1

CA. Kejal V. PandyaB.com, FCA, DISA, DIRM

Kejal Pandya & AssociatesChartered Accountants

kejal@kejalpandyaassociates.com

Amendments by Finance Bill, 2012 with reference to Tax Audit

Venue: ICAI BHAWAN, VADODARA

2

Presentation Overview

• Amendments in relation to Business and Profession

• Amendments in relation to Deductions from Gross Total Income

• Amendments in relation to TDS provisions

3

Section 32(1) (iia)Extending benefit of initial/additional depreciation

Amendment to existing provision w.e.f. 01.04.2013Existing provision• Benefit of initial /additional depreciation available to an assessee

engaged in the business or manufacture of any article or thing AmendmentEligible Assessee – • An assessee engaged in the business of generation or generation

and distribution of power What is allowed -• Additional depreciation at the rate of 20% of actual cost of

eligible new machinery or plant (other than ships and aircraft) acquired and installed in a previous year.

4

Section 32(1) (iia)…

Depreciation on addition after September • To be calculated as per the regular method as

per Income Tax Act, 1961 – 50% of applicable rate of depreciation

• Balance depreciation to be claimed in next year

5

Section 35(2AB) Deduction for in-house scientific research and development

Amendment to existing provisionExisting provisionDeduction was available upto 31.03.2012AmendmentEligible Assessee – • A company engaged in business of bio technology or in manufacture or

production of article or thing other than specified in Eleventh Schedule, who spends on in-house research and development

What is allowed –• Weighted deduction of 200% of revenue and capital expenditure (not

being in the nature of cost of any land or building) • For a further period of 5 years i.e. up to 31.3.2017.

6

Section 35ADDeduction in respect of capital expenditure on specified business

Amendment to existing provision w.e.f.01.04.2013Eligible Assessee – • Three new businesses added to the list of “specified business” for the

purposes of the investment-linked deduction of 100% of the capital expenditure under section 35AD, namely:-

Setting up and operating an inland container depot or a container freight station notified or approved under the Customs Act, 1962;

Bee-keeping and production of honey and beeswax; and Setting up and operating a warehousing facility for storage of sugar.

What is allowed –• deduction of 100% of the capital expenditure in “specified business”• Date of commencement of operations for availing investment linked

deduction - on or after 1.4.2012

7

Section 35AD...

Eligible Assessee – • Businesses commencing operations on or after 1.4.2012 namely:-

Setting up and operating a cold chain facility; Setting up and operating a warehousing facility for storage of agricultural

produce; Building and operating, anywhere in India, a hospital with at least one hundred

beds for patients; Developing and building a housing project under a scheme for affordable housing

framed by the Central Government or a State Government, as the case may be, and notified by the Board in this behalf in accordance with the guidelines as may be prescribed; and

Production of fertilizer in India.

What is allowed –• Weighted deduction of 150% of the capital expenditure under section

35/AD(1A) of the Income-tax Act

8

Section 35AD...

• A new sub-section (6A) inserted in section 35AD• w.r.e.f. AY 2011-12 Eligible Assessee – • Where the assessee builds a hotel or two-star or above category

as classified by the Central Government and subsequently, while continuing to own the hotel, transfers the operation thereof to another person

• the assessee shall be deemed to be carrying on the specified business of building and operating hotel and

What is allowed –• shall continue to be eligible for the deduction under section

35AD(100% of capital expenditure)

9

Section 35CCCDeduction for expenditure incurred on agricultural extension project

New section w.e.f. 01.04.2013Eligible Assessee – • Business entities engaged in agricultural extension servicesWhat is allowed –• Weighted deduction of 150% of the expenditure incurred

on agricultural extension project. • Deduction not to be allowed in respect of such expenditure

under any other provisions of the Income-tax Act for the same or any other assessment year.

10

Section 35CCC…

Meaning of Agricultural Extension Service -• Application of scientific research and new

knowledge to agricultural practices through farmer education

• Communication and learning activities organized for rural people by educators from different disciplines, including agriculture, agricultural marketing, health, and business studies.

11

Section 35CCDDeduction for expenditure incurred by a company on skill development project

New sectionEligible Assessee – • Companies investing on skill development projects in the manufacturing

sector• The skill development project eligible for this weighted deduction shall be

notified by the Board in accordance with the prescribed guidelines. What is allowed –• Weighted deduction of 150% of expenses (not being expenditure in the

nature of cost of any land or building) incurred on skill development project.

• Deduction not to be allowed in respect of such expenditure under any other provisions of the Income-tax Act for the same or any other assessment year.

12

Section 35CCD...

Skill Development aims at -• Institution-based skill development including ITIs/ITCs/vocational • schools/technical schools/ polytechnics/ professional colleges, etc.• Learning initiatives of sectoral skill development organised by

different ministries/departments.• Formal and informal apprenticeships and other types of training by

enterprises • Training for self-employment/entrepreneurial development• Adult learning, retraining of retired or retiring employees and

lifelong learning• Non-formal training including training by civil society organizations• E-learning, web-based learning and distance learning.

13

Section 40(a) (ia)Disallowance of business expenditure on a/c of non-deduction of tax on payment to resident payee

Amendment to existing provision w.e.f. 01.04.2013Existing provision• Expenditure were being disallowed if tax was not deducted on the

same.AmendmentWhere – • An assessee makes payment of the nature specified in the said section

to a resident payee without deduction of tax, AND• is not deemed to be an assessee in default under the amended section

201(1) as the tax has been paid by the payee on such income, AND• the payee has furnished the return of income

14

Section 40(a) (ia)…

Then -• for the purpose of allowing deduction of such sum, it

shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee.

• Therefore, the expenditure on which the tax was actually not deducted, becomes an allowable expenditure.

• These beneficial provisions are made to be applicable only in the case of resident payee.

15

Proviso to section 40A(2)(a) / Section 80-IA(8) and section 80-IA(10)

New Proviso (Domestic Transfer Pricing)• Payment to relative and close associates to be treated as

specified domestic transaction and should be done at arm’s length price

• Transactions under section 80-IA(8) (Deduction for infrastructure development – transfer at no/lower price) and section 80-IA(10) (transaction with more than eligible profit) to be treated as specified domestic transactions and should be done at arm’s length price

• Previously, report to be submitted if asked by AO, now mandatory

16

Section 40A(2) (b)Meaning of related person - amended

• Any other company carrying on business or profession in which the first mentioned company has substantial interest shall be considered as related person

17

Section 44ABTurnover or gross receipts for audit of accounts

Increase in the threshold limit of total sales, turnover or gross receipts, for getting accounts audited –

Nature Old Limit New Limit

Business 60 Lacs 1 Crore

Profession 15 Lacs 25 Lacs

18

Explanation to section 44ABDue date of furnishing audit report

• w.r.e.f. AY 2012-13• in case of international transactions/specified

domestic transactions• 30th November of the relevant assessment

year in case of assessees carrying on international transaction/specified domestic transaction as per section 92B or specified domestic transaction as per newly inserted section 92BA

19

Section 44ADPresumptive taxation not to apply to professions etc.

• w.r.e.f. A.Y. 2011-12• Sub-section (6) inserted in section 44AD • Presumptive scheme is not applicable to:

a person carrying on profession as referred to in section 44AA(1); a person earning income in the nature of commission or

brokerage income; or a person carrying on any agency business.

• Threshold limit of total turnover or gross receipts has been increased from Rs.60 Lacs to Rs.1 crore.

Practical aspects to be considered before deciding about presumptive taxation

20

Section 80C(3A) Eligibility condition for deduction in respect of life insurance policies

• Premium or other payment made should not exceed 10% of the actual capital sum assured, in case of

• Insurance policies other than a contract for deferred annuity • Issued on or after 1.4.2012 • Actual capital sum assured shall mean – • Minimum amount assured under the policy on happening of the

insured event at any time during the term of the policy, not taking into account- the value of any premiums agreed to be returned, or any benefit by way of bonus or otherwise over and above the sum

actually assured, which is to be or may be received under the policy by any person.

21

Section 80CCG Deduction in respect of investment made under an equity savings scheme

Eligible Assessee – An individual who is resident in India, who has-• in a previous year, acquired listed equity shares in accordance

with a scheme, as may be notified by the Central Government in this behalf, and

• satisfied the prescribed conditions. What is allowed –• 50% of the amount invested in such equity shares OR• Rs.25,000/-whichever is less.

22

Section 80CCG…

Conditions to the satisfied [Section 80CCG(3)] • The gross total income of the assessee for the relevant

assessment year should not exceed Rs.10,00,000 • The assessee is a new retail investor as may be specified under

the scheme notified in this behalf; • The investment is made in such listed equity shares as may be

specified under the notified scheme; • The investment is locked-in for a period of three years from the

date of acquisition in accordance with the notified scheme; and • Such other condition as may be prescribed. Practically a risky investment

23

Section 80CCG…

Consequences if the conditions of Section 80CCG(3) are not satisfied [Section 80CCCG (4)]

The deduction originally allowed shall be deemed to be the income of the assessee of such previous year and shall be liable to tax for the assessment year relevant to such previous year.

24

Section 80D Deduction for expenditure on preventive health check-up

Amendment to existing provisionWhat is eligible• Any payment made by an individual on account of preventive

health check-up of self, spouse, dependant children or parent(s) during the previous year

• Payment to be made – by any mode, including cash, in respect of any sum paid on account

of preventive health check-up; by any mode other than cash, in all other cases.

Amount of Deduction• Eligible within the overall limits prescribed in the section, not

exceed in the aggregate Rs.5,000

25

Section 80D, 80DDB and Section 197A(1C) Reduction of the eligible age for senior citizens

Reduced from 65 years to 60 years • For section 80D(mediclaim) and

80DDB(medical treatment), effective from A.Y. 2013-14

• For section 197A(no TDS), effective from 1.7.2012

26

Section 80-IA(4)(iv) Extension of sunset date for tax holiday for power sector

Terminal date extended for a further period of one year, i.e., up to 31.3.2013 in case of electricity undertakings

27

Section 80TTA Deduction in respect of interest on deposits in SB A/C

New SectionWho is eligible –• An Individual and an HUF having interest income from savings

account with – Bank Co-operative Society engaged in banking businedd Post office

• Not available to partners of a partnership firm and to members of an AOP or BOI, where, interest is earned by them from savings account held on behalf of such firm or AOP or BOI, and is part of their taxable income

What is allowed – Deduction to the maximum extent of Rs.10,000/-

28

Section 193 TDS on payment of interest on debentures

Amendment to existing provision• Who is eligible –• Resident individual or Hindu undivided family

receiving interest from debentures of a company• What is allowed – • TDS not to be deducted by the company on

interest on debenture to above upto Rs.5,000/-, if payment is made by account payee cheque (previous limit – Rs.2,500/-)

29

Section 194 E TDS on amount paid/payable to non-resident sports person and an entertainer

Amendment to existing provision• Rate increased from 10% to 20%

30

Section 194J(1)[ba]TDS on remuneration other than salary to a director

Amendment to existing provision w.e.f 01.07.2012• TDS on the remuneration or fee or commission by

whatever name called • paid to a director, which is not in the nature of salary • at the rate of 10% of such remuneration • Employer-employee relationship is a pre-requirement• Covers any remuneration or fees or commission or any

other payment by whatever name called, other than those on which tax is deductible u/s.192

31

Section 194LC TDC on interest payable to a non-resident in respect of borrowing made in foreign currency by a specified company

New Section• Payment of interest on –

Borrowings by an Indian company From a non resident, not being a company OR from a foreign

company in foreign currency during 01.07.2012 to 30.06.2015 under a loan agreement OR by way of issue of long term

infrastructure bonds As approved by Central Government

• At the rate of interest approved by the Central Government• TDS @ 5%

32

Section 195(1) TDS on any interest payable to non-resident

Amendment to existing provision w.e.f 01.04.2012

Section 195 shall not apply to –• Interest on infrastructure debt fund

(section 194LB)• Interest paid by a specified company

(section 194 LC)

33

Section 195(7) AO to decide sum chargeable to TDS

Amendment to existing provision w.e.f. 01.07.2012

Notwithstanding anything contained in section 195(1) and (2), the Board may, • by notification in the Official Gazette, specify a class of persons or

cases, • where the person responsible for paying to a non-resident, not

being a company, or to a foreign company, any sum, whether or not chargeable under the provisions of this Act, shall make an application to the Assessing Officer

• to determine, by general or special order, the appropriate proportion of sum chargeable, and

• upon determination, tax shall be deducted under section 195(1) on that proportion of the sum which is so chargeable.

34

Proviso to section 201(1) Assessee in default

New proviso • An assessee not to be considered as an assessee in default

when• Payment of expenditure without TDS/less TDS• Payee –

has furnished his return of income under section 139; has taken into account such sum for computing income in such

return of income has paid the tax due on the income declared by him in such return

of income, AND the payer furnishes a certificate to this effect from a chartered

accountant in such form as may be prescribed

35

!!!Thank You!!!

!!!Never give up!!!