Circular No. 2/2018​

What this is

Circular No. 2/2018​ was issued by the Central Board of Direct Taxes on 15 February 2018. Its subject is %E2%80%8B finance act 2017 %E2%94%80 explanatory notes to the provisions of the finance act 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.

What it does

The Board's explanatory notes on the amendments made by the Finance Act, 2017, arranged as a paragraph-by-paragraph commentary with an amendments-at-a-glance table at the front that maps each amended section to the paragraph explaining it. The ground covered, as that table shows, includes the rate structure in the First Schedule, consolidation of plans within a mutual fund scheme, clarity on the indirect transfer provisions in section 9, the conditions of the offshore fund regime in section 9A, several section 10 items — the reference to the Foreign Exchange Management Act in place of the repealed enactment, exemption for partial withdrawal from the National Pension System, exemption for the Chief Minister's and Lieutenant Governor's Relief Funds, the incentive for developing the capital of Andhra Pradesh, the recast of the long-term capital gains exemption in section 10(38), and exemption for a foreign company's sale of leftover strategic reserve crude oil — the rationalisation of section 10AA, the restriction on treating a corpus donation by one exempt entity to another as application, the procedure on change of objects and filing of returns by entities exempt under sections 11 and 12, transparency in electoral funding under section 13A, no notional income on house property held as stock in trade, disallowance of depreciation and section 35AD capital expenditure on cash payment, the higher bad and doubtful debt provision, measures to discourage cash transactions in section 40A, section 43D extended to co-operative banks, higher thresholds for maintaining books and for audit, promotion of digital payments in section 44AD, capital gains on joint development agreements, tax-neutral conversion of preference shares into equity, rupee denominated bonds, the shift of the base year from 1981 to 2001, section 50CA, section 54EC, the widened scope of income from other sources in section 56, the restriction on set-off of house property loss in section 71, section 79, and the changes to sections 80CCD, 80CCG, 80G and 80-IAC.

Why it was issued

The Board's practice of explaining, after each Finance Act, what the amendments do and from when they take effect.

Who it reaches

• Anyone advising on assessment year 2018-19, the first year of most of these amendments
• Charitable trusts affected by the corpus donation restriction and the change-of-objects procedure
• Taxpayers computing long-term capital gains with the new 2001 base year
• Landowners in joint development agreements
• Businesses making capital payments in cash

The provisions it speaks to

The instrument, as the Board published it

CIRCULAR No. 2/2018
F. No. 370142/15/2017-TPL
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
*******
Dated, 15th of February, 2018
EXPLANATORY NOTES TO THE
PROVISIONS OF THE FINANCE ACT,
2017
3
CIRCULAR
INCOME-TAX ACT
Finance Act, 2017 ─ Explanatory Notes to the Provisions of the Finance Act, 2017
CIRCULAR NO. 2/2018, DATED THE 15th OF FEBRUARY, 2018
AMENDMENTS AT A GLANCE
Section/Schedule Particulars / Paragraph number
Finance Act, 2017
First Schedule Rate Structure, 3.1-3.4
Chapter III Income-tax Act, 1961
2
Consolidation of plans within a scheme of mutual fund, 4.1-
4.3; Tax neutral conversion of preference shares to equity
shares, 26.1-26.4; Widening scope of Income from other
sources, 33.1-33.6
9 Clarity relating to indirect transfer provisions, 5.1-5.8
9A Modification in conditions of special taxation regime for off
shore funds under section 9A, 6.1-6.5
10
Correct reference to FEMA instead of FERA, 7.1-7.4; Tax
exemption to partial withdrawal from National Pension
System (NPS), 8.1-8.3; Exemption of income of Chief Minister's
Relief Fund or the Lieutenant Governor's Relief Fund, 9.1-9.4;
Tax incentive for the development of capital of Andhra
Pradesh, 10.1-10.5; Exemption of long term capital gains tax
under section 10(38) of the Income-tax Act, 11.1-11.3;
Exemption of income of Foreign Company from sale of leftover
stock of crude oil from strategic reserves at the expiry of
agreement or arrangement, 12.1-12.3; Restriction on exemption
4
in case of corpus donation by exempt entities to other exempt
entities, 14.1-14.6
10AA Rationalisation of provisions of Section 10AA, 13.1-13.4
11 Restriction on exemption in case of corpus donation by exempt
entities to other exempt entities, 14.1-14.6
12A
Clarity of procedure in respect of change or modifications of
object and filing of return of income in case of entities exempt
under sections 11 and 12, 15.1-15.7
12AA
Clarity of procedure in respect of change or modifications of
object and filing of return of income in case of entities exempt
under sections 11 and 12, 15.1-15.7
13A Transparency in electoral funding, 16.1-16.4
23 No notional income for house property held as stock-in-trade,
17.1-17.3
35AD Disallowance of depreciation under section 32 and capital
expenditure under section 35AD on cash payment, 20.1-20.4
36 Increase in deduction limit in respect of provision for bad and
doubtful debts, 18.1-18.3
40A
Measures to discourage cash transactions, 19.1-19.3; Scope of
section 92BA of the Income-tax Act relating to Specified
Domestic Transactions, 44.1-44.4
43 Disallowance of depreciation under section 32 and capital
expenditure under section 35AD on cash payment, 20.1-20.4
43B Extension of scope of section 43D to Co-operative Banks, 21.1-
21.4
43D Extension of scope of section 43D to Co-operative Banks, 21.1-
21.4
44AA Increasing the threshold limit for maintenance of books of
5
accounts in case of Individuals and Hindu undivided family,
22.1-22.3
44AB Exclusion of certain specified person from requirement of
audit of accounts under section 44AB, 23.1-23.3
44AD Measures for promoting digital payments in case of small
unorganized businesses, 24.1-24.3
45 Special provisions for computation of capital gains in case of
joint development agreement, 25.1-25.8
47
Tax neutral conversion of preference shares to equity shares,
26.1-26.4; Extension of capital gain exemption to Rupee
Denominated Bonds, 27.1-27.5
48
Extension of capital gain exemption to Rupee Denominated
Bonds, 27.1-27.5; Shifting base year from 1981 to 2001 for
computation of capital gains, 32.1-32.4
49
Consolidation of plans within a scheme of mutual fund, 4.1-
4.3; Tax incentive for the development of capital of Andhra
Pradesh, 10.1-10.5; Special provisions for computation of
capital gains in case of joint development agreement, 25.1-25.8;
Tax neutral conversion of preference shares to equity shares,
26.1-26.4; Cost of Acquisition of capital assets of entities in case
of levy of tax on accreted income under section 115TD, 28.1-
28.4; Cost of acquisition in Tax neutral demerger of a foreign
company, 29.1-29.3; Widening scope of Income from other
sources, 33.1-33.6
50CA Fair Market Value to be full value of consideration in certain
cases, 30.1-30.3
54EC Expanding the scope of long term bonds under 54EC, 31.1-31.3
55
Shifting base year from 1981 to 2001 for computation of capital
gains, 32.1-32.4
56 Widening scope of Income from other sources, 33.1-33.6
6
58 Disallowance for non-deduction of tax from payment to
resident, 34.1-34.3
71 Restriction on set-off of loss from house property, 35.1-35.3
79 Carry forward and set off of loss in case of certain companies,
36.1-36.3
80CCD Rationalisation of deduction under section 80CCD for selfemployed individual, 37.1-37.3
80CCG Rationalization of deduction under section 80CCG, 38.1-38.3
80G Restricting cash donations, 39.1-39.3
80-IAC Extending the period for claiming deduction by start-ups, 40.1-
40.3
80-IBA Rationalisation of Provisions of Section 80-IBA to promote
Affordable Housing, 41.1-41.3
87A Rationalization of rebate allowable under Section 87A, 42.1-
42.3
90 Clarification with regard to interpretation of 'terms' used in an
agreement entered into under section 90 and 90A, 43.1-43.5
90A Clarification with regard to interpretation of 'terms' used in an
agreement entered into under section 90 and 90A, 43.1-43.5
92BA Scope of section 92BA of the Income-tax Act relating to
Specified Domestic Transactions, 44.1-44.4
92CE Secondary adjustments in certain cases, 45.1-45.6
94B Limitation of Interest deduction in certain cases, 46.1-46.8
115BBDA Rationalization of taxation of income by way of dividend, 47.1-
47.3
115BBG Income from transfer of carbon credits, 48.1-48.4
7
115JAA
Rationalisation of Provisions relating to tax credit for
Minimum Alternate Tax and Alternate Minimum Tax, 49.1-
49.5
115JB Rationalisation of provisions of section 115JB in line with
Indian Accounting Standards (Ind-AS), 50.1-50.7
115JD
Rationalisation of Provisions relating to tax credit for
Minimum Alternate Tax and Alternate Minimum Tax, 49.1-
49.5
119 Empowering Board to issue directions in respect of penalty for
failure to deduct or collect tax at source, 51.1-51.3
132
Reason to believe to conduct a search, etc. not to be disclosed,
52.1-52.5; Power of provisional attachment and to make
reference to Valuation Officer to authorised officer, 53.1-53.5
132A Reason to believe to conduct a search, etc. not to be disclosed,
52.1-52.5
133 Rationalisation of the provisions in respect of power to call for
information, 54.1-54.4
133A Extension of the power to survey, 55.1-55.3
133C Legislative framework to enable centralised issuance of notice
and processing of information under section 133C, 56.1-56.3
139
Mandatory furnishing of return by certain exempt entities,
57.1-57.3; Rationalisation of time limits for completion of
assessment, reassessment and re-computation and reducing
the time for filing revised return, 60.1-60.13
139AA Quoting of Aadhaar number, 58.1-58.6
140A Fee for delayed filing of return, 73.1-73.7
143
Processing of return within the prescribed time and enable
withholding of refund in certain cases, 59.1-59.5; Fee for
delayed filing of return, 73.1-73.7
8
153
Rationalisation of time limits for completion of assessment,
reassessment and re-computation and reducing the time for
filing revised return, 601-60.13
153A
Rationalisation of the provisions in respect of time limits for
completion of search assessment, 61.1-61.7; Rationalisation of
provisions of the Income Declaration Scheme, 2016 and
consequential amendment to section 153A and 153C, 80.1-80.7
153B Rationalisation of the provisions in respect of time limits for
completion of search assessment, 61.1-61.7
153C
Rationalisation of provisions of the Income Declaration
Scheme, 2016 and consequential amendment to section 153A
and 153C, 80.1-80.7
155 Enabling claim of credit for foreign tax paid in cases of dispute,
62.1-62.3
194-IB Deduction of tax at source in the case of certain Individuals
and Hindu undivided family, 63.1-63.7
194-IC Special provisions for computation of capital gains in case of
joint development agreement, 25.1-25.8
194J
Simplification of the provisions of tax deduction at source in
case Fees for professional or technical services under section
194J, 64.1-64.3
194LA Non-deduction of tax in case of exempt compensation under
RFCTLAAR Act, 2013, 65.1-65.5
194LC
Extension of eligible period of concessional tax rate on interest
in case of External Commercial Borrowing and Extension of
benefit to Rupee Denominated Bonds, 66.1-66.8
194LD Extension of eligible period of concessional tax rate under
section 194LD, 67.1-67.3
197A Enabling of Filing of Form 15G/15H for commission payments
specified under section 194D, 68.1-68.3
9
204
Definition of 'person responsible for paying' in case of
payments covered under sub-section (6) of section 195, 69.1-
69.4
206C
Exemption from tax collection at source under section 206C in
case of certain specified goods, services and buyers, 70.1-70.5;
Restriction on cash transactions, 77.1-77.6
206CC Strengthening of PAN quoting mechanism in the TCS regime,
71.1-71.3
211 Rationalisation of section 211 and section 234C relating to
advance tax, 72.1-72.6
234C Rationalisation of section 211 and section 234C relating to
advance tax, 72.1-72.6
234F Fee for delayed filing of return, 73.1-73.7
241A Processing of return within the prescribed time and enable
withholding of refund in certain cases, 59.1-59.5
244A Interest on refund due to deductor, 74.1-74.3
245A
Rationalisation of time limits for completion of assessment,
reassessment and re-computation and reducing the time for
filing revised return, 60.1-60.13
245N Amendments to the structure of Authority for Advance
Rulings, 75.1-75.4
245-O
Amendments to the structure of Authority for Advance
Rulings, 75.1-75.4
245Q
Amendments to the structure of Authority for Advance
Rulings, 75.1-75.4
253 Amendment of Section 253, 76.1-76.3
269ST Restriction on cash transactions, 77.1-77.6
10
271DA Restriction on cash transactions, 77.1-77.6
271F Fee for delayed filing of return, 73.1-73.7
271J Penalty on professionals for furnishing incorrect information
in statutory report or certificate, 78.1-78.4
273B Penalty on professionals for furnishing incorrect information
in statutory report or certificate, 78.1-78.4
CHAPTER VI Miscellaneous
Part XIII Amendment to the Finance Act, 2016
50 Clarification regarding the applicability of section 112, 79.1-
79.4
197
Rationalisation of provisions of the Income Declaration
Scheme, 2016 and consequential amendment to section 153A
and 153C, 80.1-80.7
1. Introduction
1.1 The Finance Act, 2017 (hereafter referred to as 'the Act') as passed by the
Parliament, received the assent of the President on the 31st day of March, 2017 and
has been enacted as Act No. 7 of 2017. 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 2018-19 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 2017-18;
(ii) amended sections 2, 9, 9A, 10, 10AA, 11, 12A, 12AA, 13A, 23, 35AD, 36, 40A,
43, 43B, 43D, 44AA, 44AB, 44AD, 45, 47, 48, 49, 54EC, 55, 56, 58, 71, 79, 80CCD,
80CCG, 80G, 80-IAC, 80-IBA, 87A, 90, 90A, 92BA, 115BBDA, 115JAA, 115JB, 115JD,
119, 132, 132A, 133, 133A, 133C, 139, 140A, 143, 153,153A, 153B, 153C, 155, 194J,
194LA, 194LC, 194LD, 197A, 204, 206C, 211, 234C, 244A, 245A, 245N, 245-O, 245Q,
253, 271F and 273B of the Income-tax Act, 1961 ('the Income-tax Act');
(iii) inserted new sections 50CA, 92CE, 94B, 115BBG, 139AA, 194-IB, 194-IC,
206CC, 234F, 241A, 269ST, 271DA and 271J in the Income-tax Act;
(v) amended sections 50 and 197 of the Finance Act, 2016.
11
3. Rate structure
3.1 Rates of income-tax in respect of incomes liable to tax for the assessment
year 2017-18.
3.1.1 Part I of the First Schedule to the Act specifies the rates of income-tax in
respect of incomes of all categories of assessees liable to tax for the assessment year
2017-18. These rates are the same as those laid down in Part III of the First Schedule
to the Finance Act, 2016 as amended by the Taxation Laws (Second Amendment)
Act, 2016 (No. 48 of 2016) 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 2016-17.
The main features of the rates specified in the said Part I are as follows:
3.1.2 Individual, Hindu undivided family, 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 fifteen 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 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 fifteen per cent of such tax is Rs. 4,28,250/-. Thus the total income-tax inclusive of
surcharge is Rs. 32,83,250/- 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 Education Cess 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.

What to watch

• Explanatory notes are the Board's own account of the amendments; they help on intention and effective date but do not displace the words of the section.
• Read the paragraph the glance table points to, not the one-line description in the table — the description compresses the change.
• Several entries appear against more than one section, so a single amendment has to be traced through every section it touched.
• The text available here breaks off in the middle of the amendments-at-a-glance table, in the section 80-IAC entry, so the notes themselves — every substantive paragraph and every effective-date statement — are not in the extract before you.

Where you meet it

In an assessment or appeal for assessment year 2018-19 where the year from which an amendment operates is in issue, and whenever the Board's stated intention behind a 2017 amendment is relied on.

What it names

It mentions. Circular No. 2/2018

On the same provision

• Notification No. 59/2022 [F. No. 370142/11/2022-TPL] / S.O. 2602(E) — Ministry of Finance 6 June 2022
• Circular No. 12/2021 — Extension of time limits of certain compliances to provide relief to taxpayers in view of the severe pandemic 25 June 2021
• Notification No. 13/2021 [F. No. 142/15/2015-TPL]/ GSR No. 162(E) — Ministry of Finance 9 March 2021
• Circular No. 1/2021 — Amount of remuneration prescribed under section 9A 3 m of the income tax act 1961 15 January 2021
• Notification No. 41/2020 [F. No. 142/15/2015-TPL- Part (1)] / SO 2148(E) — 2 the Gazette of INDIA : Extraordinary [Part Ii—sec. 3(ii)] 30 June 2020
• Circular No. 8/2019 — Clarification regarding definition of fund manager under section 9A 4 b of the income tax act 1961 10 May 2019

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