FINANCE BILL 2016 ANALYSIS OF DIRECT TAX PROVISIONS

FINANCE BILL 2016 ANALYSIS OF DIRECT TAX PROVISIONS RESIDUE PROPOSALS CA SHARAD A. SHAH B. Com. , F. C. A. , D. I. S. A. (ICAI), IFRS (ICAI), Valuer (ICAI), Arbitrator (ICAI)

TAX INCENTIVES FOR EMPLOYMENT GENERATION WAGES FOR INCREASE IN WORKERS – S. 80 JJAA Ø EXISTING PROVISIONS: Ø Indian company Ø Employment should be in `factory’ Ø 30% of Additional wages for New Regular workmen in excess of 100 workers employed during the year Ø For existing factory- additional workers should be more than 10% of existing work force Ø Regular worker did not include contract labour – minimum period of employment was 300 days Ø Effective for A. Y. 2016 -17 3/15/2018 2

S. 80 JJAA-PROVISIONS PROPOSED Any assessee who/which is liable for Income Tax Audit There should be increase in number of employees Employees drawing emolument in excess of Rs. 25, 000/- p. m. excluded Employees not participating in Provident Fund excluded Also employees, where entire contribution to Pension fund is paid by government excluded The minimum period of employment in the year is reduced to 240 Days As against 300 days) Payment of salary has to be by crossed A/c Payee cheque-DD or electronic transfer 3/15/2018 3

S. 80 JJAA -PROVISIONS PROPOSED Contd. . . Emolument not to include contribution to PF, Pension Scheme or such other pay Emolument also not to include termination/ retirement benefit of all types Effective from A. Y. 2017 -18 3/15/2018 4

TAX INCENTIVES FOR SELF EMPLOYMENT GENERATION Contd. . START UP UNITS-S. 80 IAC Ø “eligible start-up” means a company engaged in eligible business which fulfils the following conditions, namely: — a) it is incorporated on or after the 1 st day of April, 2016 but before the 1 st day of April, 2019; b) the total turnover of its business does not exceed Twenty-Five Crore rupees in any of the previous years beginning on or after the 1 st day of April, 2016 and ending on the 31 st day of March, 2021; and c) it holds a certificate of eligible business from the Inter-Ministerial Board of Certification as notified in the Official Gazette by the Central Government. d) For such Start-ups – New section 80 -IAC inserted for giving 100% deduction of the profit for 3 consecutive years out of 5 years. Ø Other taxation issues MAT (minimum alternate tax) Will be applicable on such start-ups. 3/15/2018 5

TAX INCENTIVES FOR SELF EMPLOYMENT GENERATION Contd. . Exemption from long term capital gains (S. 54 GB) on investment in Start-up Fund of Funds a) Individual - Capital gain arising on account of transfer of residential property will not be chargeable in the hands of such Individual if he invests in subscription of shares of company which qualify to be an eligible start up – Amendment to S. 54 GB b) Company - Capital gain arising on account of transfer of residential property will not be chargeable in the hands of such company if it invests into purchase of “new asset” includes computers or computer software in case of technology driven startups so certified by the Inter-Ministerial Board of Certification notified by the Central Government in the Official Gazette. Amendment to S. 54 GB. 3/15/2018 6

TAX INCENTIVES FOR SELF EMPLOYMENT GENERATION Contd. . Exemption from long term capital gains on investment in Start-up Fund of Funds–New Section Inserted 54 EE a) Capital gain arises from transfer of long term capital assets, if invested in units of specified fund, as may be notified by the Central Government in this behalf for the purpose of promoting the start-up ecosystem in the country also to finance the start-ups within a period of 6 months after the date of such transfer then Capital gain shall not to be charged to tax. b) Investment Ceiling – Rs. 50 Lakhs in a year. 3/15/2018 7

TDS AND TCS CHANGES TCS ON VEHICLES, GOODS, SERVICES – S. 206 C New item on which TCS is required to be collected: a) U/s. 206 C(1)- Sr. No “viii” Purchase of Motor Vehicle of amount exceeding Rs. 10, 000/-must collect TCS @1% of value. b) U/s. 206(1 D)- Sr. No “iii” Sale of goods or services in cash exceeding Rs. 2, 000/- (apart from existing TCS in respect of Bullion or Jwellery) Tax shall be collected by seller/ service provider @1%. c) Effective date 1 -06 -2016 3/15/2018 8

TDS AND TCS CHANGES Contd. . EQULISATION LEVY– CHAPTER VIII TO FINANCE ACT In order to tap tax on income accruing to foreign e-commerce companies from India, it is proposed that a person making payment to a non-resident, who does not have a permanent establishment, exceeding in aggregate Rs. 1 lakh in a year, as consideration for online advertisement, provision for digital advertising space or any other facility or service for the purpose of online advertisements or any other notified services will levy an amount @ 6% of gross amount paid as Equalization levy. The levy will apply to only to persons carrying business or profession (B 2 B). amendment is also made under S. 40 to disallow such expenditure without levy. (Effective from 1 st April 2017. – AY 2017 -18) 3/15/2018 9

RATE OF TDS FOR NON RESIDENTS Section 206 AA to be rationalized for Non-Residents and Non domestic companies- 20% rate of TDS would not apply, if alternative documents are provided (as may be prescribed), – Effective from 1 st June 2016 Pune Tribunal has already decided in favor of rate as per DTAA in the case of Serum Institute of India Limited – Pune ITAT ITA No. 792/PN/13 (similar decision in Infosys BPO Limited – TS -408 -ITAT-2015) 3/15/2018 10

INCREASE IN TDS THRESHOLD LIMIT Present Section Heads Existing Threshold Limit (Rs. ) Proposed Threshold Limit (Rs. ) 192 A Payment of accumulated balance due to an employee 30, 000/- 50, 000/- 194 BB Winnings from Horse Races 5, 000/- 10, 000/- 194 C Payments to Contractors Aggregate limit of 75, 000 Aggregate limit of 1, 000 194 LA Payment of Compensation on acquisition of certain Immovable Property 2, 000/- 2, 50, 000/- 194 D Insurance commission 20, 000/- 15, 000/- 194 G Commission on sale of lottery Tickets 1, 000/- 15, 000/- 194 H Commission or brokerage 5, 000/- 15, 000/- 3/15/2018 11

REVISION IN RATES OF DEDUCTION TDS Present Section Heads 194 DA Payment in respect of Life Insurance policy. 194 EE Existing Rate of TDS (%) Proposed rate of TDS (%) 2% 1% Payments in respect of NSS Deposits 20% 194 D Insurance commission 10% 5% 194 H Commission or brokerage 10% 5% 194 G Commission on sale of lottery tickets 10% 5% 194 K Income in respect of units 194 L Payment of compensation on acquisition of capital asset. 3/15/2018 To be omitted w. e. f. 01 -062016 12

UNDISCLOSED INCOME AND DEDUCTION –SET OFF ETC CHAPTER IX TO FINANCE ACT 180. (1) Subject to the provisions of this Scheme, any person may make, on or after the date of commencement of this Scheme but before a date to be notified by the Central Government in the Official Gazette, a declaration in respect of any income chargeable to tax under the Incometax Act for any assessment year prior to the assessment year beginning on the 1 st day of April, 2017— (a) for which he has failed to furnish a return under section 139 of the Income-Tax Act; (b) which he has failed to disclose in a return of income furnished by him under the Income-tax Act before the date of commencement of this Scheme; (c) which has escaped assessment by reason of the omission or failure on the part of such person to furnish a return under the Income-tax Act or to disclose fully and truly all material facts necessary for the assessment or otherwise. 3/15/2018 13

UNDISCLOSED INCOME AND DEDUCTION – SET OFF ETC Contd. . CHAPTER IX TO FINANCE ACT (2) Where the income chargeable to tax is declared in the form of investment in any asset, the fair market value of such asset as on the date of commencement of this Scheme shall be deemed to be the undisclosed income for the purposes of sub-section (1). (3) The fair market value of any asset shall be determined in such manner, as may be prescribed. (4) No deduction in respect of any expenditure or allowance shall be allowed against the income in respect of which declaration under this section is made. 3/15/2018 14

UNDISCLOSED INCOME AND DEDUCTION – SET OFF ETC Contd. . CHAPTER IX TO FINANCE ACT 186. A declarant under this Scheme shall not be entitled, in respect of undisclosed income declared or any amount of tax and surcharge paid thereon, to re-open any assessment or reassessment made under the Income-tax Act or the Wealth-tax Act, 1957, or claim any set off or relief in any appeal, reference or other proceeding in relation to any such assessment or reassessment. 3/15/2018 15

COMPENSATION FOR RIGHTS GOODWILL ETC – RECEIVED BY PROFESSIONALS No Capital Gain tax was leviable in view of B C Srinivas Shetty (128 ITR 0294 – SC) were either cost of capital asset is NIL or not ascertainable Law was amended to bring in the net of Capital Gain by Finance Act 2001 & 2002, so as to bring the gain in respect of rights in business. Similar provisions were made to tax such income under the head Profits and Gains of Business and Profession by including clause (va) in section 28 However it was interpreted that such rights in relation to Profession are not taxable either u/s 28 or u/s 45. To plug these loopholes, now amendments are proposed in section 28 and section 55 so as to tax the compensation etc in relation to Profession. 3/15/2018 16

AMENDMENT TO S. 80 - FOR LOSSES TO BE C/F -S. 73 A(2) Section 35 AD provides for deduction of entire capital expenditure (other than land, Goodwill & Financial Instruments) in the year of commencement of its operations. Ø This may result in loss under the income tax. Ø The provisions of Section 73 A(2) of the Act provide that any loss, computed in respect of any specified business referred to in Section 35 AD shall not be set off except against profits and gains, if any, of any other specified business. Ø Sec 80 provides that the Return of losses are required to be filed within the time limits prescribed u/s 1 of sec 139. However , the said section did not include reference of Sec 73 A (2) 3/15/2018 17

S. 80 – WHETHER LOSS AS PER ORIGINAL RETURN IS ONLY ALLOWED Commissioner Of Income Tax vs. Periyar District Co-operative Milk Producers Union Ltd. Tax Case No. 91 of 2004 - 266 ITR 0705 ACIT, Gandhinagar Vs. Gujarat State Energy Generation Limited. ITA No. 1729/Ahd/2007 and ITA No. 2800/Ahd/2008 Contrary decision: Karnataka Forest Development Corp. Ltd. V/s. Commissioner of Income-tax IT Appeal No. 81(Bang) Of 2011 3/15/2018 18

THANK YOU 3/15/2018 19