Applicable for the
Assessment Year 2007-08 for June 2007 and December 2007 Examination.
Major Amendments made by:
A. No Change in the tax rates
Definition relating Amendments
With effect from assessment year 2007-08, voluntary contribution received
by non-profit seeking university or other educational institution referred to in
section 10(23C)(iiiad)(the annual receipts of which do not exceed Rs. 1 crore)
or by any non-profit hospital or other institution referred to in section
10(23C)(iiiae)(the annual receipts of which do not exceed Rs. 1 crore) shall
also be deemed to be income of such institutions.
The above amendment has been made consequent to the introduction of new section viz section 115BBC relating to taxation of certain anonymous donations.
2.
Profit or gain of co-operative banks included
in the definition of income [ Section 2(24)] [w.e.f
assessment year 2007-2008]
A new sub-clause
(viia) has been inserted in section 2(24) to provide that the profits and gains
of any business (including providing credit facilities) carried on by a
co-operative society with its members shall be treated as income.
The above sub-clause has been inserted to provide that even if the co-operative bank is earning profit or gains from its members only, such profits shall be included in the meaning of income and taxable. It shall not be treated as income of mutual character.
The above amendment had been made as the income of a co-operative bank shall now not be eligible for deduction u/s 80P.
3.
Definition of infrastructure capital company, infrastructure capital fund and infrastructure facility shifted from section 10(23G) to section 2 [ Section
2(26A) and 2(26B)]. [w.e.f assessment year 2006-2007]
Under the existing provision of Income-tax Act, infrastructure capital company and infrastructure capital fund have been defined in clause (23G) of section 10. Further, this definition is also with reference to sections 80-IA and 80IB. The definitions of infrastructure capital company and infrastructure capital fund existing in section 10(23G) have been used in the Income-tax Act in various other provisions. Since section 10(23G) has been omitted from the Income-tax Act, section 2 has been amended so as to provide for a general definition of infrastructure capital company and infrastructure capital fund.
(1) “Infrastructure capital company” means such company which makes
investments by way of acquiring shares or providing long-term finance to any enterprise or undertaking wholly engaged in the business referred to in sub-section (4) of section 80 –IA or sub-section (1) of section 80-IAB or an undertaking developing and building a housing project referred to in sub-section (10) of section 80- IB or a project for constructing a hospital with at least one hundred beds for patients.[ Section 2(26A)].
(2) “Infrastructure capital fund” means such fund operating under a trust
deed registered under the provisions of the Registration Act, 1908
established to raise monies by the trustees for investment by way of acquiring shares or providing long-term finance to any enterprise or undertaking wholly engaged in the business referred to in sub-section (4) of section 80-IA or sub-section (1) of section 80- IAB or an undertaking developing and building a housing project referred to in sub-section (10) of section 80-IB or a project for constructing a hotel of not less than three star category as classified by the Central Government or a project for constructing a hospital with at least one hundred beds for patients. [ Section 2(26B)].
4. Amendment in the definition of “ rate or rates in force” [Section 2 (37A)][w.e.f. 01.06.2006]
A new section 90A has been inserted to provide that any specified association, notified by the Central Government may enter into an agreement relating to double taxation relief, etc. with any specified association outside India.
Consequential amendment has been made in section 2(37A) to provide for a reference to the new section 90A.Hence, for the purposes of TDS under section 195, the rates shall be the rates of income-tax specified in the Finance Act or the rates specified in the agreement entered into under section 90 or 90A.
5. Powers
of the Tax Recovery Officer widened [ Section 2(44)]
Besides the powers already given to the TRO, he shall also exercise or perform such powers and functions which are conferred on, or assigned to, an Assessing Officer under this Act and which may be prescribed.
6.
Explanation
to section 2(48) omitted [w.e.f assessment year 2006-07]
Consequent to the definition of “infrastructure capital company” and “infrastructure capital fund” given in section 2(26A) and 2(26B), the meaning given to them in the Explanation to section 2(48) has been omitted.
AMENDMENTS RELATING TO EXEMPETD
INCOME U/S 10 TO 14.
1.
Exemption of
income-tax on rentals on lease of
aircraft/aircraft engine extended till 31ST MARCH, 2007 [section
10(15A)] and income-tax borne by
Indian airline companies [section
10(6BB)].
Presently, lease
rentals for an aircraft/aircraft engine. Paid to Government of foreign state or
a foreign enterprise are exempt from tax if:
- The lease rentals are paid by an Indian company engaged in the business
of operation of aircraft, and
- The lease rentals are paid under an agreement entered into before 1-4-
2006.
The
above exemption will now also apply to agreements entered into
before 1-4-2007.
Consequently,
income-tax borne by an Indian company on payments made to a Government
of foreign state or a foreign enterprise for lease of aircraft/aircraft
engine is exempt from tax if:
-The agreement is entered into after 31-3-2006; and
-The agreement is approved by the Government.
The above exemption will now apply to
agreements entered into after 31-3-2007.
2.
EXEMPTION OF CONSTIUENCY ALLOWANCE RECEIVED BY MEMBERS OF STATE
LEGISLATURE [SECTION 10(17)] [W.e.f. ASSESSMENT YEAR 2007-2008]
Currently all
allowances (other than daily allowances) received by any person by reason of
membership of any state legislature are exempt up to Rs.2,000 p.m. Now, any
constituency allowance received by such a person shall be exempt without any
monetary limit.
3.
EXEMPTION FO ANY INCOME OF NORTH-EASTERN DEVELOPMENT FINANCE CORPORATION
LIMITED [Section 10(23BBF)]
Income of
North-Eastern Development Finance Corporation Ltd,. being a company formed and
registered under the Companies Act, 1956 shall be exempt to certain extent and
the balance total income shall be taxable.
4. CHANGES
RELATING TO SECTION 10(23C)
(A)
Notifications to be issued or approval to be granted and rejection of
application to be done within 12 months: Where an application for
issuing of notification is made on or after the date on which the Taxation Laws
(Amendment) Bill, 2006 receives the assent of the president, every notification
under sub-clause (iv) or sub-clause (v) of section 10(23) shall be issued or
approval under sub-clause (vi) or sub-clause (via) of section 10(23) shall be
granted or an order rejecting the application shall be passed within the period
of twelve months from the end of the month in which such application was
received.
(B)
Exemption notification issued before the date on which the Taxation Laws
(Amendment ) Bill, 2006 receives the assent the president to have effect for
maximum three years: where the exemption is granted by way of
notification issued under section 10(23C)(iv) or 10(23C)(v) by the Central
Government before the date on which the Taxation Laws (Amendment) Bill, 2006
receives the ascent of president, it shall, at one time , have effect for such
assessment year or years, not exceeding three assessment years.
(C)
Audit of accounts made compulsory:
Where the total income, of the fund or trust or institution or any university or
other educational institution or
any hospital or other medical institution referred to in sub-clause (iv) or
sub-clause(vi) or sub-clause (via), without giving effect to the provisions of
the said sub-clauses, exceeds the maximum amount which is not chargeable to tax
in any previous year, such trust or institutions or any university or other
educational institution or any hospital or other medical institution shall get
its accounts audited in respect of that year by
a chartered accountant.
5.
TIME LIMIT
PROVIDED FOR APPLICATINON FOR GRANT OF EXEMPTION OR CONTINUANCE OF EXEMPTION FOR CERTAIN
CHARITABLE AND
RELIGIOUS TRUSTS AND INSTITUTIONS AND CERTAIN EDUCATIONAL AND MEDICAL
INSTITUTIONS
[12th Proviso to section 10(23C)] [W.e.f.
1-6-2006].
-Under the existing provisions contained in sub-clauses (iv), (v), (vi)
and (via) of clause (23C) of section 10, there is no time limit for any
university or other educational institution
or any hospital or other institution, or any fund or trust or institution
specified therein to make an application for issue of notification/grant of
approval or continuance thereof.
-A new proviso to section 10(23) has been inserted so as to provide a
time limit for the purposes of making an application under the above said
sub-clauses. Such application for grant of exemption or continuance thereof
under any of these sub-clauses shall have to be filed at any time during the
financial year immediately preceding the assessment year from which such
exemption is sought.
-Such application cannot be made for any earlier period. The amendment
shall apply only in respect of applications which are made on or after 1-6-2006.
6.
Anonymous
donation shall be included in the total income of
trust/institution covered u/s 10(23C) (iiiad),
(iiiae),
(iv), and (via) [13th
proviso to section 10(23C)] [W.e.f.
assessment year 2007-08]
-As anonymous
donation received by the above trust/institution shall now be taxable under
section 115BBC. A proviso has been inserted to section 10(23C) to provide that
any anonymous donation referred to in section 115BBC on which thx is payable in
accordance with the provisions of the said section shall be included in the
total income.
7.
Removal of exemption for certain income of investor protection Fund [section10(23EA)] [W.e.f. assessment year
2007-08]
- Under the existing provisions contained in section 10(23EA), any income
of a notified investor protection fund set up by recognized stock exchanges in
India, either jointly or separately, is exempt from tax.
-The exemption has now been restricted to income by way of contributions
received from stock exchanges and the members thereof. Their income from
investment of such contributions shall now
become taxable.
8.
removal of exemption of income from investment in infrastructure and other projects
[ Section 10(23G)]
[W.e.f. assessment year 2007-08:
-Under the existing provisions contained in section 10(23G), any income
by way of dividends, interest or long-term capital gains of an infrastructure
capital fund or an infrastructure capital company or a cooperative bank from
investment made on or after 1-6-1998 by way of shares or long-term finance in
approved eligible businesses is exempt. Eligible businesses include
infrastructure projects, developers of special Economic Zones, hotel projects of
not less than three star category, hospital projects with at least one hundred
beds for patients and certain housing projects.
- This exemption
will not be allowable from assessment year 2007-08 in respect of such income
earned from existing as future investments.
9.
Long-term
capital gain u/s 10(38) although exempt but
shall be included in computing the book profit u/s 115JB [proviso
to section 10(38)] [W.e.f. assessment year 2007-08]
-Although, the
long-term capital gain from the sale of equity shares or unit of an equity
oriented fund is exempt u/s. 10(38) but a proviso has been inserted to section
10(38) to provide that the income by way of long-term capital gain earned by a
company shall be taken into account in computing the book profit under section
115JB and income-tax payable under that section.
Further, the meaning
of the equity oriented fund mentioned in the Explanation to section 10(38), in
clause (i), has been amended W.e.f. 1-6-2006 so that equity oriented fund shall
mean a fund where the investible funds are invested by way of equity shares in
domestic companies to the extent of more than 65% (instead of
50%) of the total proceeds of such fund.
10.
Exemption of
specified income of certain bodies or
authorities [ section 10(42)] [W.r.e.f. assessment year 2006-07]
- A new clause (42)
to section 10 has been inserted w.e.f. assessment year 2006-07 to provide that:
any specified
income arising to body or authority which-
(a) has
been established or constituted or appointed under a treaty or an agreement
entered into by the Central Government with two or more countries or a
convention signed by the Central Government;
(b) is
established or constituted or appointed not for the purposes of profit;
(c) is
notified by the Central government in the Official Gazette for the purpose of
this clause shall be exempt.
11.
Benefit of
deduction u/s 10B not to be allowed where
return is not filed within the specified time limit [4th
proviso to
section 10B] [W.r.e.f. assessment year 2006-07]
- A proviso has been
inserted to section 10B to provide that no deduction under section 10B shall be
allowed to an assessee who does not furnish a return of his income on or before
the due date specified under section 139(1).
- Similar
provisions have been provided for disallowing the deduction under section 80-1A
or 80-1AB or section 80-1B or 80-1C by inserting a new section viz. section
80AC.
12.
Limit for
audit of charitable institutions rationalized [Section 12A]
- Trusts and
institutions covered under sections 11 and 12 to get their accounts audited only
when their total income, before giving effect to the provisions of sections 11
and 12,exceeds Rs.1,00,000 (prior to this it was Rs. 50,000).
Changes
relating to income of charitable institutions.
1.
Anonymous donations to form part of
income of trust [section 13 ] [W.e.f.
assessment 2007-08]
-As per
the new section 115BBC, anonymous donation shall now be taxable at the maximum
marginal rate of 30%. Consequently, a new sub-section (7) has been inserted in
section 13 to provide that nothing contained in section 11 or section 12 shall
operate so as to exclude from the total income of the previous year of the
person in receipt thereof, any anonymous donation referred to in the new section
115BBC on which tax is payable in accordance with the provisions of that
section. In other words anonymous donation shall not be excluded from the total
income of the assessee.
Changes relating to allocation of expenditure in
relation to exempt income .
Method for allocating expenditure in
relation to exempt income [Section 14A]
[W.e.f. assessment year
2007-08].
-
Under the existing provisions of section 14A, it has been provided that for the
purposes of computing the total income, no deduction shall be allowed in respect
of expenditure incurred by the assessee in relation to income which does not
form part of the total income under the Income-tax Act. However, the existing
provisions of section 14A do not
provide the method of computing the expenditure incurred in relation to income
which does not form part of the total income. Consequently, there is
considerable dispute between the tax payers and the Department on the method of
determining such expenditure.
- In
view or the above, a new sub-section(2) has been inserted in section 14A so as
to provide that it would be mandatory for Assessing Officer to determine the
amount of expenditure incurred in relation to such income which does not form
part of the total income in accordance with such method as may be prescribed.
However, the Assessing Officer shall be required to adopt the prescribed method
if, having regard to the accounts of the assessee, he is not satisfied with the
correctness of the claim of the assessee in respect of expenditure in relation
to income which does not form part of the total income.
Further, sub-section (3) has also been
inserted to section 14A to provide that provisions of sub-section (2) shall also
apply in relation to a case where an assessee claims that no expenditure has
been incurred by him in relation to income which does not form part of the total
income.
Changes under the head “Salaries”
Currently the following medical insurance premium payments made under a scheme approved by the Government are not treated as taxable perquisites:
- Premium paid by an employer for its employees or reimbursed by an employer to its employees for an insurance scheme framed by the GIC.
- Reimbursement of premium paid by an employee under a scheme of any other insurer approved by the IRDA.
Now, all medical insurance payments made under a scheme framed by the GIC or any other insurer approved by the Central Government or Insurance Regulatory and Development Authority, whether paid directly or reimbursed to the employees, shall not be treated as a taxable perquisite.
Changes under the head “Profit and Gains of Business or Profession”
A) Amendment of Section 35(1)(ii):
For claiming weighted deduction of 125% for donation to scientific research Association, University, College or other institutions approval of Central Government is required by way of notification.
B)
Amendment
of Section 35(1)(iii):
Similar approval is required to avail 125%
deduction for Donation to the Institution for conducting Social or Statistical
research.
Note:
1. Donation to the above
institution shall not be denied if approval
subsequently withdrawn.
2. Effect of notification issued by Central Government after the
Taxation laws (amendment)
Act. Comes into effect.
C)
The deduction u/s
35(2AA) shall not be withdrawn if subsequently the granted approval is
withdrawn.
D)
Similar deduction u/s 35AC or u/s 35CCA shall not be withdrawn if later
the approval of the Institution is withdrawn.
E)
Medi -claim Scheme may be approved by
Central Government or IRDA u/s36(1) (ib)
The deduction of the amount of any premium paid by Cheque
by the employer to keep in force an insurance on the health of its
employees under a scheme framed by any other insurer and approved by the IRDA.
F)
Definition of infrastructure facility for the purpose of Section
36(1)(viii)
w.e.f. Assessment year 2007-08.
As per above section a deduction 40% of profit
is allowed in respect of special reserve created by financial corporation
engaged in long-term financing for the development of infrastructure facility in
India.
With omission of Sec. 10(23G) infrastructure
facility means:
-
The facility as
defined u/s 80-1A(4)(i) or any other public facility of similar nature.
-
An undertaking
referred to Section 80-1A(4)(ii) or (iii)or(iv).
-
An undertaking
referred to Section 80-1B(10)
The new definition does not refer to a hotel
project or hospital project and to a SEZ as was the case u/s 10(23G).
G)
Deduction
of taxes paid on income earned outside India not allowable to compute business
income (w. r.e. from Assessment year 2006-07)
not allowed as deduction u/s 40(a)(ii) in the
computation of income. However such tax paid outside
.
H)
Reference
to the definition of ‘derivatives’ sec. 43(5) (w.r.e.f. assessment year 2006-07)
Under the existing provisions of clause (5) of section 43, an eligible
transaction in respect of trading in derivatives carried out in a recognized
stock exchange is not deemed to be a speculative transaction. The definition of
derivatives was earlier referred to, in clause (aa) of section 2 of the
Securities Contracts (Regulation) Act. 1956. Through an amendment made in
January, 2005 to the Securities Contracts (Regulation) Act, 1956, the said
clause (aa) has been re-lettered as clause (ac). Accordingly, the reference to
the definition of the term ‘derivative’ has been re-lettered in clause (5) in
section 43.
K)
Disallowance of interest not actually paid but converted into loan /
borrowing section 43B (w.r.e.f.
assessment year 1989 – 90/ 1997-98):
Presently, payment of interest on any loan/borrowing from a public financial
institution, state financial corporation or state industrial development
corporation and interest on any loan/advance from a scheduled bank is allowed as
deduction from business income, when such interest is actually paid. Explanation
3C and 3D are being inserted by the Finance Act, 2006 to section43B to provide
that where such interest is converted into a loan, borrowing or advance and is
not paid, interest so converted will not be treated as having been actually
paid, and accordingly, will not be allowed as a deduction from business income.
The amendment relating to interest on
loan/borrowing from public financial institution, state financial corporations
or state industrial development corporations will take effect retrospectively
from assessment year 1989-90 and the amendment relating to interest on
loan/advance from a schedule bank will take effect retrospectively from
assessment year 1997-98.
Changes
relating to Capital Gain
A)
Exemption
of long-term capital gains on investment in specified bonds
Section 54EC (w.r.e.f. assessment year 2006-07):
Capital gains arising from
the transfer of a long-term capital asset are exempt from tax if the gains are
invested in specified assets. Presently, the specified assets include bonds
issued by National Bank for Agricultural and Rural Development (NABARD),
National Highway Authority of India(NHAI), Rural Electrification Corporation
Limited(RECL), National Housing Bank(NHB), and Small Industries Development Bank
of India (SIDBI).
Now, benefit of the exemption will be available
only if the gains are invested in bonds of NHAI and RECL that are issued on or
after 01-04-2006. This amendment will take effect retrospectively from
assessment year 2006-07.
There seems to be an unintended anomaly
in as much as the amendment is effective from
assessment year 2006-07 and consequently may result in denial of benefits even
to investments already made. Further, under the new provision, only bonds issued
on or after 01-04-2006 by NHAI and RECL qualify for the exemption and not bonds
issued prior to that date.
B)
Withdrawal of exemption under
section 54ED (w.e.f. assessment year 2007-08):
The existing provisions of section 54ED provide
that the capital gains arising from transfer of long-term capital asset, being
listed securities or units of a mutual fund or of the Unit Trust of India shall
be exempt from tax, to the extent such gains are invested in equity shares
forming part of an eligible issue of capital, made by a public company, and
offered for subscription to the public.
The benefit of exemption under this section is being withdrawn w.e.f.
assessment year 2007-08 as long-term capital gain from such shares/units is
fully exempt under section 10(38) and short-term capital gain from such
shares/unit is taxable at a special rate of 10%.
Changes relating to Income from other Sources
Amendment in provisions relating to gifts from unrelated persons u/s
56(2)(vi).
Now gift received from one or
more unrelated person during the previous year shall be included in the income
if the aggregate of the gifts received exceeds Rs. 50,000.
Besides gifts received from
local authorities, charitable and religious institution registered u/s 12AA and
charitable trusts or institution covered u/s 10(23C) shall be exempt.
CHANGES IN THE PROVISIONS RELATING
TO DEDUCTION ALLOWABLE UNDER CHAPTER VIA FROM GROSS TOTAL INCOME.
1.
Benefits of certain deductions not to be allowed in cases where return is not filed within the specified time limit [section 80AC]
[W.r.e.f. assessment year 2006-07].
In computing total income for the Assessment year 2006-07 onwards any
deduction admissible u/s 80-IA, 80-IAB or 80-IB or 80-IC and to enjoy such
deduction assessee should furnish its return before due date u/s 139(1).
2.
Extending benefits of section 80C to fixed deposits for not less than 5 years in scheduled banks [W.e.f. assessment year 2007-08].
Section 80C(2), provides that the amount paid or deposited in the
previous year in schemes specified in clause (i) to clause (xx) is eligible for
deduction under the said section. To provide a level playing field amongst banks
and other institutions like insurance companies, mutual funds, etc. a new clause
(xxi) has been inserted in sub-section (2) of section 80C so as to provide that
investment in a term deposit-
(a) for fixed period of not less than 5 years with a scheduled bank; and
(b) which is in accordance with a scheme framed and notified by the
Central Government in Official Gazette for the purposes of this
clause,
shall also be eligible for deduction
under this section.
Note:
“Scheduled
bank” means the State Bank of India constituted under the State Bank of India
Act, 1955, or a subsidiary bank as defined in the State Bank of India
(Subsidiary Banks) Act, 1959, or 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.
Deduction for certain investments in mutual funds [section 80C (2) (xi), (xiii) and (xiv)] [W.e.f. assessment year 2007-08]
Presently, it is
provided that certain specified investments, are eligible for deduction under
section 80C provided they are made in notified mutual funds. A deduction will
now be allowed even for specified investments made in mutual funds registered
under SEBI, that are referred to in
section 10(23D).
4.Deduction for contribution to pension
funds [section 80CCC][ W.e.f. assessment year 2007-08].
Presently a
deduction up to Rs, 10,000 is available for contributions to specified pension
funds. This limit is now enhanced to Rs.
1,00,000. However, as per section 80CCE the aggregate deduction under
sections 80C, 80CCC and 80CCD will be subject to the overall limit of
Rs.1,00,000.
5.
Extension of tax benefits to Industrial Parks [Section 80-IA(4)(iii)]
[W.e.f. assessment year 2007-08]
Section
80-IA of the Income-tax Act provides for deduction in respect of profits and
gains from industrial undertakings or enterprises engaged in infrastructure
development, etc. Clause (iii) of sub-section (4) of the said section provides
that an undertaking which develops, develops and operates or maintains and
operates an industrial park or special economic zone notified by the Central
Government in accordance with the scheme framed and notified by it for the
period beginning from 1-4-1997 and ending on 31-3-2006,is eligible for deduction
under the said section.
To continue attracting investment to industrial parks, clause (iii) of
sub-section (4) of section 80-IA has been amended to extend the time limit from
31-3-2006 to 31-3-2009.
6. Extension of tax benefits to the
Power Sector [ Section 80-IA(4)(iv)] [W.e.f. assessment year 2007-08].
Section
80-IA of the Income Tax Act provides for deductions in respect of profits and
gains from industrial undertakings or enterprises engaged in infrastructure
development etc. clause (iv) of sub-section (4) of the said section provides
that an undertaking which:
(a) is set up in
(b) starts transmission or distribution by laying a network of new
transmission or
distribution lines during the period beginning from
1-4-1999 and ending on 31-3-2006;
(c) undertakes substantial renovation and modernisation of the existing
network of transmission or distribution lines at any time during
the period beginning from 1st April, 2004 and ending on 31st
March, 2006,
is eligible for deduction under the
said section.
Under the existing provisions, the deduction is not available to
undertakings which start generation, or transmission or distribution by laying a
network of new transmission or distribution lines after 31-3-2006, or
undertake substantial renovation and moderation of the existing network of
transmission or distribution lines after the said date. Sub-clauses (a), (b) and
(c) of clause (iv) of sub-section (4) of section 80-IA have been amended to
extend the time from 31-03-2006 to 31-03-2010.
7.
Withdrawal of tax benefits to certain co-operative banks (Section 80P) (w.e.f.
assessment year 2007-08)
Presently, a deduction is available to profits and gains of co-operative
societies engaged in the business of banking, cottage industry, marketing of
agricultural produce of its members, etc. Now, this exemption shall not be
available to co-operative banks other than primary agricultural credit society
or a primary co-operative and rural development bank.
8. Deduction under section 80GGA shall
not be withdrawn if the approval
granted to the institution covered under section 80GGA is subsequently
withdrawn.
Changes
in the provision relating to double taxation relief
1.
Provision relating to double
taxation relief, etc. (section 90A inserted w.e.f.
01-06-2006)
A new section 90A has
been inserted to provide that any specified association in India may enter into
an agreement with any specified association in a specified territory outside
India and the Central Government may, by notification in the Official Gazette,
make the necessary provisions for adopting and implementing such agreement for
grant of double taxation relief, for avoidance of double taxation, for exchange
of information for the prevention of evasion or avoidance of income-tax or for
recovery of income- tax. It is further provided that in relation to any assessee
to whom the said agreement applies, the provisions of the Income-tax Act shall
apply to the extent they are more beneficial to that assessee.
It is also provided that any term used but not defined in the Income- tax
Act or in the agreement shall have the same meaning as assigned to it in the
said notification, unless the context requires otherwise and it is not
inconsistent with the provisions of the Income-tax Act or the said agreement.
For this purpose, the ‘specified association’ and
‘specified territory’ will be notified
by the Central
Government.
A consequential amendment has also been made to the definition of ‘rate
or rates in force’ under section 2(37) so as to provide a reference to the
proposed new section.
2.
Denial of tax holiday benefits on transfer pricing adjustment section 92C (w.e.f. assessment year 2007-08)
Presently, section 92C (relating to computation of Arm’s Length Price of
international transactions) provides that in the event of recomputation of the
arm’s length price by the Assessing Officer, the assessee is not eligible to the
benefits of section 10A or section 10B in respect of the enhanced total income
arising from such recomputation.
Now, the provisions of this section have been extended to section 10AA
relating to taxation of newly established units in SEZ’s. i.e. a transfer
pricing adjustment will not be eligible to the benefits of section 10AA.
Special
rates of tax on Certain Income of Charitable Institutions.
Taxation of
certain anonymous donations u/s 115BBC w.e.f. Assessment Year 2007 – 08.
- Income of wholly or partly
charitable or religious trust etc. is exempt subject to certain conditions:
Unaccounted
contribution to those institutions by way of anonymous donation a new section
115BBC has been inserted so as to provide that any income by way of anonymous
donation shall be included in the total income and taxable @ 30%.
Note :
Anonymous donation
means any voluntary contribution referred to sec 2(24)(iia).
Changes
relating to MAT in case of company
The Companies which declares
dividend but do not pay tax, they are called
‘ZERO TAX COMPANY’. To bring them in
the net of taxation a provision was
introduced during the assessment year 1996-97 which was named then
‘MINIMUM
ALTERNATIVE TAX’ (MAT). Under this provision two set of incomes are
computed, namely :
§
Total
Income as per I.T. Rule.
§
Book
Profit u/s 115JB
Under above
provision , if tax on Total Income as computed as per I.T Rule is less than 10%
of Book Profit as computed u/s 115JB, then 10% of Book Profit will be actual tax
liability subject to surcharge and Cess.
1.Rationalisation
of provision relating to MAT w.e.f. Assessment Year 2007- 08.
-
Sec. 115JB has been amended to provide that if income tax payable as
computed
as per I.T. Act for
the Assessment Year 2007-08 is less than 10% of Book Profits
then such Book profit
will become actual tax liability of that year.
The provision of
computing book profit has been amended in the
following manner:
- Long-Term Capital Gain exempted u/s 10(38) will be considered in
computing Book Profit.
- Depreciation on account of revaluation of assets will not be
considered.
- Any amount withdrawn from the revaluation reserve and credited to the
Profit & Loss Account will not be considered, to the extent it does not
exceed the amount of Depreciation on account of revaluation of assets.
2.Enhancing the
period of MAT credit w.e.f. Assessment Year 2007-08.
To provide relief
to assessees, being companies, who pay MAT u/s 115JB for any Assessment Year
beginning on or after 01.04.2006, the provision of section 115JAA have been
amended so as to provide that the amount of tax credit determined shall be
allowed to be carried forward & set- off for seven years excluding
the year of current assessment. However no interest shall be allowed on the
amount of tax credit available u/s 115JAA.
E.g. Suppose net
profit of a company for the Assessment Year 2007-08 is Rs. 3,50,000 after
debiting the following transactions:
a) Provision for unascertained liability of Rs. 60,000.
b) Provision for losses of subsidiary company Rs. 40,000
c) Wealth tax paid Rs. 12,000
d) Income tax paid Rs. 25,000
e) Depreciation Rs. 16,000
f) Agricultural expenses Rs. 8,000
Credit to the Profit & Loss Account:
- Long-Term Capital fain referred to sec. 10(38) RS. 45,000
- Amount withdrawn from reserve Rs.14,000
- Agricultural income Rs. 20,000
Additional information:
- Depreciation as per sec. 32 Rs. 10,000
- Depreciation on revaluation asset
Rs. 4,000.
For tax
For Accounting
Purposes
Purposes
Rs.
Rs.
Brought
forward loss of 2002-03
2,45,000
30,000
Unabsorbed Depreciation
------
5,000
For tax purpose the company wants to
claim deduction u/s 80-IB @ 30%.
Calculate tax liability of the company
considering the provision of MAT for the Assessment Year 2007-08.
Solution.
To compute tax liability of the company
we have to calculate two sets of income:
1) Book Profit u/s 115JB and
2) Total Income as per I.T. Act.
Chart showing for Book Profit u/s 115JB
for the Assessment Year 2007-08.
|
Net Profit as per Profit & Loss
Account
Add:
Positive adjustments:
Rs.
i) Provision for unascertained liability
60,000
ii) Provision for losses of Subsidiary Company
40,000
iii) Income Tax paid or payable
25,000
iv) Depreciation to be treated separately
16,000
v) Section 10 related expenses
8,000
(i.e. expenses related to agricultural income)
_______
Less:
Credit items to the Profit & Loss Account and further
adjustments:
i) Depreciation on u/s 32
10,000
ii) Exempted income
20,000
(i.e.
agricultural income)
iii) Amount withdrawn from
reserve
14,000
iv) Brought forward loss or
Unabsorbed
depreciation whichever is less as per financial
accounts
5,000
_____
BOOK PROFIT |
Amount
Rs.
3,50,000
1,49,000
49,000 ________
4,50,000 ======= |
Computation of total income as per I.T.
Act for the Assessment Year 2007-08.
|
Net Profit as per Profit & Loss
Account
Add:
Items disallowed:
|