Direct Tax amendments from F.Y. 2015-16

Budget 2015 Highlight on on direct taxation


1.Surcharge increase by 2% in all cases except in case of foreign company which is continue to be at the rate of 2% if taxable income exceeds Rs. 1 crore & 5% if taxable income exceeds Rs. 10 crore.


Now effective rate of surcharge w.e.f AY 2016-17 will be 7% if taxable income exceeds Rs. 1 crore & 12% if taxable income exceeds Rs. 10 crore.


2. Dealing in cash in immovable property transactions is covered under section 269SS & T.


Consequential amendments in section 271D and section 271E to provide penalty for failure to comply with the amended provisions of section 269SS and 269T, respectively.


3. Incentives for the State of Andhra Pradesh and the State of Telangana


In order to encourage the setting up of industrial undertakings in the backward areas of the State of Andhra Pradesh and the State of Telangana


(I)Insert a new section 32AD in the Act to provide for an additional investment allowanceof an amount equal to 15% of the cost of new asset acquired and installed by an assessee. if”


he sets up an undertaking or enterprise for manufacture or production of any article or thing on or after 1st  April, 2015 in any notified backward areas in the State of Andhra Pradesh and the State of Telangana; andthe new assets are acquired and installed for the purposes of the said undertaking or enterprise during the period beginning from the 1stApril, 2015 to 31stMarch, 2020.


This deduction shall be available over and above the existing deduction available under section 32AC of the Act.


(II)In order to incentivise acquisition and installation of plant and machinery for setting up of manufacturing units in the notified backward area in the State of Andhra Pradesh or the State of Telangana, it is proposed to allow higher additional depreciation at the rate of 35% (instead of 20%) in respect of the actual cost of new machinery or plant (other than a ship and aircraft) acquired and installed by a manufacturing undertaking or enterprise which is set up in the notified backward area of the State of Andhra Pradesh or the State of Telangana on or after the First day of April 2015 and ending before the 1stday of April, 2020.


If Plant or machinery put to use for less than 180 days in the year of acquisition and installation then additional depreciation to the extent of 50% was available. However, the balance 50% of the allowance is also proposed to be allowed in the immediately succeeding financial year in this budget.


4.It is proposed to amend section 194LD to provide that the concessional rate of 5% withholding tax on interest payment to FII™s and QFIs on their investments in Government securities and rupee denominated corporate bonds will now be available upto 30th June, 2017. Earlier it was available upto 1st June, 2015.


5.In order to reduce the hardship faced by small non-resident entities due to high rate of tax of 25%, it is proposed to amend the Act to reduce the rate of tax provided under section 115A onroyalty and FTS payments made to non-residents to 10%.


6.With a view to encourage generation of employment, it is proposed to amend the section 80JJAAdeduction allowed is equal to thirty per cent of additional wages paid to the new regular workmen employed), so as to extend the benefit to all type of assessees(individual, HUF, Firm, etc) having manufacturing units rather than restricting it to corporate assessees only as it was earlier.


Further in order to enable the smaller units to claim this incentive, it is proposed to extend the benefit under this section to units employing even 50 workmen instead of 100 regular workmen as it was earlier.


7.Non-availability of full 100% of additional depreciation u/s 32(1)(iia) for acquisition and installation of new plant or machinery in the second half of the year may motivate the assessee to defer such investment to the next year for availing full 100% of additional depreciation in the next year.


To remove the discrimination in the matter of allowing additional depreciation on plant or machinery used for less than 180 days and used for 180 days or more, it is proposed to Provide that the balance 50% of the additional depreciation on new plant or machinery acquired and used for less than 180 days which has not been allowed in the year of acquisition and installation of such plant or machinery shall be allowed  in immediately  succeeding previous year.


8.Explanation 5 to section 9 clarified that an asset or capital asset, being any share or interest in a company or entity registered or incorporated outside India shall he deemed to be situated in India if the share or Interest derives, directly or indirectly, its value substantially from the assets located India.


Considering the concerns raised by various stakeholders regarding the scope and impact of these earlier amendments. The following amendments are proposed in the provisions of section 9 relating to indirect transfer


The share or interest in a foreign companies, or entity shall be deemed to derive its value substantially from the assets (whether tangible or intangible) located in India, if on the specified date, the value of an Indian assets, –


Exceeds the amount of Rs. 10 Crore rupees ; andRepresents at least 50% of the value of all the assets owned by the company and the entity


9. In order to address the issue of compliance cost in case of small businesses on account of low threshold of Rs.5 crores, it is proposed to amend section92BA to provide that the aggregate of specified transactions entered into by the assessee in the previous year should exceed a sum of Rs.20 crores for such transaction to be treated as ˜specified domestic transaction˜.


10.  The activity of Yoga has been one of the focus areas in the present times and international recognition has also been granted to it by the Unite Nations. Therefore, it is proposed to include ˜yoga˜ as a specific category in the definition of charitable purpose under section 2(15).


Second proviso to section 2(15), provides that advancement of any other object of general public utility shall not be a charitable purpose if it involves any activity in the nature of trade, commerce or business.


However, the relaxation was given if aggregate value of the receipts from the activities referred above, is Rs.25 Lakh or less in the previous year.


In order to protect the activities undertaken by the genuine organization as part of actual carrying out for the primary purpose of the trust or institution. The relaxation limit increase to, 20% of the total receipts of the trust or institution undertaking such activity. ( Earlier relaxation limit was Rs.25 lakh)


11. It provides that single member bench of ITAT may dispose of any case which pertains to an assessee whose total income as compute by the assessing officer does not exceed 5 lakhs rupees.


It is proposed to amend sub section (3) of section 255 of the Income-tax Act to increase the above limit to Rs. 15 Lakhs.


12.Procedure for appeal by revenue when an identical question of law Is pending before Supreme Court


There is presently no parallel provision for revenue to not file appeal for subsequent years where the Department is in appeal on the same question of law, for an earlier year. As a result, appeals are filed by the revenue year after year on the same question of law until it is finally decided by the Supreme Court thus, multiplying litigation.


Accordingly, it is proposed to insert a new section 158AA so as to provide that the Commissioner or Principal Commissioner may, direct the Assessing Officer to make an application to the ITAT in the prescribed form within the sixty days from the date of receipt of order of the Commissioner (Appeals) stating that an appeal on the question of law arising in the relevant case may be filed when the decision on the question of law becomes final in the earlier case which will reduce the litigation.


13. The collection of wealth-tax over the years has not shown any significant growth and has only resulted into disproportionate compliance burden on the assessees and administrative burden on the department. It is, therefore, proposed to abolish the levy of wealth tax under the Wealth-tax Act, 1957 with effect from the 1stApril, 2016.


14.With a view to allow the deduction under section 80C to the parent or legal guardian of the girl child, amendment of section 80C of the Act is proposed to be made so as to provide that a sum paid or deposited during the year in the Sukanya Samriddhi Account Scheme in the name of any girl child of the individual or in the name of any girl child for whom such individual is the legal guardian, would be eligible for deduction under section 80C of the Act.


Interest accruing on deposits in such account and the withdrawal from the said scheme will also exempt from tax.


These amendments will take effect retrospectively from AY 2015-16.


15. Increase in limit under section 80D relating to deduction in respect of health insurance premia


Raise the limit of deduction from Rs.15,000/- to Rs.25,000/-


It is further proposed to raise the limit of deduction for senior citizens from Rs.20,000/- to Rs.30,000/-


Further, as a welfare measure towards very senior citizens is also proposed to provide that any payment made on account of medical expenditure in respect of a very senior citizen, allowed as deduction upto Rs.30,000/-.


16. It is proposed to amend section 80DDB to provide for a higher limit of deduction upto Rs. 80,000/-, for the expenditure incurred in respect of the medical treatment of a very senior citizen.


Further,it is also proposed to amend section 80DDB so as to provide that the assessee will be required to obtain only a prescription from a specialist doctor for the purpose of availing this deduction instead of certificate from government doctor.


17. In view of the rising cost of medical care and special needs of a disabled person, it is proposed to amend section 80DD and section 80U  raise the limit of deduction in respect of a person with disability from Rs.50,000/- to Rs.75,000/-.


It is further proposed to amend the section so as to raise the limit of deduction in respect of a person with severe disability from Rs.100,000/- to Rs.1,25,000/-.


18.In order to promote social security, it is proposed to increase limit of section 80CCC from Rs.1,00,000/- to Rs.1,50,000/-, within the overall limit provided in section 80CCE.


19. Limit of Rs. 100,000/- under section 80CCDhas been omitted.


In addition to the enhancement of the limit under section 80CCD(1), it is further proposed to provide for an additional deduction in respect of any amount paid, of up to Rs.50,000/- for contributions made by any individual assessee under the NPS.


20. The Finance (No.2) Act, 2014, inserted section 194DA in the Act with effect from 1.10.2014 to provide for deduction of tax at source at the rate of 2% from payments made under life insurance policy which are chargeable to tax.


It is, therefore, proposed to amend the provisions of section 197A for making the recipients of payments referred to in section 194DA also eligible for filing self-declaration in Form No.15G/15H for non-deduction of TDS w.r.t. payment made under life insurance policy in accordance with the provisions of section 197A.


21.National Fund for Control of Drug Abuse is also eligible for 100% deduction under section 80G.


22. Donations made to the Swachh Bharat Kosh and Clean Ganga Fund will be eligible for a deduction of 100% from the total income under section 80G.


However any amount spent in pursuance of Corporate Social Responsibility under sub-section (5) of section 135 of the Companies Act, 2013, will not be eligible for deduction from the total income of the donor.


These amendments will take effect retrospectively from AY 2015-16.


23. The Corporate Income Tax Rates will reduce from 30% to 25% over a next 4 years.



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