INCOME TAX PROPOSALS

1. Rates of Income Tax for A.Y. 2003-04
2. Not Ordinarily Resident
3. Business Connection
4. Amendment relating to assessment through agent of a non-resident
5. Measures to stimulate investment for industrial growth
6. Taxation of Dividend
7. Income from Units of UTI and Others
8. Incomes not includible in total income
9. Exemption of Income of ex-servicemen Corporations
10. Deduction u/s 10A
11. Deduction u/s 10B
12. Trusts { Section 11(3A) }
13. Standard Deduction for salaries employees
14. Deduction of repairs, insurance for premises used for business
15. Benefit of Section 33AB to Coffee Growers
16. Interest u/s 36
17. Payments to Non-residents ( section 40 )
18. Definition of "Plant"
19. Deduction in the year of actual payment
20. Presumptive Income for Truck Owners
21. Presumptive Income for Non-residents
22. Capital Gains on compulsory acquisition
23. Capital Gains on transfer of stock exchange membership
24. Income from other sources
25. Carry forward loss
26. Deduction for medical treatment of handicapped relative
27. Deduction for handicapped assessee
28. Deduction for medical treatment of specified diseases
29. Deduction u/s 80 IA for telecom services
30. Deduction u/s 80 IB for scientific R & D companies
31. Deduction for Housing
32. Deduction u/s 80 IB for cold storage facilities
33. Deduction u/s 80 IC for undertakings in specified states
34. Deduction for interest income
35. Deduction for royalty income from authorship
36. Deduction for royalty income from patents
37. Rebate u/s 88 for education expenses
38. Rebate u/s 88B for senior citizens
39. Eligible Issue of Capital for SEZ and IP
40. Dividend Distribution Tax
41. Distribution Tax on Mutual Funds
42. Non-payment of tax by UTI / Mutual Funds
43. Consequential amendments for dividend
44. No seizure of stock-in-trade
45. Release of seized / requisitioned assets (Sec.132B).
46. Retention of books / documents
47. New provisions for completion of search assessments
48. Amendments to Assessment Procedure
49. Rectification provisions
50. Re-computation of deduction u/s 80RRB
51. Amendment relating to firms
52. Collection and recovery of tax
53. TDS & TCS provisions
54. Interest on refunds
55. Tax Clearance Certificates
56. Advance Rulings
57. Repayment of loans and deposits
58. Penalty
59. Annual Information Return
60. Wealth Tax Act
61. Gift Tax Act
62. Expenditure Tax Act

Rates of Income Tax for A.Y. 2003-04

1. Rates: There is no change in the rates of Income Tax for Individuals, HUFs, Partnership firms, Co-op. Societies, Domestic companies and Foreign companies.

2. Surcharge : For A.Y. 2003-04, the surcharge was 5%. There will be no Surcharge for A.Y. 2004-05 in the case of Individuals and HUFs with income upto Rs.8.5 Lakhs. There will be surcharge @ 10% where the income exceeds Rs.8.5 lakhs. In the case of companies, Co-operative Societies and Firms, the surcharge will be at the reduced rate of 2½% compared to 5% in earlier year viz. A.Y. 2003-04.

Not ordinarily Resident

Under the existing provisions contained in section 6(6), a person is said to be 'not ordinarily resident' in a previous year if he has not been resident in India in 9 out of 10 previous years preceding that year or has not during the 7 previous years preceding that year been in India for 730 days or more.

This definition had led to different interpretations. Gujarat High Court in the case of Pradip J. Mehta v. CIT 256 ITR 647 Guj. has held that the assessee was resident in India in 8 out of 10 preceding years and he was present in India for more than 730 days in preceding 7 years. Therefore assessee did not satisfy both the conditions in section 6(6)(a) for 'not ordinarily resident' and assessee is not 'NOR'. The Supreme Court has admitted SLP of the assessee against the Judgement. (257 ITR ST 35.)

The existing definition has been proposed to be amended to provide that a person would be Not ordinarily Resident if he has been non-resident in India in 9 out of 10 previous years preceding that year or has during the seven previous years preceding that year has been in India for 729 days or less. In the case of HUF, the manager has been a non-resident in India in 9 out of 10 previous years preceding that year has been in India for 729 days or less. The amendment will take effect from 1-04-2004.

Business connection

Section - 9:- At present income accruing / arising to a non-resident directly or indirectly from any business connection in India is taxable. Such business connection has been defined to include activity of a person who concludes contacts or secures orders for the non-resident or maintains goods in India out of which he delivers goods on behalf of non-resident with certain exceptions.

Amendment relating to assessment through agent of a non-resident

Under section 163 an agent of a Non- Resident, inter alia, is one who has any business connection with the non resident

It has been provided by inserting an explanation to sub section (1) of section 163 that the expression " business connection" shall have the meaning assigned to it in explanation 2 to clause (I) of sub section (1) of section 9 of the I.T.Act. The amendment is effective from 01-04-2004.

[The amendment appears to be clarificatory in nature and should normally have retrospective application]

Measures to stimulate investment for industrial growth (Hotels and Hospitals)

Under section 10(23G) any income by way of dividend, interest or long term capital gain of an infrastructure capital fund / capital company or a co-operative bank from investments made by way of shares or long term finance in any infrastructure undertaking telecom service, housing project etc. is exempt.

It is proposed to include the projects for construction of 3 star hotels and hospital projects with minimum 100 beds for the patients in the list of eligible business. (Asst. Year 2004-05)

Taxation of Dividend

Income from Dividend was exempt upto A.Y. 2002-03. It was taxed in A.Y. 2003-04. It will be exempted from tax again for A.Y. 2004-05 and onwards u/s. 10(34).

Income from Units of UTI & Others

1. Any income arising from the transfer of units of UTI on or after 1-4-2002 will be exempt u/s. 10(33). This is effective from A.Y. 2002-03. It, therefore, restores the exemption withdrawn for A.Y. 2003-04.

2. Any income received from units of Mutual Fund, or from the units of Administrator of specified undertaking or units of specified company is exempt from A.Y. 2004-05 u/s. 10(35).

Incomes Not includible in total income

1. At present fees for technical services arising to foreign company in pursuance to an agreement with the Government for providing services in projects connected with the security of India is exempt from tax. It is now proposed to include Royalty income also for the purpose of such exemption.

2. Exemption upto Rs.5 Lakhs is available to amount received by certain employees at the time of their voluntary retirement or termination of service under approved VRS or voluntary separation scheme. It is now proposed that such exemption in respect of any amount received or receivable will be available to them on their voluntary retirement or termination of service. w.e.f. A.Y. 2004-05. The intention appears to be to provide exemption even if the payment is staggered.

3. Any sum received under insurance policy where the annual premium exceeds 20% of the sum assured will not be exempt except in the case of death of the person assured w.e.f. 2004-05. It has been clarified that any sum received under a keyman insurance policy will be subject to tax.

4. Income arising from transfer of long term capital asset being listed share acquired on or after 1-3-2003 but before 1-3-04 is exempt.

5. Exemption of Income earned by "ASOSAI-SECRETARIAT" will continue to be exempt for a further period of four assessment years beginning with 1-04-2004 and ending on 31-03-2008.

Exemption of Income of Ex-Servicemen Corporations

With a view to recognise the exemplary services offered by the members of our Armed Forces, it is proposed to exempt income of the Corporations, established by a Central Act, or any State Act, for the welfare and economic upliftment of the ex servicemen from Income Tax

[A.Y. 2004-05]

Deduction u/s. 10-A (Units Free Trade Zones etc.)

In respect of newly established undertaking in free trade Zone, etc. if the said undertaking is transferred before the expiry of specified period to another Indian company, the amalgamating or demerged company will not be entitled to the deduction in the previous year in which the amalgamation or demerger take place but to the amalgamated or resulting company.

Sub-section 9 and 9A which restricted transfer of ownership is proposed to be deleted. It is also proposed that in case of amalgamation / demerger the amalgamated / demerged company will be entitled to continue benefit u/s. 10A.

Explanation 4 has been inserted whereby cutting and polishing of precious / semi precious stones has been included within the purview of manufacture / production.

[1-4-04]

Deduction u/s. 10-B (EOUs)

In respect of newly established 100% export oriented undertaking, also provisions as above will apply.

Charitable Trusts (u/s. 11(3A).

Where due to circumstances beyond the control of a trust or institution in receipt of the income, the accumulated income could not be applied for the purpose for which it was accumulated or set apart, transfer of any such accumulated income to other charitable trust / institution is not allowed as application of income towards charitable purposes. This provision has created genuine problems for those trusts and institutions which are wound up in the process of winding up.

In order to remove this hardship, it is proposed to amend the proviso to sub section 3A of Section 11 so as to empower the assessing officer to allow donation to another trust or institution as application of accumulated income for charitable purposes in the year in which the trust or institution claiming exemption is dissolved.

[A.Y. 2003-04]

Standard deduction for salaried employee – Sec.16 (1)

The present deduction and proposed deductions are as under: -

1-4-04

Capital expenditure on repairs, insurance etc. to premises used for business Sec. 30 & 31.

It is proposed that no deduction as above will be admissible if the expenditure on repairs is of Capital nature.

1-4-04

Benefit of Section 33AB to Coffee Growers

At present deduction to the extent of 40% of the profit from growing / manufacturing tea in India or the amount deposited in special approved account whichever is less is admissible deduction. Such deduction will be available to coffee growers also.

1-4-04

Interest – Sec. 36

At present interest paid on capital borrowed for acquiring an asset for a new business is not being allowed as deduction. It is proposed that interest paid on funds borrowed for acquisition of an asset for extension of existing business for the period from the date of borrowal till the date on which the asset was put to use will not be allowed as deduction.

1-4-04

Payment to Non Residents (Section 40)

Under the existing provisions interest, royalty, fees for technical services payable outside India is not allowed as deduction if tax thereon has been paid or deducted. However, if tax is paid / deducted in subsequent year the amount is allowed in the relevant year.

It is proposed that where in respect of any such sum where tax had not been deducted initially but has been paid before the expiry of the time prescribed under section 200 (1) which may fall in subsequent year, such sum shall be allowed as deduction in the year in which the liability to pay such sum was incurred. It is also proposed to provide that no deduction shall be allowed in respect of any payment chargeable under the head "Salaries", if it is payable outside India or within India to Non resident on which tax has not been deducted / paid under chapter 17(B).

(A.Y. 2004-05)

Definition of the word ' Plant '

In section 43, it is proposed to exclude buildings or furniture & fittings from the definition of the word ' plant '

Deduction in the year of actual payment

Under section 43B deduction for sum payable by an assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any sum payable as interest on any term loan from scheduled bank is allowed only in the year of actual payment on or before the due date of filing of the Return of Income.

It is proposed to amend clause (e) of section 43B to provide that any sum payable by the assessee as interest on any loan or advanced from a scheduled bank in accordance with the terms and conditions of the agreement governing such loan or advances shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in that previous year in which such sum is actually paid.

Second proviso is proposed to be deleted. Assessees may be able to claim deduction in respect of statutory labour payment even in case of delay in payment.

Presumptive Income for Truck Owners.

Under the existing provision contained in sub section 1 of Section 44AE, in case of an assessee, who owns not more than 10 goods carriages and who is engaged in the business of plying, hiring or leasing such goods carriages, the income of such business chargeable to tax under the head "Profits and Gains of Business or Profession" is deemed to be the aggregate of the Profits and gains from all the goods carriages owned by him in the previous year. It is proposed to clarify that the provision of the Section shall apply in the case of the assessee who owns not more than 10 goods carriages at any time during the previous year (A.Y.2004-05)

Presumptive Income in case of Non Residents.

The Bill proposes that presumptive tax @ 10% u/s 44 BBB will be applicable in turnkey power projects which are not financed under any international programme, An assessee may claim lower profits than specified under 44 BB or 44 BBB if he maintains regular books of accounts and get them audited and furnishes the audited report.

The Bill proposes to provide that the presumptive tax rate of 10% u/s. 44BBB will be applicable to those turn key power projects also which are not financed under any international aid programme.

The Bill also proposes to provide that an assessee may claim low profits and gains then the profits and gains specified under sub section 1 of Section 44BB or as the case may be, Section 44 BBB, if he keeps and maintains such books of accounts and other documents as required under Sub Section 2 of Section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB and thereupon the assessing officer shall proceed to make an assessment of the total income or loss of the assessee under sub section 3 of Section 143.

Consequential Amendments are also proposed to be carried out in sections 44AA and 44AB so as to require such assessee to keep and maintain books of accounts and documents as may enable the assessing officer to compute his total income in accordance with the provisions of the income tax Act and to require such persons to get their accounts audited.

(A.Y. 2004-05)