A snippet of all changes made in the Finance Bill, 2016 as passed by the Lok Sabha viz-a-viz the Finance Bill, 2016 presented originally in the Lok Sabha are presented hereunder:
1. Unlisted shares held for 24 months or less would be treated as short-term capital asset
As per section 2(42A) of the Income-tax Act, any capital asset held by the taxpayer for a period of not more than 36 months
immediately preceding the date of its transfer is treated as short term capital asset.
The aforesaid period of 36 months is treated as 12 months in case of shares held in a company. However, an amendment was made by Finance Act (No. 2) Act, 2014 to provide that the said period of 12 months won't be applicable in respect of shares not listed in recognized stock exchange. Hence, with effect from 01.04.2015, unlisted share is treated as short-term capital asset if it is held for not
more than 36 months immediately preceding the date of its transfer. The Finance Bill, 2016 as passed by the Lok Sabha inserted a new clause to provide that the period of 36 months would be substituted
with period of 24 months in case of unlisted shares. 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.
2. When employer's annual contribution is deemed as income received by employee
The Finance Bill, 2016 proposed an amendment to the Fourth Schedule of the Income-tax Act to provide that lower 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
The Finance Bill, 2016 as passed by the Lok Sabha provides that any contribution by employer in excess of 12% of salary to the recognized provident fund account of the employees shall be deemed
as income of employee. The ceiling limit of Rs. 1.50 lacs has been removed from the approved Finance Bill.
3. TCS collection at the time of receipt only in specific cases
The Finance Bill, 2016 proposed that every seller of a motor vehicle shall collect TCS at the rate of 1% of value of motor car if such value exceeds ten lakh rupees. Such tax was proposed to be collected from the buyer under section 206C at the time of debiting the amount receivable or at the time of receipt, whichever happened earlier.
The Finance Bill, 2016 as passed by the Lok Sabha provides that tax shall be collected under Section 206C only at the time of receipt of consideration.
4. Under reporting of income shall be punishable as willful attempt to evade tax
The Finance Bill, 2016 proposed insertion of a new Section 270A to levy penalty in case of under reporting and misreporting of income by assessee. However, there was no corresponding provision to
invoke prosecution in this case.
Section 276C provides for rigorous imprisonment of minimum 3 months to 7 years in case an assessee has made willful attempt to evade tax.
The Finance Bill, 2016 as passed by the Lok Sabha amends Section 276C to provide that under reporting of income as per section 270A shall be punishable with rigorous imprisonment under section 276C.
5. Processing of returns before scrutiny assessment
The Finance Bill, 2016 proposed mandatory processing of returns under Section 143(1) even when the scrutiny assessment notice is issued to the assessee. This amendment was proposed so that the
assessee need not to wait for the refunds, if any, due to him till the scrutiny assessment was completed. The Finance Bill, 2016 had provided that return shall be processed before issuing assessment order under section 143(3). However, the finance bill as passed by the Lok Sabha provides that the processing of return is not necessary before the expiry of one year from the end
of the financial year in which return is furnished, where a notice is issued for scrutiny assessment under Section 143(2).
6. Cost of acquisition of asset declared under Income Declaration Scheme, 2016
The Finance Bill, 2016 proposed Income Declaration Scheme, 2016 to provide an opportunity to taxpayers to declare their undisclosed income and pay tax, surcharge and penalty in aggregate at 45% of such undisclosed income.
It is provided under the scheme that where the income chargeable to tax is declared in the form of investment in any asset, the fair market value of such asset as on the date of commencement of this
scheme shall be deemed to be the undisclosed income.
The Finance Bill, 2016 as passed by the Lok Sabha provides that 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.
7. LLPs can be 'Eligible start-ups'
The Finance Bill, 2016 proposed a new section 80-IAC to provide 100 percent deduction for 3 consecutive assessment years to an 'eligible Start-up' engaged in an eligible business. Such deduction
may, at the option of assessee, be claimed for any three consecutive AY s out of the five years beginning from the year in which eligible startup is incorporated. The 'eligible start-up' is proposed to be defined to mean a 'company' engaged in an eligible business. The Finance Bill, 2016 as passed by the Lok Sabha extends the definition of 'eligible start-up' to include 'limited liability partnership'
also. In other words, LLPs shall also be eligible to claim deductions under Section 80-IAC subject to fulfilment of other conditions.
8. Levy of additional tax on dividend
The Finance Bill, 2016 had proposed an additional tax of 10% if amount of dividend received by a taxpayer exceeds Rs. 10 Lakhs.
The Finance Bill, 2016 as passed by the Lok Sabha clarified that dividend whether paid or declared or distributed by one or more domestic companies, the aggregate of dividend shall be considered
for the limit of Rs.10 lakhs but Tax shall be payable only on the amount of dividend exceeding Rs 10 lakhs.
9.Withdrawal from superannuation fund account
The Finance Bill, 2016 proposed that any payment in lieu of or in commutation of an annuity purchased out of contributions made on or after April 1, 2016, where it exceeds 40% of annuity, shall be chargeable to tax.
The Finance Bill, 2016 as passed by the Lok Sabha withdraws such an amendment.
10. Limit on deduction in respect of expenditure on agricultural extension project
The Finance Bill, 2016 had proposed to limit the deduction allowed under section 35CCC from existing 150% to 100% w.e.f April 1, 2018 (Assessment year 2018-19).
The Finance Bill, 2016 as passed by the Lok Sabha defers the applicability of this provision from April 1, 2018 to April 1, 2021 (Assessment Y ear 2021-22).
1. Unlisted shares held for 24 months or less would be treated as short-term capital asset
As per section 2(42A) of the Income-tax Act, any capital asset held by the taxpayer for a period of not more than 36 months
immediately preceding the date of its transfer is treated as short term capital asset.
The aforesaid period of 36 months is treated as 12 months in case of shares held in a company. However, an amendment was made by Finance Act (No. 2) Act, 2014 to provide that the said period of 12 months won't be applicable in respect of shares not listed in recognized stock exchange. Hence, with effect from 01.04.2015, unlisted share is treated as short-term capital asset if it is held for not
more than 36 months immediately preceding the date of its transfer. The Finance Bill, 2016 as passed by the Lok Sabha inserted a new clause to provide that the period of 36 months would be substituted
with period of 24 months in case of unlisted shares. 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.
2. When employer's annual contribution is deemed as income received by employee
The Finance Bill, 2016 proposed an amendment to the Fourth Schedule of the Income-tax Act to provide that lower 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
The Finance Bill, 2016 as passed by the Lok Sabha provides that any contribution by employer in excess of 12% of salary to the recognized provident fund account of the employees shall be deemed
as income of employee. The ceiling limit of Rs. 1.50 lacs has been removed from the approved Finance Bill.
3. TCS collection at the time of receipt only in specific cases
The Finance Bill, 2016 proposed that every seller of a motor vehicle shall collect TCS at the rate of 1% of value of motor car if such value exceeds ten lakh rupees. Such tax was proposed to be collected from the buyer under section 206C at the time of debiting the amount receivable or at the time of receipt, whichever happened earlier.
The Finance Bill, 2016 as passed by the Lok Sabha provides that tax shall be collected under Section 206C only at the time of receipt of consideration.
4. Under reporting of income shall be punishable as willful attempt to evade tax
The Finance Bill, 2016 proposed insertion of a new Section 270A to levy penalty in case of under reporting and misreporting of income by assessee. However, there was no corresponding provision to
invoke prosecution in this case.
Section 276C provides for rigorous imprisonment of minimum 3 months to 7 years in case an assessee has made willful attempt to evade tax.
The Finance Bill, 2016 as passed by the Lok Sabha amends Section 276C to provide that under reporting of income as per section 270A shall be punishable with rigorous imprisonment under section 276C.
5. Processing of returns before scrutiny assessment
The Finance Bill, 2016 proposed mandatory processing of returns under Section 143(1) even when the scrutiny assessment notice is issued to the assessee. This amendment was proposed so that the
assessee need not to wait for the refunds, if any, due to him till the scrutiny assessment was completed. The Finance Bill, 2016 had provided that return shall be processed before issuing assessment order under section 143(3). However, the finance bill as passed by the Lok Sabha provides that the processing of return is not necessary before the expiry of one year from the end
of the financial year in which return is furnished, where a notice is issued for scrutiny assessment under Section 143(2).
6. Cost of acquisition of asset declared under Income Declaration Scheme, 2016
The Finance Bill, 2016 proposed Income Declaration Scheme, 2016 to provide an opportunity to taxpayers to declare their undisclosed income and pay tax, surcharge and penalty in aggregate at 45% of such undisclosed income.
It is provided under the scheme that where the income chargeable to tax is declared in the form of investment in any asset, the fair market value of such asset as on the date of commencement of this
scheme shall be deemed to be the undisclosed income.
The Finance Bill, 2016 as passed by the Lok Sabha provides that 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.
7. LLPs can be 'Eligible start-ups'
The Finance Bill, 2016 proposed a new section 80-IAC to provide 100 percent deduction for 3 consecutive assessment years to an 'eligible Start-up' engaged in an eligible business. Such deduction
may, at the option of assessee, be claimed for any three consecutive AY s out of the five years beginning from the year in which eligible startup is incorporated. The 'eligible start-up' is proposed to be defined to mean a 'company' engaged in an eligible business. The Finance Bill, 2016 as passed by the Lok Sabha extends the definition of 'eligible start-up' to include 'limited liability partnership'
also. In other words, LLPs shall also be eligible to claim deductions under Section 80-IAC subject to fulfilment of other conditions.
8. Levy of additional tax on dividend
The Finance Bill, 2016 had proposed an additional tax of 10% if amount of dividend received by a taxpayer exceeds Rs. 10 Lakhs.
The Finance Bill, 2016 as passed by the Lok Sabha clarified that dividend whether paid or declared or distributed by one or more domestic companies, the aggregate of dividend shall be considered
for the limit of Rs.10 lakhs but Tax shall be payable only on the amount of dividend exceeding Rs 10 lakhs.
9.Withdrawal from superannuation fund account
The Finance Bill, 2016 proposed that any payment in lieu of or in commutation of an annuity purchased out of contributions made on or after April 1, 2016, where it exceeds 40% of annuity, shall be chargeable to tax.
The Finance Bill, 2016 as passed by the Lok Sabha withdraws such an amendment.
10. Limit on deduction in respect of expenditure on agricultural extension project
The Finance Bill, 2016 had proposed to limit the deduction allowed under section 35CCC from existing 150% to 100% w.e.f April 1, 2018 (Assessment year 2018-19).
The Finance Bill, 2016 as passed by the Lok Sabha defers the applicability of this provision from April 1, 2018 to April 1, 2021 (Assessment Y ear 2021-22).
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