INCOME TAX AMENDMENTS 1 · RATES OF TAXATION 1. Tax rates Rate Super senior citizen i.e. resident...

GURUKUL FOR CA & CMA INCOME TAX AMENDMENTS 1

INTRODUCTION TO INCOME TAX

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RATES OF TAXATION

1. Tax rates

Rate

Super senior citizen

i.e. resident aged 80

years or more

Senior citizen resident i.e.

aged 60 years or more but

less than 80 years

Other (Individual, HUF, AOP, BOI,

Artificial Juridical Person).

Nil Up to Rs.5,00,000 Up to Rs.3,00,000 Up to Rs.2,50,000

5% NA 3,00,001 – 5,00,000 2,50,001 – 5,00,000

20% 5,00,001 – 10,00,000 5,00,001 – 10,00,000 5,00,001 – 10,00,000

30% Above 10,00,000 Above 10,00,000 Above 10,00,000

2. Firm/LLP

On the whole of the total income 30%

3. Local authority

On the whole of the total income 30%

4. Co-operative Society

Where the total income does not exceed

Rs.10,000

10% of the total income

Where the total income exceeds 10,000 but does

not exceed Rs.20,000.

Rs.1,000 plus 20% of the amount by which the total

income exceeds Rs.10,000

Where the total income exceeds Rs.20,000 Rs.3,000 plus 30% of the amount by which the total

income exceeds Rs.20,000

5. Company

In the case of a domestic company

If the Total Turnover or Gross receipts of the PY

2015-16 does not exceed Rs.50 crore

25%

In all other cases 30%

In case of other than a domestic company 40% on the Total Income

SURCHARGE

If the Total income is in the Range of

Upto Rs.50

lakhs

Rs.50 Lkah to

Rs.1 Crore

Rs.1 Crore to

Rs.10 Crore

Above Rs.10

crore

Individual/HUF/AOP/BOI/Artificial

juridical Person

Nil 10% 15% 15%

Firm/Cooperative society/local

Authority

Nil Nil 12% 12%

Domestic Company Nil Nil 7% 12%

Foreign Company Nil Nil 2% 5%

Rebate of income-tax in case of certain individuals (Section 87A)

1. Eligible Assessee: Resident Individual, whose total income does not exceed Rs.3,50,000.

2. Amount of rebate: Lower of;

a. 100% of Income tax; or

b. Rs.2,500.


Illustration

Mr. A, aged 50 years, earned a total income of Rs.3,40,000. Compute his tax liability.

Particulars Rs.

Tax on Rs.3,40,000 4,500

Less: Relief under section 87A 2,500

Add: Education cess & SHEC @ 3% 60

Net tax payable 2,060

INCOME FROM HOUSE PROPERTY

In case of a house property held as stock-in-trade [Section 23(5)]

In some cases, property consisting of any building or land appurtenant thereto may be held as stock-

in-trade, and the whole or any part of the property may not be let out during the whole or any part of

the previous year.

In such cases, the annual value of such property or part of the property shall be NIL.

This benefit would be available for the period upto one year from the end of the financial year in

which certificate of completion of construction of the property is obtained from the competent

authority

PGBP

Actual Cost: Where an assessee incurs any expenditure for acquisition of any asset in respect of which a

payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque

drawn on a bank or account payee bank draft or use of electronic clearing system through a bank account,

exceeds Rs. 10,000, such expenditure shall not form part of actual cost of such asset [proviso to section

43(1)]

Illustration

Assessee purchased plant & machinery of Rs.4,00,000 on 01.01.2018 and pays Rs.4,00,000 by cash.Since

payment of Rs.4,00,000 is made by cash, it shall not be considered as part of actual cost of plant &

machinery. The actual cost of plant & machinery shall be taken to be NIL and NIL shall be added to WDV

of Block of assets.

Depreciation Rates

Block of Assets Depreciation

(% of WDV)

Tangible Assets

Mainly used for residential purposes except hotels and boarding houses. 5%

Buildings other than those mainly used for residential purposes. 10%

Purely temporary erections such as wooden structures. 40%

Furniture and fittings (including electrical fittings) 10%

Plant and Machinery

General rate. 15%

Motor cars, motor lorries and motor taxis used in the business of running them on hire. 30%

Motor cars other than those used in a business of running them on hire. 15%

Specified Air Control Pollution Equipments / Water Control Pollution Equipments. 40%

Computers including computer software. 40%

Books owned assessee’s a i g o p ofessio , other than annual publications. 40%

A book, being annual publications, owned by assesses carrying on a profession. 40%

A book owned by assesses carrying on business in running lending libraries. 40%

Ships. 20%

Intangible Assets

Know-how, Patents, Copyrights, Trademarks, Licenses, Franchises or any other business

or commercial rights of similar nature.

25%


SECTION 35: Expenditure on scientific research

PART A – In house Research (Self Spending)

[Research related to Business of Assessee]

100%

Deduction

Research after Commencement of Business Research before commencement of business

Maximum 3 yrs before the date of commencement of business

expenses allowed Assessee – Company

Engaged – Manufacturing

business

Research – Approved

Section 35(2AB)

Other Assessee

Revenue Expenses

Sec 35(1)(i)

Capital Expenses

Sec 35(1)(iv)

Revenue

Expenses

Capital

Expenses

150%

Deduction

Land Building Other Capital

Expenses

150%

Deduction

No

Deduction

100%

Deduction

Revenue Expenses

Sec 35(1) (i) Capital Expenses

Sec 35(1) (iv)

100% Deduction

Land

Other Capital Expenses

No Deduction

100% Deduction

Salary [Ex. Perks]

Material

Other

Expenses

Not Allowed

Other

Expenses

Land

Not Allowed 100%

Deduction


I vest e t - Li ked Tax I e tives for Spe ified Busi esses [Se tio 35AD] Further, any expenditure in respect of which payment or aggregate of payment made to a person of an

amount exceeding Rs. 10,000 in a day otherwise than by account payee cheque drawn on a bank or an

account payee bank draft or use of electronic clearing system through a bank account would not be eligible

for deduction.

Amounts not Deductible

Section Particulars

40A(3) 1. Any expenditure, in respect of which a payment or aggregate of payments made to a

person in a single day otherwise than by account payee cheque or account payee bank

draft or use of electronic system through bank account exceeds Rs. 10,000.

2. In case of payments made to transport operator for plying, hiring or leasing goods

carriages, an enhanced limit of Rs. 35,000 shall apply.

3. If the payment/payments exceed this limit, the entire expenditure would be

disallowed.

4. However, disallowance would not be attracted if the cases and circumstances in which

payment is made otherwise than by way of an account payee cheque or bank draft are

covered in Rule 6DD.

40A(3A) 1. Where an expenditure has been allowed as deduction on accrual basis in any previous

year, and payment is made in a subsequent previous year and such payment (or

aggregate of payments made to a person in a day is made in a subsequent previous

year) is in excess of the limits of Rs.10,000 / Rs.35,000 specified above, the

payment/aggregate of payments so made shall be deemed as profits and gains of the

business or profession and charged to tax as income of the subsequent previous year.

2. However, the deeming provision will not apply in the cases and circumstances covered

in Rule 6DD.

For Scientific Research

Section 35(2AA)

For Social &

Statistical Research

Section 35(1)(iii)

To Approved Indian Co.

engaged in R & D

For Scientific

Research

Section 35(1) (ii a)

To approved

Research Association

Institute

College

University

To IIT National Laboratory

150% Deduction

For Scientific Research

Section 35(1) (ii)

100% Deduction

100% Deduction 150% Deduction

Part B – Contribution to Outsiders


Certain Deductions to be allowed only on Actual Payment [Section 43B]

In respect of the following sums payable by an assessee, deduction is allowable only if the sum is actually

paid on or before the due date of filing of return under section 139(1).

a. Tax, duty, cess or fee, under any law for the time being in force; or;

b. Contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the

welfare of employees; or;

c. Bonus or commission for services rendered by employees, where such sum would not have been

payable to him as profits or dividend if it had not been paid as bonus or commission; or;

d. Interest on any loan or borrowing from any public financial institution or a State Financial Corporation or

a State Industrial Investment Corporation, in accordance with the terms and conditions of the

agreement governing such loan or borrowing; or;

e. Interest on any loan or advance from a scheduled bank or co-operative bank other than a primary

agricultural credit society or a primary co-operative agricultural and rural development bank on actual

payment basis. (FA-2017)

f. Payment in lieu of any leave at the credit of his employee.

g. Sum payable to Indian Railways for use of railway assets.

(Effective from: A.Y.2017-18)

Maintenance of Books of Accounts u/s 44AA

Maintain the books of accounts and other documents by notified professions [Section 44AA(1)] :

This section provides that every person carrying on the legal, medical, engineering or architectural

profession or accountancy or technical consultancy or interior decoration or any other profession as has

been notified by the Central Board of Direct Taxes in the Official Gazette must statutorily maintain such

books of accounts and other documents as may enable the Assessing Officer to compute his total income

in accordance with the provisions of the Income-tax Act, 1961.

From the assessment tear 2018-19

For an individual/HUF For any other

Assessee

Existing Business/Profession – Obligation to

maintain books of account if income from business

or profession/ gross turnover in any one of the 3

preceding previous years exceeds the following.

– Income from business or profession

– Total Sales, turnover/gross receipts in the

business or profession

Rs.2,50,000

Rs.25,00,000

Rs.1,20,000

Rs.10,00,000

New Business/Profession – Obligation to maintain

books of account if income from business or

profession/ gross turnover of the first previous year

is likely to exceed the following.

– Income from business or profession

– Total Sales, turnover/gross receipts in the

business or profession

Rs.2,50,000

Rs.25,00,000

Rs.1,20,000

Rs.10,00,000


Special Provision for Computing Profits & Gains of Business or Profession on Presumptive basis.

[Sec. 44AD]

Presumptive

income or

estimated income

8 % of the Total turnover or Gross receipts.

However, the presumptive rate of 6% of total turnover or gross receipts

will be applicable in respect of amount which is received

• by an account payee cheque or

• by an account payee bank draft or

• by use of electronic clearing system through a bank account

During the previous year or before the due date of filing of return

under section 139(1) in respect of that previous year.

Higher threshold for

non-audit of

accounts for

assessees opting for

presumptive

taxation under

section 44AD

Section 44AB makes it obligatory for every person carrying on business to

get his accounts of any previous year audited if his total sales, turnover

or gross receipts exceed Rs. 1 crore.

However, if an eligible person opts for presumptive taxation scheme as

per section 44AD(1), he shall not be required to get his accounts audited

if the total turnover or gross receipts of the relevant previous year does

not exceed Rs. 2 crore.

Advance tax Further, since the threshold limit of presumptive taxation scheme has

been enhanced to Rs. 2 crore, the eligible assessee is now required to

pay advance tax by 15th March of the financial year.

Illustration

The assessee is covered by provisions of section 44AD and his turnover is Rs.1,60,00,000 for the

year ended 31.03.2018. The breakup of turnover is as under:

Cash sales Rs.70,00,000

Sales through banking channel Rs.90,00,000

(including Account payee cheques)

The due date of filing of return of income is 31st

July, 2018. Out of Rs.90,00,000, the cheques of

Rs.82,00,000 are received by 31.7.2018 and cheques of Rs.8,00,000 are received after 31.07.2018.

Now, income on presumptive basis shall be as under:

On Rs.70,00,000 @ 8% 5,60,000

On Rs.82,00,000 @ 6% 4,92,000

On Rs.8,00,000 @ 8% 64,000

(Since received after the due date of filing of return of income)

Income from Business 11,16,000

Presumptive Taxation Scheme for assessees engaged in eligible profession [Section 44ADA]

Advance tax: Advance tax to be paid on or before 15th March of the financial year


CAPITAL GAINS

Term Capital Asset and Long Term Capital Asset

Fair Market Value

(i) If assessee or previous owner acquired the asset before 01-04 -2001 then the F.M.V. i.e. fair

market value as on 01-04-2001 may be adopted as the cost of acquisition.

(ii) This facility is not available in case of depreciable capital assets.

(iii) This facility is not available in case of Sec.55 assets.

Indexation

Financial Year Cost inflation Index Financial Year Cost Inflation Index

2001-02 100 2010-11 167

2002-03 105 2011-12 184

2003-04 109 2012-13 200

2004-05 113 2013-14 220

2005-06 117 2014-15 240

2006-07 122 2015-16 254

2007-08 129 2016-17 264

2008-09 137 2017-18 272

2009-10 148

1. Unlisted shares

2. Land or building or

both

Will be treated as short

term capital asset if it is

held for not more than

24 months immediately

preceding the date of its

transfer.

Capital Asset

Long Term Capital Asset 2(29A) Short Term Capital Asset (2(42A))

Other Assets Capital asset

which is not a

short-term

capital asset is

a long term

capital asset.

1. A security (other than a

unit) listed in a

recognized stock

exchange in India

2. A unit of UTI or a unit of

an equity oriented fund

3. A zero coupon bond

Will be treated as short term

capital asset if it is held for

not more than 12 months

immediately preceding the

date of its transfer.

Capital asset held

by an Assesse for

not more than 36

months

immediately

preceding the date

of its transfer is a

short term capital

asset.


PROFORMA FOR COMPUTATION OF CAPITAL GAINS

In

ca

se o

f a

Sh

ort

-te

rm C

ap

ita

l a

sse

t

Particulars Amount

(Rs.)

Amount

(Rs.)

Gross Sale consideration xxx

Less: Expenditure incurred wholly and exclusively in connection with

such transfer (for example, brokerage on sale)

xxx

(Note: Deduction on account of STT paid will not be allowed)

Net Sale Consideration xxx

Less: Cost of acquisition

Cost of improvement

xxx

xxx

xxx

Short-term Capital Gain xxx

Less: Exemption under sections 54B/54D xxx

Short term capital chargeable to tax xxx

In c

ase

of

a l

on

g-t

erm

Ca

pit

al

ass

et

Gross Sale consideration xxx

Less: Expenditure incurred wholly and exclusively in connection with

such transfer (for example, brokerage on sale)

xxx

(Note: Deduction on account of STT paid will not be allowed)

Net Sale consideration xxx

Less: Indexed cost of acquisition

Cost of acquisition X

CII for the year in which the asset is

transferred

CII for the year in which the asset was

first held by the assessee or P.Y. 2001-

02, whichever is later

xxx

(Note: Benefit of indexation will, however, not be available in respect of

long term capital gains from transfer of bonds or debentures other than

capital indexed bonds issued by the Government and sovereign gold

bonds issued by RBI)

Less: Indexed cost of improvement

Cost of improvement x

CII for the year in which the asset is

transferred

CII for the year in which the

improvement took place

xxx

xxx

Long-term capital gains xxx

Less: Exemption under sections 54/54B/54D/54EC/54EE/54F xxx

Long term capital gains chargeable to tax xxx

Note: Cost of improvement incurred before 01.04.2001 is ignored

CONVERSION OF COST OF ACQUISITION INTO INDEXED COST OF ACQUISITON

Treatment 1 Treatment 2

The previous owner holding period is to be

ignored for computing indexed cost of

acquisition.

The previous owner holding period is to be

considered for computing indexed cost of

acquisition. (Bombay High Court in CIT Vs.

Manjula J. Shah).


Bonus Shares – COA

If bonus shares are allotted before 1.4.2001. Fair Market Value on 1.4.2001.

If bonus shares are allotted on or after 1.4.2001. Nil.

Taxability of capital gains in case of Specified Agreement [Section 45(5A)]

1. Postponement of taxability of capital gains: With a view to minimise the genuine hardship

which the owner of land may face in paying capital gains tax in the year of transfer, a new sub-

section (5A) in section 45 has been inserted to provide that

o In case of an assessee being individual or Hindu undivided family,

o Who enters into a specified agreement for development of a project,

o The capital gain arising from such transfer shall be chargeable to income-tax as income of

the previous year in which the certificate of completion for the whole or part of the

project is issued by the competent authority.

2. Meaning of Specified Agreement: Specified agreement means the registered agreement in

which a person owing land or building or both, agrees to allow another person to develop a

real estate project on such land or building or both, in consideration of a share, being land or

building or both in such project, whether with or without payment of part of the

consideration in cash.

3. Full value of consideration: For this purpose, the stamp duty value of his share, being land or

building or both, in the project on the date of issuing of said certificate of completion as

increased by any consideration received in cash, if any, shall be deemed to be the full value of

the consideration received or accruing as a result of the transfer of the capital asset.

Full value of consideration deemed to be the cost of acquisition for determining capital gains

on subsequent sale of share of developed property

4. Non-applicability of the beneficial provision: It may, however, be noted that these beneficial

provisions would not apply, where the assessee transfers his share in the project on or before

the date of issue of said completion certificate and the capital gain tax liability would be

deemed to arise in the previous year in which such transfer took place. In such a case, full

value of consideration received or accruing shall be determined by the general provisions of

the Act.

Illustration no.1

Mr. X purchased a residential plot on 01.01.1998 for Rs.50,00,000. FMV of plot as on 01.04.2001

is Rs.65,00,000. Alpha builder enters into a Development Agreement with Mr.X on 01.05.2017

on the following terms and conditions.

(a) Mr. X will hand over the possession of plot to Alpha Builders on 01.05.2017.

(b) Alpha builders will pay a cheque of Rs.60,00,000 to Mr. X on 01.05.2017.

(c) Alpha Builders will construct 10 residential units on the plot of land and will give 6 units to

Mr.X. The 10 units on the plot of land and will give 6 units to Mr. X. The 10 units shall be

completed by 30.06.2019 and on that date 6 units will be handed over to Mr.X

(d) The stamp duty value of plot as on 01.05.2017 in Rs.2 Crores.

(e) The stamp duty value of each flat on 30.06.2019 is Rs.45 Lakhs.


Case I: The project completion certificate is issued by competent authority on 30.06.2019. 6

units are handed over to Mr.X on 30.06.2019

Case II: The project completion certificate is issued by competent authority on 30.04.2020 and

on that date the stamp duty value of each flat is Rs.50 lakh. 6 units are handed over to Mr.X on

30.04.2020.

Answer:

The e is a T a sfe o . . i ha ds of M .X si e he has gi e the possession of

residential plot pursuant to Development Agreement.

However as per section 45(5A) introduced by Finance Act, 2017, the capital gains shall not be

taxable in Previous Year 31.03.2018 but shall be taxable in the Previous Year in which

certificate of completion is issued by competent Authority. Thus, capital gains shall be taxable.

Section 45(5A) is applicable since assessee is an individual.

The holding period of residential plot shall be taken from 01.01.1998 to 30.04.2017 i.e. long

term.

As per section 55, the COA of plot is Rs.50,00,000 or FMV as on 01.04.2001, whichever is

higher. Therefore, COA of plot is Rs.65,00,000.

The Sale consideration of plot shall be worked out as under as per section 45(5A).

Sale consideration = SDV on the date of issue of completion certificate of his share in

land/building in project plus consideration received in cash

Capital Gains shall be worked out as under:

Case I: In Previous 31.03.2020, when completion certificate is issued by Competent Authority,


Assessment Year 2020-21

Capital Gains:

Period of holding : 01.01.1998 to 30.04.2017 (Long Term)

Sales Price

SDV of 6 Flats on 30.06.2019 : 45 Lakhs x 6 + Rs.60,00,000 Rs.3,30,00,000

+ Cash Received

Cost of Acquisition : Rs.65,00,000

Less: Indexed Cost of Acquisition : 65,00,000 x 272/100 Rs.1,76,80,000

Long term Capital Gain Rs.1,53,20,000

Case II: In Previous 31.03.2021, when completion certificate is issued by Competent Authority,



Capital Gains:

Period of holding : 01.01.1998 to 30.04.2017 (Long Term)

Sales Price

SDV of 6 Flats on 30.06.2020 : 50 Lakhs x 6 + Rs.60,00,000 Rs.3,60,00,000

+ Cash Received


Less: Indexed Cost of Acquisition : 65,00,000 x 272/100 Rs.1,76,80,000



Illustration no.2

Suppose in Illustration 1, the residential plot was owned by a company X Ltd instead of Mr. X.

Answer:

Section 45(5A) is applicable only to an individual and HUF. If the plot is owned by the company X

Ltd., then capital gains arises on 01.05.2017 being date of possession and capital gains shall be

taxable in Previous Year 2017-18.

Period of holding : 01.01.1998 to 30.04.2017 (Long term)

Sales Price : SDV of Plot as on 01.05.2017 Rs.2,00,00,000


Less: Indexed Cost of Acquisition : 65,00,000 X 272/100 Rs.1,76,80,000

Long term Capital Gain Rs.23,20,000

Illustration no.3

Suppose in Illustration 1, part completion certificate for 2 units is obtained on 31.07.2018. The

stamp duty value of each unit on that date is Rs.42 lakhs per unit.

Answer:

As per section 45(5A), the entire capital gains shall be taxable in the Previous Year in which

certificate of completion for the whole or part of the project is issued by authority. Therefore,

Capital gains become taxable in Assessment Year 2019-20. [Holding period 01.01.1998 to

30.04.2017]

The sale price shall be SDV on the date of issuance of certificate of completion for part project of

his share in project as increased by cash received. Therefore, sale price shall be:

Pe iod of holdi g Sales P i e Cost of A uisitio • Less: I de ed Cost of A uisitio : , , X 272/100 Long term Capital Gain

Rs.42 Lakh x 6 unit + Rs.60,00,000 = Rs.3,12,00,000


Period of holding : 01.01.1998 to 30.04.2017 (Long term)

Sales Price : Rs.3,12,00,000


Less: Indexed Cost of Acquisition : 65,00,000 X 272/100 Rs.1,76,80,000


Illustration 4:

In illustration 1 and in Illustration 3, if Mr. X sells the two units on 01.01.2021 for Rs.80,00,000

each, what will be the tax implications?

Answer: As per section 49(7), the cost of acquisition of share of the assessee in the project in form

of land or building or both shall be the amount which has been deemed as full value of

consideration under section 45(5A). The date of acquisition of the share of the assessee in the

project shall be the date on which possession of the share of the assessee in the project is handed

over to the assessee.

Therefore, position shall be as under:


Amount deemed

as sales

consideration for

section 45(5A)

COA per unit Date of

Acquisition

Sale

Consideration

Per Unit

Illustration 1

CASE I 3,30,00,000

(For Six Units)

3,30,00,000/6 =

Rs.55,00,000

30.06.2019 80,00,000

CASE II 3,60,00,000

[For Six Units]

3,60,00,000/6 =

Rs.60,00,000

30.04.2020 80,00,000

Illustration 3 3,12,00,000

[For Six Units]

3,12,00,000/6 =

52,00,000

31.07.2018 for 2

units and actual

date of

possession for

balance 4 units

80,00,000

Capital Gains shall be as under:

Illustration 1

Case I Short Term 25,00,000 per unit

Case II Short Term 20,00,000 per unit

Illustration 3 Long Term 28,00,000 per unit subject to indexation

Illustration no.5

Suppose in illustration 1, Mr. X sells two flats before the issue of completion certificate on

30.12.2018 for Rs.75 lakhs each.

Answer:

As per proviso to section 45(5A), since assessee has sold his share in the project before the Issue

of completion certificate, the provisions of main section 45(5A) shall not be applicable.

Capital gains shall be deemed to the income of the previous year in which transfer takes

place. Since transfer takes place on date of possession, the transfer has taken place on

01.05.2017 i.e. Assessment Year 2018-19.

Now the question arise as to what is the sale price of the plot. The answer seems be SDV of 6

flats plus Rs.60 Lakh. But this answer does not seem to be correct since the flats are not in

existence and are yet to be constructed. The sale price does not seem to be ascertainable in

this case.

As per section 50D, where the sale price is not ascertainable or cannot be determined, then

the fair market value of the asset transferred on the date of transfer shall be taken to the sale

price. Since stamp Duty Value is the Fair Market Value, therefore SDV on 01.05.2017 i.e. Rs.2

Crores shall be taken to be the sales price of the plot.

The holding period of plot shall be from 01.01.1998 to 30.04.2017 (Long Term)

DA of plot as per section 55 is Rs.65,00,000 being FMV on 01.04.2001.

Capital Gains on Plot taxable in Assessment Year 2018-19

Sale Price : 2,00,00,000

COA : 65,00,000 X 272/ 100 = 1,76,80,000

LTCG : 23,20,000

Assessee can file a revised return for Assessment Year 2018- 19 showing LTCC of Rs.23,20,000.


Capital Gains on Sale of 2 Units sold before the issue of completion certificate


Assessee has sold his right to get to flat and hence he has transferred a capital asset. The holding

period of capital asset is from 01.05.2017 to 29.12.2018 (short term less than 3 years) COA of

these flats will be = 2,00,00,000/6 x 2 = Rs.66,66,666.

Sale Price: Rs.1,50,00,000

Capital Gains: Rs.83,33,334

In this case, what assessee is selling is his right to get the flat, he is not selling land and / or

building. Hence, in the present case, the holding period shall be more than 36 months for capital

gains to be long term.

Exemption u/s10(38)

Finance act, 2017 provides that exemption under section 10(38) on equity shares shall be available

if the shares sold:

(i) Were acquired before 01.10.2004 in any manner (STT came into force from 01.10.2004).

(ii) Were acquired on or after 01.10.2004 and STT was paid on the acquisition of these shares.

However Central Governments has notified certain acquisitions made on or after 01.10.2014

which will be eligible for exemption under section 10(38) even if STT is not paid on the

acquisition.

SEC 50C:- DEEMED FULL VALUE OF CONSIDERATION FOR COMPUTATION

No

1. Capital asset = land (or) building (or) both

2. If consideration received (or) accruing as a result of transfer less than SDV, then FVC is SCV

3. If date of agreement is different from the date of transfer

Whole (or) part of consideration

received by way of a/c payer cheque

(or) bank draft (or) ECS on (or)

before the date of agreement

FVC = SDV on

the date of

agreement

FVC = SDV on

the date of

transfer

Yes

4. If the assessing officer refer the valuation to a valuation officer, on the assesse’s claim that the SDV > FMV of the property on the date of transfer

Valuation by valuation officer < SDV Valuation by valuation officer > SDV

FVC = value determined by valuation officer FVC = SDV

Note: A.O a ’t efe to aluatio offi e , if SDV halle ged efo e a autho it / ou t.


Special provision for full value of consideration for transfer of unlisted shares [section 50CA]

1. In order to ensure the full consideration is not understated in case of transfer of unlisted

shares, a new section 50CA has been inserted to provide that where the consideration

received or accruing as a result of transfer of a capital asset, being share of a company other

than a quoted share, is less than the fair market value of such share determined in such

manner as may be prescribed, such fair market value shall be deemed to be the full value of

consideration received or accruing as a result of such transfer.

2. Fo the pu pose, uoted sha es ea s the sha e uoted o a e og ized sto k e ha ge with regularity from time to time, where the quotation of such share is based on current

transaction made in the ordinary course of business.

For example, Mr. A transfers to Mr. B, unquoted equity shares on 01.01.2018 for Rs.2,00,000. The

FMV of these shares is Rs.5,00,000. Mr.A had purchased these shares for Rs.1,50,000. Now as per

section 50CA, the capital gains in hands of Mr.A shall be

Sale price (FMV as per section 50CA) 5,00,000

COA 1,50,000

Capital Gains 3,50,000

Also, in hands of Mr.B, section 56(2)(x) shall be attracted and Rs.3,00,000 shall be income from

other sources in hands of Mr.B. The COA of these shares in hands of Mr.B shall be Rs.5,00,000 as

per section 49(4).

INCOME FROM OTHER SOURCES

Tax on certain dividends received from domestic companies (Section 115BBDA)

(i) Any income by way of aggregate dividend in excess of Rs 10 lakh shall be chargeable to tax in

the case of specified assessee who is resident in India, at the rate of 10%.

(ii) Meaning of certain terms

Term Meaning

Specified

assessee

Person other than

Domestic company

A fund or institution or trust or any university or other educational

institution or any hospital or other medical institution

A trust or institution

Dividend Includes dividend referred under section 2(22)(a) to (d) but shall not include

sub-clause (e) thereof.

(iii) Further, the taxation of dividend income in excess Rs 10 lakh shall be on gross basis i.e., no

deduction in respect of any expenditure or allowance or set-off of loss shall be allowed to

the assessee in computing the income by way of dividends.

(iv) Accordingly, exemption available under section 10(34), in respect of dividend received by a

shareholder from a domestic company would not apply to income by way of dividend

chargeable to tax under section 115BBDA.


Illustration:

Mr. X invested in shares and received dividends during the year at various dates as under:

Date of Receipt Scrip Nature of Dividend Amount of Dividend (Rs.)

27.6.2017 GAIL Final 1,75,000

25.8.2017 TCS Final 82,000

12.9.2017 ONGC Final 2,34,000

15.9.2017 BHEL Final 98,000

27.11.2017 CIPLA Interim 2,73,000

2.2.2018 NTPC Interim 1,69,000

To earn dividend income Mr. X spend Rs.67,000 during the year. Mr. X also earned the following

incomes:

Rent received from House located in South Delhi – Rs.6,00,000

Income from business (Computed) – Rs.3,60,000

Compute the total tax payable by him for the Assessment Year 2018-19.

Answer:

Computation of Income and Tax Liability of Mr. X


Particulars Amount (Rs.) Amount (Rs.)

Income under the Head House Property

Rent Received

Less: 30% under section 24(b)

6,00,000

1,80,000

4,20,000

Profits and Gains of Business or Profession Income from

other sources

Income from dividends

3,60,000

31,000

Total Income 8,11,000

Tax on Dividend @ 10%

Tax on Other Income

Total Tax

Add : Education & Secondary & Higher Education Cess @ 3%

3,100

68,500

71,600

2,148

Tax Payable 73,748

Illustration:

Arya Global Shares and Securities Pvt. Ltd., a resident, earned a dividend of Rs.34,56,000 during

the year ended 31.3.2018 from various securities in which the company was trading. Discuss the

tax implication on the dividend income.

Answer:

Since the dividend is received by the company, therefore, section 115BBDA is not applicable. Total

dividend earned by the company shall be exempt from tax under section 10(34).

Any sum of money or value of property received without

consideration or for inadequate consideration to be subject to tax

in the hands of the any recipient [Section 56(2)(x)]


Nature of asset Taxable value

1. Money The whole amount if the same exceeds Rs 50,000.

2. Movable

property

(i) Without consideration: The aggregate fair market value of the

property, if it exceeds Rs 50,000.

(ii) Inadequate consideration: The difference between the aggregate

fair market value and the consideration, if such difference exceeds

Rs 50,000.

3. Immovable

property

(i) Without consideration: The stamp value of the property, if it

exceeds Rs 50,000.

(ii) Inadequate consideration: The difference between the stamp duty

value and the consideration, if such difference exceeds Rs 50,000.

If the date of agreement different from the date of transfer and whole or part of the consideration

paid by way of A/c payee/Bank Draft/ECS on or before the date of agreement than SDV on the

date of agreement to be considered.

Illustration: GIFT AND CAPITAL GAIN

Mr. Hari, a property dealer, sold a building in the course of his business to his friend Rajesh, who

is a dealer in automobile spare parts, for Rs. 90 lakh on 1.1.2018, when the stamp duty value

was Rs. 150 lakh. The agreement was, however, entered into on 1.9.2017 when the stamp duty

value was Rs. 140 lakh. Mr. Hari had received a down payment of Rs. 15 lakh by a crossed

cheque from Rajesh on the date of agreement. Discuss the tax implications in the hands of Hari

and Rajesh, assuming that Mr. Hari has purchased the building for Rs. 75 lakh on 12th July, 2016.

Would your answer be different if Hari was a share broker instead of a property dealer?

Solution:

Case 1: Tax implications if Mr. Hari is a property dealer

In the hands of Mr. Hari In the hands of Mr. Rajesh

In the hands of Hari, the provisions of section

43CA would be attracted, since the building

represents his stock-in trade and he has

transferred the same for a consideration less than

the stamp duty value on the date of agreement.

Therefore, Rs. 65 lakh, being the difference

between the stamp duty value on the date of

agreement (i.e., Rs. 140 lakh) and the purchase

price (i.e., Rs. 75 lakh), would be chargeable as

business income in the hands of Mr. Hari.

Since Mr. Rajesh is a dealer in automobile

spare parts, the building purchased would

be a capital asset in his hands. The

provisions of section 56(2)(x) would be

attracted in the hands of Mr. Rajesh who

has received immovable property, being a

capital asset, for inadequate consideration.

Therefore, Rs. 60 lakh, being the difference

between the stamp duty value of the

property on the date of registration (i.e., Rs.

150 lakh) and the actual consideration (i.e.,

Rs. 90 lakh) would be taxable under section

56(2)(x) in the hands of Mr. Rajesh, since

the payment is made by crossed cheque and

not account payee cheque/draft or ECS.


Case 2: Tax implications if Mr. Hari is a stock broker

In the hands of Mr. Hari In the hands of Mr. Rajesh

In case Mr. Hari is a stock broker and not a

property dealer, the building would represent his

capital asset and not stock-in-trade. In such a case,

the provisions of section 50C would be attracted in

the hands of Mr. Hari and Rs. 75 lakh, being the

difference between the stamp duty value on the

date of registration (i.e., Rs. 150 lakh) and the

purchase price (i.e., Rs. 75 lakh) would be

chargeable as short-term capital gains.

It may be noted that under section 50C, the option

to adopt the stamp duty value on the date of

agreement can be exercised only if whole or part of

the consideration has been received on or before

the date of agreement by way of account payee

cheque or draft or by use of ECS through a bank

account on or before the date of agreement. In this

case, since the payment is made by crossed

cheque, the option cannot be exercised.

There would be no difference in the

taxability in the hands of Mr. Rajesh,

whether Mr. Hari is a property dealer or a

stock broker. Therefore, the provisions of

section 56(2)(x) would be attracted in the

hands of Mr. Rajesh who has received

immovable property, being a capital asset,

for inadequate consideration. Therefore,

Rs. 60 lakh, being the difference between

the stamp duty value of the property on

the date of registration (i.e., Rs. 150 lakh)

and the actual consideration (i.e., Rs. 90

lakh) would be taxable under section

56(2)(x) in the hands of Mr. Rajesh.

Note:

As per section 43CA, stamp duty value on the date of agreement can be adopted, if whole or part

of consideration is received otherwise than by way of cash on or before the date of agreement.

However, both section 50C and 56(2)(x) permit adoption of stamp value duty on the date of

agreement only if whole or part of consideration is received/paid, as the case may be, by way of

account payee cheque or account payee bank draft or by use of ECS through a bank account.

SET-OFF & CARRY FORWARD OF LOSSES

Section 71: Inter-head adjustment

Loss under the head house property can be set off against income under the any other head to the

extent of 2lakhs only.

Illustration:

Mr. A submits the following particulars pertaining to the A.Y. 2018-19:

Particulars Rs.

Income from salary 4,00,000

Loss from self-occupied property (-)70,000

Loss from let-out property (-) 1,50,000

Business loss (-)1,00,000

Bank interest (FD) received 80,000

Compute the total income of Mr. A for the A.Y. 2018-19.

Solution:


Computation of total income of Mr. A for the A.Y. 2018-19

Particulars Amount (Rs.) Amount (Rs.)

Income from salary 4,00,000

Loss from house property of Rs. 2,20,000 to be restricted to

Rs. 2 lakhs by virtue of section 71(3A)

(-) 2,00,000 2,00,000

Balance loss of Rs. 20,000 from house property to be carry

forward to next assessment year

Income from other sources

(interest on fixed deposit with bank)

80,000

Business loss set-off (-) 1,00,000 –

Business loss of Rs. 20,000 to be carried forward

Gross total income [See Note below] 2,00,000

Less: Deduction under Chapter VI-A Nil

Total income 2,00,000

Note: Gross Total Income includes salary income of Rs. 2,00,000 after adjusting loss of Rs. 2,00,000

from house property. The balance loss of Rs. 20,000 from house property will be carried forward.

Business loss of Rs. 1,00,000 is set off against bank interest of Rs. 80,000 and remaining business

loss of Rs. 20,000 will be carried forward as it cannot be set off against salary income

DEDUCTIONS

Section 80 CCD

Contribution to pension scheme of Central Govt. / New pension scheme/ Atal pension Yojna.

a. Eligible assessee: Individual

b. Amount of deduction (Sec 80 CCD(1))

Deduction in respect of donations to certain funds, charitable institutions etc. [Section 80G]

No deduction shall be allowed under section 80G in respect of any donation of a sum exceeding

Rs.2,000 unless such sum is paid by any mode other than cash. Therefore, cash donations

exceeding Rs.2,000 are not eligible for deduction under section 80G

Section 80 CCG Investment made under an Rajiv Gandhi Equity Saving Scheme (RGESS)

Persons Entitled A new retail investor.

Being a resident individual, and;

Whose GTI ≤ 12 lacs(does not exceed).

Salaried employee Other individuals

(i) Employees contribution xx

(i) 10% of salary xx

(ii) Assessee’s o t i utio

(ii) 20% of GTI xx


Payment Regarding Specified listed equity shares or listed units of an equity oriented fund.

Quantum of

deductions

Deduction shall be @ 50% of the investment or Maximum deduction

in one year is Rs.25,000 which ever is lower.

Deduction is Allowed for 3 consecutive A.Y.s beginning with the AY

relevant to PY in which shares were first acquired.

Conditions for

deduction

Investment shall be locked in for a minimum period of 3 years from the

date of acquisition.

Non-Compliance of

conditions

Deduction shall be withdrawn, and;

The amount of deduction shall be included in the income of the

individual of the P/Y of non-compliance.

No deduction under this section shall be allowed from A.Y 2018-19. However an assessee who

has claimed deduction under this section for A.Y 2017-18 or earlier assessment years, shall be

allowed deduction till A.Y.2019-20, if he is otherwise eligible to claim the deduction as per

provisions of this section.

Illustration:

Mr. X, Mr. Y and Mr. Z, new retail investors for the previous year 2015-16, 2016-17 and 2017-18,

respectively, have made the following investments in equity shares/units of equity oriented

fund of Rajiv Gandhi Equity Savings Scheme for the P.Y. 2017-18 as below:

Particulars Mr. X(Rs.) Mr. Y(Rs.) Mr. Z(Rs.)

Investment in listed equity shares 20,000 45,000 32,000

Investment in units of equity-oriented fund 40,000 – 18,000

Gross Total Income (comprising of salary

income and bank interest)

11,25,000 12,15,000 11,50,000

Mr. X has claimed deduction under section 80CCG for A.Y. 2016-17 and A.Y. 2017-18 and Mr. Y

for A.Y. 2017-18.

Compute the deduction under section 80CCG for the Assessment Year 2018-19.

Solution:

Computation of Deduction under section 80CCG for the A.Y.2018-19

Particulars Mr. X(Rs.) Mr. Y(Rs.) Mr. Z(Rs.)

Deduction u/s 80CCG for A.Y. 2018-19 25,000 NIL NIL

Remark (Restricted to 50%

of Rs. 50,000)

(Since GTI > Rs.

12,00,000)

No deduction is

allowed from

A.Y. 2018-19.

Note – Mr. X is eligible for deduction under section 80CCG for A.Y. 2018-19, since he has claimed

deduction there under for A.Y. 2016-17 and A.Y. 2017-18 and he fulfils the conditions for claim of

deduction in A.Y. 2018-19.

RETURN OF INCOME

QUOTING OF AADHAR NUMBER [SECTION139AA]

1. Mandatory quoting of Aadhar Number

Every person who is eligible to obtain Aadhar Number is required to mandatorily quote Aadhar

Number, on or after 1st July, 2017:

(a) In the application form for allotment of Permanent Account Number (PAN)

(b) In the return of income


2. Mandatory quoting of Enrolment Id, where person does not have Aadhar Number

If a person does not have Aadhar Number, he is required to quote Enrolment ID of Aadhar

application form issued to him at the time of enrolment in the application form for allotment of

Permanent Account Number (PAN) or in the return of income furnished by him.

Enrolment ID means a 28 digit Enrolment Identification Number issued to a resident at the time of

enrolment.

3. Intimation of Aadhar Number to prescribed Authority

Every person who has been allotted Permanent Account Number (PAN) as on 1st

July, 2017, and

who is eligible to obtain Aadhar Number, shall intimate his Aadhar Number to prescribed authority

on or before a date as may be notified by the Central Government.

4. Consequences of failure to intimate Aadhar Number

If a person fails to intimate the Aadhar Number, the permanent account Number (PAN) allotted to

such person shall be deemed to be invalid and the other provisions of the Act shall apply, as if the

person had not applied for allotment of permanent account number (PAN).

5. Provision not to apply to certain person or class of persons

The provisions of section 139AA relating to quoting of Aadhar Number would, however, not apply

to such person or class or classes of persons or any State or part of any State as may be notified by

the Central Government.

ADVANCE TAX & INTEREST

Non-applicability of interest under section 234C in certain cases: Interest under section 234C

shall not be leviable in respect of any shortfall in payment of tax due on returned income, where

such shortfall is on account of under-estimate or failure to estimate.

(i) The amount of capital gains;

(ii) Income of nature referred to in section 2(24)(ix) i.e., winnings from lotteries, crossword

puzzles etc.

(iii) Income under the head profits a d gai s of usi ess or professio i ases he e the income accrues or arises under the said head for the first time.

(iv) Income of the nature referred to in section 115BBDA i.e., dividend in aggregate exceeding of

Rs. 10 lakhs received during the previous year.

However, the assessee should have paid the whole of the amount of tax payable in respect of such

income referred to in (i), (ii), (iii) and (iv), as the case may be, had such income been a part of the

total income, as part of the remaining installments of advance tax which are due or where no such

installments are due, by 31st March of the financial year

TDS

194

J

TDS on

professional

services

Any person (Other than

Individual/HUF not

liable to tax audit in last

pervious year)

Any resident

person

10%

However, in case payee

engaged in the business of

operating of call center @2%


New sections added by Finance Act 2017

Section Description Threshold

Limit

Payer Payee Rate

of TDS

Time of deduction

194 IB Payment of

rent by

certain

individual or

HUF

Rs 50,000

for a

month or

part of a

month

Individual

or HUF

( whose

turnover

not

exceeds

threshold

limit u/s

44AB in

preceding

financial

year)

Any

Resident

5% At the time of credit of

rent for last month of

PY or last month of

tenancy if property

vacated during the

year as the case may

be to the account of

payee or at the time of

payment whichever is

earlier.

194 IC Payment

under

specified

contract

u/s 45(5A)

- Any person Any

Resident

10% At the time of credit of

such income to the

account of the payee

or at the time of

payment whichever is

earlier.

ANALYSIS OF SECTION 194-IC

In joint development agreement referred to in section 45(5A), if the builder pays any cash to

the assessee in addition to share in the project, then builder shall deduct TDS @ 10% on the

cash payment made to the assessee.

It may be noted that capital gains are taxable in the hands of the assessee in the previous year

in which certificate of completion is issued by competent authority Therefore, the TDS credit

shall be claimed by the assessee in the previous year which capital gains are taxable.

To illustrate, the builder makes payment to the assessee on 1-1-2018 of Rs.1 crore. The

builder will deduct TDS @ 10% on Rs.1 crore on 1-1-2018. However, completion certificate is

obtained on 1-1-2020, then capital gains shall be taxable in the hands of assessee in previous

year 31.3.2020 and credit of TDS shall be claimed in previous year 31.3.2020.

Illustration

Mr. X, a salaried individual, pays rent of Rs. 55,000 per month to Mr. Y from June, 2017. Is he

required to deduct tax at source? If so, when is he required to deduct tax? Also, compute the

amount of tax to be deducted at source. Would your answer change if Mr. X vacated the

premises on 31st December, 2017? Also, what would be your answer if Mr. Y does not provide

his PAN to Mr. X?

Solution:


Since Mr. X pays rent exceeding Rs. 50,000 per month in the F.Y. 2017-18, he is liable to deduct tax

at source @5% of such rent for F.Y. 2017-18 under section 194-IB. Thus, Rs. 27,500 [Rs. 55,000 x

5% x 10] has to be deducted from rent payable for March, 2018.

If Mr. X vacated the premises in December, 2017, then tax of Rs. 19,250 [Rs. 55,000 x 5% x 7] has

to be deducted from rent payable for December, 2017.

In case Mr. Y does not provide his PAN to Mr. X, tax would be deductible @20%, instead of 5%. In

case 1 above, this would amount to Rs. 1,10,000 [Rs. 55,000 x 20% x 10] but the same has to be

restricted to Rs. 55,000, being rent for March, 2018.

In case 2 above, this would amount to Rs. 77,000 [Rs. 55,000 x 20% x 7] but the same has to be

restricted to Rs. 55,000, being rent for December, 2017.

Exemption to Political Parties [Sec.13A]

1. Meaning:

Political party means a political Party registered u/s 29A of Representation of people Act, 1951.

2. Exempted Incomes:

The following Incomes are exempt from tax:

a) Income from House property.

b) Income from Other Sources.

c) Voluntary Contributions received.

d) Capital Gains.

3. Conditions:

The following conditions should be fulfilled for availing the exemption.

a) Proper books of accounts and documents must be maintained.

b) No donations of Rs. 2,000 or more received otherwise than by an account pay cheque/

draft/ use of electronic clearing system through a bank account or through electoral bonds.

c) The Accounts should be audited by a Chartered Accountant.

d) The Treasurer of the Political Party of any other Authorized person, shall submit the

prescribed Report u/s 29C (3) of the Representation of people Act, 1951.

4. Return of Income:

Political parties are under obligation to file their Return of Income u/s 139(4B) on or before

the due date u/s 139(1). If ROI not filed within time limit u/s 139(1) than exemption under

section 13A not available.

INCOME TAX AMENDMENTS 1 · RATES OF TAXATION 1. Tax rates Rate Super senior citizen i.e. resident...

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