Finance Bill, 2016 Summary (Income Tax)

SUMMARY OF AMENDMENTS MADE BY FINANCE BILL, 2016

[“INCOME TAX” AND “EQUALISATION LEVY”]

(law stated in this summary in amended upto 10.03.2016)

Prepared By:

CA Yogesh Raheja

Audit Assistant

G. K. Kedia & Co.

Chartered Accountants

Email: [email protected]

Contact No.: +91-8506049347

Query Support: Facebook Page “Yogesh Raheja’s Tax Updates”

mailto:[email protected]


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Date wise Applicability Chart

Sr. No.

Section/ Schedule to Finance Act,

2016/Chapter

Nature of Provision Applicability Date

1. First Schedule to Finance Bill, 2016

Increase in surcharge rate in case of individual, HUF, AOP, BOI, Artificial Judicial Person

Previous year starting from 01.04.2016

2. Section 87A Rebate for Resident Individuals having Total Income upto ` 500,000.


3. Section 10(12A) Exemption of amount withdrawn from NPS referred in Section 80CCD


4. Section 10(12) WITHDRAWN BY FINANCE MINISTER ON 08.03.2016

5. Section 10AA Ceiling Date for deduction to SEZ u/s 10AA Previous Year starting from 01.04.2020

6. Section 17(2) WITHDRAWN BY FINANCE MINISTER ON 08.03.2016

7. Section 36(1)(viia) Allowability of provision for bad debts to NBFC Previous year starting from 01.04.2016

8. Chapter VIII of Finance Act, 2016 for Equalisation levy and Section 40(a)(ib)

Equalisation levy on specified services and amount not deductible if equalisation levy not paid

Date to be notified by CG in Official Gazette

9. Section 24(b) Enhancement of period of completion of house property for allowing higher deduction of ` 200,000 in case of self occupied property


10. Section 25A Amendment in the provision of Unrealised Rent Previous year starting from 01.04.2016

11. Section 35 Change in deduction percentage of certain expenditures Previous year starting from 01.04.2017

12. Section 35AD Elimination of 150% deduction in case of expenditure on specified business essential for Indian economy.


13. Section 80 read with Section 139(3)

Carry forward and set off of Loss in case of Specified Business referred in Section 35AD


14. Section 50C Date of which stamp duty value is to be taken Previous year starting from 01.04.2016

15. Section112(1)(c)(iii)

LTCG amendment in case of Unlisted Shares Previous year starting from 01.04.2016

16. Section 115JB Non-Applicability of MAT in case of Foreign Companies subject to prescribed conditions



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Sr. No.

Section/ Schedule to Finance Act,

2016/Chapter

Nature of Provision Applicability Date

17. Section 139(4) Change in time limit of filing belated return Previous year starting from 01.04.2016

18. Section 139(5) Change in the provisions of revised return Previous year starting from 01.04.2016

19. Section 211 Change in Slabs of Installments of Advance Tax for other than corporate assessees and Applicability of Advance Tax on 44AD assessees.

01.06.2016

20. Chapter XVII-B Amendments in TDS provisions

01.06.2016

21. Section 80EE Deduction of Interest payment for loan taken from House Property construction/acquisition


22. Section 80GG Increase in monetary limit of deduction for rent paid for residential house property.


23. Section 44AA Amendments in provisions relating to maintenance of books of account


24. Section 44AB Change in monetary limit for Tax Audit in case of professionals


25. Section 44AD Change in monetary limit for presumptive taxation and amendment in provisions of sub-section 4 and 5 of Section 44AD


26. Section 44ADA Presumptive Taxation in case of Professions referred in Section 44AA (1)



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Introduction

The Finance Minister has presented the Finance Bill, 2016 on 29th February, 2016 applicable as follows:

A. Discussion on First Schedule to Finance Act, 2016:

Part I of First Schedule to Finance Act, 2016: Slabs for Tax Rates for Assessment Year 2016-17.

Part II of First Schedule to Finance Act, 2016:TDS Rates other than Salary for F.Y. 2016-17.

Part III of First Schedule to Finance Act, 2016:TDS on Salary and Advance Tax Computation for F.Y. 2016-17.

First Schedule related Points:

1. Part I of First Schedule to Finance Act, 2016 For Computation of Tax Payable for the P.Y. 2015-16 relevant to A.Y. 2016-17; Surcharge will be 12% (twelve percent) in case Total Income of an individual, HUF, Partnership Firm, LLP, Co-

operative Society, Local Authority, AOP, BOI, Artificial Judicial Person exceeds ` 1 crore. Surcharge will be 7% (seven percent) in case Total Income of a domestic company exceeds ` 1 crore. Further,

Surcharge will be 12% (twelve percent) in case Total Income of such company exceeds ` 10 crore. Surcharge will be 2% (two percent) in case Total Income of a Foreign company exceeds ` 1 crore. Further, Surcharge

will be 5% (five percent) in case Total Income of such company exceeds ` 10 crore. (Marginal Relief is Available)

2. Part II of First Schedule to Finance Act, 2016:

For Computation of TDS under sections 193, 194, 194A, 194B, 194BB, 194D and 195 etc. for the previous year 2016-17: TDS rate for Section 194D (Payment of Insurance Commission) has been reduced to 5% from earlier rate of 10%; Separate Rates are given for deduction of TDS under Section 195 in case of payment to a Non-Resident (both NRI and

NR) or to a foreign company according to the nature of income paid. While deducting TDS, such rates are also to be taken into consideration as per the definition of rate or rates in force as envisaged in Section 2(37A) of the Income Tax Act, 1961.

Surcharge on TDS a) Surcharge on TDS is applicable only in case of payment to a Non-Resident or a Foreign Company. Further, while

deducting TDS, EC and SHEC shall also be levied in such cases. b) Rate of Surcharge is same as provided in Point 1 above except in case of Individual, HUF, AOP, BOI, Artificial

Judicial Person in which rate of surcharge shall be 15% (fifteen percent), if amount paid or likely to be paid exceeds ` 1 crore.

3. Part III of First Schedule to Finance Act, 2016:

For computation of TDS in case of Salaries and computation of Advance Tax for P.Y. 2016-17, the amendments have been made as follows: Rates of Surcharge are same as provided in Point 1 above except in case of Individual, HUF, AOP, BOI, Artificial

Judicial Person in which rate of surcharge shall be 15% (fifteen percent), if amount paid or likely to be paid exceeds ` 1 crore.

Rate of Tax on a Company having turnover in F.Y. 2014-15 amounting to ` 5 crore or less have been reduced to 29% (twenty nine percent).


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First Schedule related Points:

Some Important Points related to First Schedule to Finance Act, 2016: 1. The Government uses surcharge for the construction of National Highways; 2. Rates of Surcharge are same for assesses other than Individual, HUF, AOP, BOI, AJP as in Assessment Year 2016-17. 3. Surcharge and cess (EC & SHEC) shall always be levied (if applicable) before deducting TDS in case of a Non-Resident and

Foreign Company. 4. The age of 60 years or more OR 80 years or more in case of Individual for claiming higher exemption limit of ` 3 lakhs

and ` 5 lakhs respectively is to be checked at any time during the previous year. For example, if an individual has crossed the age of 60 years on 1st April, 2015 then for taxing his income for the previous year 2015-16; ` 3 lakhs exemption limit will be applicable.

5. HUF and Non-Residents shall not be allowed a higher exemption limit of ` 3 lakhs and ` 5 lakhs, it is for RESIDENT INDIVIDUALS only.

6. It is to be noted that a foreign company which has made specific arrangements for declaration or payment of dividend in India shall also be treated as a Domestic Company and hence, 30% or 29% rate as the case may be shall apply.

7. Part III of First Schedule to Finance Bill, 2016 will become Part I of First Schedule to Finance Bill, 2017 and hence, the slabs and rates given in Part III of Finance Bill, 2016 shall be applicable for computing tax for the A.Y. 17-18.

Note on Rebate under Section 87A

1. Section 87A of the Income Tax Act, 1961 provides that in case of a Resident Individual, if the total income of such

individual does not exceed ` 5 lakhs, a rebate of 2,000 or 100% of the tax payable, whichever is lower shall be allowed.

Finance Act, 2016 has made the amendment and has substituted ` 2,000 with ` 5,000.

2. Now after this amendment, we can say that the individuals with Total Income of ` 5 lakhs or less is having the

exemption limit of ` 3 lakhs or ` 3.5 lakhs (age wise) as the case may be.

It is to be noted that for the computation of Tax Payable for A.Y. 2016-17 relevant to previous year 2015-16; a rebate of

2,000 or 100% of the tax payable, whichever is lower shall be allowed under section 87A.

It is further to be noted that while checking Salary TDS for F.Y. 2016-17, Amended rebate shall be applicable.

3. Rebate under Section 87A of the Income Tax Act, 1961 is to be allowed before adding education cess and Secondary

higher education cess.


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B. Section wise Important Amendments in Income Tax Act, 1961

Section Amended Old Provision New Provision Impacts of Change

Section 10(12A): Exemption of Payment from NPS

Section 80CCD allows deduction of any contribution made to NPS subject to the conditions and amounts as specified. Section also provides that if any accumulated balance has been paid out to the employee and the employee if not invest such amount in any annuity scheme of the Govt., then 100% of such amount will be taxable as and when received.

Now, Section 10(12A) of the Income Tax Act, 1961 has been inserted in order to provide that 40% of the total amount payable from NPS is exempt from tax. Hence, post amendment, there are two scenarios: Scenario 1: Contribute 60% balance to any annuity scheme of Govt. and take 100% tax rebate. Scenario 2: Withdraw 60% balance and pay tax accordingly. MEANS “EET” MODEL

After the amendment, 40% of the amount paid from NPS is exempt irrespective of the fact that the amount is invested in annuity scheme or not. Balance 60% of the amount paid is taxable.

Section 10(12): 60% taxability of amount received by Employee from RPF withdrawal

WITHDRAWN BY THE FINANCE MINISTER ON 08.03.2016

Section 10AA: Deduction to specified Undertakings operating in SEZ.

The amount of PGBP arising from such SEZ unit shall be allowed as deduction subject to the limits and conditions mentioned therein.

Now, Section 10AA shall be amended in order to provide that the deduction shall be allowed upto A.Y 20-21 (i.e. F.Y. 2019-20).

The amendment is not to be considered on or before the Assessment Year 2020-21. In simple words, deduction u/s 10AA is allowable uptill A.Y. 2020-21.

Section 17(2): Increase in Monetary Limit for exemption of Perquisites as contibution to Approved Superannuation Fund by the Employer

WITHDRAWN BY FINANCE MINISTER ON 08.03.2016

Section 36(1)(viia): Deduction allowance for Provisions for Bad Debts.

N.A. An amount not exceeding 5% of the gross total income before this deduction can be allowed.

After the amendment, NBFCs are also eligible to avail the deduction of Provision for Bad Debts.


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Concept of Equalisation Levy (Chapter VIII of Finance Bill, 2016)

N.A. The Chapter of Equalisation levy has been inserted by Finance Bill, 2016 in order to provide the taxability of e-commerce transactions (known as specified services) not falling under the purview of Permanent Establishment (PE).

Specified services means Online Advertisement, any provision of online advertisement space or any other service for online advertisement or ANY OTHER SERVICES AS MAY BE PRESCRIBED.

After insertion of Chapter VIII of the Finance Bill, 2016:

a) The charging section provides that any amount received or receivable by a Non-Resident for any specified services (not having PE in India) from the payer, the payer shall deduct 6% (six percent) of the amount paid or payable to such NR.

b) Payer shall mean a resident having Business or Profession in India or a Non-Resident having a PE in India.

c) Such deducted Equalisation levy is to be paid by the payer to CG on or before 7th of the following month.

d) The specified service must be used by Service Receiver for PGBP purpose and the amount of such services exceeds ` 1 lakh.

e) In case of failure of deduction of

Equalisation levy by the payer, the payer has to pay on its own the equalization levy and grossing up is not required.

f) In case of delayed deposit of

Equalisation levy to the credit of the CG, the assessee is required to pay simple interest 1% (one percent) p.m. or part thereof FOR THE PERIOD OF DELAY.

g) In case the payer has not deducted or after deduction, has not paid the amount of Equalisation Levy, then the amount will be disallowed under section 40(a)(ib) of the Income Tax Act, 1961. It is to be noted that if the deducted amount has been deposited by the assessee on or before the due date under section 139(1), amount will be


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allowed in the previous year itself otherwise the amount will be allowed in the year of deduction and payment only.

h) Now, Section 10(50) has been

inserted in order to provide that the Income from Specified services on which Equalisation Levy is applicable is exempt from Income Tax.

Section 24(b): Interest deduction

In case of Self Occupied property, the dedution of interest for construction, repair, acquisition would amount to 30,000.

However, the amount of deduction of interest will be ` 200,000 : i) If the capital is

borrowed on or after 01.04.1999;

ii) The construction is to be completed within 3 years.

The 3 years (three years) period given for claiming extra deduction has been increased to 5 years (Five Years).

After the amendment, the properties which takes long period to get completed shall also be allowed an extra deduction. It is to be noted that limit of ` 200,000 is not applicable to Repair work. It is only applicable in case of construction, acquisiton of any house property.

Section 25A: Income of Unrealised rent received in subsequent year (s)

In case an assessee receives any Unrealised Rent in any subsequent previous year, the amount received will be deemed to be income of the receipt year without any deduction of 30%.

Now, Section has been amended to provide that unrealised rent is to be taxable in the year to receipt after allowing 30% deduction from such amount.

After the amendment, 30% deduction is allowed on Unrealised Rent received giving a benefit to the tax payers.

Section 35: Weighted Deduction of certain expenditures

35(1)(i) : 100% 35(1)(ii) : 175% 35(1)(iia) : 125% 35(1)(iii) : 125% 35(1)(iv) : 100% 35(2AA) : 200% 35(2AB) : 200%

35(1)(i) : 100% 35(1)(ii) : 150% 35(1)(iia) : 100% 35(1)(iii) : 100% 35(1)(iv) : 100% 35(2AA) : 150% 35(2AB) : 150%

From P.Y. 20-21, deduction u/s 35(1)(ii) shall be 100%.

The weighted deductions under Section 35 of the Income Tax Act, 1961 are to be phased out slowly.


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Section 35AD: Specified Business related deduction

For specified businesses essential for Indian Economy, 150% of the total amount expended shall be allowed as deduction. Specified Businesses essential for Indian Economy means Cold Chain Facility, Hospitals having prescribed number of beds, Warehousing Facility for Agriculture Produce etc.

From F.Y. 2017-18 onwards, the deduction shall be limited to 100%. Section is further amended to provide that the assessee engaged in maintaining and operating Infrastructural Facility shall also get the benefit of 35AD.

Finance Minister while proposing 25% tax rate for the Domestic Companies in the coming years has also proposed that the weighted deductions will also be phased out in the coming years.

Section 80 read with Section 139(3)

Section 139(3) provides that the amount of PGBP and Capital Gains cannot be carried forward is the return has been filed late than the due date mentioned in Section 139(1) of the Income Tax Act, 1961.

Now, Section 80 had been amended in order to provide that the Loss from Specified business will also not to be carried forward in case return has not been filed upto the due date.

House Property Loss can still be allwed to be Carried forward and set off even if return has been filed after due date specified under section 139(1) of the Income Tax Act, 1961.

Section 50C: Date on which Stamp Duty Value is to be checked

Section 50C provides that in case where land or building is sold less than the stamp duty value, then the Stamp Duty value shall be deemed to be the full value of consideration. There was a hardship for the developers who enters into agreement to sell and after construction, transfers the property to the buyer. Due to long gap between agreement to sell and transfer of property, in various circumstances, the Stamp Value value got changed at the time of transfer which brings implications of Section 50C without any reason.

Now Section 50C has been amended in order to provide that the Stamp Duty value on the date of agreement to sell shall be taken if: 1. An agreement to Sell

has been entered into between the seller and buyer.

2. Some advance money by account payee cheque, account payee bank draft or by ECS shall be paid to the seller on or before such date of agreement to sell.

After the amendment, the real estate developers who without any reason come under the purview of Section 50C got relief from the provisions of Section 50C if they are selling the asset not less than Stamp Duty Value on the date of agreement to sell and the prescribed conditions are satisfied.


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Section 112(1)(c)(iii): Long Term Capital Gain Rate on sale of Unlisted Securities

Section 112(1)(c)(iii) provides that in case of LTCG on sale of Unlisted Securities by Non-resident or foreign company; LTCG rate would be 10% without first and second proviso to Section 48.

Section 112(1)(c)(iii) has been amended in order to provide that the 10% rate is applicable only in case of Unlisted Securities of a closely held company.

Closely held company means a company in which public is not substantially interested (Section 2(18)).

Now, after the amendment, Sale of Unlisted Shares of : a) Listed Companies; b) Unlisted Subsidiaries of Listed

Companies; c) Govt. or RBI controlled

companies; d) Section 25 Companies

Are subject to 20% tax.

Section 115JB: Applicability of MAT on Foreign Companies

The provisions of MAT are applicable to Foreign Companies as well as Indian Companies.

Section 115JB has been amended in order to provide that the MAT provisions are not applicable to Foreign Companies if the following conditions are satisfied: a) The Foreign Company is

the resident of a country with which India is having DTAA or TIEA and the assessee is not having a PE in India; OR

b) The Foreign Company is a resident of a country with which India is not having a DTAA or TIEA and such company is not required to register itself under Companies Act, 2013.

1. After the amendment, a big relief has been given to the foreigners by not applying MAT if certain conditions are satisfied.

2. For example, if any FII is investing

in Indian Stock Market and such FII is not having any PE, then inspite of 10(38) exemption; MAT provisions were applicable to such FII and it has to pay 18.5% tax on such LTCG before the amendment due to implications of Section 9 of the Income Tax Act, 1961.

3. Now, After the amendments,

such kind of FIIs are not required to pay MAT on such 10(38) profits and hence the entire income is not chargeable to tax in India.

Section 139(4): Time Limit of Belated Return

Section 139(4) provides that the belated return can be filed within 1 year from the end of relevant assessment year or before completion of assessment, whichever is earlier.

Now, Section 139(4) has been amended in order to provide that the BELATED RETURN CAN BE FILED WITHIN THE END OF RELEVANT ASSESSMENT YEAR OR BEFORE COMPLETION OF ASSESSMENT WHICHEVER IS EARLIER.

1. This is a major amendment brought in by Finance Bill, 2016 that the belated return can be filed within the end of relevant assessment year.

2. Before amendment, people usually say that on an even date, one can file the return of previous two years. Suppose on 31.03.2016; we can file the return


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of P.Y. 13-14 and P.Y. 14-15. 3. Now, post amendment, the

assessee cannot file any of the two previous returns on an even date but only one return. For example, on 31.03.2018; the assesse can file only the return related to P.Y. 16-17 and not of P.Y. 15-16.

The cut off date upto which assessee can file two returns is 31.03.2018.

Section 139(5): Revision of Belated Return

Section 139(5) read with case law of Supreme Court “Kumar Jagdishchandra Sinha” states that Belated return cannot be revised.

Now, Section 139(5) has been amended in order to provide that a belated return can also be revised.

Since the time limit of filing of belated return has been reduced to end of relevant financial year; the finance ministry has also amended Section 139(5) related to filing of revised return in order to provide that a belated return filed u/s 139(4) can also be revised.

Section 211: Advance Tax provisions

For other than Corporate Assessees: 15th September : 30% 15th December : 60% 15th March :100% For Corporate Assessees: 15th June :15% 15th September : 45% 15th December : 75% 15th March :100%

Now, after the amendment, the following shall be the Advance Tax Rates for ALL ASSESSEES other than 44AD assesses: 15th June :15% 15th September : 45% 15th December : 75% 15th March :100% It is further provided that the benefit of estimation error in case of 1st and 2nd installments i.e. 12% and 36% respectively is now allowable to all the assesses other than Section 44AD.

1. After the amendment, the corporate as well as non-corporate assesses shall be considered at par for the purpose of Advance Tax provisions.

2. After the amendment, Advance Tax provisions are applicable to 44AD assessees also.

3. New accrual from PGBP is also

included in Estimation rebate along with Capital Gains.


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For 44AD assesses: 15th March :100% 1% (one percent) interest in case of late payment of advance tax installments for 44AD assesse for one month to be levied under section 234C.


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TDS/TCS Amendment Chart

Sr. No.

Section Nature of Payment Pre Amendment Rate

Post Amendment Rate

Pre Amendment Ceiling Limit (Rs.)

Post Amendment Ceiling Limit (Rs.)

1. Section 192A

Payment from RPF when conditions of Rule 8 of Part A of First Schedule are not applicable

10% 10% 30,000 50,000

2. Section 194BB

Payment of Income from Horse Races

30% 30% 5,000 10,000

3. Section 194C

Payment to Contractors for Work Contract

1% OR 2% 1% OR 2% 30,000 : Single Bill 75,000: Total for

the year.

30,000 : Single Bill 1,00,000: Total

for the year.

4. Section 194D

Payment of Insurance Commission

10% 5% 20,000 15,000

5. Section 194DA

Payment from LIC when Section 10(10D) is not applicable

2% 1% 100,000 100,000

6. Section 194EE

Payment from National Saving Scheme as envisaged in Section 80CCA

20% 10% 2,500 2,500

7. Secttion 194G

Commission on Sale of Lottery Tickets

10% 5% 1,000 15,000

8. Section 194H

Payment of Commission

10% 5% 5,000 15,000

9. Section 197A of the Income Tax Act, 1961 has been amended in order to provide that the assessee can file 15G and 15H

in case of Rental Income as envisaged in Section 194-I of the Income Tax Act, 1961.

10. Section 206AA of the Income Tax Act, 1961 has been amended in order to provide that the section is not applicable in

case of payment to Non-Residents or Foreign Companies subject to conditions which are yet to be prescribed. (The

Amendment is applicable w.e.f. 01.06.2016). By exempting Non-Residents or Foreign Companies from the purview of

Section 206AA of the Income Tax Act, 1961; The ITAT bench decision in case of “Serum Institute” and “Infosys BPO

Limited” has been accepted by the Department.

11. Section 206C of the Income Tax Act, 1961 relating to TCS has been amended in order to provide that 1% TCS is to be

collected from the buyer in the following cases:

a) Sale of Motor Vehicle exceeding Rs. 10,00,000

b) Receipt from Sale of Goods exceeding Rs. 200,000 in CASH

c) Receipt from Rendition of Services exceeding Rs. 200,000 in CASH

Note: The Government has also provided that no TCS on sale of goods and services shall be collected if the prescribed

conditions are satisified. (conditions yet to be prescribed).


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C. Other Amendments under Income Tax Act, 1961

1. Deduction of Interest on Acquisition of House Property u/s 80EE of the Income Tax Act, 1961:

Section 80EE has been amended in order to provide that a deduction of Interest amounting to 50,000 shall be allowed

to the assessee if the loan has been sanctioned in F.Y. 2016-17; Amount of loan is 35 lakhs rupees; value of property

shall not be more than 50 lakhs; assessee doesn’t own any residential house property on the date of sanction of loan.

The section is applicable only in case of Individual;

Loan is to be taken from a Financial Institution (i.e. Banking Company, Housing Finance Company);

2. Deduction of Rent u/s 80GG of the Income Tax Act, 1961:

a) Deduction equal to least of the following shall be allowed for rental payment by an assessee:

i) 25% of the Total Income; or

ii) Rent paid (minus) 10% of the Total Income; or

iii) Rs. 5,000 per month.

b) Conditions for getting the deduction:

i) Assessee not claiming any exemption for HRA prescribed u/s 10(13A) of the Income Tax Act, 1961.

ii) No residential house property shall be owned by the individual, his spouse, his minor child or HUF (if he is a

member).

iii) He is not claiming any House property to be self occupied under the head “Income from House Property”.

c) Total Income shall mean Income calculated after allowing all the deductions under chapter VI-A but before allowing

any deduction under Section 80GG.

3. Exemption in case of amount of accumulated balance received from NPS to legal heirs:

Amendment has been made in section 80CCD of the Income Tax Act, 1961 in order to provide that any sum received from

the accumulated balance of NPS to the legal heirs after the death of assessee shall not be deemed as Income of legal

heirs.


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Discussion on Section 44AA, 44AB, 44AD, 44ADA of the

Income Tax Act, 1961

Section 44AA

1. Section 44AA will be

applicable in case referred

in Point 2 of Section 44AD

given on the right side of

this discussion.

2. Section 44AA will also be

applicable in case referred

in Point 5 of Section

44ADA given on the right

side of this discussion

Section 44AB

1. The limit of Tax Audit for

profession has been

increased to 50 lakh

rupees from 25 lakhs

rupees.

2. Section will also apply in

cases referred in Point 5 of

Section 44ADA on the right

side.

3. No increase in limit of

Turnover from Business

i.e. remain at one crore

rupees.

Section 44AD

1. The limit of 44AD of the

Income Tax Act, 1961

has been increased from

` 1 crore to ` 2 crore.

2. Section further amended

to provide that where an

assessee declares his

Income as per this

section in any previous

year (i.e. 8% of the

turnover) and does not

declare his Income in

accordance with this

section in any of the five

succeeding years (i.e.

less than 8% of

turnover), then Section

44AD is not applicable to

that assessee for 5 years

starting from the year in

which assessee has not

declared the income in

accordance with this

section (i.e. less than 8%

of the turnover).

3. If point 2 become

applicable to the

assessee, then

maintenance of books of

account and Tax Audit is

mandatory.

4. Eligible assessee means

Individual, HUF,

Partnership Firm but not

LLP).

Section 44ADA

1. This section is

applicable to all

resident assesses

(including a

Company) carrying

out profession

referred in Section

44AA(1).

2. The assessee whose

receipts from

profession does not

exceed 50 lakh

rupees.

3. A sum equal to 50%

of such gross receipts

(or more if the

assesee desires) be

deemed to be the

total income of the

assessee.

4. All deductions u/s 30

to 38 shall be

deemed to be

already allowed.

5. If an assessee

discloses income

lower than 50% of

gross receipts and

the total income

chargeable to tax

exceeds the

exemption limit,

then 44AA and 44AB

both will be

applicable.

Other Important Points

1. Section 40(b) deduction which was earlier allowable from 8%

income u/s 44AD shall not be allowed now.

2. Advance Tax provisions are applicable to eligible assessee as

envisaged in Section 44AD of the Income tax Act, 1961 and one

date advance tax has been introduced i.e. 15th

March of the

previous year.

3. Presumptive taxation scheme is not applicable on Commission

Agents, Brokers, General Consultants and professions not

specified in Section 44AA of the Income Tax Act, 1961.

4. Mandatory Tax Audits for Chartered Accountants showing

Income less than 50% of the Turnover or Gross receipts.

5. IF an eligible assessee referred in Section 44AD is having

turnover of ` 1.5 crore rupees (for example) in any previous

year, then Tax Audit will not apply in case he is showing income

at the rate of 8% or more of turnover or gross receipts.

(Interpretation according to Section 44AB and 44AD of the

Income Tax Act, 1961).

6. In short, we can say that for eligible assesses, the limit of

turnover for Tax Audit is ` 2 crore rupees and for others, ` 1

crore rupees.


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D. Concept of Start Up and Tax Relief for Start ups:

i) Eligible Start Up shall mean a company incorporated on or after 01.04.2016 but before 01.04.2019, the turnover of

which is not exceeding ` 25 crores in any of the F.Y. 2016-17 to 2020-21 and which holds a certificate from Inter-

Ministerial Board of Certification. Further, it shall be engaged in the business which involves innovation,

development, deployment or commercialisation of new products, processes or services driven by technology or

intellectual property (hereinafter referred as “Eligible Business”).

ii) Now, Section 80IAC of the Income Tax Act, 1961 has been inserted in order to provide 100% deduction of profits

derived from such start-up for three years from any five years beginning from the date of incorporation of Start Up.

iii) The other provisions of Section 80IA w.r.t. Splitting up of Business, Old Plant & Machinery, Imported Plant &

Machinery and Profit Shifting Planning are also applicable to Section 80IAC.

iv) Deduction under Section 54GB of the Income Tax Act, 1961 is also applicable to Eligible Start-Ups.

E. Taxation of Dividends:

i) Pre-Amendment, the dividend was exempt from tax under section 10(34) of the Income Tax Act, 1961.Further the

Company was required to pay DDT/CDT n the Distributed Income at the rate of 15% (Effective Rate is 20.3576% of

the Distributed Amount).

ii) After the amendment, DDT/CDT levy will remain same. Further, any dividend received by an INDIVIDUAL, HUF OR

FIRM from a Domestic Company for an amount exceeding 10 lakhs is also to be taxed at the rate of 10% in the

hands of such Individual, HUF and Firm.

Example:

Suppose a Domestic Company is distributing Dividend to two shareholders for the following amounts:

Shareholder 1 : Rs. 15,00,000

Shareholder 2 : Rs. 900,000

Now,the taxation implications are as follows:

On Company : 24,00,000*20.3576% = Rs.488,583.00

On Shareholder 1 : (5,00,000/85*100)*10% = Rs. 58,823.00

On Shareholder 2 : Exempt u/s 10(34) = Rs. NIL

Total DDT/CDT : Rs. 5,47,406.00

Note: Surcharge is to be levied at the rate of 12% (twelve percent) irrespective of limit of total income in cases of Section 115-O (DDT), Section 115R (Tax on Dividend in case of units), 115QA (Tax in case of Buy-Back of Unlisted Securities, Section 115TA (Tax in case of Income distribution by Securitization Trust)

F. 25% Taxation Scheme for certain Companies:

According to the provisions of Section 115BA of the Income Tax Act, 1961; “A company can pay Income Tax at

the rate of 25% subject to following conditions:

i) The Company should have been incorporated on or after 1st March, 2016;

ii) The Company should be in Manufacturing business;

iii) The Company should not set off the carry forward losses, profit inked and investment linked deductions”.

Finance Bill, 2016 Summary (Income Tax)

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