IPCC Taxation Amendments Applicable for May 2018 Exam DT. 1 CA. Pawan Sarda Applicability of Income Tax Law for May 2018 exam: As a mended by the Finance Act, 2016 including significant notifications and circulars issued up to 3 1 - Oct - 201 7 These notes include all applicable amendments in the syllabus w.r.t. the syllabus applicable for Nov 201 7 exam. Students who have old book are required to also refer the amendment notes issued earlier for Nov 2017 exam. BASIC CONCEPTS A 1 Normal Rates of Tax (a) For Individuals , Hindu Undivided Families, Association of Persons (AOP), Body of Individuals (BOI), Artificial Juridical Persons: Taxable Income range Rates Education cess Secondary & Higher Education Cess Rebate u/s 87A for Resident Individuals Upto Rs. 2,50,000* Nil Nil Nil Not Required Rs. 2,50,001 to Rs. 5,00,000 10% 5% 2% of income tax 1% of income tax Available if TI ≤ Rs. 3.50L Rs. 5,00,001 to Rs. 10,00,000 20% 2% of income tax 1% of income tax Not Applicable Above Rs. 10,00,000 30% 2% of income tax 1% of income tax Not Applicable *Basic exemption for resident senior citizen: who is the age of 60 years or more at any time during the previous year 2017 - 18 : Rs. 3,00,000 who is the age of 80 years or more at any time during the previous year 2017 - 18 : Rs. 5,00,000 Hence for non - resident senior citizen, basic exemption limit continues to be Rs. 2,50,000 ❖ Surcharge Taxable Income range Rate of Surcharge (on Tax before cess) Marginal Relief Upto Rs. 50,00,000 Nil - Rs. 50,00,001 to Rs. 1 crore 10% (w.e.f. AY 2018 - 19) Available Above Rs. 1 crore 15% Available Note: If surcharge is applicable, education cess (3%) will be calculated on income tax + surcharge. ❖ Rebate u/s 87A of up to Rs. 2 , 5 00 for resident individuals having total income of up to Rs. 3. 5 0 lakh (Section 87A as amended by Finance Act, 2017 w.e.f. AY 2018 - 19) • S ection 87A provide s a rebate from the tax payable by an assessee, being an ▪ Individual ▪ resident in India ▪ whose total income does not exceed Rs. 5,00,000 3,50,000 • The rebate shall be equal to ▪ the amount of income - tax payable on the total income for any assessment year or ▪ an amount of Rs. 5,000 2,500 whichever is less. C A - I P C C INCOME TAX: AMENDMENTS FOR MAY 201 8 EXAM A IPCC Taxation Amendments Applicable for May 2018 Exam DT. 2 CA. Pawan Sarda ( b ) For companies: Taxable income range Rates Surcharge Education cess Secondary & Higher Education Cess (i) Domestic Companies: Rs. 1 c rore or less 30%* Nil 2% of income tax 1% of income tax Rs. 1 crore to Rs. 10 crore 30%* 7% 2% of ( income tax + surcharge ) 1% of ( income tax + surcharge ) Above Rs. 1 0 crore 30%* 12% 2% of ( income tax + surcharge ) 1% of ( income tax + surcharge ) ( i i) Foreign Companies: Rs. 1 c rore or less 4 0% Nil 2% of income tax 1% of income tax Rs. 1 crore to Rs. 10 crore 4 0% 2 % 2% of ( income tax + surcharge ) 1% of ( income tax + surcharge ) Above Rs. 1 0 crore 4 0% 5 % 2% of ( income tax + surcharge ) 1% of ( income tax + surcharge ) *The rate would be 25% for the domestic companies whose total turnover or gross receipt in the previous year 2015 - 16 does not exceed Rs. 50 crore. A. 2 Definition of Income [Sec 2(24)] Section 2(24) prescribes that income includes the following: (xix) Gifts as defined u/s 56(2)(x) [Inserted by Finance Act, 2017 w.e.f. AY 2018 - 19] INCOMES EXEMPT FROM TAX B .1 Incomes exempt from tax [Sec 10] Sr. No. Section Particulars of Income Rationale Remarks 1. 10(12B) Any payment from National Pension System Trust to an employee under the pension scheme referred to in Sec 80CCD, on partial withdrawal made out of his account in accordance with the terms and conditions specified under the Pension Fund Regulatory and Development Authority Act, 2013 and the regulations made thereunde r, shall be exempt from tax to the extent it does not exceed 25% of amount of contributions made by him. To avoid undue hardship to employee on partial withdrawal of amount for genuine reasons w.e.f. AY 2018 - 19 (Finance Act, 2017) 2. 10(34) Dividend , not covered by section 2(22)(e), from a domestic company. However this exemption will not apply to dividend chargeable to tax u/s 115BBDA [i.e. dividend(s), other than those covered u/s 2(22)(e), received by a specified assessee in excess of Rs. 10 lakhs in th e PY (which is chargeable @ 10%)] Incentives for investors, tax payable by company Amendment by Finance Act, 2016 w.e.f. AY 2017 - 18 [See Note below] Note: Exemption u/s 10(34) not to apply to dividend chargeable to tax u/s 115BBDA (Finance Act, 2016 w.e.f. A.Y. 2017 - 18 further amended by Finance Act, 2017 w.e.f. A.Y. 2018 - 19) ▪ W.e.f. AY 2017 - 18, Sec 115BBDA has been inserted to provide that any income by way of aggregate dividend from a domestic company or companies in excess of Rs. 10 lakh shall be ch argeable to tax in the case of an individual, Hindu undivided family (HUF) or a firm a specified assessee who is resident in India, at the rate of 10%. Dividend for this purpose, excludes dividend u/s 2(22)(e). Specified assessee means a person other than a domestic company and charitable trust / institution. B IPCC Taxation Amendments Applicable for May 2018 Exam DT. 3 CA. Pawan Sarda ▪ No deduction in respect of any expenditure or allowance or set - off of loss shall be allowed to the assessee in computing this income by way of dividends. ▪ Accordingly, a proviso has been inserted in S ec 10(34) to provide that the exemption available thereunder in respect of dividend received by a shareholder from a domestic company would not apply to income by way of dividend chargeable to tax u/s 115BBDA. B 2 Tax Holiday for Newly Established Units i n SEZ : Explanation inserted [Sec 10AA] (Explanation inserted by Finance Act, 2017 w.e.f. A.Y. 2018 - 19) Deduction u/s 10AA shall be allowed from the total income of the assessee computed in accordance with the provisions of the Act before giving effect to the provisions of this section and the deduction u/s 10AA shall not exceed such total income of the assessee. INCOME FROM HOUSE PROPERTY C.1 More t han o ne House Property: Concept o f Deemed Let Out [Sec 23(4)] Where the assessee keeps more than one house vaca nt for self - occupancy under Sec 23(2), he can claim the annual value of only one house as nil. He has the option to specify any house the annual value of which should be taken as nil. The annual value of other house or houses will be det ermined as if su ch house or houses had been let. (Deemed to be let out) Exception to Deemed Let Out: Property held as stock, not let out upto 1 year [Sec 23(5) inserted by Finance Act, 2017 w.e.f. A.Y. 2018 - 19] Where the property consisting of any building or land appurtenant thereto is ▪ held as stock - in - trade and ▪ the property or any part of the property is not let during the whole or any part of the previous year, the annual value of such property or part of the property, for the period up to 1 year from the end of the FY in which the certificate of completion of construction of the property is obtained from the competent authority, shall be taken to be nil PROFITS AND GAINS OF BUSINESS OR PROFESSION D .1 Actual Cost to be included in the Block of Assets for Depreciation [Sec 43(1)] Actual cost means the actual cost to the assessee as reduced by the portion of the cost which has been met by another person or authority. e.g. cash subsidy from Government or any authority for buying ma chinery. Rs. 10,000 limit for cash payment [Proviso to Sec 43(1) inserted by Finance Act, 2017 w.e.f. A.Y. 2018 - 19] 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 electron ic clearing system through a bank account, exceeds Rs. 10,000, such expenditure shall not form part of actual cost of such asset. C D IPCC Taxation Amendments Applicable for May 2018 Exam DT. 4 CA. Pawan Sarda D.2 Determination of Actual Cost in certain specific circumstances [Explanations to Sec 43(1)] In the cases given below, actual cost of an asset is taken at a notional figure: Explanation to Sec 43(1) Situation Actual Cost to be taken as Refer 13 Asset which is subject to deduction u/s 35AD Nil However, where an asset, in respect of which deduction is claimed and allowed u/s 35AD is deemed to be the income of the assessee in accordance with Sec 35AD(7B) (on account of being used for a purpose other than specified business u/s 35AD) Actual cost to assessee as reduced by the amount of depreci ation allowable had the asset been used for the purpose of business, calculated at the rate in force, since the date of its acquisition (Finance Act, 2017 w.e.f. A.Y. 2018 - 19) Sec 35AD D 3 Deduction in respect of expenditure on specified business [Sec 35AD] ▪ Expenditures ineligible for any deduction u/s 35AD: - Expenditure incurred on the acquisition of any land or goodwill or financial instrument - Any expenditure in respect of which the payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account, exceeds Rs. 10,000. (Amendment by Finance Act, 2017 w.e.f. A.Y. 2018 - 19) D.4 Payments in cash in exce ss of Rs. 1 0,000/ - otherwise than by an account payee cheque / bank draft / ECS – the entire expenditure will be disallowed [Sec 40A( 3)] [Limit reduced by Finance Act, 2017 w.e.f. A.Y. 2018 - 19] Where the assessee incurs any expenditure in respect of which a payment or aggregate payments, exceeding Rs. 20,000 10,000 is made to a person in a day otherwise than by account payee cheque or draft or use of electronic clearing system through a bank acco unt , no deduction is allowed in respect of such expenditure. D.5 D isallowance of unpaid liability [Sec 43B ] Whatever be the method of accounting the following sums are allowed only in the year when they are paid: a) Tax, duty, ce ss or fee payable under any law b) E mployer ’s C ontribution to Provident Fund or Gratuity Fund or Superannuation fund or any other employee welfare fund c) Bonus or commission to employees d) Any interest on any loan or borrowings from any public financial institution or State financ ial corporation or State industrial investment corporation e) Interest payable on loan or advance from any scheduled bank or a co - operative bank other than a primary agricultural credit society or a primary co - operative agricultural and rural development bank (w.e.f. A.Y. 2018 - 19) IPCC Taxation Amendments Applicable for May 2018 Exam DT. 5 CA. Pawan Sarda D. 6 When Maintenance of Books of Account becomes Compulsory [Sec 44AA] Notes: 1. *denotes that in case of new entrants if the amount is likely to exceed the given threshold in the first year itself 2. The cases of “No need to maintain books” are subject to 2 exceptions: (a) declaring lower income than as prescribed in case of Sec 44AE, Sec 44BB and Sec 44BBB (b) where Sec 44AD(4) is applicable and income exceeds the basic exemption limit 3. A specified professional has to alway s maintain books irrespective of their gross receipts. Maintenance of books of accounts is compulsory in the following cases: Specified professionals Others (Non - specified profession/ business) Assessee carrying on profession of (i) Law, (ii) Medicine, (iii) Accountancy, (iv) Architecture, (v) interior decoration, (vi) Engineering, (vii) technical consultancy, or other notified profession: authorized representative, film artist, company secretary, information technology professionals, whose gross receip ts exceed Rs. 1,50,000, in all of the 3 years immediately preceding the PY. For new entrants, provisions are applicable if the receipts of the previous year in which such profession is newly setup is likely to exceed the ceiling of Rs. 1,50,000. (Maintain books as per Rule 6F) a. where income from business or profession exceeds Rs. 1,20,000* in any of the preceding 3 previous years or likely to exceed 1,20,000* during current year; in case of newly setup business / profession or b. whether the turnover or sales or gross receipts exceeds Rs. 10,00,000 # in any of the preceding 3 years or likely to exceed during the current year. c. declaring lower income than as prescribed in case of goods carriage business u/s 44AE, exploration of mineral oil etc. (sec 44BB), civil construction in turnkey power projects (sec 44BBB) d. where Sec 44AD(4) is applicable and income exceeds the basic exemption limit (Amended by FA, 2016 w.e.f. A.Y. 2017 - 18) *2,50,000 and # 25,00,000 in case of Individual / HUF w.e.f. A.Y. 2018 - 19 Specified Profession GR > 1.5L in all 3 past years* Maintain books as per Rule 6F Other cases Maintain books to enable computation Non - specified Profession / Business Individual / HUF Income > 2.5L or T/O > 25L in any of 3 past years* Maintain books to enable computation Other cases No need to maintain books Other persons Income > 1.2L or T/O > 10L in any of 3 past years* Maintain books to enable computation Other cases No need to maintain books IPCC Taxation Amendments Applicable for May 2018 Exam DT. 6 CA. Pawan Sarda D.7 Audit o f Accounts o f Certain Persons [Sec 44 AB ] [First proviso inserted by Finance Act, 2017 w.e.f. A.Y. 2017 - 18] Sec 44AB shall not apply to the person, who declares profits and gains for the previous year in accordance with the provisions of Sec 44AD(1) and his total sales, turnover or gross receipts, as the case may be, in business does not exceed Rs. 2 crore in su ch previous year. D. 8 Presumptive taxation in case of any business [Sec 44AD] Particulars Any Business (Other than business covered in Sec 44AE) Applicability Turnover/ gross receipt does not exceed Rs. 1 2 crore (limit revised w.e.f. A.Y. 2017 - 18) Minimum amount of presumptive income 8% of gross turnover or gross receipts (6% in case of banking channels/ digital means* w.e.f. A.Y. 2017 - 18) * Banking channels/ digital means : In respect of the amount of total turnover or gross receipt s which is received by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account during the previous year or before the due date of filing return of income u/s 139(1) in respect of that previous year , instead of 8%, 6% would be considered as the minimum presumptive income. [As amended by Finance Act, 2017 w.e.f. A.Y. 2017 - 18] CAPITAL GAINS E.1 Minimum period of holding reduced from 36 months to 24 months for Immovable property to be classified as a Short Term Capital Asset [Sec 2(42A)] A capital asset held by an assessee for not more than the below mentioned period (in months) immediately p receding the date of its transfer is a short term capital asset: E.2 How to compute the period of holding In determining the period for which any capital asset is held by the assessee: Capital Asset Period of Holding (f) units acquired in the consolidated plan of a mutual fund scheme [Sec 47(xix)] includes the period for which the units in the consolidating plan of a mutual fund scheme was held by the assessee (Inserted by Finance Act, 2017 w.e.f. A.Y. 2018 - 19) (h) equity shares in a company converted from preference shares [Sec 47(xb)] includes the period for which the preference shares were held by the assessee (Inserted by Finance Act, 2017 w.e.f. A.Y. 2018 - 19) • a listed Security (other than a unit) [like shares/ debentures/ Govt. securities] • a unit of UTI • a unit of an equity oriented fund • a zero coupon bond (quoted or not) ≤ 12 months • a share of a company (not being a share listed in a recognized stock exchange in India) w e f A Y 2017 - 18 • an immovable property, being land or building or both w.e.f. A.Y. 2018 - 19 ≤ 24 months • any other capital asset ≤ 36 months E IPCC Taxation Amendments Applicable for May 2018 Exam DT. 7 CA. Pawan Sarda E 3 T ransactions w hich do not constitute Transfer [Sec 47] Sec Capital Asset Transferor Transferee Situation 47(viiaa) rupee denominated bond of an Indian company issued outside India n on - resident another non - resident transfer made outside India ( Inserted by Finance Act, 2017 w.e.f. A.Y. 2018 - 19) 47 (xb) preference shares of a company any person - Conversion into equity shares of that company ( Inserted by Finance Act, 2017 w.e.f. A.Y. 2018 - 19) E. 4 Deemed cost of acquisition [Sec 49] Mode of Acquisition of Capital Asset Deemed cost of acquisition Relevant Section ( a ) Equity shares arisen out of conversion of preference shares [ Sec 47( xb)] That part of the cost of the preference share in relation to which such asset is acquired by the assessee (Inserted by Finance Act, 2017 w.e.f. A Y 2018 - 19) 49(2AE) ( b ) Units in consolidated plan of a mutual fund scheme [ Sec 47(xix)] Cost of acquisition of the units in the consolidating plan of the mutual fund scheme (Inserted by Finance Act, 2017 w.e.f. A Y 2018 - 19) 49(2AF) ( c ) Gifts arising from transfer without consideration or inadequate consideration of movable or immovable property Value which has been taken for the purpose of charging income under the head other sources u/s 56(2) (vii) or (viia) or (x) [Refer the head ‘Income from Other Sources’ ] 49(4) ( d ) S hare (i.e. land / building / both) in project referred in Sec 45(5A) if transferred after the date of issue of completion certificate Full value of consideration as deemed u/s 45(5A) [Refer para E. 6 ] (Inserted by Finance Act, 2017 w.e.f. A Y 2018 - 19) 49( 7 ) E. 5 Substitution of fair market value fo r assets acquired before 1 - 4 - 2001 [Sec 55(2)(b)] [Amended by Finance Act, 2017 w.e.f. A.Y. 2018 - 19] For assets acquired before 1.4.2001 1.4.1981 , - actual cost or - the Fair Market Va lue as on 1.4.2001 1.4.1981 , will be presumed to be the cost of acquisition at the option of the assessee. Note: 1. This option is not available for depreciable assets, goodwill of a business, tenancy rights, loom hours and route permits covered u/s 55(2)(a). 2. Where the assets were acquired by the assessee through a mode given u/s 49(1) and the previous owner acquired that asset before 1.4.2001; in this case also the assessee has an option to take the cost of acquisition as the cost to the previous owner or the FMV of that asset as o n 1.4.2001. E. 6 Capital Gains in case of Specified Agreement for development of a real estate project [Sec 45(5A) inserted by Finance Act, 2017 w.e.f. A.Y. 2018 - 19] Specified agreement means a registered agreement in which a person owning 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. ▪ Assessee: Individual or HUF ▪ Asset transferred: Land or building or both ▪ Situation: Under a specified agreement IPCC Taxation Amendments Applicable for May 2018 Exam DT. 8 CA. Pawan Sarda ▪ Year of Taxability: PY in which the certificate of completion for the whole or part of the project is issued by the competent authority (i.e. the authority empowered to approve the building plan by or under any law for the time being in force) ▪ Full value of Consideration for computation of Capital Gains = (i) + (ii) (i) the stam p duty value, on the date of issue of the said certificate, of his share, being land or building or both in the project (ii) consideration received in cash, if any ▪ Capital Gains = Consideration (as determined above) – Cost of acquisition ▪ Further transfer of this share (i.e. land / building / both) in project: Cost of acquisition = Amount deemed as full value of consideration u/s 45(5A) [Sec 49(7)] ▪ Exception: Where the assessee transfers his share in the project on or before the date of issue of the said certificate of completion - - the provisions of this sub - section shall not app ly - capital gains shall be deemed to be the income of the previous year in which such transfer takes place - other provisions of this Act shall apply for the purpose of determination of full value of consideration E. 7 Transfer of unquoted share [Sec 50CA inserted by Finance Act, 2017 w.e.f. A.Y. 2018 - 19] If a capital asset, being share of a company other than a quoted share , is transferred for a consideration which is lower than the fair market value of such share determined in such manner as may be prescribed then such fair market value shall be deemed to be the consideration, and the capital gain u/s 48 shall be calculated accordingly. Capital gains = Fair market value of the unquoted share Less Cost or Indexed cost of Acquisition Quoted share means the share quoted on any recognised stock exchange with regularity from time to time, where the quotation of such share is based on current transaction made in the ordinary course of business. E.8 Cost Inflation Index notified w.e.f. A.Y. 2018 - 19 wi th new base (FY 2001 - 02) COST INFLATION INDEX [Notification No. 44/2017 dated 05 - Jun - 2017] Financial Year CII FY CII FY CII FY CII FY CII 2001 - 02 100 2005 - 06 117 2009 - 10 148 2013 - 14 220 2017 - 18 272 2002 - 03 105 200 6 - 0 7 122 2010 - 11 167 2014 - 15 240 2003 - 04 109 2007 - 08 129 2011 - 12 184 2015 - 16 254 2004 - 05 113 2008 - 09 137 2012 - 13 200 2016 - 17 264 E.9 Exemption of long term capital gain on investments in certain notif ied securities [Sec 54EC] Eligible Assessee Any assessee Nature of CG Long term Asset transferred Any capital asset transferred on or after 1.4.2000 Conditions 1. Within 6 months from the date of transfer, the assessee should invest the whole or part of CAPITAL GAINS in Long Term Specified asset*. 2. The cost of specified asset which is considered for the purpose of 54EC shall not be eligible for tax deduction u/s 80C. Amount Exempted Capital Gain or amount invested, whichever is less. Any investment made on or after 1.4.2007 in the specified asset by an assessee during any financial year shall not exceed Rs. 50 Lakhs. The investment made by an assessee u/s 54EC, out of capita l gains arising from transfer of one or more original assets, during the FY in which the original asset or assets are transferred and in the subsequent FY cannot exceed Rs. 50 lakhs. IPCC Taxation Amendments Applicable for May 2018 Exam DT. 9 CA. Pawan Sarda Withdrawal of Exemption If the specified assets are transferred or converted into money or any loan/ advance is taken on the security of specified assets within 3 years from their acquisition, the amount of exemption availed of earlier will be deemed to be the income by way of LTCG of the previous year in which specified asset is transferred, converted etc. * Long Term specified asset means any bond redeemable after 3 years issued by: (a) National Highways Authority of India (NHAI) (b) Rural Electrification Corporation Ltd. (RECL) (c) any other bond notified by the Centr al Government in this behalf (w.e.f. A.Y. 2018 - 19) (Power Finance Corporation Limited w.e.f. 15.06.2017 , Indian Railway Finance Corporation Limited w.e.f. 08.08.2017 ) INCOME FROM OTHER SOURCES F 1 Taxability on gifts [Sec 56] F.1.1 Taxability on gifts u/s 56(2)(vii) and 56(2)(viia) not to apply w.e.f. 1 - 4 - 2017 F.1.2 Taxability on gifts u/s 56(2)(x) to apply w.e.f. 1 - 4 - 2017 [Newly inserted clause (x) by Finance Act, 2017 w.e.f. A.Y. 2018 - 19] This clause is similar to earlier clause (vii). However the new clause (x) is applicable to all persons instead of only Individuals / HUF as covered earlier in clause (vii). Particulars No Consideration Inadequate Consideration Money Taxable if ∑ Amount > Rs. 50,000 p.a. - Movable Property (BAS DAS PJ) Taxable if ∑ FMV > Rs. 50,000 p.a. Taxable if ∑ (FMV – Consideration) > Rs. 50,000 p.a. Immovable Property (Land / building / both) Taxable if ∑ Stamp Value > Rs. 50,000 p.a. Taxable if ∑ (Stamp Value – Consideration) > Rs. 50,000 p.a. GIFTS chargeable to tax: (A) GIFT OF ANY SUM OF MONEY [Sec 56(2)(x)(a)] If the aggregate (total) amount of sum of money (cash/cheque/draft) received from one or more persons exceeds Rs.50,000, during a previous year the whole of such aggregate value will be chargeable to tax. (B) GIFT OF A NY IMMOVABLE PROPERTY [ Sec 56(2)(x)(b)] Gift of any immovable property received by any person for nil or inadequate consideration would form part of his taxable income as “Income from Other Sources”. Immovable property for this purpose is land or building or both. (i) Without C onsideration In case where an immovable property is received without consideration (i.e. there is a gift) and the stamp duty value of such property exceeds Rs.50,000/ – , the whole of the stamp duty value of such property shall be taxed as income from other sources. (ii) For Inadequate Consideration In case where an immovable property is received for a consideration which is less than the stamp duty value of the property by an amount exceeding Rs. 50,000, the stamp duty value of such property as exceeds s uch consideration shall be taxable in the hands of the buyer as income from other sources. F IPCC Taxation Amendments Applicable for May 2018 Exam DT. 10 CA. Pawan Sarda Income from other sources in the hands of the buyer = Stamp Value – Consideration (provided such difference exceeds Rs. 50,000) (C) GIFT OF MOVABLE PROPERTY [ Sec 56(2)(x)(c)] Movable property means - [BAS DAS PJ] (i) s hares and securities, (ii) j ewellery, (iii) a rchaeological collections, (iv) d rawings, (v) p aintings, (vi) s culptures (vii) a ny work of art, or (viii) b ullion (i) Without Consideration In case where a movable property is received by any person without consideration (i.e. there is a gift) and the aggregate fair market value of such property exceeds Rs.50,000/ – , the whole of the aggregate fair market value (FMV) of such property shall be taxed as income from other sources. (ii) For Inadequate Consideration If movable property is transferred for consideration less than aggregate fair market value then: Income from other sources in the hands of the buyer = Aggregate Fair Market Value – Consideration (provided such difference exceeds Rs. 50,000) F 2 Amounts not deductible from Income from Other Sources [Sec 58] Section Nature Provision Sec 58(1)(a)(i) Personal Expenses Any personal expenses of the assessee are not deductible Sec 58(1)(a)(ii) Interest o/s India without TDS Any interest chargeable under the Act which is payable outside India on which tax has not been deducted at source is not deductible. Sec 58(1)(a)(iii) Salary o/s India without TDS Any payment chargeable under the head “Salaries” and payable outside India is not deductible if tax has not been paid or deducted therefrom. Sec 58(1A) [Finance Act, 2017 w.e.f. A.Y. 2018 - 19] Disallowance as per Sec 40(a)(ia) (No TDS in case of payment to resident) 30% of expenditure will be disallowed in respect of a sum which is payable to a resident and on which tax is deductible at source, if • such tax has not been deducted or; • such tax after deduction has not been paid on or before the due date of return specified in Sec 139(1). Sec 58(2) Amounts Specified by Sec 40A Any amount specified by section 40A is not deductible while calculating income under the head IFOS. (excessive payment to relatives/ payment > 10,000 by cash). F.3 Clarification regarding trade advance not to be treated as deemed dividend under section 2(22)(e) [Circular No. 19/2017, dated 12 06 2017] Section 2(22)(e) provides that "dividend" includes any payment by a company in which public are not substantially interested, of any sum by way of advance or loan to a shareholder who is the beneficial owner of shares holding not less than 10% of the votin g power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the compan y in either case possesses accumulated profits. T he CBDT has clarified that it is a settled position that trade advances, which are in the nature of commercial transactions, would not fall within the ambit of the word 'advance' in section 2(22)(e) and the refore, the same would not to be treated as deemed dividend. IPCC Taxation Amendments Applicable for May 2018 Exam DT. 11 CA. Pawan Sarda SET OFF AND CARRY FORWARD OF LOSSES G 1 Restriction on set off of Loss from House Property The maximum loss from house property which can be set - off against income from any other head is Rs. 2 lakhs. [Amendment by Finance Act, 2017 w.e.f. A.Y. 2018 - 19] However, there is no limit on intra - head set - off of loss from House Property. DEDUCTIONS FROM GROSS TOTAL INCOME H 1 Deduction in respect of contribution to notified pension scheme (NPS) [Sec 80CCD] Applicable to An individual (irrespective of his residential status) Conditions ▪ Assessee is an individual employed by the Central Government on or after 1/1/04, or is an individual employed by any other employer. ▪ Assessee and his employer has paid or deposited any amount under a notified pension scheme in the previous year. ▪ Deduction under this section is also available to an asses see who is not an employee and deposits any amount under a NPS trust in the P.Y. Deduction [Sub - section (1B) inserted by Finance Act, 2015 w.e.f. A.Y. 2016 - 17] Aggregate of the following: ▪ 80CCD(1): Individual’s contribution to Notified Pension Scheme to the maximum of 10% of his salary in the P.Y. (and in the case of self - employed individual, maximum of 10% 20% of GTI) [Amended by Finance Act, 2017 w.e.f. A.Y. 2018 - 19] ▪ 80CCD(1B): Individual’s contribution to NPS to the maximum of Rs. 50,000. This is available whether or not any deduction is allowed in Sec 80CCD(1) and if deduction is allowed in Sec 80CCD(1) then no deduction shall be allowed in respect of that amount. ▪ 80CCD(2): Em ployer’s contribution to Notified Pension Scheme to the maximum of 10% of the salary of employee in the P.Y. ❖ Maximum Deduction u/s 80C, 80CCC and 80CCD [Sec 80CCE] Particulars Max. deduction under relevant section Cumulative max. deduction (Sec 80CCE) Section 80C Rs. 1,50,000 Rs. 1,50,000 Section 80CCC 1,50,000 w.e.f. AY 2016 - 17 Section 80CCD(1): Employee’s contribution / assessee’s contribution towards NPS For employee: 10% of salary For self - employed person: 10% 20% of GTI (Amended by Finance Act, 2017 w.e.f. AY 2018 - 19) Section 80CCD(1B) w.e.f. A.Y. 2016 - 17 Rs. 50,000 Not Applicable Section 80CCD(2): Employer’s contribution towards NPS 10% of salary Not Applicable H 2 Deduction in respect of investment made under Equity saving scheme [Sec 80CCG] 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 year, shall be allowed deduction till A.Y. 2019 - 20, if he is ot herwise eligible to claim the deduction as per the provisions of this section. [Finance Act, 2017] G H IPCC Taxation Amendments Applicable for May 2018 Exam DT. 12 CA. Pawan Sarda H.3 Deduction in respect of donations to certain funds, charitable institutions [Sec 80G] Sec 80G(5D): No deduction shall be allowed u/s 80G in respect of donation of any sum exceeding Rs. 2,000 10,000 unless such sum is paid by any mode other than cash [Amendment by Finance Act, 2017 w.e.f. A.Y. 2018 - 19] H 4 Relaxation of minimum period of employment of an employee for the purpose of deduction u/s 80JJAA, in case of assessees engaged in apparel business [Amendment in Sec 80JJAA w.e.f. A.Y. 2017 - 18 by the Taxation Laws (Amendment) Act, 2016] Additional Employee: An employee who has been employed during th e PY and whose employment has the effect of increasing the total number of employees employed by the employer as on the last day of the preceding year. Exclusions from the definition: (a) an employee whose total emoluments are more than Rs. 25,000 per mont h; or (b) an employee for whom the entire contribution is paid by the Government under the Employees’ Pension Scheme notified in accordance with the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952; or (c) an employee emp loyed for a period of less than 240 days (150 days in the case of business of manufacturing apparel) during the previous year; or (d) an employee who does not participate in the recognised provident fund. RETURN OF INCOME I 1 Revised Return [Sec 139(5)] (Amendment made by Finance Act, 2017 w.e.f. A.Y. 2018 - 19) If after furnishing a return, any omission or wrong statement is discovered, a revised return can be filed under section 139(5) at any time before ▪ the expiry of one year from the end of the relevant assessment year or ▪ the completion of the assessment, whichever is earlier. The following conditions apply - 1. Only return filed u/s 139(1) or u/s 139(4) can be revised. W.e.f. A.Y. 2017 - 18, even belated return can be revised. Howev er return filed in pursuance of a notice u/s 142(1) can’t be revised. 2. Any omission or wrong statement can be corrected. 3. Revised return should be filed before the end of the assessment year or before completion of assessment. For instance, for the assessment year 201 8 - 1 9 , a revised return can be filed up to March 31, 2019. If, however, the assessment is completed before March 31, 2019 (say on November 15, 2018), then revised return can be filed before November 15, 2018. No interest under section 234 A is chargeable on the basis of the date of filing of the revised return. I.2 Quoting of Aadhar Number [Sec 139AA inserted by Finance Act, 2017] Mandatory quoting of Aadhar Number Every person who is eligible to obtain Aadhar Number is required to mandatorily quote Aadhar Number, on or after 1.7.2017 : (a) in the application form for allotment of PAN (b) in the return of income Mandatory quoting of Enrolment I D , where person does no t have 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 PAN or in the return of income furnished by him. I IPCC Taxation Amendments Applicable for May 2018 Exam DT. 13 CA. Pawan Sarda Aadhar Number E nrolment ID means a 28 digit Enrolment Identification Number issued to a resident at the time of enrolment. Intimation of Aadhar Number to prescribed Authority Every person who has been allotted PAN as on 1.7.2017 , and who is eligible to obtain Aadhar Num ber, shall intimate his Aadhar Number to prescribed authority on or before a date as may be notified by the Central Government. Consequences of failure to intimate Aadhar Number If a person fails to intimate the Aadhar Number, the PAN allotted to such per son 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 PAN Provision not to apply to certain person or class of persons The provisions of Sec 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 not ified by the Central Government: Accordingly, the Central Government has, vide Notification No. 37/2017 dated 11.05.2017 ef fective from 01.07.2017, notified that the provisions of section 139AA relating to quoting of Aadhar Number would not apply to an individual who does not possess the Aadhar number or Enrolment ID and is: (i) residing in the States of Assam, Jammu & Kashmi r and Meghalaya; (ii) a non - resident as per Income - tax Act, 1961; (iii) of the age of 80 years or more at any time during the previous year; (iv) not a citizen of India. I.3 Fee for default in furnishing return of income [New Sec 234F by Finance Act, 2017 w.e.f. A.Y. 2018 - 19] Where a person who is required to furnish a return of income u/s 139, fails to do so within the prescribed time limit u/s 139(1), he shall pay, by way of fee, a sum of – Fee Circumstances Rs. 5,000 if the return is furnished on or before the 31st December of the assessment year Rs. 10,000 in any other case However, if the total income of the person does not exceed Rs. 5 lakhs, the fees payable shall not exceed Rs. 1,000 ADVANCE TAX J 1 Payment of Advance tax in case of capital gains/casual income / PGBP [Proviso to Sec 234C] a) Advance tax is payable by an assesee on his/its total income, which includes ▪ capital gains ▪ casual income like income from lotteries, crossword puzzles etc. ▪ income under the head PGBP in cases where the income accrues or arises under the said head for the first time (w.e.f. 1.6.2016) ▪ income of the nature referred to in section 115BBDA i.e., dividend in aggregate exceeding of Rs. 10 lakhs received during the previous year. (Finance Act, 2017 w.e.f. 1.4.2017) b) Since it is not possible for the assesee to estimate his capital gains, income from lotteries, etc, first time business income, income u/s 115BBDA it has been provided that if any such income arises after the due date for any instalment, then tax (after considering tax deduction at source) on such capital gains or casual income or PGBP or income u/s 115BBDA should be paid in the r emaining installments of advance tax which are due. c) Where no such installment is due, the entire tax should be paid by 31 st March of the relevant financial year. d) No interest liability would arise if the entire tax liability is so paid. J IPCC Taxation Amendments Applicable for May 2018 Exam DT. 14 CA. Pawan Sarda J.2 When A dvance Tax payment becomes due Upto 31.5.2016, advance tax was payable by a corporate assessee in 4 instalments (15 Jun, 15 Sep, 15 Dec and 15 Mar), and by other assessees in 3 instalments (15 Sep, 15 Dec and 15 Mar). W.e.f. 01 - Jun - 2016, advance tax scheme has been brought to similar li nes for both corporate and non - corporate assessees. Only, the assessees who declare profits and gains in accordance with the provisions of Sec 44AD(1) or Sec 44ADA(1) , as the case may be need to pay 100% of advance tax in a single instalment upto 15 th Marc h of the PY. [Amended further by Finance Act, 2017 w.e.f. 1.4.2017] Table showing the installments and due dates of payments of advance tax: Due date of installment Particulars Amt. (Rs.) (A) Any assessee [other than an assessee declaring profits as per Sec 44AD(1) / Sec 44ADA(1)] 1 st installment payable on or before 15 June 15% of advance tax payable xxx 2 nd installment payable on or before 15 September 45% of advance tax payable Less : Advance tax paid in earlier installment Advance tax to be paid xxx xxx xxx 3 rd installment payable on or before 15 December 75% of advance tax payable Less : Advance tax paid in earlier installments Advance tax to be paid xxx xxx xxx 4 th installment payable on or before 15 March 100% of advance tax payable Less : Advance tax paid in earlier installments Advance tax to be paid xxx xxx xxx (B) An assessee declaring profits as per Sec 44AD(1) / Sec 44ADA(1) Only installment payable on or before 15 March 100% of advance tax payable xxx J.3 Interest payable by the assessee for deferment in the payment of Advance Tax [Sec 234C] Section 234C provides that interest under this section shall be payable by an assessee if he fails to pay any installment of advance tax or makes late payment thereof. Such interest shall be paid as follows: Any assessee: [other than assessee declaring profits as per Sec 44AD(1) / Sec 44ADA(1)] Conditions Rate Months Amount on which interest payable Where advance tax paid on or before 15 th June is less than 12% of tax due on returned income. 1% p.m. 3 15% of the tax due on returned income Less : Advance tax paid upto 15 th June Where advance tax paid on or before 15 th September is less than 36% of tax due on returned income. 1% p.m. 3 45% of the tax due on returned income Less : Advance tax paid