BUDGET 2016

SONALEE GODBOLE

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Penalties

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Section 270A

• Section 271 levying penalty for failure to furnish returns, comply

with notices, concealment of income, etc. will be applicable upto

A.Y. 2016-17.

• Section 270A is introduced w.e.f. A.Y. 2017-18 and replaces section

271(1)(c) and provides levy of penalty in case of under-reporting

and misreporting of income.

• The penalty of under-reporting/misreporting should be initiated

during the course of any proceedings.

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Circumstances in which a person shall be considered to have under-reported his income:

1. Assessed Income > Income as per return processed under section143(1)(a).

2. Where no return of income has been furnished -Assessed Income > maximum amount not chargeable to tax

3. Reassessed Income > income assessed or reassessed before suchre-assessment

4. Deemed Total Income assessed/reassessed as per section115JB/115JC > Income as per section 143(1)(a)

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5. Where no return of income has been filed -

Deemed Total Income assessed as per section 115JB/115JC >the maximum amount not chargeable to tax;

6. Deemed Total Income reassessed as per section 115JB/115JC >Deemed Total Income assessed/reassessed before such re-assessment;

7. The income assessed/reassessed has the effect of reducing the lossor converting such loss into income;

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The amount of under-reported income is to be calculated in different

scenarios as under:

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Situation Amount of under – reported

income

(I) Where income is assessed for the first time

(1) Return has been filed Assessed income - income determined

u/s. 143(1)(a).

(2) Return has not been filed:

a) In case of a company, firm

or local authority.

Income Assessed

b) In case of other assessees Assessed income - maximum amount

not chargeable to tax

Situation Amount of under – reported

income

(II) Where income has been re-

assessed

Income re-assessed- income

which was assessed/re-assessed as

per immediately preceding order.

(III)Where under reported income

arises due to determination of

income as per section 115JB/115JC

(A - B) + (C - D) Similar to

provisions of explanation 4 to

section 271(1)

(IV)Where assessment/reassessment

has the effect of reducing the

loss or converting the loss into

income

Income or loss assessed /

reassessed – Loss claimed

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• Calculation of under-reported income in a case where the source of any

receipt, deposit or investment is linked to earlier year - Provisions similar

to existing Explanation 2 to section 271.

• Under-reported income under this section shall not include specificamount under the following circumstances:

i. Income in respect of which the assessee offers an explanation andthe income-tax authority is satisfied that the explanation is bonafide and all the material facts have been disclosed;

ii. under-reported income is determined on the basis of an estimate,if the accounts are correct and complete but the method employedis such that the income cannot properly be deduced therefrom;

iii. under-reported income is determined on the basis of an estimate,if the assessee has, on his own, estimated a lower amount ofaddition or disallowance on the same issue, has included suchamount in the computation of income and disclosed all factsmaterial to the addition made.

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iv. Transfer pricing adjustment is made by the Transfer Pricing

Officer where the assessee has maintained information and

documents as prescribed under section 92D,

declared the international transaction and disclosed all the

material facts relating to the transaction;

iv. where the undisclosed income is on account of a search operation

and penalty is leviable under section 271AAB.

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• The cases of misreporting of income have been specified as under:

i. misrepresentation or suppression of facts;

ii. non-recording of investments in books of account;

iii. claiming of expenditure not substantiated by evidence;

iv. recording of false entry in books of account;

v. failure to record any receipt in books of account having a bearing

on total income;

vi. failure to report any international transaction or deemed

international transaction or specified domestic transactions.

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Tax payable on under reported income

• in case of company, firm or local authority, tax is computed on

under-reported income assuming under reported income is the total

income.

• Other cases : thirty per cent of the under-reported income.

• No penalty to be levied on addition or disallowance of any amount

if such addition or disallowance has formed the basis of imposition

of penalty in the case of the person for the same or any other

Assessment Year.

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• penalty will be levied at fifty per cent of the tax payable on under-

reported income.

• However in a case where under reporting of income results

from misreporting of income by the assessee, penalty will be levied

at the rate of two hundred per cent of the tax payable on such

misreported income.

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Section 270AA-Immunity from Penalty

and Prosecution• Provisions providing for immunity from imposition of penalty

under section 270A and prosecution under section 276C or under

section 276CC, if the following conditions are fulfilled:

i. the tax and interest payable as per the order of assessment issued

under section 143(3) or reassessment issued under section 147,

has been paid within the period specified in the notice of demand;

and

ii. no appeal against the order referred to in clause (a) has been filed.

iii. penalty levied is not for misreported income.

• The assessee can make an application, in the prescribed form to the

Assessing Officer within 1 month from the end of the month in

which assessment order under section 143(3) of the Act or

reassessment order under section 147 of the Act is received;

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• The Assessing Officer shall pass the order, within one month from

the end of the month in which the assessee makes the application,

accepting or rejecting the application for immunity after giving an

opportunity of being heard to the assessee;

• Where the application for immunity is accepted and an order is

passed under the section, no appeal or revision would lie against the

assessment or reassessment order.

• The order passed under the section would be final; Hence, it cannot

be re-opened or revised or reviewed.

• Where the application is rejected, appeal can be filed against the

assessment/reassessment order within the prescribed time.

Section 271AA

Failure to keep and maintain information and documents etc. in

respect of certain transactions – sub-section (2) added

• If an entity of an international group fails to furnish the information

and the documents as required under Rule 10D

- penalty of Rs.5,00,000/- after giving opportunity of being heard.

• Penalty is discretionary.

• No penalty to be levied if the failure is on account of a reasonable

cause (Section 273B)

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Section 271GBPenalty for failure to furnish report or for inaccurate reportunder

section 286

A. For non-furnishing of report prescribed under section 286(2) by an

entity:-

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

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

the period exceeding one month;

B. For non-furnishing of information and documents called for by the

prescribed Authority within the prescribed time – penalty of

Rs.5,000/- per day.

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C. any default as prescribed in (A) and (B) above that continues even

after service of order levying penalty, then the penalty leviable is

Rs.50,000/- per day, for continuing default beyond the date of

service of order;

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

inaccurate information in the CbC report.

• No penalty to be levied if the failure is on account of a reasonable

cause (Section 273B).

• No provision for preferring appeal against the penalty order.

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Section 272A

• The existing provisions of section 271(1)(b) for levy of penalty for

failure to comply with notices issued under sections 142(1) or

143(2), or failure to comply with directions issued under section

142(2A) are now shifted to section 272A Penalty of Rs.10,000/-

for each failure.

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Section 273A

• Principal Commissioner or Commissioner has the power to reduce

or waive penalty imposed under section 270A based on application

filed by Assessee.

• Principal Commissioner / Commissioner of Income Tax to pass

order accepting / rejecting application within 12 months from the

end of the month in which the application is received.

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CHAPTER VI-A

DEDUCTIONS

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Section 80CCDExemption in respect of amount standing to the credit of pension

account of an individual received by nominee on death of

the individual

Section 80CCD is amended to provide that any amount received by

the nominee, on the death of the assessee, shall not be income of

nominee if such amount is received on account of closure of the

pension account or upon opting out of the pension scheme.

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Section 80EE

Deduction in respect of interest on loan taken for residential House

property

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

of housing loan interest paid upto Rs.1 lakh can be claimed by a first time

home buyer. Section 80EE has been substituted to provide deduction in

respect of interest on housing loan paid by first time home buyer on the

following lines:

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Particulars Existing

Requirements

New Requirements

Loan sanctioned - 1st April, 2016 and 31st

March, 2017 by a

Financial Institution.

Maximum Interest deductible Rs.1,00,000/- Rs.50,000/-

Maximum amount of loan Rs.25,00,000/- Rs.35,00,000/-

Threshold limit for cost of

residential house property

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

Purpose of loan For acquiring

residential house

For acquiring

residential house

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The assessee should not own any other residential property as on date

of sanction of loan.

Section 80GG

Deduction in respect of Rent paid

• Deduction under section 80GG is available to an assessee in respect

of rent paid by him, if the assessee does not own a house or does not

receive the House Rent Allowance (HRA) from his/her employer.

• The monetary ceiling of deduction has been increased from

Rs.2,000/- per month to Rs.5,000/- per month.

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Section 80IACDeduction in respect of profits earned by eligible Start-Up

Companies / LLP

Eligible start-up has been defined as:

a) a company / LLP engaged in a business which involves innovation,

development, deployment or commercialization of new products,

processes or services driven by technology or intellectual property;

b) the company / LLP is incorporated between 1st April, 2016 and 31st

March, 2019;

c) the total turnover of its business does not exceed Rs.25 Crores in any

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

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

e) It is not formed by splitting up or the reconstruction of a businessalready in existence.

f) It is not formed by the transfer to a new business of machinery orplant previously used for any purpose in India (transfer of upto 20% ofthe total value of plant & machinery permitted.)

g) Other conditions provided in section 80IA(5), 80IA(7) to 80IA(11)shall apply.

• Deduction = 100% of profits derived from business for any threeconsecutive assessment years out of five years beginning from the year inwhich the eligible-start-up is incorporated.

• Return of Income be filed before due date of filing of return.

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Section 80IBA

Deduction in respect of profits from housing projects

A new Section has been inserted to provide 100% deduction in respect

of profit arising from the business of developing and building housing

projects, subject to the following conditions:

i. The housing project is approved by the competent authority after

1st June, 2016 but before 31st March, 2019.

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

approval.

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iii. In case the project is located in the 4 metropolitan cities of India

or within the 25 kilometers from the municipal limit of such

cities, the project is on land measuring not less than 1000 sq.

meters and the area of residential units does not exceed 30 sq.

meters.

iv. In case project is situated in any other part of India, the project is

on land measuring not less than 2000 sq. meters and area of

residential units does not exceed 60 sq. meters.

v. Where residential unit is allotted to an individual, no other unit in

such project is allotted to him or any member of his family.

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vi. The built up area of shops and other commercial establishments in

the project does not exceed 3% of the aggregate built up area.

vii. Assessee maintains separate books of accounts in respect of the

housing project.

• If the project is not completed within permissible time period –

amount of deduction allowed is subject to tax in the year in which

stipulated period of completion expires.

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Section 80JJAADeduction in respect of employment of new workmen

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

workmen has been substituted as under:

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Sr

No

Particulars Existing Requirements New Requirements

1. Permissible

deduction:

30% of the additional

employee cost incurred

for three years

Employee should be:

New workmen in excess of

50 workmen employed

during the Financial Year

Any new employee

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Sr.

No.

Particulars Existing Requirements New Requirements

Employer should

be:

assessee engaged in

manufacture of goods

An assessee to whom

section 44AB applies

Salary Limit

No Limit Salary of the employee

should be ≤ Rs. 25,000/-

Other condition

No such condition No deduction is available

if, entire contribution under

Employees’ Pension

Scheme is paid by the

Government or the

employee does not

participate in recognised

P.F. ‘Emoluments’ should

be paid by A/c payee

cheque/draft or credit to

bank account.

Sr

No

Particulars Existing Requirements New Requirements

2 Number of days of

employment

300 days 240 days

3 Increase in number of

employees

10% increase in number of

workmen as compared to

the workmen employed on

the last day of the

preceding year.

No such

requirement

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• The business should not be formed by splitting up or reconstruction

of an existing business.

The business is not acquired by way of transfer from any other

person or as a result of any business reorganization.

The assessee furnishes the report of an accountant along with the

return.

Section 80IA/80IB/80IC

Nature of expenditure Present deduction Deduction from A.Y. 2018-19

Deduction in respect of profitsderived from :a. development, operation andmaintenance of aninfrastructure facility (80-IA)b. development of specialeconomic zone (80-IAB)c. production of mineral oiland natural gas [80-IB(9)]

100% of the profits Nil if the activity commencesafter A.Y. 2018-19

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INCOME FROM

BUSINESS &

PROFESSION

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Section 28

• Non Compete fees received by a person carrying on profession is

taxable under the head “Profits and gains of business or profession”

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Section 32(1)(iia)

Additional Depreciation

Additional depreciation of 20% on cost of new Plant & machinery

now available to an assessee engaged in the business of transmission

or distribution of power.

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Investment Allowance - Section 32AC

Clarification provided – Deduction available where new plant &

machinery was acquired in earlier year but installed at any time before

31st March, 2017, irrespective of the year of acquisition. The

deduction will be available in the year of installation.

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

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Phasing out incentives in the form of weighted deduction and

profit linked incentives

The available deductions are phased out as under:

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Section Nature of expenditure Proposed phase-out plan

35(1)(ii) Amount paid to research

association having the object

of undertaking scientific

research or to a university,

college, or other institution to

be used for scientific research

From A.Y.s 2018-19 to 2020-

21, weighted deduction of

150% allowed.

Applicable for both old and

new assets.

Section Nature of expenditure Proposed phase-out plan

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

used for scientific research

With effect from A.Y.

2018-19, deduction of

only 100%.

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

which has as its object the

undertaking of research in social

science or statistical research or to a

university, college or other

institution to be used for research in

social science or statistical research

With effect from A.Y.

2018-19, deduction of

only 100%.

35(2AA) Amount paid to a National

Laboratory, university, Indian

Institute of Technology or a

specified person

From A.Y.s 2018-19 to

2020-21, weighted

deduction of 150%

allowed.

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Section Nature of expenditure Proposed phase-out plan

to be used in scientific research

programme approved by the

prescribed authority

With effect from A.Y. 2021-

22, deduction of only 100%

35(2AB) Expenditure incurred by a

company engaged in the business

of bio-technology, manufacture or

production of any article or thing

for in-house scientific research

From A.Y.s 2018-19 to

2020-21,weighted deduction

of 150% allowed.

With effect from A.Y. 2021-

22, deduction of only 100%.

35AC Expenditure incurred on eligible

social development projects or

schemes

With effect from AY. 2018-

19, deduction will be ‘Nil’

35AD Capital expenditure incurred for

the purpose of specified business

With effect from AY. 2018-

19, deduction of only 100%

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Section Nature of expenditure Proposed phase-out plan

35CCC Expenditure incurred on

notified agricultural

extension project

With effect from A.Y. 2018-19,

deduction of only 100%.

35CCD Expenditure incurred on

notified skill development

programme by a company

100% of expenditure incurred

from A.Y. 2021-22

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Section 35ABA

Deduction for Expenditure Incurred for Obtaining Right to Use

Spectrum for Telecommunication Services

• Deduction for the capital expenditure incurred for acquiring any right

to use spectrum for telecommunication services.

Deduction = Actual fees paid / No. of years for which license to use

is granted.

• Deduction is allowed from the year in which spectrum fee is actually

paid.

• If the spectrum fee is actually paid before the commencement of the

business to operate telecommunication services, the deduction will be

granted from the year in which business commences.

• The provisions relating to transfer of license, amalgamation and

demerger as contained in subsections (2) to (8) of Section 35ABB are

applicable.

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Section 35AD

Deduction in Respect of Expenditure Incurred on Specified

Businesses

• Deduction will be available for capital expenditure incurred for the

business of developing, or maintaining and operating, or

developing, maintaining and operating a new infrastructure facility,

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

such business is:

i. Owned by a company registered in India or by a consortium of

such companies or by an authority or a board or corporation or

any other body established or constituted under any Central or

State Act;

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ii. the entity referred to above has entered into an agreement with the

Central Government or a State Government or a local authority or

any other statutory body for developing or operating and

maintaining or developing, operating and maintaining, a new

infrastructure facility

• “Infrastructure facility” is defined in the same manner as in Section

80IA(4).

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

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Section 36(1) (viiia)

• Non-Banking Finance Companies (NBFCs) will be allowed a

deduction of provision made for bad and doubtful debts.

• Maximum deduction = 5% of the total income computed before

making any deduction under this section and other sections of

Chapter VI-A.

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Section 40(a)(ib)

• Deduction for the payment to Non-resident will not be allowed if

the equalization levy is not deposited with the Government before

the due date of filing of the Return of Income.

• If such levy is deposited after the due date for filing Return of

Income, the deduction for the payment to Non-resident will be

allowed in the year of deposit of the levy with the Government.

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Section 43B

• Deduction for any amount payable to Indian Railways for use of

railway assets now covered by section 43B.

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INCOME FROM SALARY

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Section 17(2)(vii)

Increase in exemption limit of Employer’s Contribution to

Superannuation Fund

Section 17(2)(vii) has been amended to increase the exemption limit

of employer’s contribution to an approved superannuation fund from

Rs.1,00,000/- to Rs.1,50,000/- per annum.

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Rule 8 of Part A of Schedule IV to

the Income Tax Act

Rule 8 of Part A of Schedule IV is amended to provide that balance

standing to the credit of the employee in a Recognised Provident Fund

transferred to his account in the National Pension Scheme is exempt

from tax.

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INCOME FROM HOUSE

PROPERTY

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Section 24(b)

Increase in time period for acquisition or construction of Self

Occupied House Property for claiming interest

Section 24(b) has been amended to provide that the deduction of

interest paid on capital borrowed for acquisition or construction of

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

construction is completed within 5 years from the end of the financial

year in which capital was borrowed.

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Section 25A, 25AA and 25B

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

section 25A which provides that the amount of rent received in arrears

or the amount of unrealized rent realised subsequently is chargeable to

tax in the year in which such rent is received or realised, irrespective

of whether the assessee is the owner of the property or not in that

financial year.

30% standard deduction will be available.

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TAX DEDUCTION /

COLLECTION AT SOURCE

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Revision in TDS Threshold Limits

The below amendments are applicable from June 1, 2016.

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Section Existing Threshold Limit (Rs.)

Proposed Threshold Limit (Rs.)

192A – TDS on Payment of Accumulated Provident Fund Balance due to an employee

30,000/- 50,000/-

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

194C - TDS on Payments to Contractors Annual Limit of 75,000/-

Annual Limit of 1,00,000/-

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

194G – TDS on Commission of sale of lottery tickets

1,000/- 15,000/-

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

194LA – TDS on payment of Compensation of acquisition of certain immovable property

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

Revision in TDS Rate Limits

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

ggg

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Section Existing TDS Rate (%)

Proposed TDS Rate (%)

194D – TDS on Insurance Commission 10 5

194DA – TDS in respect of Life Insurance Policy (not exempt u/s.10(10D))

2 1

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

20 10

194G – TDS on Commission of sale of lottery tickets

10 5

194H - TDS on Commission or Brokerage 10 5

The above amendments are applicable from June 1, 2016.

Section 197AFurnishing of Form Nos.15G / 15H

A self-declaration in prescribed Form Nos. 15G/15H for lower

deduction can be furnished in respect of rental income as well.

This amendment will take effect from June 1, 2016.

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Section 206AA

Requirement to furnish PAN

Section 206AA provides for higher TDS at the rate of 20% in case the

recipient does not have a PAN in India.

Section 206AA is amended to provide that the provisions of this

section shall not apply to non-residents, subject to the fulfilment such

conditions as may be prescribed.

The said amendment is applicable from June 1, 2016.

Notification No. 53/2016 dated June 24, 2016

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Section 206CTax Collection at Source

Section 206C has been amended to provide that tax needs to be

collected at source in the following transactions:

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Nature of Transaction Monetary Limit (Rs.)

Rate (%)

Sale of Motor Vehicle > 10 lakhs 1

Sale in cash of any goods (other than bullion and jewellery)*

> 2 lakhs 1

Payment in cash for any services (other than payments on which tax is deducted at source under Chapter XVII-B)

> 2 lakhs 1

* TCS in relation to cash sale of any goods (other than bullion and

jewellery) or services shall not apply to certain class of buyers who fulfil

such conditions as may be prescribed.

Section 206(contd)

• FAQ – Circular No. 22/2016

• Further clarification for cases where sale consideration is received

partly in cash and partly in cheque – Circular No. 23/2016

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THANK YOU

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