Direct-Tax Amendments by Finance Act – 2011
(1) Rates of Taxes
Section 2 of Finance Act-2011 read with First Schedule of Finance Act-2011
Part-III of Finance Act-2010
(Specify the tax rates at which Income of P.Y. 2010-11 i.e. A.Y. 2011-12 to be assessed)
TDS rates for P.Y. 2011-12 i.e. A.Y. 2012-13
Rates of Advance taxes, TDS on salary & some certain cases for P.Y 2011-2012 i.e. 2012-13
(Will become Part-I of Finance Act-2012)
Note-1:- Under new section 194LB inserted by Finance Act-2011 w.e.f. 1st June, 2011 the interest paid for by infrastructure debt company under clause 47 of Section 10 to a Non-resident or foreign company will be subject to deduct TDS @ 5% instead of 20% on other interest income of Non-resident u/s 115A
Note-2:- Surcharge @ 2% for TDS deducted on foreign company income if their income or aggregate of income paid or likely to be paid exceed INR 1 crore.
Education cess @ 2% and Higher education cess @ 1% would be levied on TDS deducted of Non-resident and foreign company including surcharge.
§ General exemption Limit for individual/HUFs/BOIs/AOPs and artificial judicial persons has been increased from INR 160,000 to INR 180,000.
§ General exemption Limit for senior citizen and artificial judicial persons has been increased from INR 240,000 to INR 280,000 and the age of senior citizen has been reduced from 65 years to 60 years.
§ For the resident individual of the age of 80 years or more will be eligible for the basis exemption limit of INR 500,000
§ Surcharge on domestic company have been reduced to 5% from 7.5 %
§ Surcharge on foreign company have been reduced to 2% from 2.5 %
(Surcharge is applicable subject to marginal relief and also available on MAT u/s 115JB. No marginal relief is applicable to ECS and HECS)
(2) The monetary Limit of permissible receipt from trading activity for an institution with an object of “Advancement of any other object of general public utility” and engaged in charitable purpose u/s 2(15) have been increased from INR 10 lac to INR 25 lac to retain its “charitable status” w.e.f. AY 2012-13.
(3) Amendment in Section-10 of Income-tax Act (Income which do not form part of Total Income
§ New clause 45 to section-10 has been inserted to enable the exemption of specified allowance to Chairman or a retired chairman or any other member or retired member of Union Public Service Commission for the allowance and perquisites as notified by central government. (WEF retrospectively from AY 2008-09)
§ New clause 46 to section-10 has been inserted to enable the exemption of income arising to a notified body or authority or Board or Trust or Commission to the extent as notified by central government. (WEF 1st June-2011)
(Filing of return to such body or authority would be liable u/s 139(4C) which has been amended via Finance Act-2011, within time period prescribed u/s 139(1), if its total income exceed above basis exemption limit without giving effect of Sec. 10(46).
§ New clause 47 to section-10 has been inserted to enable the exemption of income of notified infrastructure debt fund by central government. (WEF 1st June-2011)
Under new section 194LB inserted by Finance Act-2011 WEF. 1st June, 2011 the interest paid for by infrastructure debt company under clause 47 of Section 10 to a Non-resident or foreign company will be subject to deduct TDS @ 5% instead of 20% on other interest income of Non-resident u/s 115A
(Filing of return to such body or authority would be liable u/s 139(4C) which has been amended via Finance Act-2011, within time period prescribed u/s 139(1), if its total income exceed above basis exemption limit without giving effect of Sec. 10(47).
(4) Profits and Gains of Business and profession
§ Under section-35(2AA) the limit of weighted average deduction has been increased from 175% to 200% WEF AY 2012-13.
§ The scope of Section 35AD have been extended to the following to businesses as well
§ Developing and building a house project under a notified scheme of CG and SG
§ Production of fertilizer in India
(The new plant or new capacity should be started on or after 1st April, 2011) effective from AY 2012-13
(In respect of existing provision to this section in the business of hotels and hospitals the word “New” have been removed from the definition of specified business.
Important point: – Loss of assesse claiming deduction u/s 35AD can be set-off against the profit of any other specified business u/s 73A irrespective of whether any other specified business is eligible for deduction u/s 35AD or not.
§ Employers contribution to the account of the employee under a pension scheme to in section 80CCD will be deductible as a business expenditure under newly inserted clause (iva) in section 36(1) subject to maximum of 10% salary of employee in PY (For this purpose salary will include DA, if the terms of employment provides so) WEF AY 2012-13
§ Consequently section 40A(9) has been amended to provide the effect to the above proviso.
§ Consequently section 80CCE has also been amended to provide the effect to the above proviso where the deduction of sum provided under this proviso to employee will be over and above the limit of INR 1 lac.
(5) Deduction from Gross Total Income
§ Extension in duration:-Deduction for investment in long-term infrastructure bond to continue for one more year u/s 80CCF up to INR 20,000. This deduction will be over and above the limit of INR 100,000 provided in section 80CCE. Effective for AY 2012-13
§ Extension in time period:- The time limit u/s 80-IA(4)(iv) have been extended by one year i.e. from 31st march, 2011 to 31st March, 2012 to enable the undertakings which have started the power business during the period from 1st April, 2011 to 31st March, 2012 to avail deduction under this section.
§ A new sunset clause has been added under the section 80-IB(9) under which no deduction will be allowed under this section for the commercial production of mineral oil for which the license under a contract have been awarded after 31st March, 2011. Effective from AY 2012-12
(6) Transfer Pricing
§ Amendment in second proviso to section 92C(2) where if the limit of variation between arm’s length price and transfer price be 5% then TP will be considered ALP have been substituted with as such % notified by central government. From AY 2012-13
§ Section 92CA (2A) & (7):- The powers of Transfer Pricing Officer have been broaden to empower him
§ Determine the ALP of other international transaction, identified subsequently in course of proceedings before him.
§ Conduct a survey upon income-tax authority u/s 133A for the purpose of determining ALP.
(Effective from 1st June, 2011)
§ New Section 94A:- Objective to discourage assesses from entering into transaction with persons located into countries and territories where no effective mechanism of communication exist with India
(i) Central Government have been empowered to notify any such country as NJA (Notified Jurisdictional Area)
(ii) Any transaction done with person located in NJA would be deemed to be an international transaction and all parties will be deemed to be associated enterprises and all the provision of the transfer pricing will be applicable to such transaction except the benefit of section 92C(2)
(iii) Refer section for the other provisions and TDS rate to this section
(Effective from 1st June, 2011)
(7) Assessment of various Entities
§ Under Section 115JB the MAT has been increased from 18% to 18.5% i.e. when the tax payable is less than 18.5% of the book profits then the mi minimum tax payable will be 18.5% of book profit.
(This provision have been introduced to offset the reduction in the rate of surcharge) WEF AY 2012-13
§ New Section 115BBD:- Concessional rate of tax on dividend
Where any specified foreign company (the foreign company in which Indian company holds 26% or more in nominal value of the equity share capital of the company) declares dividend and such dividend (gross dividend that no expenses will be allowed in such respect) is received by Indian company then it shall be subject to concessional rate of 15% as against the existing rate of 30%.
The income of assesse in excess of the above mentioned dividend will be taxed as per the other relevant provisions.
WEF AY 2012-13
§ Sunset clause u/s 115-O and 115-JB and related amendments in section 10(34)
The SEZ developers were entitled for the exemption of MAT and DDT and units in SEZ were entitled for exemption from MAT. Section 10(34) clarifies that dividend referred to section 115-O shall not be included in the total income of the assesse, being a Developer or entrepreneur. A sunset clause have been introduce to remove for MAT exemption from AY 2012-13 and remove DDT exemption for dividend declared, distributed or paid on or after 1st June, 2011.
Since DDT will be levied u/s 115-O in that case dividend declared, distributed or paid on or after 1st June, 2011 by SEZ or dividend received by SEZ will be exempt in the hand of recipient u/s 10(34)
(It may be taken as point of view that dividend declared before 1st June, 2011 and paid on or after 1st June, 2011 would not attract DDT provision)
§ Section 115R:- Increase in rate of additional Income-tax on income distributed by a debt fund, mutual fund, money market fund or liquid fund to a person other than individual or HUF has been increased from 25% to 30% w.e.f. 1st June, 2011. (Income from equity oriented fund is exempt from tax) (no change in rates for individual and HUF)
§ New Chapter XII-BA-Section 115JC-115JF (Alternate Minimum tax on LLPs)
LLP to be subject to AMT @ 18.5%
If regularIncome tax payable by a LLP for a PY is less than the AMT (18.5% of *adjusted Income) then the minimum tax payable will be 18.5% of adjusted income (115JC)
*Adjusted Income would mean: – Income before giving effect to Chapter XII-BA and increased by the deduction claimed as under
§ Any section under chapter VI-A under the head “C- Deduction in respect of certain incomes
§ Section 10AA
Such LLP will give a report on or before due date u/s 139(1) from chartered accountant certifying that adjusted total income and AMT have been computed according to provision of this chapter
All other provision of advance tax, interest etc. shall continue to apply (115JE)
The excess tax paid due to AMT will be carried forward and set-off up to a maximum period of 10 AYs succeeding the AY in which credit becomes allowable if in that year regular tax is more than AMT. No interest will be paid on such tax credit. If regular income tax is reduced or increased by any order passed the amount of tax credit will vary accordingly. (115JD)
Effective from AY 2012-13
(8) Income Tax Authorities:- (Powers for facilitating collection of information on request from tax authorities outside India)
Notified Income tax authorities (not below the rank of assistant commissioner of Income-tax) shall now have power u/s 131(1), 131(3)& 133 for making any inquiry or investigation or impound or retain books of accounts for the period as they may think fit or call for any information in respect of any person or class of person relating to an agreement of exchange of information u/s 90 & 90A.
By inserting the clause (viii) to Explanation 1 to section 153 & Explanation to section 153B the time limit of six month or actual receive of information, whichever is less have been removed in getting the information from the income-tax authorities outside India.
(Effective from 1st June, 2011)
(9) Assessment Procedure
§ Extension of due date for filing of return for the corporate assesse for filing of transfer pricing report u/s 92E in the Form 3CEB and filing o return u/s 139(1) undertaking the international transaction have been extended from 30th September, 2011 to 30th November, 2011.
Consequently time limit u/s 43B & TDS deposit to avoid disallowance u/s 40(a)(ia) also extended to 30th November, 2011. w.e.f. AY 2012-13
§ Clause (1C) have been inserted to section 139(1) empower central government to notify the class or classes of persons who will be exempted from the requirement of filing of return of income. Effective from 1st June, 2011
§ The time limit for issue of notification by central government u/s 143(1B) have been extended from 31st March, 2011 to 31st March, 2012. W.e.f 1st April, 2011
(10) Settlement Commission
§ The limit of application for full and true disclosure of incomes which the assesse have not disclosed before to settlement commission u/s 245C in case of section 153A, 153B and 153C the limit of INR 50 lac of additional income tax on income disclosed to present application before settlement commission would be applicable to specified person against who is subject matter to search.
By Finance Act-2011 it has been provided that where the applicant is related person/entities to the specified person and proceeding also have been initiated in his case as a result of search can apply before settlement commission if additional income tax on income disclosed exceed INR 10 lac.
Effective from June-2011
§ A new sub section (6B) has been inserted in section 245D to specifically provide the settlement commission may amend any order passes by it u/s 245D to rectify any mistake apparent from record within six month from the date of order.
Settlement commission should not make any rectification in order if the rectification in order has effect of modifying the liability of applicant without:
§ Giving a notice to application and commissioner
§ And opportunity of being heard (Effective from June, 2011)
Note:-A similar amendment have been made in Wealth-tax Act-1957 by inserting subsection (6B) in section 22
(11) Amendment in Miscellaneous Provisions
§ Omission of Section 282B of requirement to quote DIN by Finance Act-2011
§ A new section 285 have been inserted by Finance Act, 2011 w.e.f. 1st June, 2011 to mandate non-resident to file a statement to AO, within 60 days from the end of financial year, providing the details in respect of activities carried out by the liaison office in India during the financial year.
§ The time limit specified in the proviso to Rule 3(1) of Part A of the Fourth Schedule for a recognized provident fund, where the recognition have been received on or before 31.03.2006, for satisfying conditions set out in clause (ea) of Rule 4 and any other condition as Board may notify has been extended from 31.12.2010 to 31.03.20
Summary of Important Circulars and Notification issued between 01.05.2010 to 30.06.2011
(1) Circular No. 4/2010 dated 18.05.2010
Widening of an existing road for a highway project will be considered as a new infrastructure u/s 80-IA(4)(i) but simply relaying of existing road won’t be new infrastructure.
(2) Circular No. 6/2010 dated 20.09.2010
§ Clarified that regional rural bank are not eligible for deduction w/s 80P from the AY 200708 onwards.
§ Circular No. 319 dated 11-1-1982 have been withdrawn deeming any regional rural bank to be co-operative society wef AY 2007-08
(3) Circular No. 7/2010 dated 27.10.2010
§ Any notification issued by CG under sub-clause (iv) and (v) of section 10(23C) on or after 13-07-2006 will be valid until withdrawn and no requirement for the assesse to seek renewal after three years.
§ Any notification issued under sub-clause (vi) and (via) of section 10(23C) on or after 1-12-2006 will be one time approval and will be valid until it is withdrawn.
§ U/s 80G(5) approval expiring on or after 1st Oct-2009 shall be deemed to be extended in unless specifically withdrawn and any approval u/s 80G(5) on or after 1-10-2009 will be one time approval and would be valid until it is withdrawn.
(1) Ceiling for gratuity exemption has been raised from INR 350,000 to 1,000,000 by CG vide notification 43/2010 dated 11th June, 20110.
(2) Substitution of following Rules:-
Rule 30 – Section 192(1A) Time and mode of payment of TDS or tax
Rule 31 – Section 203 Certificates of TDS
Rule 31(A) – Section 200(3) Statement of deduction
Rule 31(AA) – Section 206C(3) Statement of Collection
Rule 37CA – Section 206C Time and mode of payment of TCS
Rule 37D – Section 206C(5) Certificate of TCS
(3) Notification No. 48 dated 9.7.10 and 77 dated 11.10.10
Subscription of Long-term infrastructure bonds by CG will be qualify for deduction of INR 20,000 u/s 80CCF for individual and HUF
(4) Notification No. 80 dated 19.10.10 as amended by notification 20 dated 21.04.11
CG has notified TATA AIG Retirement Annuity plan for deduction u/s 80C
(5) Notification No. 84 dated 22.11.10
Salaried person are entitled to act as tax return prepares
(6) Notification No. 85 dated 22.11.10
Exemption Limit for allowance granted to employees in transport system have been increased from INR 6,000 to INR 10,0000 wef 1st September, 2008 or 70% of allowance subject to Maximum of 10,000.
(7) Notification No. 12 dated 25.02.11
United stock exchange of India have been notified as recognized stock exchange
(8) Notification No. 14 dated 09.03.11
Condition to fulfill for a stock-exchange to qualify as a recognized stock exchange for the purpose of section 43(5) – Modification of cash and derivative market transaction registered in the system permitted in cash of genuine error.
(9) Notification No. 24 dated 13.05.11
The exemption in interest rate on RPF have been increase to 9.5% and in excess of 9.5% it will be taxable as salary.
(10)Notification No. 32 dated 03.06.11
Interest on post office saving bank will be exempted from tax to the extent of
(i) INR 3,500 in case of individual
(ii) INR 7,000 in case of Joint account
(11)Notification No. 33 dated 03.06.11
Income received by any person on behalf of fund established for the purpose of providing cash benefit to its employees to meet the annual expenses of medical tests and medical checkup to qualify for benefit of exemption u/s 10(23AAA)
(12)Notification No. 35 dated 23.06.11
Cost inflation index for F.Y. 2011-12 has been specified as 785