Circular No.- 3/2017
Circular No. 3/2017 was issued by the Central Board of Direct Taxes on 20 January 2017. Its subject is Circular No.- 3/2017.
These are the Board’s explanatory notes to a Finance Act. They are the department’s account of what the amendments were meant to do, and they are cited constantly — but the words of the Act govern where the two part.
The Board's explanatory notes on the amendments made by the Finance Act, 2016, running to some 79 pages, with the usual amendments-at-a-glance table keyed to the paragraph that explains each change. From that table, the ground includes the rate structure, the levy on accreted income where a charitable institution ceases to exist or converts into a non-charitable one, deduction of tax on payments by Category I and Category II Alternative Investment Funds to investors, the holding period for shares of unlisted companies to be long-term, the Gold Monetisation Scheme, 2015, the rationalisation of section 56, exemption of Central Government subsidy or grant towards the corpus of a fund from the definition of income, the framework for automation and paperless assessment, the machinery for a foreign company held resident in India under section 6, the Special Notified Zone exemption for diamond trading, the offshore fund conditions in section 9A, strategic reserve crude oil, exemption from dividend distribution tax on a special purpose vehicle's distribution to a business trust, incentives for an International Financial Services Centre, the recast of the treatment of the National Pension Scheme, recognised provident funds and superannuation funds, the phasing out of deductions and exemptions across sections 10AA, 32, 35, 35AC, 35AD, 35CCC and 35CCD, initial additional depreciation for the power sector, amortisation of spectrum fee under the new section 35ABA, section 32AC, bad and doubtful debt provision for non-banking financial companies, section 43B extended to payments to Railways, higher audit and presumptive thresholds with the new section 44ADA for professionals, the Sovereign Gold Bond Scheme, 2015 and rupee denominated bonds, section 50C where consideration was fixed by an earlier agreement, start-up incentives in sections 54EE and 54GB, non-compete fees in a profession, the extra time for acquiring or constructing a self-occupied house for the interest deduction, unrealised rent and arrears of rent, and the changes to sections 80CCD, 80EE and 80GG.
The Board's practice of explaining, after each Finance Act, what the amendments do and from when they take effect.
CIRCULAR NO.- 3/2017
F. No. 370142/20/2016-TPL
Government of India
Ministry of Finance
Department of Revenue
(Central Board of Direct Taxes)
*******
Dated, the 20th of January, 2017
EXPLANATORY NOTES TO
THE PROVISIONS OF THE
FINANCE ACT, 2016
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CIRCULAR
INCOME-TAX ACT
Finance Act, 2016 ─ Explanatory Notes to the Provisions of the Finance Act, 2016
CIRCULAR NO. - 3/2017, DATED 20th JANUARY, 2017
AMENDMENTS AT A GLANCE
Section/Schedule Particulars / Paragraph number
Finance Act, 2016
First Schedule Rate Structure, 3.1 – 3.4
Chapter III Income-tax Act, 1961
2
Levy of tax where the charitable institution ceases to exist or converts into a
non-charitable organization, 11.1 – 11.4; Rationalization of tax deduction at
source provisions relating to payments by Category-I and Category-II
Alternate Investment Funds to its investors, 12.1 – 12.6; Period of holding
of shares of unlisted companies to be treated as long term capital assets,
15.1 – 15.3; Tax Treatment of Gold Monetization Scheme, 2015, 23.1 –
23.3; Rationalization of section 56 of the Income-tax Act, 24.1 – 24.3;
Exemption of Central Government subsidy or grant or cash assistance, etc.
towards corpus of fund established for specific purposes from the definition
of Income, 44.1 – 44.3; Providing legal framework for automation of
various processes and paperless assessment, 54.1 – 54.7.
6
Enabling provision for implementation of various provisions of the Act in
case of a foreign company held to be resident in India, 4.1 – 4.8.
9
Exemption in respect of certain activity related to diamond trading in
"Special Notified Zone", 6.1 – 6.5.
9A Modification in conditions of special taxation regime for off shore funds,
7.1 – 7.6.
10 Exemption of income of Foreign Company from storage and sale of crude
oil stored as part of strategic reserves, 5.1 – 5.4; Exemption from Dividend
Distribution Tax (DDT) on distribution made by an SPV to Business Trust,
8.1 – 8.4; Tax Treatment of Gold Monetization Scheme, 2015, 23.1 – 23.3;
Tax Incentives to International Financial Services Centre, 27.1 – 27.9;
Rationalisation of tax treatment of National Pension Scheme, Recognised
Provident Funds and Superannuation Funds 31.1 – 31.4
10AA Phasing out of deductions and exemptions, 34.1 – 34.3
17 Rationalisation of tax treatment of National Pension Scheme, Recognised
Provident Funds and Superannuation Funds 31.1 – 31.4
24 Increase in time period for acquisition or construction of self-occupied
house property for claiming deduction of interest, 51.1 – 51.3
25A Simplification and rationalisation of provisions relating to taxation of
unrealised rent and arrears of rent, 52.1 – 52.3
28 Taxation of Non-compete fees and exclusivity rights in case of Profession,
47.1 – 47.2
32
Extending the benefit of initial additional depreciation under section
32(1)(iia) for power sector, 35.1 – 35.3; Phasing out of deductions and
exemptions, 34.1 – 34.3
32AC Rationalisation of scope of tax incentive under section 32AC, 42.1 – 42.4
35 Phasing out of deductions and exemptions, 34.1 – 34.3
35ABA Amortisation of spectrum fee for purchase of spectrum, 36.1 – 36.4
35AC Phasing out of deductions and exemptions, 34.1 – 34.3
35AD Phasing out of deductions and exemptions, 34.1 – 34.3
35CCC Phasing out of deductions and exemptions, 34.1 – 34.3
35CCD Phasing out of deductions and exemptions, 34.1 – 34.3
36 Deduction in respect of provision for bad and doubtful debt in the case of
Non-Banking Financial companies, 41.1 – 41.3
43B Extension of scope of section 43B to include certain payments made to
Railways, 45.1 – 45.3
44AB Increase in threshold limit for audit for persons having income from
profession, 39.1 – 39.3
44AD Increase in threshold limit for presumptive taxation scheme for persons
having income from business, 40.1 – 40.6
44ADA Introduction of Presumptive taxation scheme for persons having income
from profession, 38.1 – 38.5
47 Provision for Tax benefits to Sovereign Gold Bond Scheme, 2015, 19.1 –
19.3
48 Provision for Tax benefits to Sovereign Gold Bond Scheme, 2015, 19.1 –
19.3; Provisions for tax benefits to Rupee Denominated Bond, 20.1 – 20.2
50C
Rationalization of Section 50C in case sale consideration is fixed under
agreement executed prior to the date of registration of immovable property,
29.1 – 29.4
54EE Tax incentives for start-ups, 16.1 – 16.7
54GB Tax incentives for start-ups, 16.1 – 16.7
55 Taxation of Non-compete fees and exclusivity rights in case of Profession,
47.1 – 47.2
56 Rationalization of section 56 of the Income-tax Act, 24.1 – 24.3
80 Time limit for carry forward and set off of such loss under section 73A of
the Income-tax Act, 48.1 – 48.4
80CCD Rationalisation of tax treatment of National Pension Scheme, Recognised
Provident Funds and Superannuation Funds, 31.1 – 31.4
80EE Incentives for Promoting Housing for All, 17.1 – 17.4
80GG Rationalization of limit of deduction allowable in respect of rents paid
under Section 80GG, 22.1 – 22.3
80IA Phasing out of deductions and exemptions, 34.1 – 34.3
80IAB Tax incentives for start-ups, 16.1 – 16.7; Phasing out of deductions and
exemptions, 34.1 – 34.3
80IAC Tax incentives for start-ups, 16.1 – 16.7
80IB Phasing out of deductions and exemptions, 34.1 – 34.3
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80IBA Incentives for Promoting Housing for All, 17.1 – 17.4
80JJAA Tax incentive for employment generation, 18.1 – 18.5
87A Rationalization of limit of rebate in income-tax allowable under Section
87A, 25.1 – 25.3
92CA Extension of time limit to Transfer Pricing Officer in certain cases, 64.1 –
64.3
92D BEPS action plan - Country-By-Country Report and Master file, 13.1 –
13.10
111A Tax Incentives to International Financial Services Centre, 27.1 – 27.8
112 Clarification regarding the definition of the term 'unlisted securities' for the
purpose of Section 112(1)(c), 28.1 – 28.3
115BA
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 2016-17,3.3.1 – 3.3.6
115BBDA Rationalization of taxation of income by way of dividend, 14.1 – 14.5
115BBE Clarification regarding set off of losses against deemed undisclosed
income, 46.1 – 46.3
115BBF Taxation of Income from 'Patents', 37.1 – 37.4
115JB
Applicability of Minimum Alternate Tax (MAT) on foreign companies for
the period prior to 01.04.2015, 26.1 – 26.5; Tax Incentives to International
Financial Services Centre, 27.1 – 27.6
115JH Enabling provision for implementation of various provisions of the Act in
case of a foreign company held to be resident in India, 4.1 – 4.8
115-O Tax Incentives to International Financial Services Centre, 27.1 – 27.6
115QA Tax on distributed income to shareholder, 9.1 – 9.6
115TA New Taxation Regime for securitisation trust and its investors, 10.1 – 10.5
115TC New Taxation Regime for securitisation trust and its investors, 10.1 – 10.5
115TCA New Taxation Regime for securitisation trust and its investors, 10.1 – 10.5
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115TD Levy of tax where the charitable institution ceases to exist or converts into a
non-charitable organization, 11.1 – 11.4
115TE Levy of tax where the charitable institution ceases to exist or converts into a
non-charitable organization, 11.1 – 11.4
115TF Levy of tax where the charitable institution ceases to exist or converts into a
non-charitable organization, 11.1 – 11.4
115UA Exemption from Dividend Distribution Tax (DDT) on distribution made by
an SPV to Business Trust, 8.1 – 8.4
119 Rationalisation of penalty provisions, 62.1 – 62.14
124 Assumption of jurisdiction of Assessing Officer, 65.1 – 65.3
133C Legislative framework to enable and expand the scope of electronic
processing of information, 66.1 – 66.6
139 Time limit for carry forward and set off of such loss under section 73A of
the Income-tax Act, 48.1 – 48.4; Filing of return of Income, 55.1 – 55.10
143 Providing legal framework for automation of various processes and
paperless assessment, 54.1 – 54.7
147 Legislative framework to enable and expand the scope of electronic
processing of information, 66.1 – 66.6
153 Rationalisation of time limit for assessment, reassessment and
recomputation, 57.1 – 57.7
153B Rationalisation of time limit for assessment in search cases, 58.1 – 58.3
192A Rationalization of Tax Deduction at Source (TDS) provisions, 49.1 – 49.2
194BB Rationalization of Tax Deduction at Source (TDS) provisions, 49.1 – 49.2
194C Rationalization of Tax Deduction at Source (TDS) provisions, 49.1 – 49.2
194D Rationalization of Tax Deduction at Source (TDS) provisions, 49.1 – 49.2
194DA Rationalization of Tax Deduction at Source (TDS) provisions, 49.1 – 49.2
194EE Rationalization of Tax Deduction at Source (TDS) provisions, 49.1 – 49.2
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194G Rationalization of Tax Deduction at Source (TDS) provisions, 49.1 – 49.2
194H Rationalization of Tax Deduction at Source (TDS) provisions, 49.1 – 49.2
194K Rationalization of Tax Deduction at Source (TDS) provisions, 49.1 – 49.2
194L Rationalization of Tax Deduction at Source (TDS) provisions, 49.1 – 49.2
194LA Rationalization of Tax Deduction at Source (TDS) provisions, 49.1 – 49.2
194LBA Exemption from Dividend Distribution Tax (DDT) on distribution made by
an SPV to Business Trust, 8.1 – 8.4
194LBB
Rationalization of tax deduction at source provisions relating to payments
by Category-I and Category-II Alternate Investment Funds to its investors,
12.1 – 12.6
197
Rationalization of tax deduction at source provisions relating to payments
by Category-I and Category-II Alternate Investment Funds to its investors,
12.1 – 12.6
197A Enabling of Filing of Form 15G/15H for rental payments, 50.1 – 50.4
206AA Exemption from requirement of furnishing PAN under section 206AA to
certain non-residents, 43.1 – 43.3
206C Tax Collection at Source (TCS) on sale of vehicles; goods or services, 33.1
– 33.6
211 Rationalisation of advance tax payment schedule under section 211 and
charging of interest under section 234C, 59.1 – 59.6
220 Providing Time limit for disposing applications made by assessee under
section 273A, 273AA or 220(2A), 53.1 – 53.8
234C Rationalisation of advance tax payment schedule under section 211 and
charging of interest under section 234C, 59.1 – 59.6
244A Payment of interest on refund, 60.1 – 60.5
249 Immunity from penalty and prosecution in certain cases by inserting new
section 270AA, 67.1 – 67.7
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252 Rationalisation of the provisions relating to Appellate Tribunal, 61.1 –
61.13
253 Rationalisation of the provisions relating to Appellate Tribunal, 61.1 –
61.13; Rationalisation of penalty provisions, 62.1 – 62.14
254 Rationalisation of the provisions relating to Appellate Tribunal, 61.1 –
61.13
255 Rationalisation of the provisions relating to Appellate Tribunal, 61.1 –
61.13
270A Rationalisation of penalty provisions, 62.1 – 62.15
270AA Immunity from penalty and prosecution in certain cases by inserting new
section 270AA, 67.1 – 67.7
271 Rationalisation of penalty provisions, 62.1 – 62.15
271A Rationalisation of penalty provisions, 62.1 – 62.15
271AA BEPS action plan - Country-By-Country Report and Master file, 13.1 –
13.10; Rationalisation of penalty provisions, 62.1 – 62.15
271AAA Rationalisation of penalty provisions, 62.1 – 62.16.3
271GB BEPS action plan - Country-By-Country Report and Master file, 13.1 –
13.10
272A Rationalisation of penalty provisions, 62.1 – 62.17.5
273A
Providing Time limit for disposing applications made by assessee under
section 273A, 273AA or 220(2A), 53.1 – 53.8; Rationalisation of penalty
provisions, 62.1 – 62.14
273B BEPS action plan - Country-By-Country Report and Master file, 13.1 –
13.10
273AA Providing Time limit for disposing applications made by assessee under
section 273A, 273AA or 220(2A), 53.1 – 53.8
276C Rationalisation of penalty provisions, 62.1 – 62.14
279 Rationalisation of penalty provisions, 62.1 – 62.14
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281B Provision for bank guarantee under section 281B, 63.1 – 63.8
282A Providing legal framework for automation of various processes and
paperless assessment, 54.1 – 54.7
286 BEPS action plan – Country-By-Country Report and Master file, 13.1 –
13.10
288 Rationalisation of penalty provisions, 62.1 – 62.17.5
CHAPTER VIII Equalisation Levy, 32.1 – 32.8
CHAPTER X The Direct Tax Dispute Resolution Scheme, 2016, 68.1 – 68.10
1. Introduction
1.1 The Finance Act, 2016 (hereafter referred to as 'the Act') as passed by the
Parliament, received the assent of the President on the 14th day of May, 2016 and has been
enacted as Act No. 28 of 2016. This circular explains the substance of the provisions of the Act
relating to direct taxes.
2. Changes made by the Act
2.1 The Act has-
(i) specified the rates of income-tax for the assessment year 2017-18 and the rates of
income-tax on the basis of which tax has to be deducted at source and advance tax has to be
paid during financial year 2016-17;
(ii) amended sections 2, 6, 9, 9A, 10, 10AA, 17, 24, 25A, 28, 32, 32AC, 35, 35AC,
35AD, 35CCC, 35CCD, 36, 43B, 44AB, 44AD, 47, 48, 50C, 54GB, 55, 56, 80, 80CCD,
80GG, 80IA, 80IAC, 80IB, 80IBA, 87A, 92CA, 92D, 111A, 112, 115BBE, 115JB, 115-O,
115QA, 115TA, 115TC, 115TD, 115TE, 115TF, 115UA, 119, 124, 133C, 139, 143, 147,
153, 153B, 192A, 194BB, 194C, 194D, 194DA,194EE, 194G, 194H, 194K, 194L, 194LA,
194LBA, 194LBB, 197, 197A, 206AA, 206C, 211, 220, 234C, 244A, 249, 252, 253, 254,
255, 271, 271A, 271AA, 271AAA, 272A, 273A, 273B, 273AA, 276C, 281B, 282A and 288
of the Income-tax Act, 1961 ('the Income-tax Act');
(iii) Substituted new sections for sections 80EE, 80JJAA and 153B the Income-tax Act;
(iv) inserted new sections 35ABA, 44ADA, 54EE, 80IAC, 80IBA, 115BA, 115BBDA,
115BBF, 115TCA, 194LBC, 270A, 270AA, 271GB and 286 in the Income-tax Act;
(v) inserted Chapter XII-BC consisting of section 115JH in the Income-tax Act.
(vi) introduced, vide Chapter VIII, Equalisation Levy on e-commerce transactions;
(vii) introduced, vide Chapter X, the Direct Tax Dispute Resolution Scheme, 2016, to
reduce litigation and enable the Government to realise its dues expeditiously.
3. Rate structure
3.1 Rates of income-tax in respect of incomes liable to tax for the assessment year 2016-
17.
3.1.1 In respect of income of all categories of assessees liable to tax for the
assessment year 2016-17, the rates of income-tax have been specified in Part I of the First
Schedule to the Act. These rates are the same as those laid down in Part III of the First
Schedule to the Finance Act, 2015 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 2015-16.
The main features of the rates specified in the said Part I are as follows:
3.1.2 Individual, Hindu undivided family (HUF), association of persons, body of
individuals or artificial juridical person.
Paragraph A of Part I of the First Schedule specifies the rates of income-tax in the case of
every individual, Hindu undivided family, association of persons, body of individuals or
artificial juridical person (other than a co-operative society, firm, local authority and company)
as under:
Income chargeable
to tax
Rate of income- tax
Individual (other than
senior and very senior
citizen), HUF,
association of persons,
body of individuals and
artificial juridical
person.
Individual, resident
in India who is of the
age of sixty years or
more but less than
eighty years. (senior
citizen)
Individual,
resident in India
who is of the age
of eighty years
or more (very
senior citizen)
Up to Rs. 2,50,000 Nil
Nil
Nil
Rs. 2,50,001 - Rs.
3,00,000
10%
Rs. 3,00,001 - Rs.
5,00,000 10%
Rs. 5,00,001 - Rs.
10,00,000 20% 20% 20%
Exceeding Rs.
10,00,000 30% 30% 30%
The amount of income-tax so computed shall be increased by a surcharge at the rate of twelve
per cent of such income-tax in case of a person having a total income exceeding one crore
rupees. However, marginal relief shall be available so the total amount payable as income-tax
and surcharge on total income exceeding one crore rupees shall not exceed the total amount
payable as income-tax on a total income of one crore rupees by more than the amount of
income that exceeds one crore rupees.
The Education Cess on income-tax shall continue to be levied at the rate of two per cent. on the
amount of tax computed inclusive of surcharge. In addition, the amount of tax computed shall
Page 12 of 79
be further increased by an additional surcharge called Secondary and Higher Education Cess on
income-tax at the rate of one per cent of such income-tax inclusive of surcharge.
No marginal relief shall be available in respect of Education Cess and Secondary and Higher
Education Cess.
For instance, if the income of an individual below sixty years of age is Rs. 1,01,00,000/- and
income-tax computed is Rs. 28,55,000/-. Surcharge on the income-tax at the rate of twelve per
cent of such tax is Rs. 3,42,600/-. Thus the total income-tax inclusive of surcharge is Rs.
31,97,600/- without providing marginal relief. On providing marginal relief, the income-tax
inclusive of surcharge shall be limited to Rs. 29,55,000/-. Then the education cess of two per
cent is to be computed on Rs. 29,55,000/- which works out to Rs. 59,100/-. In addition, the
amount of tax computed shall also be increased by an additional cess called Secondary and
Higher Education Cess on income-tax at the rate of one per cent of such income-tax which for
the present case of income-tax of Rs. 29,55,000/- works out to be Rs. 29,550/-. Thus, where the
amount of tax computed is Rs. 29,55,000/-, the Education Cess of two per cent is Rs. 59,100,
the Secondary and Higher is Rs. 29,550/-. The total cess in this case will amount to Rs. 88,650
(i.e., Rs. 59,100/- + Rs. 29,550/-). No marginal relief shall be available in respect of such Cess.
3.1.3 Co-operative Societies.
In the case of every co-operative society, the rates of income-tax have been specified in
Paragraph B of Part I of the First Schedule to the Act. The rates are as follows:-
Income chargeable to tax Rate
Up to Rs. 10,000 10%
Rs. 10,001 - Rs. 20,000 20%
Exceeding Rs. 20,000 30%
The amount of income-tax so computed shall be increased by a surcharge at the rate of
twelve per cent of such income-tax in case of a co-operative society having a total income
exceeding one crore rupees. However, marginal relief shall be available so that the total
amount payable as income-tax and surcharge on total income exceeding one crore rupees shall
not exceed the total amount payable as income-tax on a total income of one crore rupees by
more than the amount of income that exceeds one crore rupees.
The Education Cess on income-tax shall continue to be levied at the rate of two per cent
on the amount of tax computed inclusive of surcharge. In addition, the amount of tax computed
shall be further increased by an additional surcharge called Secondary and Higher Education
Cess on income-tax at the rate of one per cent of such income-tax inclusive of surcharge.
No marginal relief shall be available in respect of Education Cess and Secondary and
Higher Education Cess.
3.1.4 Firms.
In the case of every firm, the rate of income-tax of thirty per cent has been specified in
Paragraph C of Part I of the First Schedule to the Act.
The amount of income-tax so computed shall be increased by a surcharge at the rate of
twelve per cent of such income-tax in case of a firm having a total income exceeding one crore
rupees. However, marginal relief shall be available so that the total amount payable as incometax and surcharge on total income exceeding one crore rupees shall not exceed the total amount
payable as income-tax on a total income of one crore rupees by more than the amount of
income that exceeds one crore rupees.
The Education Cess on income-tax shall continue to be levied at the rate of two per cent
on the amount of tax computed inclusive of surcharge. In addition, the amount of tax computed
shall be further increased by an additional surcharge called Secondary and Higher Education
Cess on income-tax at the rate of one per cent of such income-tax inclusive of surcharge.
No marginal relief shall be available in respect of Education Cess and Secondary and
Higher Education Cess.
3.1.5 Local Authorities.
In the case of every local authority, the rate of income-tax has been specified at thirty per
cent in Paragraph D of Part I of the First Schedule to the Act.
The amount of income-tax so computed shall be increased by a surcharge at the rate of
twelve per cent of such income-tax in case of a local authority having a total income exceeding
one crore rupees. However, marginal relief shall be available so that the total amount payable
as income-tax and surcharge on total income exceeding one crore rupees shall not exceed the
total amount payable as income-tax on a total income of one crore rupees by more than the
amount of income that exceeds one crore rupees.
The Education Cess on income-tax shall continue to be levied at the rate of two per cent
on the amount of tax computed inclusive of surcharge. In addition, the amount of tax computed
shall be further increased by an additional surcharge called Secondary and Higher Education
Cess on income-tax at the rate of one per cent of such income-tax inclusive of surcharge.
No marginal relief shall be available in respect of Education Cess and Secondary and
Higher Education Cess.
3.1.6 Companies.
In the case of a company, the rate of income-tax has been specified in Paragraph E of
Part I of the First Schedule to the Act.
In case of a domestic company, the rate of income-tax is thirty per cent of the total
income. The tax computed shall be enhanced by a surcharge of seven per cent where such
domestic company has total income exceeding one crore rupees but not exceeding ten crore
rupees. Surcharge at the rate of twelve per cent shall be levied if the total income of the
company exceeds ten crore rupees.
In the case of a company other than a domestic company, royalties received from
Government or an Indian concern under an approved agreement made after 31-3-1961 but
before 1-4-1976 shall be taxed at fifty per cent. Similarly, fees for technical services received
by such company from Government or an Indian concern under an approved agreement made
after 29-2-1964 but before 1-4-1976 shall be taxed at fifty per cent. On the balance of the total
income of such company, the tax rate shall be forty per cent. The tax computed shall be
enhanced by a surcharge of two per cent where such company has total income exceeding one
crore rupees but not exceeding ten crore rupees. Surcharge at the rate of five per cent shall be
levied if the total income of the company other than domestic company exceeds ten crore
rupees.
However, marginal relief shall be allowed in the case of every company to ensure that
(i) the total amount payable as income-tax and surcharge on total income exceeding one
crore rupees shall not exceed the total amount payable as income-tax on a total income of
one crore rupees by more than the amount of income that exceeds one crore rupees, and
(ii) the total amount payable as income-tax and surcharge on total income exceeding ten
crore rupees shall not exceed the total amount payable as income-tax and surcharge on a
total income of ten crore rupees by more than the amount of income that exceeds ten
crore rupees.
Education Cess on income-tax shall continue to be levied at the rate of two per cent on
the amount of tax computed, inclusive of surcharge in the case of every company. Also, such
amount of tax and surcharge shall be further increased by an additional surcharge called
Secondary and Higher Education Cess on income-tax at the rate of one per cent of the amount
of tax computed, inclusive of surcharge. No marginal relief shall be available in respect of
Education Cess and Secondary and Higher Education Cess.
3.2 Rates for deduction of income-tax at source from certain incomes during the
financial year 2016-17.
3.2.1 In every case in which tax is to be deducted at the rates in force under the
provisions of Sections 193, 194, 194A, 194B, 194BB, 194D, 194LBA, 194LBB, 194LBC and
195 of the Income-tax Act, the rates for deduction of income-tax at source during the financial
year 2016-17 have been specified in Part II of the First Schedule to the Act. The rates for
deduction of income-tax at source during the financial year 2016-17 will continue to be the
same as those specified in Part II of the First Schedule to the Finance Act, 2015 except that in
case of payments in the nature of income by way of insurance commission made to a resident
(other than a company), the rate shall be five per cent of such income instead of ten per cent..
3.2.2 Surcharge.
The tax deducted at source in the following cases shall be increased by a surcharge for
purposes of the Union indicated below:
(i) In case of every non-resident person (other than a company), the rate of surcharge is,
(a) fifteen per cent of such tax, in case of an individual, HUF, association of person,
body of individual or artificial juridical person;
(b) twelve per cent of such tax, in case of a firm or cooperative society;
where the income or aggregate of such income paid or likely to be paid and subject to
the deduction exceeds one crore rupees.
(ii) In case of payments made to foreign company, the rate of surcharge is two per cent of
such tax where the income or the aggregate of such incomes paid or likely to be paid and
subject to the deduction exceeds one crore rupees but does not exceed ten crore rupees. In case
where such income or the aggregate of such incomes paid or likely to be paid to a foreign
company and subject to the deduction exceeds ten crore rupees, the rate of surcharge is five per
cent.
(iii) No surcharge on tax deducted at source shall be levied in the case of an individual,
Hindu undivided family, association of persons, body of individuals, artificial juridical person,
co-operative society, local authority, firm, being a resident or a domestic company.
3.2.3 Education Cess.
Education Cess on income-tax shall continue to be levied for the purposes of the Union at
the rate of two per cent of income-tax and surcharge, if any. For instance, if the amount of
income of a foreign company is Rs. 1,20,00,000/- and tax is deducted from such foreign
company is Rs. 12,00,000/- at the rate of 10 per cent, then the surcharge at the rate of two per
cent on such tax deducted shall be Rs. 24,000/-. Education cess on such amount of tax deducted
and surcharge (Rs. 12,00,000/- + Rs. 24,000/- = Rs. 12,24,000/-) shall be Rs. 24,480/-.
In addition, the amount of tax deducted and surcharge shall be further increased by an
additional surcharge called Secondary and Higher Education Cess on income-tax at the rate of
one per cent in all such cases. Thus in the above illustration, where the amount of tax deducted
is Rs. 12,00,000/-, the surcharge is Rs. 24,000/-, the said Secondary and Higher Education Cess
will be computed at the rate of one per cent on Rs. 12,24,000/- which works out to be Rs.
12,240/-. The total cess in this case will, therefore, amount to Rs. 36,720/- (i.e., Rs. 24,480/- +
Rs. 12,240/-).
3.3 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 2016-
17.
3.3.1 The rates for deducting income-tax at source from 'Salaries' and computing
advance tax during the financial year 2016-17 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 2016-17 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, assessment of bodies formed for short duration,
etc. The rates are as follows:-
3.3.2 Individual, Hindu undivided family, association of persons, body of
individuals or artificial juridical person.
Paragraph A of Part III of the First Schedule specifies the rates of income-tax in the case of
every individual, Hindu undivided family, association of persons, body of individuals or
artificial juridical person (other than a co-operative society, firm, local authority and company).
The basic exemption limit, rates of tax and slabs of income for various categories remain the
same as in financial year 2015-16. The rates of tax during the financial year 2016-17 are as
follows:-
Income chargeable
to tax
Rate of income- tax
Individual (other than
senior and very senior
citizen), HUF,
association of persons,
body of individuals and
artificial juridical person
Individual, resident
in India who is of the
age of sixty years or
more but less than
eighty years. (senior
citizen)
Individual
resident in India,
who is of the age
of eighty years
or more. (very
senior citizen)
Up to Rs. 2 ,50,000 Nil
Nil
Nil
Rs. 2,50,001 - Rs.
3,00,000
10%
Rs. 3,00,001 - Rs.
5,00,000 10%
Rs. 5,00,001 - Rs.
10,00,000 20% 20% 20%
Exceeding Rs.
10,00,000 30% 30% 30%
The amount of income-tax so computed shall be increased by a surcharge at the rate of
fifteen per cent of such income-tax in case of a person having a total income exceeding one
crore rupees as against the rate of twelve per cent for the financial year 2015-16.
However, the total amount payable as income-tax and surcharge on total income
exceeding one crore rupees shall not exceed the total amount payable as income-tax on a total
income of one crore rupees by more than the amount of income that exceeds one crore rupees.
The Education Cess on income-tax shall continue to be levied at the rate of two per cent
on the amount of tax computed inclusive of surcharge. In addition, the amount of tax computed
shall be further increased by an additional surcharge called Secondary and Higher Education
Cess on income-tax at the rate of one per cent of such income-tax inclusive of surcharge. No
marginal relief shall be available in respect of Education Cess and Secondary and Higher
Education Cess.
3.3.3 Co-operative Societies.
In the case of every co-operative society, the rates of income-tax have been specified in
Paragraph B of Part III of the First Schedule to the Act. The rates are as followsIncome chargeable to tax Rate
Up to Rs. 10,000 10%
Rs. 10,001 -Rs. 20,000 20%
Exceeding Rs. 20,000 30%
The amount of income-tax so computed shall continue to be increased by a surcharge at
the rate of twelve per cent of such income-tax in case of a co-operative society having a total
income exceeding one crore rupees.
However, marginal relief shall be available. Accordingly, the total amount payable as
income-tax and surcharge on total income exceeding one crore rupees shall not exceed the total
amount payable as income-tax on a total income of one crore rupees by more than the amount
of income that exceeds one crore rupees.
Education Cess on income-tax and Secondary and Higher Education Cess on income-tax
shall be levied at the rate of two per cent and one per cent respectively of the amount of
income-tax computed inclusive of surcharge. No marginal relief shall be available in respect of
Education Cess and Secondary and Higher Education Cess.
3.3.4 Firms.
In the case of every firm, the rate of income-tax of thirty per cent has been specified in
Paragraph C of Part III of the First Schedule to the Act.
The amount of income-tax so computed shall continue to be increased by a surcharge at
the rate of twelve per cent of such income-tax in case of a firm having a total income exceeding
one crore rupees.
However, marginal relief shall be available. Accordingly, the total amount payable as
income-tax and surcharge on total income exceeding one crore rupees shall not exceed the total
amount payable as income-tax on a total income of one crore rupees by more than the amount
of income that exceeds one crore rupees.
The Education Cess on income-tax shall continue to be levied at the rate of two per cent.
on the amount of tax computed inclusive of surcharge. In addition, the amount of tax computed
shall be further increased by an additional surcharge called Secondary and Higher Education
Cess on income-tax at the rate of one per cent of such income-tax inclusive of surcharge. No
marginal relief shall be available in respect of Education Cess and Secondary and Higher
Education Cess.
3.3.5 Local Authorities.
In the case of every local authority, the rate of income-tax has been specified at thirty per
cent in Paragraph D of Part III of the First Schedule to the Act.
The amount of income-tax so computed shall continue to be increased by a surcharge at
the rate of twelve per cent of such income-tax in case of a local authority having a total income
exceeding one crore rupees.
However, marginal relief shall be available. Accordingly, the total amount payable as
income-tax and surcharge on total income exceeding one crore rupees shall not exceed the total
amount payable as income-tax on a total income of one crore rupees by more than the amount
of income that exceeds one crore rupees.
Page 18 of 79
Education Cess on Income-tax and Secondary and Higher Education Cess on income-tax
shall be levied at the rate of two per cent and one per cent respectively of the amount of income
tax and surcharge. No marginal relief shall be available in respect of Education Cess and
Secondary and Higher Education Cess.
3.3.6 Companies.
In the case of a company, the rate of income-tax has been specified in Paragraph E of
Part III of the First Schedule to the Act. In case of a domestic company, the rate of income-tax
is twenty nine per cent of the total income, if the total turnover or gross receipts of the
company in the previous year 2014-15 does not exceed five crore rupees, and in all other cases,
the rate of income tax is thirty per cent of total income.
In order to provide relief to newly setup domestic companies engaged solely in the
business of manufacture or production of article or thing, a new section 115BA has been
inserted in the Income-tax Act, to provide that the income-tax payable in respect of the total
income of a domestic company for any previous year relevant to the assessment year beginning
on or after the 1st of April, 2017 shall be computed @ 25% at the option of the company, if, -
(i) the company has been setup and registered on or after 1st day of March, 2016;
(ii) the company is engaged in the business of manufacture or production of any article or
thing and is not engaged in any other business;
(iii) the company while computing its total income has not claimed any benefit under
section 10AA, benefit of accelerated depreciation, benefit of additional depreciation,
investment allowance, expenditure on scientific research and any deduction in respect of
certain income under Part-C of Chapter-VI-A other than the provisions of section 80JJAA; and
(iv) the option is furnished in the prescribed manner before the due date of furnishing of
return of income.
The tax computed shall continue to be enhanced by a surcharge of seven per cent where
such domestic company has total income exceeding one crore rupees but not exceeding ten
crore rupees. Surcharge at the rate of twelve per cent shall continue to be levied if the total
income of the company exceeds ten crore rupees.
In the case of a company other than a domestic company, royalties received from
Government or an Indian concern under an approved agreement made after 31-3-1961 but
before 1-4-1976 shall be taxed at fifty per cent. Similarly, fees for technical services received
by such company from Government or Indian concern under an approved agreement made
after 29-2-1964 but before 1-4-1976 shall be taxed at fifty per cent. On the balance of the total
income of such company, the tax rate shall be forty per cent. The tax computed shall continue
to be enhanced by a surcharge of two per cent where such company has total income exceeding
one crore rupees but not exceeding ten crore rupees. Surcharge at the rate of five per cent shall
continue to be levied if the total income of the company other than domestic company exceeds
ten crore rupees.
However, marginal relief shall be allowed in the case of every company to ensure that,
(i) the total amount payable as income-tax and surcharge on total income exceeding one
crore rupees shall not exceed the total amount payable as income-tax on a total income of
one crore rupees by more than the amount of income that exceeds one crore rupees, and
(ii) the total amount payable as income-tax and surcharge on total income exceeding ten
crore rupees shall not exceed the total amount payable as income-tax and surcharge on a
total income of ten crore rupees, by more than the amount of income that exceeds ten
crore rupees.
Education Cess on Income-tax and Secondary and Higher Education Cess on income-tax
shall be levied at the rate of two per cent and one per cent respectively of the amount of
income-tax computed including surcharge. No marginal relief shall be available in respect of
Education Cess and Secondary and Higher Education Cess.
3.4 Surcharge on Additional Income-tax.
Where additional income-tax has to be paid under Section 115-O or Section 115-QA or
Sub-section (2) of Section 115R or Section 115TA or Section 115TD of the Income-tax Act,
that is to say, on distribution of dividend by domestic companies or distribution of income by a
company on buy-back of shares from shareholders or on distribution of income by a mutual
fund to its unit holders or on distribution of income by a securitization trust to its investors or
on accreted income of certain trusts and institutions, the additional tax so payable shall be
increased by a surcharge of twelve per cent of such tax.
4. Enabling provision for implementation of various provisions of the Act in case of a
foreign company held to be resident in India.
4.1 Section 6 of the Income-tax Act provides for conditions in which residence in India is
determined in case of different category of persons. Section 6(3) deals with conditions to be
satisfied for a company to be treated as resident in India in any previous year. Prior to
amendment of Section 6(3) by the Finance Act 2015, a company was said to be resident in
India in any previous year if it was an Indian company or during that year the control and
management of its affairs was situated wholly in India.
4.2 The Finance Act, 2015 amended the above provision so as to provide that a company
would be resident in India in any previous year if it is an Indian company or its Place of
Effective Management (POEM) in that year is in India. The POEM was defined to mean a
place where key management and commercial decisions that are necessary for the conduct of
the business of an entity as a whole are in substance made.
4.3 In the context of implementation of POEM based residence rule, certain issues, relating
to the applicability of current provisions of the Income-tax Act to a company which is
incorporated outside India and has not earlier been assessed to tax in India, have arisen. In
particular, the issues relate to applicability of specific provisions of the Income-tax Act relating
to Advance tax payment, applicability of TDS provisions, computation of total income, set off
of losses and manner of application of transfer pricing regime. These provisions have
compliance requirements which would not have been undertaken by the company at relevant
time due to absence of any such requirement under tax laws of country of incorporation of such
company. Similarly, issues of computation of depreciation also arise when in earlier years it
has not been subject to computation under the Income-tax Act.
4.4 Problems highlighted also arise due to the fact that a company may be claiming to be a
foreign company not resident in India but in the course of assessment, it is held to be resident
based on POEM being in fact in India. This determination would be well after closure of the
previous year and it may not be possible for company to undertake many of procedural
requirements. Representations have also been made by stakeholders that the implementation of
POEM be deferred by a year, by which time clarity regarding guidelines and applicability of
other provisions of the Income-tax Act would be in place.
4.5 In order to provide clarity in respect of implementation of POEM based rule of
residence and also to address concerns of the stakeholders, amendments to Section 6 of the
Income-tax Act and Section 4 of the Finance Act, 2015 have been made. These amendments
have been made so as to defer the applicability of POEM based residence test by one year and
the determination of residence based on POEM shall be applicable from 1st of April 2017.
Further, a new Chapter XII-BC consisting of Section 115JH has been inserted in the Incometax Act. The provisions of Section 115JH of Income-tax Act,-
(a) provide a transition mechanism for a company which is incorporated outside India
and has not earlier been assessed to tax in India. The Central Government has been
empowered to notify exception, modification and adaptation subject to which, the
provisions of the Income-tax Act relating to computation of income, treatment of
unabsorbed depreciation, set off or carry forward and setoff of losses, special
provision relating to avoidance of tax and the collection and recovery of taxes shall
apply in a case where a foreign company is said to be resident in India due to its
POEM being in India for the first time and the said company has never been
resident in India before.
(b) provide that these transition provisions would also cover any subsequent previous
year upto the date of determination of POEM in an assessment proceedings.
However, once the transition is complete, then normal provision of the Income-tax
Act would apply.
(c) provide that in the notification, certain conditions including procedural conditions
subject to which these adaptations shall apply can be provided for and in case of
failure to comply with the conditions, the benefit of such notification would not be
available to the foreign company.
(d) provide that every notification issued in exercise of this power by the Central
Government shall be laid before each house of the Parliament.
4.6 Applicability: This amendment takes effect from 1st of April, 2017 and will,
accordingly, apply in relation to assessment year 2017-18 and subsequent assessment years.
5. Exemption of income of Foreign Company from storage and sale of crude oil
stored as part of strategic reserves.
5.1 Section 5 of the Income-tax Act provides for the scope of total income. In the case of a
non-resident, the taxation of income takes place only if the income accrues or arises in India or
is deemed to accrue or arise in India or is received in India. Section 9 of the Income-tax Act
provides for circumstances in which the income is deemed to accrue or arise in India. One of
the circumstances providing for income to be deemed to accrue or arise in India is if any
income is directly or indirectly derived through or from a business connection in India.
5.2 The setting up and maintenance of underground storage facility for storage of crude oil
as part of strategic reserves is in India's national interest and ensures price stability for Indian
oil companies. The filling cost of such facility entails huge financial burden. The Government
has explored the possibility of meeting a substantial part of the financial burden through
participation of private players including foreign national oil companies (NOCs) and
multinational companies (MNCs) storing and selling crude oil from outside India. However,
the storage of crude oil by NOCs/ MNCs and its sale in India would create tax liability for
these entities.
5.3 In order to achieve neutrality in terms of taxation to encourage the NOCs and MNCs to
store their crude oil in India and to build up strategic oil reserves, the provisions of Section 10
of the Income-tax Act have been amended to provide that any income accruing or arising to a
foreign company on account of storage of crude oil in a facility in India and sale of crude oil
therefrom to any person resident in India shall not be included in the total income, if, -
(i) such storage and sale by the foreign company is pursuant to an agreement or an
arrangement entered into by the Central Government or approved by the Central
Government; and
(ii) having regard to the national interest, the foreign company and the agreement or
arrangement are notified by the Central Government in this behalf.
5.4 Applicability: This amendment takes effect retrospectively from 1st of April, 2016 and
will, accordingly, apply in relation to assessment year 2016-17 and subsequent assessment
years.
6. Exemption in respect of certain activity related to diamond trading in "Special
Notified Zone".
6.1 Section 5 of the Income-tax Act provides for the scope of total income. In case of nonresident person, the taxation of income in India happens only if the income accrues or arises in
India or is deemed to accrue or arise in India or is received in India. Section 9 of the Incometax Act provides circumstances under which income is deemed to accrue or arise in India. One
of the circumstances providing for income to be deemed to accrue or arise in India is if any
income is directly or indirectly derived through or from a business connection in India.
6.2 A "Special Notified Zone" (SNZ) had been created to facilitate shifting of operations by
foreign mining companies (FMC) to India and to permit the trading of rough diamonds in India
by the leading diamond mining companies of the world. The activity of FMC of mere display
of rough diamonds even with no actual sale taking place in India may lead to creation of
business connection in India of the FMC. This potential tax exposure has been an area of
concern for the mining companies willing to undertake these activities in India.
6.3 In order to facilitate the FMCs to undertake activity of display of uncut diamond
(without any sorting or sale) in the special notified zone, Section 9 of the Income-tax Act has
been amended to provide that in the case of a foreign company engaged in the business of
mining of diamonds, no income shall be deemed to accrue or arise in India to it through or
from the activities which are confined to display of uncut and unassorted diamonds in a Special
Zone notified by the Central Government in the Official Gazette in this behalf.
6.4 Applicability: This amendment takes effect retrospectively from 1st of April, 2016 and
will, accordingly, apply in relation to assessment year 2016-17 and subsequent assessment
years.
7. Modification in conditions of special taxation regime for off shore funds Section
9A.
7.1 Section 9A of the Income-tax Act provides for a special regime in respect of offshore
funds. It provides that in the case of an eligible investment fund, the fund management activity
carried out through an eligible fund manager acting on behalf of such fund shall not constitute
business connection in India of the said fund. Further, an eligible investment fund shall not be
said to be resident in India merely because the eligible fund manager undertaking fund
management activities on its behalf is located in India. The benefit under Section 9A is
available subject to the conditions provided in sub-sections (3), (4) and (5) of this section.
7.2 Sub-section (3) of section 9A provides for the conditions for the eligibility of the fund.
These conditions, inter-alia, are related to residence of fund, corpus size, investor base,
investment diversification and payment of remuneration to fund manager at arm's length. In
respect of residence of the fund, the condition is that the fund has to be resident of a country or
territory with which India has entered into a Double Taxation Avoidance Agreement (DTAA)
or Tax Information Exchange Agreement (TIEA).
7.3 In respect of activities of fund, there is a restriction that the fund shall not carry on or
control and manage, directly or indirectly, any business in India or from India and shall neither
engage in any activity which constitutes a business connection in India nor have any person
acting on its behalf whose activities constitute a business connection in India other than the
activities undertaken by the eligible fund manager on its behalf.
7.4 It was pointed out by stakeholders that there are many instances where a fund may not
qualify as a tax resident of a country on account of domestic tax laws or legal framework of the
country. The global structure of these funds had been based on applicable legal and regulatory
framework of their country of incorporation and cannot be modified in respect of any
investment made in a particular country. Examples of large pension funds or mutual funds from
USA or SICAVs (open-ended collective investment schemes) from Luxembourg had been
cited. It has been stated that India would still be able to collect information regarding fund
under the applicable DTAA or TIEA as under the agreements with many of the countries,
information can be exchanged in respect of persons who may not be resident of the country. It
had been further mentioned that the conditions relating to restriction on fund carrying on
business or controlling fund managing business in India or from India restricts the flexibility of
operation for funds and focus should be on nature of activities undertaken in India.
7.5 In order to rationalise the regime and to address the concerns of the industry, Section
9A of the Income-tax Act has been amended to provide that the eligible investment fund for the
purposes of Section 9A, shall also mean a fund established or incorporated or registered outside
India in a country or a specified territory notified by the Central Government in this behalf. It
has also been provided that the condition of fund not controlling and managing any business in
India or from India shall be restricted only in the context of activities in India.
7.6 Applicability: This amendment takes effect from 1st of April, 2017 and will,
accordingly, apply in relation to assessment year 2017-18 and subsequent assessment years.
8. Exemption from Dividend Distribution Tax (DDT) on distribution made by an
SPV to Business Trust.
8.1 The Income-tax Act contains a specific taxation regime in respect of taxation of
business trusts comprising of Real Estate Investment Trust (REITs) and Infrastructure
Investment Trust (Invits) regulated by SEBI. Under this regime, multiple taxation due to
interposition of business trusts is avoided. Under the SEBI regulation, these business trusts can
hold the income generating asset either directly or through a Special Purpose Vehicle (SPV).
The SPV can be a company or an LLP. Under SEBI Regulation, SPV is defined to mean any
company or LLP in which REIT holds or proposes to hold controlling interest which is not less
than fifty per cent of the equity share capital or interest. The SPV should hold at least 80% of
the assets in properties and not invest in other SPV. The existing tax regime provides that in
case of REITs, the income by way of interest paid by SPV being a company to REIT is given
pass through i.e. it is not taxed at the level of REIT but in the hands of respective investors of
REIT. The rental income from directly held assets by REIT is also allowed a pass through. In
respect of assets held through an SPV, if SPV is a company then the company pays normal
corporate tax and thereafter when the income is distributed to the REIT being a shareholder, it
suffers Dividend Distribution Tax (DDT) under Section 115-O of the Income-tax Act which is
paid by the SPV and thereafter the income is exempt both in the hands of REIT and also its
investors. In case of Invits, there is a similar regime with only exception being that there is no
pass through for Invits holding income generating assets directly as normally such large
infrastructure projects are not held directly in the trust but are held through an SPV. As an
incentive in the case of sponsor (the person setting up trust), capital gain arising at time of
swap of its shareholding in SPV for units of business trust is deferred both under normal
provisions and from applicability of MAT. Such gains get taxed only after actual sale of units.
8.2 It has been pointed out by the stakeholders that levy of dividend distribution tax at the
level of SPV when it distributes its current income to the business trust makes the business
trust structure tax inefficient and adversely impacts the rate of return for the investor. This is
more so, as under SEBI regulations both the SPV and business trust are obligated to distribute
90% of their operating income to the investors, whereas in case of normal real estate company,
there is no requirement of such annual distribution of dividends. It has been mentioned that
because of the additional levy of DDT and associated tax inefficiency, these initiatives have not
yet taken off.
8.3 In order to further rationalise the taxation regime for business trusts (REITs and Invits)
and their investors, provisions of Sections 10, 115-O, 115UA and 194LBA of the Income-tax
Act have been amended to provide a special dispensation and exemption from levy of Dividend
Distribution Tax. The salient features of the said special dispensation are:
(a) exemption from levy of DDT in respect of distributions made by SPV to the
business trust;
(b) such dividend received by the business trust and its investor shall not be taxable in
the hands of trust or investors;
(c) the exemption from levy of DDT shall only be in the cases where the business trust
either holds 100% of the share capital of the SPV or holds all of the share capital
other than that which is required to be held by any other entity as part of any
direction of any Government or specific requirement of any law to this effect or
which is held by Government or Government bodies; and
(d) the exemption from the levy of DDT shall only be in respect of dividends paid out
of current income after the date when the business trust acquires the shareholding
referred in (c) above in the SPV. The dividends paid out of accumulated and
current profits up to this date shall be liable for levy of DDT as and when any
dividend out of these profits is distributed by the company either to the business
trust or any other shareholder.
8.4 Applicability: The amendments to Sections 115-O and 194LBA take effect from 1st
June, 2016. The amendments to Sections 10 and 115UA take effect from 1st of April, 2017 and
will, accordingly apply in relation to assessment year 2017-18 and subsequent assessment
years.
9. Tax on distributed income to shareholder.
9.1 Section 115QA of the Income-tax Act provides for the levy of additional Income-tax at
the rate of 20 per cent of the distributed income on account of buy back of unlisted shares by a
company. The distributed income as defined in the Section prior to its amendment by the Act
meant the consideration paid by the company on buy back of shares as reduced by the amount
which was received by the company for issue of such shares. Buyback had also been defined to
mean the purchase of a company of its own shares in accordance with the provisions of Section
77A of the Companies Act, 1956.
9.2 Doubts have arisen regarding the effect of buybacks undertaken by the company under
different provisions of the Companies Act, 1956 or the Companies Act, 2013 and applicability
of provisions of Section 115QA to such transactions. An issue of lack of clarity had also arisen
in respect of determination of consideration received by the company at the time of issue of
shares being bought back by the company. There are situations where shares may have been
issued by the company in tranches, for different considerations, at different point of time or
may have been issued in lieu of existing shares of another company under amalgamation,
merger or demerger.
9.3 For the purposes of Section 115QA, it is the effect of buyback being in the nature of
distribution of income which is relevant rather than particular provision of the law relating to
companies under which it has been undertaken. Further, lack of clarity in the manner of
determination of consideration received by the company would lead to avoidable disputes and
also presented a tax arbitrage opportunity of scaling up of consideration particularly under a tax
neutral business reorganisation followed by buyback of shares.
9.4 In order to provide clarity and remove any ambiguity on the above issues, Section
115QA of the Income-tax Act has been amended to provide that the provisions of this Section
shall apply to any buy back of unlisted share undertaken by the company in accordance with
the provisions of the law relating to the Companies and not necessarily restricted to Section
77A of the Companies Act, 1956. It has been further provided that for the purpose of
computing distributed income, the amount received by the Company in respect of the shares
being bought back shall be determined in the prescribed manner.
9.5 Applicability: This amendment takes effect from 1st June, 2016.
10. New Taxation Regime for securitisation trust and its investors.
In an assessment or appeal for assessment year 2017-18 turning on when an amendment took effect, and wherever the intention behind a Finance Act, 2016 change is argued from the Board's own notes.
Source: the Income Tax Department’s own published text — its page for this instrument.
