Bikaner and Jaipur, Head Office, Tilak
Marg, 'C' Scheme Jaipur
75.State Bank of Hyderabad, Head Office, Gun Factory,
Hyderabad
76.State Bank of Indore, 5 Yashwant Nivas Road, Indore.
77.State Bank of Mysore (Head Office), K.G.Road, Bangalore
78.State Bank of Saurashtra, Behind Satyanarayan Road,
Bhavnagar, Gujarat
79.State Bank of Travancore, Post Box No.34, Trivandrum
80.N.S.Branch, Department of Economic Affairs, New Delhi
81.The Editory, 'The Income-tax Reporter' Company Law
Institute of India (P) Ltd., 88, Thyagaraja Road,
Thyagaraja Nagar, Chennai-600017
82.The
Editor, Chartered Secretary, The Institute of Company Secretaries of India,
'ICSI House, 22, Institutional Area, Lodhi Road, New Delhi-110003
83.The Editor, "Taxation" 174, Jorbagh, New
Delhi
84.The Editor, "The Tax Law Review" Post Box
No.152,
Jallandhar-144001
85.The Editor, "Taxmann" Allied Services
(P)Ltd., 1871,
Kucha Chelan, Khari Baoli, Delhi-110006
86.The Min. of Law (Deptt. of Legal Affairs), Shastri
Bhawan New Delhi.
87.Food Corporation of
Delhi-110001
88.IFCI,
Bank of Baroda Building, 16, Parliament Street, New Delhi
89.IDBI, IDBI Tower, Cuff Parad, Mumbai-400 005
90.ICICI, 163, Backbay Reclamation, Mumbai-20
91.NABARD,
Poonam Chambers,Dr.Annie Besant Road, P.B.No.552,Worli, Mumbai
92.National Housing Bank, 3rd Floor, Bombay Life
Building,
45, Veer Nariman Road, Mumbai
93.IRBI, 19, Netaji Subhash Road, Kolkatta
94.All Foreign Banks operating in India
95.Air
96.University Grants Commission, Bahadur Shah Jafar Marg,
New Delhi
97.The Deputy Director(Admn.), NSSO (FOD), Mahalonobis
Bhavan, 6th Floor, 164, G.L.Tagore Road, Kolkata-700108
ANNEXURE-I
Example 1
Assessment Year
2006-2007
Calculation of Income tax in the case of a male
employee having
gross salary income of:
i) Rs.2,00,000/- ,
ii) Rs.5,00,000/- and
iii) Rs.10,00,000/-
Particulars (Rupees) (Rupees) (Rupees)
(i) (ii) (iii)
Gross Salary Income 2,00,000 5,00,000 10,00,000
(Including allowances)
Contribution to G.P.F. 20,000 50,000 1,00,000
Computation of
Total Income and tax payable thereon
Gross Salary 2,00,000 5,00,000 10,00,000
Less: Deduction
U/s 80C 20,000
50,000 1,00,000
Taxable Income 1,80,000 4,50,000 9,00,000
Tax thereon 11,000 85,000 2,20,000
Add: surcharge Nil Nil Nil
Add: Education
Cess @2% 220 1,700 4,400
Total tax payable
11,220 86,700 2,24,400
Note: Surcharge at the rate of 10% of the tax payable is to be
charged only if taxable income exceeds Rs.10,00,000/-.
Example 2
A.Y.2006-2007
Calculation of Income Tax
in the case of a male employee having a handicapped dependent.
Particulars:
1. Gross Salary Rs.3,20,000
2. Amount spent on treatment
of a dependant, being person
with disability( but not severe
disability) Rs. 7,000
3. Amount paid to LIC with regard
to annuity for the maintenance
of a dependant, being person
with disability( but not severe Rs. 50,000
disability)
4. GPF Contribution Rs. 25,000
5. LIP Paid Rs. 10,000
Computation of
Tax
Gross Salary Rs.3,20,000/-
Less: Deduction U/s 80DD
(Restricted to Rs.50,000/- Rs. 50,000/-
only) _________________
Taxable Income Rs.2,70,000/-
Less:
Deduction u/s 80C:
GPF 25,000/-
LIP 10,000/-
__________
Total 35,000/- 35,000
Total Income Rs. 2,35,000
Income
Tax thereon Rs. 22,000/-
Add: Surcharge Nil
Add:
Education Cess @2%: Rs. 440
Total tax Payable
Rs. 22,400/-
Example 3
A.Y. 2006-2007.
Calculation of Income Tax in the case of a male
employee where
medical treatment expenditure was borne by the
employer.
Particulars:
1. Gross Salary Rs.3,00,000/-
2. Medical Reimbursement by employer on the
treatment of self and dependent family
member Rs. 30,000/-
3. Contribution of GPF Rs. 20,000/-
4. LIC premium Rs. 20,000/-
5. Repayment of House Building Advance Rs. 25,000/-
6. Tuition fees for two children Rs. 30,000/-
7. Investment infrastructure Bond Rs. 20,000/-
Computation of
Tax
Gross Salary Rs.3,00,000/-
Add: Perquisite in respect of reimburse-
ment of Medical Expenses in excess
of Rs.15,000/- in view of Sec.
17(2)(v) Rs. 15,000/- _____________
Taxable Income
Rs.3,15,000/-
Less: Deduction u/s 80C:
GPF 20,000/-
LIC 20,000/-
Repayment of
HBA 25,000/-
Tuition Fees 30,000/-
Investment in
infra-structural Bonds 20,000/-
___________
Total 1,15,000/-
Restricted to Rs. 1,00,000/- Rs. 1,00,000
Total
Income: Rs.
2,15,000
Tax Payable Rs. 18,000/-
Add: Surcharge Nil
Add:
Education Cess @ 2%: Rs.
360
____________
Total Tax Payable
Rs. 18,360/-
Example 4
A.Y. 2006-2007.
Illustrative calculation of
House Rent Allowance U/s 10 (13A)in respect of residential accommodation
situated in Delhi in case of a female employee:
PARTICULARS
1. Salary Rs.2,00,000/-
2. Dearness Allowance Rs.1,00,000/-
3. House Rent Allowance Rs.1,20,000/-
4. C.C.A Rs. 6,000/-
5. House rent paid Rs.1,44,000/-
6. General Provident Fund Rs. 36,000/-
7. Life Insurance Premium Rs. 4,000/-
8.
8.
Subscription to Infrastructure
Bonds Rs. 20,000/-
Computation of total income and tax
payable thereon
1. Salary + D.A. + C.C.A. Rs.3,06,000/-
House Rent Allowance Rs.1,20,000/-
_____________
2. Total Salary income Rs.4,26,000/-
3. Less: House Rent allowance
exempt U/s 10(13A):Least of:
a. Actual amount of HRA received=1,20,000
b. Expenditure of rent in excess of 10%
of salary (including D.A.
presuming that D.A. is taken for
retirement benefit)
(1,44,000-30,000) =1,14,000 c.50% of Salary(Basic+ DA)=
Rs.1,50,000 Rs.1,14,000/-
Gross Total
Income: Rs.3,12,000/-
Less: Deduction u/s 80C:
GPF :36,000/-
LIC : 4,500/-
Subscription to
Infr. Structure
Bonds _: 20,000/-
Total: : 60,000 Rs. 60,000/-
Total
Income: Rs.2,52,000/-
Tax on total income Rs.
21,900/-
Surcharge: Nil
Education Cess @ 2% Rs.
438/-
Total Tax Payable Rs. 22,338/-
Example 5
A.Y.2006-2007.
Illustrating valuation of perquisite and calculation of tax in the
case of a male employee of a private company in Mumbai who was provided
accommodation in a flat at concessional rate for ten months and in a hotel for
two months.
1. Salary : Rs.5,00,000/-
2. Bonus : Rs. 76,000/-
3. Free gas, electricity, water etc.
(Actual bills paid by company) : Rs. 24,000/-
4(a) Furnished flat provided to the
employee for which actual rent
paid by the company per annum : Rs.1,20,000/-
4(b) Hotel rent paid by employer
(for two months) : Rs. 50,000/-
4(c) Rent recovered from employee : Rs. 10,000/
4(d) Cost of furniture :
Rs.1,00,000/-
5. Subscription to infrastructure
bonds :
Rs. 30,000/-
6. Life Insurance Premium : Rs. 5,000/-
7. Subscription to NSC (VIII) Issue : Rs. 20,000/-
10. Contribution to recognized P.F. : Rs. 36,000/-
COMPUTATION OF
TOTAL INCOME AND TAX PAID THEREON:
1. Salary : Rs. 5,00,000/-
2. Bonus : Rs. 76,000/-
Total Salary for Valuation of : Rs. 5,76,000/-
Perquisite ie; Rs.48,000 per month
Valuation of perquisites
(a) Perq. for flat:
Lower of (20% of salary for ten
months=Rs.96,000/-) and (actual rent
paid=1,00,000) : Rs. 96,000/-
(b) Perq. for hotel
Lower of (24% of salary of
2 mths=23,040) and (actual
payment=50,000) :
Rs. 23,040/-
(c) Perq for furniture @ 10%
of cost : Rs. 10,000/-
Rs.
1,29,040
Less: Rent recovered from employee :
Rs. 10,000/- Rs. 1,19,400
(d) Add perq. for free gas, elec.
water :
Rs. 24,000/-
Total perquisites: : Rs. 1,43,040
Gross Total Income Rs. 7,19,040/-
(5,76,000+1,43,040)
Less: Deduction u/s 80C:
Provident Fund :36,000
Subscription to NSC VIII
Issue :20,000
LIC : 5,000
Infrastructure Bond :30,00
Total: 91,000
Rs.
91,000/-
Total Income Rs. 6,28,040/-
Tax Payable Rs. 1,38,412
Surcharge: Nil
Education Cess @ 2% Rs.
2,768/-
Total Tax Payable Rs. 1,41,180/-
Example 6
A.Y.2006-2007.
Illustrating
Valuation of perquisite and calculation of tax in the case of a female
employee of a Private Company posted at Delhi and repaying House Building
Loan.
Particulars:
1. Salary :
Rs.3,00,000/-
2. Dearness Allowance :
Rs.1,00,000/-
3. House Rent Allowance :
Rs.1,80,000/-
4. Special Duties Allowance : Rs. 12,000/-
5. Provident Fund :
Rs. 60,000/-
6. LIP :
Rs. 10,000/-
7. Deposit in NSC VIII issue : Rs. 30,000/-
8. Rent Paid by the employee for house
hired by her :
Rs. 1,20,000/-
9. Repayment of House Building Loan
(Principal) : Rs. 60,000/-
10. Tution Fees for three children : Rs. 30,000/-
(Rs.10,000/-
per child)
Computation of
total income and tax payable thereon
1. Gross salary :
5,92,000/-
(Basic+DA+HRA+SDA)
Less: House rent allowance exempt
U/s 10 (13A)
Least
of:
a.
Actual amount of HRA received :
1,80,000
b.
Expenditure on rent in excess
of
10% of salary (Including
D.A.)assuming
D.A. is
including
for retirement
benefits
(1,20,000- 40,000) : 80,000
c.50%
of salary (including D.A) :
2,00,000 (-) 80,000/-
Gross Total Taxable Income : 5,12,000/-
Less: Deduction u/s 80C:
i.
Provident Fund : 60,000
ii.
LIP : 10,000
iii.
NSC VIII Issue : 30,000
iv.
Repayment of
HBA
: 60,000
v.
Tution Fees
(Restricted to two
children) : 20,000
Total
: 1,80,000
Restricted to 1,00,000/-
Total Income : 4,12,000/-
Tax Payable 70,100/-
Surcharge: Nil
Education Cess @ 2% 1,402/-
Total Tax
Payable Rs. 71,502/-
Note: Part of the dearness
allowance merged with the basic pay and shown as Dearness Pay is also included
in the definition of salary for working out the amount of exemption under
section 10(13A).
Example 7
A.Y.2006-2007.
Income
Tax calculation in the case of a male employee who claims loss under the
head income from self-occupied house property.
Particulars:
1. Gross salary :
4,00,000
2. Housing Loan repaid (Principal) : 50,000
3. Interest payable on housing loan
(Loan taken after 01.04.1999) : 1,60,000
4. Donation paid to National
Children Fund :
5,000
5. NSC Purchased : 10,000
6. GPF : 30,000
Computation of
taxable income and tax thereon:
1. Salary Income : Rs.4,00,000
2. Income from house property
Annual value Nil
Interest payable on
loan U/s 24 1,50,0000
(Maximum allowable) : (-)Rs.1,50,000/-
Gross total income : Rs.2,50,000/-
Less: Deduction U/s 80G
50% of Rs.5,000/- Rs. 2,500/-
Less Deduction U/s 80C:
GPF :30,000
NSC :10,000
Housing Loan
repaid :50,000
Total Rs. 90,000/-
Total Deductions under Chapter VI-A Rs.
92,500/-
Total Income : Rs.
1,57,500/-
Tax Payable : Rs. 6,500/-
Add: surcharge Nil
Add:
Education Cess : Rs.
130
Total tax payable
: Rs. 6,630/-
EXAMPLE 8
A.Y.2006-2007.
Income
Tax calculation in the case of a male employee who claims loss under the
head Income from self-occupied house property, and has taken house building
loan before 1.4.99.
Particulars:
1. Gross Salary 4,00,000
2. Housing Loan repaid (Principal) 30,000
2.
2.
Interest payable on housing loan
(Loan taken before 01.04.1999) 1,00,000
4. Donation paid to National Childrens Fund 6,000
5. N.S.C. purchased 10,000/-
6. G.P.F. 20,000/-
Computation of
Taxable Income and tax thereon
1. Salary Income Rs.4,00,000
2.
2.
Income from House Property
Annual value : Nil
Interested payable on loan
u/s 24 : 30,000
(Maximum
allowable (-)Rs.30,000/-
for loans taken before 1.4.99) -------------
Gross total
income Rs.3,70,000/-
Less Deduction U/s 80G
50% of Rs. 6,000/- Rs. 3,000/-
Less Deduction
U/s 80C:
G.P.F. 20,000
N.S.C. 10,000
Housing Loan repaid 30,000
-----------
Total: 60,000
------------
Total Deductions under Chapter VI-A Rs.
63,000/-
Total Income Rs.3,07,000/-
Tax payable Rs. 42,100/-
Add: Surcharge Nil
Add:
Education Cess @ 2% Rs.
842
------------
Total Tax payable
Rs. 42,942/-
------------
EXAMPLE - 9
A.Y.2006-2007
Income
Tax calculation in the case of a male pensioner who is more than 65
years of age.
(Rupees)
Particulars
Service Pension 1,80,000
Infrastructure Bond 30,000
N.S.C. purchased 20,000
Computation of
Taxable Income and Tax thereon
Income from Salary (Pension) 1,80,000
Less: Deduction
u/s 80C
G.P.F. 30,000
N.S.C. 20,000
---------
Total 50,000
----------
Total Income 1,30,000
Tax payable Nil
Note: Taxpayers of sixty five years of age
or above do not have to pay tax up to a total income of Rs.1,85,000/-.
ANNEXURE-II
Form for sending particulars
of income u/s 192(2B) for the year ending 31st March 2002
1. Name and address of the
employee
2. Permanent Account Number
3. Residential status
4. Particulars of income
under any head of income other than "salaries" (not being a loss
under any such head other than the loss under the head "Income from house
property") received in the financial year.
(i) Income from house property -------------------
(in case of loss, enclose computation thereof)
(ii) Profits and gains of business or profession -------------------
(iii) Capital gains -------------------
(iv) Income from other sources
(a) Dividends
(b) Interest
(c) Other
incomes (Specify)
Total -------------------
5.
Aggregate of sub-items (i) to (iv) of item 4
6.
Tax deducted at source (enclose certificates) issued under Section 203)
Place------------------
Date
----------------- -------------------
Signature
of the employee
Verification
I,
-----------------------------------------, do hereby declare that what is
stated above is true to the best of my knowledge and belief.
Verified
today, the ------------------ day of ------------------2002.
Place------------------
Date------------------ -------------------
Signature
of the employee
F.No.142/47/98-TPL Sd/-
NOTIFICATION NO.
10722 ( SUNITI SRIVASTAVA)
Under
Secretary to the Govt. of
----------------------------------------------------------------------------------
The principal rules were
published vide notification No. S.O. 969(E) dated 26.3.1962 and were last
amended vide notification NO. SO. 897(E) dated 12.10.98.
FORM NO.12BA
{See rule 26A(2)(b)}
Statement showing particulars of perquisites, other fringe benefits or
amenities and profits in lieu of salary with value thereof
1)
1)
Name and address of employer :
2) TAN
3) TDS Assessment Range of the
employer :
4) Name, designation and PAN of
employee :
5)
5)
Is the employee a director or a person with :
substantial interest in the
company
(where the employer is a company)
6) Income under the head
"Salaries" of the employee :
(other than from perquisites)
7) Financial Year :
8) Valuation of Perquisites
|
S.No |
Nature of
perquisite (see rule 3) |
Value of perquisite
as per rules (Rs.) |
Amount, if any
recovered from the employee (Rs.) |
Amount of
perquisite chargeable to tax (Rs.) |
|
(1) |
(2) |
(3) |
(4) |
(5) |
|
1 |
Accommodation |
|
|
|
|
2 |
Cars/Other automotive |
|
|
|
|
3 |
Sweeper, gardener, watchman or personal attendant |
|
|
|
|
4 |
Gas, electricity, water |
|
|
|
|
5 |
Interest free or concessional
loans |
|
|
|
|
6 |
|
|
|
|
|
7 |
Free or concessional travel |
|
|
|
|
8 |
Free meals |
|
|
|
|
9 |
Free Education |
|
|
|
|
10 |
Gifts, vouchers etc. |
|
|
|
|
11 |
Credit card expenses |
|
|
|
|
12 |
Club expenses |
|
|
|
|
13 |
Use of movable assets by
employees |
|
|
|
|
14 |
Transfer of assets to employees |
|
|
|
|
15 |
Value of any other
benefit/amenity/service/privilege |
|
|
|
|
16 |
Stock options (non-qualified
options) |
|
|
|
|
17 |
Other benefits or amenities |
|
|
|
|
18 |
Total value of perquisites |
|
|
|
|
19 |
Total value of Profits in lieu
of salary as per 17(3) |
|
|
|
9.
9.
Details of tax, -
(a)
(a)
Tax deducted from salary of the employee u/s 192(1)
(b) (b) Tax paid by employer on
behalf of the employee u/s 192(1A)
(c)
(c)
Total tax paid
(d) (d) Date of payment
into Government treasury
DECLARATION BY EMPLOYER
I . s/o . working as
(designation) do hereby declare on behalf of .... (name of the employer) that
the information given above is based on the books of account, documents and
other relevant records or information available with us and the details of
value of each such perquisite are in accordance with section 17 and rules
framed thereunder and that such information is true and correct.
Signature of the person responsible
for
deduction of tax
Place
Date Full
Name
Designation
. ";
ANNEXURE-IV
[See third proviso to rule 12(1)(b) and rule
31(1)(a)]
Certificate for
tax deducted at source from income chargeable under the head Salaries-cum-
Return of income
For an individual, resident in
a)
a) his total income
includes income chargeable to income-tax under the head Salaries;
b)
b) the income from
salaries before allowing deductions under section 16 of the Income-tax Act,
1961 does not exceed rupees one lakh fifty thousand;
c)
c) his total income does
not include income chargeable to income-tax under the head Profits and gains of
business or profession or Capital gains or agricultural income; and
d) he is not in receipt of any other income
from which tax has been deducted at source by any person other than the
employer
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PAN/GIR NO. |
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Period |
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DETAILS OF SALARY PAID AND ANY
OTHER INCOME AND TAX DEDUCTED
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1. 1.
Gross salary (a)
(a) Salary as per provisions contained in
section 17(1) (b)
(b) Value of perquisites under section 17(2) (as
per Form no. 12BA, wherever applicable) (c)
(c) Profits in lieu of salary under section
17(3) (as per Form No. 12BA, wherever applicable) (d)
(d) Total |
Rs. Rs. Rs. |
... |
Rs. |
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2. 2.
Less: Allowance to the extent
exempt under section 10 |
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3. 3.
Balance (1-2) |
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4. 4.
Deductions under section 16: |
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a) a)
Standard deduction |
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b) b)
Entertainment allowance |
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c) c)
Tax on Employment |
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5. 5.
Aggregate of 4 (a) to (c) |
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6. Income
chargeable under the head Salaries |
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701 |
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7. Add: Any
other income reported by the employee (a)
(a)
Income under the Head Income
from House Property (b)
(b)
Income under the Head Income
from Other Sources (c) Total of
(a) + (b) above |
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702 |
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8. GROSS TOTAL
INCOME (6+7) |
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9.
9.
DEDUCTIONS UNDER CHAPTER VI-A |
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GROSS AMOUNT |
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QUALIFYING AMOUNT |
DEDUCTIBLE AMOUNT |
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a)
a) 80 CCC |
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235 |
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b)
b) 80 D |
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236 |
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c)
c) 80 E |
Rs. |
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239 |
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d)
d) 80 G |
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242 |
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e)
e) 80 L |
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f)
f) 80 QQB |
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g)
g) 80 RRB |
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h)
h) SEC |
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10. 10.
Aggregate of deductible amounts
under Chapter VI-A |
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11. 11.
TOTAL INCOME (8-10) |
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12. TAX ON
TOTAL INCOME |
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13. REBATE
UNDER CHAPTER VIII |
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I. I.
Under section 88 (please
specify) |
GROSS AMOUNT |
QUALIFYING AMOUNT |
TAX REBATE |
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(a) |
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(b) |
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(g) Total[(a)
to (f)] |
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II. II.
(a) under section 88B (b) under
section 88C |
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14. Aggregate
of tax rebates at 13 above [I(g)+II(a)+II(b)] |
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15.
15.
Tax payable on total income
(12-14) and surcharge thereon |
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841 |
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(a) tax
deducted at source under section 192(1) (b) Tax paid by the employer on behalf of
the employee under section 192(1A) on perquisites under section 17(2) |
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873 |
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DETAILS OF TAX DEDUCTED AND DEPOSITED INTO
CENTRAL GOVERNMENT ACCOUNT
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AMOUNT |
DATE OF PAYMENT |
NAME OF BANK AND BRANCH WHERE TAX DEPOSITED |
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I ________________________ son of Shri
_______________________ working in the capacity of _____________________
(designation) do hereby certify that a sum of
Rupees___________________________________ (in words) has been deducted at
source and paid to the credit of the Central Government. I further certify
that the information given above is true and correct based on the books of
account, documents and other available records. |
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Signature of the person responsible for |
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deduction of tax |
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Full Name |
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Designation |
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TO BE FILLED IN BY THE ASSESSEE
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1. NAME OF THE ASSESSEE |
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2. ADDRESS |
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TELEPHONE |
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3. DATE OF BIRTH |
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4. SEX M/F: |
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5. ASSESSMENT YEAR |
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6. WARD/CIRCLE/SPECIAL RANGE: |
7. RETURN : ORIGINAL OR REVISED: |
8. PARTICULARS OF BANK ACCOUNT(for payment of refund)
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Name of the Bank |
MICR Code |
Address of Bank Branch |
Type of Account |
Account Number |
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VERIFICATION BY THE ASSESSEE
I , _________________________________________________________ (Name in
full and in block letters), son/daughter of Shri
_________________________________________________________ solemnly declare that
to the best of my knowledge and belief, the information given in this return is
correct, complete and truly stated and in accordance with the provisions of the
Income-tax Act, 1961, in respect of income chargeable to income-tax for the
previous year relevant to the assessment year ___________.
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Receipt No Date SEAL Signature of the
receiving official |
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Signature of the assessee Date: _____________
Place:
_____________ |
ANNNEXURE-V
[TO
BE PUBLISHED IN THE GAZETTE OF
PART-II
SECTION 3, SUB-SECTION (ii)]
GOVERNMENT OF
MINISTRY OF FINANCE
(DEPARTMENT OF REVENUE)
(CENTRAL BOARD OF DIRECT TAXES)
******
NOTIFICATION
INCOME-TAX
S.O. 974 (E)- In exercise of the powers conferred by
sub-section (2) of section 206 of the Income-tax Act, 1961 (43 of 1961), the
Central Board of Direct Taxes hereby specifies the following Scheme for
electronic filing of return of tax deducted at source, namely:-
1. Short
title, commencement and application. -
(1)
(1)
This Scheme may be called the
Electronic Filing of Returns of Tax Deducted at Source Scheme, 2003.
(2)
(2)
It shall come into force on the
date of its publication in the Official Gazette.
(3)
(3)
It shall be applicable to all
persons filing returns of tax deducted at source on computer media under
sub-section (2) of section 206 of the Income-tax Act, 1961.
2. Definitions.
- In this Scheme, unless the context otherwise requires,-
(1)
(1)
Act means the Income-tax Act,
1961 (43 of 1961);
(2)
(2)
Board means the Central Board of
Direct Taxes constituted under the Central Board of Revenues Act, 1963 (54 of
1963);
(3)
(3)
computer media means a floppy (3
inch and 1.44 MB capacity) or CD-ROM, and includes on-line data transmission of
electronic data to a server designated by e-filing Administrator for this
purpose;
(4)
(4)
e-deductor means the person
responsible for deduction of tax at source who is required to furnish e-TDS
Return under this scheme;
(5)
(5)
e-filing Administrator means an
officer not below the rank of Commissioner of Income-tax designated by the
Board for the purpose of administration of this scheme;
(6)
(6)
e-TDS Intermediary means a
person, being a company, authorised by the Board to act as e-TDS Intermediary
under this scheme;
(7)
(7)
e-TDS Return means a return to
be filed under section 206 of the Act duly supported by a declaration in Form
No. 27A as prescribed under the Rules;
(8)
(8)
Rules means the Income-tax
Rules, 1962;
(9)
(9)
All other words and expressions
used herein but not defined and defined in the Act shall have the meanings
respectively assigned to them in the Act.
3. Preparation
of e-TDS Return.
(1) The e-deductor shall use the relevant Forms
prescribed under the Rules for preparing e-TDS Returns.
(2)
(2) The e-deductor shall prepare his e-TDS Return according to the data
structure to be provided by the e-filing Administrator.
(3) (3)
While preparing e-TDS Return,
the e-deductor shall quote his permanent account number and tax deduction
account number as also the permanent account number of all persons in respect
of whom tax has been deducted by him except in respect of cases to which the
first proviso to sub-section (5A) or the second proviso to sub-section (5B) of
section 139A of the Act applies.
(4) (4)
The e-deductor shall ensure that
all columns of the Forms of the return for tax deduction at source, prescribed
under the Rules, are duly and correctly filled in.
(5) (5)
Each computer media used for
preparation of the e-TDS Return shall be affixed with a label indicating name,
permanent account number, tax deduction account number and address of the
e-deductor, the period to which the return pertains, the Form Number of the
return and the volume number of the said media in case more than one volume of
such media is used.
(6) (6)
Separate computer media shall be
used for each Form of e-TDS Return by the e-deductor.
4. Furnishing
of e-TDS Return.-
(1) The e-deductor shall furnish e-TDS Return on
computer media to the e-TDS Intermediary duly supported by a declaration in
Form No.27A, as prescribed in the Rules, in paper format:
Provided that in
case any compression software has been used by the e-deductor for preparing the
e-TDS Return, he shall also furnish such compression software alongwith the
e-TDS Return on the same computer media.
(2)
(2) In case the e-deductor has on-line connectivity with the server of the
e-TDS Intermediary, as may be designated by e-filing Administrator for this
purpose, he may transmit the electronic data of the e-TDS Return directly to
such server and send Form No. 27A on paper format separately to the e-TDS Intermediary.
5. 5.
Procedure to be followed by e-TDS intermediary.
(1) The e-TDS Intermediary shall receive the
e-TDS Return from e-deductors alongwith the declaration in Form No. 27A in
paper format.
(2) (2)
The e-TDS Intermediary shall
perform format level validation and control checks on the e-TDS Returns
received by him and on successful completion of the same, the e-filing
Administrator shall issue provisional receipt to the e-deductor.
(3) (3)
The e-TDS Intermediary shall
upload the data on e-TDS Return on the server designated by the e-filing
Administrator for the purpose of e-TDS Return and check whether the prescribed
particulars relating to deposit of the tax deducted at source in bank and the
permanent account number of the deductee have been given in the e-TDS Return.
(4) (4)
On successful completion of the
check, the data of e-TDS Return shall be transmitted by the e-TDS Intermediary
to the e-filing Administrator together with the declaration in Form No.27A and
the provisional receipt issued shall be deemed to be the acknowledgement of the
e-TDS Return.
(5) (5)
Where the details of deposit of
tax deducted at source in bank, the permanent account number, tax deduction
account number or any other relevant details are not given in the e-TDS Return,
the e-filing Administrator shall forward a deficiency memo to the e-deductor
with a request to remove the deficiencies within seven days of receipt of the
same.
(6) (6)
In case the deficiency indicated
in the deficiency memo is removed within seven days, the data on e-TDS Return
shall be transmitted by the e-TDS Intermediary to the e-filing Administrator
and the provisional receipt shall be deemed to be acknowledgement of the e-TDS
Return. The date of issue of provisional receipt shall be deemed to be the date
of filing of the e-TDS Return.
(7) (7)
In case no deficiency memo is
issued by the e-filing Administrator within thirty days of issue of the
provisional receipt, the provisional receipt issued shall be deemed to be the
acknowledgement of the e-TDS Return and the date of issue of provisional
receipt shall be deemed to be the date of filing of e-TDS Return.
(8) (8)
Where the deficiencies indicated
in the deficiency memo are not removed by the e-deductor within seven days, the
e-TDS Intermediary shall communicate the same to the e-filing Administrator and
transmit the data to the e-filing Administrator whereupon Assessing Officer may
take action for declaring the return as an invalid return after giving due
opportunity to the deductor as required under sub-section (4) of section 206 of
the Act.
(9) (9)
In case the defects intimated by
the Assessing Officer are rectified within the period of fifteen days or such
further period as may be allowed by the Assessing Officer, the date of issue of
provisional receipt shall be deemed to be the date of filing of e-TDS Return.
6. 6.
General responsibilities
of e-TDS Intermediary.
(1) The
e-TDS Intermediary shall ensure accurate transmission of the e-TDS Return to
the e-filing Administrator:
Provided that the e-TDS Intermediary shall not be responsible for any errors or
omissions in the return of tax deducted at source prepared by the e-deductor.
(2)
(2)
The e-TDS Intermediary shall
retain for a period of one year from the end of the relevant financial year in
which the return is required to be filed, the electronic data of the TDS Return
in the format as specified by the e-filing Administrator.
(3)
(3)
The e-TDS Intermediary shall
retain for a period of one year from the end of the relevant financial year in
which the return is required to be filed, the information relating to
deficiency memo and provisional receipts issued in respect of the returns filed
through it.
(4)
(4)
The e-TDS Intermediary shall
ensure confidentiality of information that comes to his possession during the
course of implementation of this scheme, save with the permission of the
e-deductor, Assessing Officer or e-filing Administrator.
(5)
(5)
The e-TDS Intermediary shall
ensure that all his employees, agents, franchisees, etc., adhere to all
provisions of this scheme as well as all directions issued by the e-filing
Administrator.
7. Powers of e-filing
Administrator. - Without
affecting the generality of the foregoing provisions, the e-filing
Administrator shall -
(1)
(1)
specify the procedures, data
structures, formats and standards for ensuring secure capture and transmission
of data, for the day to day administration of this scheme;
(2)
(2)
ensure compliance by e-TDS
Intermediary with the technical requirements of this scheme, including review
of the functioning of e-return Intermediary, verification of any complaints,
scrutinising advertising material issued by them and such other matters as he
deems fit.
8. Powers of the Board: The Board may revoke the authorisation of an
e-filing Intermediary on grounds of improper conduct, misrepresentation,
unethical practices, fraud or established lack of service to the e-deductors or
such other ground as it may deem fit.
Notification No.205/2003.
F. No. 142/31/2003-TPL
(Deepika
Mittal)
Under
Secretary to the Government of
MINISTRY OF FINANCE
(Department of Economic Affairs)
(ECB & PR Division)
NOTIFICATION
F.No. 5/7/2003-ECB &PR- The
government approved on 23rd August, 2003 the proposal to implement
the budget announcement of 2003-04 relating to introducing a new restructured
defined contribution pension system for new entrants to Central Government
service, except to Armed Forces, in the first stage, replacing the existing
system of defined benefit pension system.
(i)
(i)
The system would be mandatory
for all new recruits to the Central Government service from 1st of
January 2004 (except the armed forces in the first stage). The monthly
contribution would be 10 percent of the salary and DA to be paid by the
employee and matched by the Central government. However, there will be no
contribution form the Government in respect of individuals who are not
Government employees. The contribution and investment returns would be
deposited in a non-withdrawable pension tier-I account. The existing provisions
of defined benefit pension and GPF would not be available to the new recruits
in the Central Government service.
(ii)
(ii)
In addition to the above pension
account, each individual may also have a voluntary tier-II withdrawable account
at his option. This option is given as GPF will be withdrawn for new recruits
in Central government service. Government will make no contribution into this
account. These assets would be managed through exactly the above procedures.
However, the employee would be free to withdraw part or all of the second tier
of his money anytime. This withdrawable account does not constitute pension
investment, and would attract no special tax treatment.
(iii)
(iii)
Individuals can normally exit at
or after age 60 years for tier-I of the pension system. At the exit the
individual would be mandatorily required to invest 40 percent of pension wealth
to purchase an annuity (from an IRDA- regulated life insurance company). In
case of Government employees the annuity should provide for pension for the
lifetime of the employee and his dependent parents and his spouse at the time
of retirment. The individual would received a lump-sum of the remaining pension
wealth, which he would be free to utilize in any manner. Individuals would have
the flexibility to leave the pension system prior to age 60. However, in this
case, the mandatory annuitisation would be 80% of the pension wealth.
Architecture of the new Pension System
(iv)
(iv)
It will have a central record
keeping and accounting (CRA) infrastructure, several pension fund managers
(PFMs) to offer three categories of schemes viz. option A, B and C.
(v)
(v)
The participating entities (PFMs
and CRA) would give out easily understood information about past performance,
so that the individual would be able to make informed choices about which
scheme to choose.
2.
2.
The effective date for
operationalization of the new pension system shall be form 1st of
January, 2004.
ANNEXURE-VI A
MINISTRY
OF FINANCE
(Department of Revenue)
(Central
Board of Direct Taxes)
Notification
INCOME- TAX
S.O.1048 (E) - In exercise of the powers conferred by sub-clause
(i) of clause (18) of Section 10 of the Income-tax Act, 1961 (43 of 1961), the
Central Government, hereby specifies the gallantry awards for the purposes of
the said Section, mentioned in column 2 of the table below awarded in the
circumstances as mentioned in corresponding column 3 thereof:-
Table
----------------------------------------------------------------------------------------
Sl. No. Name of
gallantry award Circumstances for
eligibility
------------------------------------------------------------------------------------------
(1) (2) (3)
-----------------------------------------------------------------------------------------
1. Ashok Chakra When awarded to Civilians
for gallantry
2. Kirti Chakra -
do -
3. Shaurya
Chakra -
do -
4. Sarvottan
Jeevan Raksha When awarded to
Civilians for bravery
Padak displayed by them in
life saving acts.
5. Uttam Jeevan
Raksha -
do -
Medal
6. Jeevan Raksha
Padak -
do -
7. President's
Police Medal When awarded
for acts of exceptional
for gallantry courage displayed by members of
police
forces,
Central police or security forces and
certified
to this effect by the head of the
department
concerned.
8. Police Medal
for -
do -
Gallantry
9. Sena Medal When
awarded for acts of courage or
conspicious
gallantry and supported
by
certificate issued to this effect by
relevant
service headquarters.
10. Nao Sena
Medal -
do -
11. Vayu Sena
Medal -
do
12. 12. Fire Secrvices
Medal for
Gallantry When awarded
for acts of courage or conspicuous gallantry and supported by certificate
issued to this effect by the last Head of Department.
13. Presidents
Police & Fire -do-
Services Medal
for Gallantry
14.Presidents
Fire Services Medal for
Gallantry -do-
15. Presidents
Home Guards and
Civil Defence
Medal for
Gallantry -do-
16. Home Guard
and Civil Defence
Medal for
Gallantry -do-
( Notification
no. 1156/F.No. 142/29/99-TPL)
ANNEXURE
VI B
MINISTRY
OF FINANCE
Department
of Revenue
Central
Board of Direct Taxes
S.O.81(E)- In
exercise of the powers conferred by sub-clause (i ) of clause (18) of Section
10 of the Income tax Act, 1961 (43 of 1961)), the Central Government, hereby
specifies the gallanty awards for the purposes of the said Section and for that
purpose makes the following amendment in the notification of the Government of
India in the Ministry of Finance, Department of Revenue (Central Board of
Direct Taxes) number S.O.1048(E), dated the 24th November 2000,
namely:-
In the said
notification, in the Table, against serial numbers 1,2 and 3 under cloumn (3)
relating to Circumstances for eligibility the
words to civilians shall be omitted.
(Notification
No.22/F.No.142/29/99-TPL)
ANNEXURE-VII
FORM NO. 10BA
(See rule 11B)
DECLARATION TO BE FILED BY THE ASSESSEE
CLAIMING DEDUCTION U/S 80 GG
I/We
(
Name of the assessee with permanent account number)
do hereby
certify that during the previous Year.I/We had occupied the premise.(full
address of the premise) for the purpose of my/our own residence for a period
of..months and have paid Rs. . In cash/through crossed cheque, bank draft
towards payment of rent to Shri/Ms/M/s.(name and complete address of the landlord).
It is further certified that no
other residential accommodation is owned by
(a) me/my
spouse/my minor child/our family (in case the assessee is HUF), at .where I/we ordinarily
reside/perform duties of officer or employment or carry on business or
profession, or
(a)
(a)
me/us at any other place, being accommodation in my occupation, the
value of which is to be determined u/s 23(2)(a)(i) of u/s 23(2)(b).
CIRCULAR
NO. 10/2005, DATED 16-12-2005
reference is invited to Boards circular no. 793 dated 23-6-2000 and amendment in section 80-IA by the Finance Act, 2001.
2. Port, for the purposes of sections 10(23G) and 80-IA of the Income-tax Act, 1961, includes structures at the ports for storage, loading and unloading etc, if the following conditions are fulfilled:
(a) the concerned port authority has issued a certificate that the said structures form part of the port, and
(b) such structures have been built under the BOT or BOLT Schemes and there is an agreement that the same would be transferred to the said authority on the expiry of the time stipulated in the agreement.
This definition is applicable to assessment year 2001-02 and any earlier assessment year.
3. However, for and from assessment year 2002-03 onwards, structures at the ports for storage, loading and unloading etc will be included in the difinition of port for the purpose of sections 10(23G) and 80-IA of the Income-tax Act, 1961, if the following condition is fulfilled:
- the concerned port authority has issued a certificate that the said structures form part of the port,
4. This may be brought to the notice of all the officers in your region.
[F. No. 205/51/2005-ITA II]