Finance Bill 2016 : 12 Changes in Original Proposals That Got Passed by the Parliament !

Both the Lok Sabha & Rajya Sabha now passed  the Finance Bill 2016 . What is importanat to note is that quite a few  amendments and removal of some earlier proposed amendments have been effected in the proposed finance bill  that was presented on 29th April 2016 . Here are 12 of most important amendements ( there are many !)  to the original proposals in the Finance Bill 2016

Private Company Share will be Long Term Asset in 2 Years

Right now , the shares of closely held company ( private companies) become long term asset if it is held for 36 months or more. Readers should note that Finance Act (No. 2) Act, 2014 had brought in changes to make the shares of prive companies long term in 36 months in place of 12 months only

Now the section  2(42A) of the Income-tax Act, amended to reduce the period to 2 years. In other words, unlisted shares of company would be treated as short-term capital asset if it is held for a period of 24 months or less immediately preceding the date of its transfer.

Only employer’s annual contribution excess of 12% of salary  deemed as income

The original Finance Bill, 2016 proposed an amendment to the Fourth Schedule of the Income-tax Act to provide that least of the following shall be deemed as income of the employee:
(i) Annual contribution made by employer in excess of 12% of salary to the recognized provident fund account of the employees; or
(ii) Rs. 1,50,000

However , now the ceiling limit of Rs. 1.50 lacs has been removed . So , the employer’s copntribution in excess of 12 % of salary only be reagraded as income of employee.

Car buying on credit gets some TCS relief

Originally , the Finance Bill, 2016 proposed  Collection of Tax at Source at the rate of 1% of value of motor car if such value exceeds 10 lakh rupees at the time of payment or at the time of debiting the amount whichever is earlier.

The Finance Bill, 2016 as passed by the Lok Sabha now provides that TCS under section 206C only at the time of receipt of consideration.

LLPs Eligible to Claim 100% Profit Deduction u/s 80IAC

Section 80-IAC was introduced in Finance Bill 2016 to provide 100 percent deduction for 3 consecutive assessment years to an ‘eligible Start-up’ engaged in an eligible business. However, teh definition of the ‘eligible start-up’ included only ‘company’ engaged in an eligible business.

Now , the amended sec. 80IAC includes definition of “Eligible Startup ” to include Limited Liability Partnership also .Thus ,  LLPs are also eligible to claim deductions under Section 80-IAC of the I.T.Act

 Amendment to Proposed Section 270A –   underreported income tax

Finance Bill 2016 proposed new Section 270A  for levy of penalty in cases of underreporting and misreporting of income which is fixed  at the  rate of penalty shall be 50% of tax in case of under reporting of income and 200% of tax in case of misreporting of income. However, the govt. has made following amendmentrs to this new provision for

(1) Under reporting of income u/s 115JB & 115JC is 7th Types of Under-Reporting Instance

Now ,a person shall also be deemed to have underreported his income if the amount of total income reassessed as per Section 115JB or Section 115JC (MAT or AMT) provisions is greater than the deemed total income assessed or reassessed under provisions of the MAT or the AMT immediately before such reassessment.
(ii) No flat tax rate  on underreporting of income .

Now the amended provision u/s 270A provides that the tax payable in respect of the underreported income shall be as under:

(i) Return not furnished and assessed first time:

The tax shall be calculated on underreported income as increased by maximum amount not chargeable to tax.
(ii) In case of loss:

The tax shall be calculated on underreported income as if it was the total income.
(iii) In any other case:

Tax on underreported income Plus  income assessed or re-assessed originally Minus  tax on income assessed or re-assessed originally.

Another important amendment in this regard is that the offence  of underreporting income as per section 270A is now  punishable with rigorous imprisonment under section 276C.

Tax on dividend only if total dividend from all shares  exceeds Rs 10Lakh

The passed Finance Bill, 2016 has clarified  two things in respect of proposed levy of tax on dividend received by a taxpayer exceeds Rs. 10 Lakhs.

1.  All types of dividend received ,declared or distributed by domestic companies to the assessee during the year shall be aggregated . If it exceeds Rs 10 Lakh , tax has to be paid by the assessee
2. The tax shall be paid only on the excess over Rs 10 Lakh.

Benefit of 25 percent tax rates on certain domestic companies

A new section 115BA was introduced by Finance Bill 2016 to provide lower tax rate of 25% to certain domestic companies been set-up and registered on or after March 1, 2016. and engaged in the business of manufacturing or production of any article or thing. The passed bill has extended benefit to some more types of companies  engaged in research in relation to or distribution of article or thing manufactured or produced by it.

Further , the claim of tax rate will be optional ( but once exercised can not be withdrawan ) and has to be claimed  in the prescribed manner on or before due date of furnishing the return of income under section 139(1) for the relevant previous year.

Cost of acquisition of asset declared under Income Declaration Scheme, 2016

The Finance Bill, 2016 proposed Income Declaration Scheme, 2016 under which a resident assessee can  declare his/her/its undisclosed income .The scheme levies tax & penalty at 45% of such undisclosed income.

Now it is provided that in case an assessee declares  income in form of investment in asset , the cost of acquisition of such asset shall be deemed to be the fair market value taken into account for purposes of Income Declaration Scheme, 2016.

No Processing of returns scrutiny notice served

The finance bill 2016 as passed by the Lok Sabha tweaked it proposal that processing of return u/s 139(1) has to be done . Now amendment to proposal says that that the processing of return is not necessary  where a notice is issued for scrutiny assessment under Section 143(2).

Retirement funds No More Taxing Now !

The Finance Bill, 2016 proposed to tax employers contribution as well as amounts of withdrawal by an employees of his own contribution from recognized providedn fund and superannuation fund.

Sensing the largescale protests by employees , the govt. scrapped the propoal .

Trusts – Some Relief Under New Chapter XII-EB

The Chapter XII-EB, comprising section 115TD, 115TE and 115TF, under the I.T.Act is a set of new provision to tax the  ‘accreted income’ of a trust or institution registered under section 12AA . The accreted income is the difference between the fair market value of the assets and liabilities of the trust or institution

The rate of tax fixed for such accreted income at  the maximum marginal rates in following circumstances:

1. If the trust or institution gets converted into any form which is not eligible under section 12AA;
2.  If the trust or institution gets merged into any entity which is not eligible under section 12AA;
3.  If on dissolution , the trust or institution fails to transfer its assets to exempt entities under section 12AA and section 10(23C) (iv), (v), (vi) & (via).

The Finance Bill, 2016 as passed by the Lok Sabha and Rajya Sabha have further amended the earlier provision to provide as under :

• Following assets shall not be taken into consideration while computing the ‘accreted income’:
  (a) Any asset acquired by a trust or institution out of its agricultural income.
  (b) Any asset acquired by the trust before getting registered under section 12AA provided that no exemption under section 11 or 12 is provided to trust or institution during that period.
• Time-limit to pay tax on accreted income
  • In it s original proposal , it was provided tha tax on accreted income shall be payable within 14 days from date of receipt of order cancelling registration or date of order rejecting application for fresh registration. But now amendment has been made to the said proposal and the Finance Bill, 2016 as passed by the Parliament , to prescribe that tax on accreted income shall be paid within 14 days from:
    • (i) the date on which the period for filing appeal before ITAT against the order cancelling the registration (or order rejecting the application) expires, if no appeal has been filed by the trust or the institution; or
    • (ii) the date on which the order in any appeal, confirming the cancellation of the registration (or application), is received by the trust or institution.

. Section 80-IBA – distance  measured aerially only & built up area matters !

The Finance Bill, 2016 inserted provision u/s 80-IBA  to boos the housing sector in the country. The new provision u/s 80-IBA lays down certain conditions like distance of project from municipal limits of certain cities. Further there is conditions about the size of the flats .  Certain amendments in original proposal has been carried out in finally passed Finance Bill as under :

1. The distance from municipal limits shall be measured aerially.
2. The ‘built-up area’ of the residential unit shall be relevant to check if the size of the residential unit is within threshold limit of 30 sq. meter or 60 sq. meter, as the case may be.