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INCOME TAX AMENDMENT FOR NOV/ DEC 2016 EXAM

AY 2016-17
CA-IPCC/ CS-EXECUTIVE/ CWA-INTER

TAX RATE
1.
2.
3.

Wealth Tax abolished. There is only one Direct Tax now i.e. Income Tax.
Tax Rate for all assessee remains same.
Surcharge There is 2% increase in surcharge rate for all assessee other than Foreign
Company
Assessee

Individual
HUF
Firm/LLP
Domestic Company
Domestic Company
Foreign Company
Foreign Company

Threshold Limit
(If Total Income
Exceeds)
1 Crore
1 Crore
1 Crore
1 Crore
10 Crore
1 Crore
10 Crore

Rate of Surcharge

12%
12%
12%
7%
12%
2%
5%

RESIDENTIAL STATUS
Rules to determine residential status of Companies [Sec. 6(3)]
A person being a company shall be said to be resident in India in any Previous year if
1. It is an Indian Company, or
2. Its place of effective management at any time in that year, is in India.
Note:
1. A company cannot be ordinarily or not ordinarily resident.
2. Place of Effective management to mean the place where key management and commercial
decisions that are necessary for the conduct of the entitys business as a whole, are, in substance
made.

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EXEMPT INCOME
Payment from Sukanya Samriddhi Account Scheme [Sec. 10(11A)]
Any payment from an account opened in accordance with the Sukanya Samriddhi Account Rules,
2014 shall not be included in the total income of the assessee.
Exemption in case of Income by way of Interest [Sec. 10(15)]
Interest on Sukanya Samriddhi Account Scheme
Income of Swachh Bharat Kosh & Clean Ganga Fund [Sec. 10(23C)]
Income of Swachh Bharat Kosh & Clean Ganga fund is exempted.
Any income of Venture Capital Company or Venture Capital Fund from investment in a
Venture Capital undertaking [Sec. 10(23FB)]
Any income of a venture capital company or a venture capital fund from investment in a venture
capital undertaking shall be exempt. VCC will be exempt from tax irrespective of the nature of
business carried out by the VCU, as long as it satisfies the conditions imposed by SEBI.
Any income accruing or arising or received by a person out of investments made in a VCC or VCF shall be
taxable in the same manner, or current year basis, as if the person had made direct investment in the
VCU.
Charitable Purpose [Sec. 2(15)]
Charitable Purpose includes
Relief of the poor,
Education,
Yoga
Medical relief,
Preservation of environment (including watersheds, forests and wildlife) and preservation of
monuments or places or objects of artistic or historic interest, and
The advancement of any other object of general public utility.
The purpose of Institution shall not be charitable if the advancement of any other object of general
public utility involves carrying on of any activity in the nature of trade, commerce or business, for a
cess or fee or any other consideration where the aggregate value of such receipts exceeds 20% of
total receipt of the trust in the previous year, irrespective of the nature of use or application, or
retention, of the income from such activity.
Illustration: A Charitable Trust has receipts 100 lakhs from activities of charitable nature. The trust
also has a business which is not incidental to the attainment of main objects of the trust and the total
receipts from such business are:

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Case 1: Receipts 20 Lakhs, Expenses 13 Lakhs

Case 2: Receipts 35 Lakhs, Expenses 20 Lakhs
Discuss Tax treatment
Solution:
Case 1: The Trust remains to be a charitable Trust since its receipts from commercial activities do
not exceed 20% of total receipt (i.e. 20%120 lakh = 24 lakh). Trust will claim exemption under
section 11 on receipts of ` 100 lakhs and ` 7 Lakhs business income shall be taxable at the normal
rate.
Case 2: The Trust ceases to be a charitable trust since its receipts from commercial activities exceeds
20% of total receipt (i.e. 20%135 lakh = 27 lakh). Exemption under section 11 shall not be available.
Trust shall be taxable on its entire income of ` 115 lakhs at the rates applicable.

SALARY
Name of
Allowance

Transport
Allowance

Nature of Allowance

Exemption as specified in rule

2BB

Transport allowance is granted to an

employee to meet his expenditure for
the purpose of commuting between the
place of his residence and place of duty.

` 1600 per month (` 3200 per

month in case of an employee who
is
blind
or
orthopedically
handicapped)

PGBP
Computation of Additional Depreciation
Additional depreciation shall be available @ 20% of the actual cost of new plant and machinery. If,
however, the asset is put to use for less than 180 days in the year in which it is acquired, the rate of
additional depreciation will be 10%. Balance 10% of the additional depreciation shall be
allowed in the immediately succeeding financial year.
Additional Depreciation at the rate of 35%
In order to incentivise acquisition and installation of plant and machinery for setting up of
manufacturing units in the notified backward area in the State of Andhra Pradesh or the State of
Telangana, it is proposed to allow higher additional depreciation at the rate of 35% (instead of
20%) in respect of the actual cost of new machinery or plant acquired and installed by manufacturing
undertaking or enterprise which is set up in the notified backward area of the State of Andhra
Pradesh or the State of Telangana on after the 1st day of April, 2015. This higher additional

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depreciation shall be available in the respect of acquisition and installation of any new machinery or
plant for the purposes of the said undertaking or enterprise during the period beginning on the 1st
day of April, 2015 and ending before the 1st day April, 2020.

Investment Allowance [Sec. 32AC(1A)]

A new Section 32AC(1A) has been introduced with effect from 1st April, 2014 to provide deduction
to manufacturing companies investing more than ` 25 crores during the previous year in
specified new assets upto 31st March, 2017. The deduction to be allowed is 15% of the actual cost
of new specified assets acquired and installed. The deduction allowed under this section will be in
addition to the depreciation and additional depreciation allowable under Section 32.
The terms new assets has been defined as new plant and machinery not including:
(i) Second-hand plant or machinery (whether imported or otherwise);
(ii) Plant or machinery installed in office premises or residential accommodation including guest
house;
(iii) Office appliances including computers or computers software;
(iv) Vehicles
(v) Ship or aircraft
(vi) Plant and machinery in respect of which the entire cost has been allowed as a deduction in
any previous year.
It is also provided that if any new asset is sold or transferred within a period of 5 years from the date
of installation then the deduction allowed in respect of that asset shall be deemed to be income
chargeable under the head Profit and gains of business or profession in the year in which the new
asset is sold or otherwise transferred. The taxability of the same will be in addition to the taxability
of capital gains arising on account of transfer of new asset. However, the provision for withdrawal of
the allowance will not be applicable in case of a transfer on amalgamation or demerger but the
amalgamated company and the resulting company would have to continue to hold the new asset for
the remaining period out of the 5 year period.
Illustration:
The deduction allowable under section 32AC(1A) in different scenario of investment is given in the
following table:
(` in crore)
P.Y.
P.Y.
S. No.
Particulars
Remarks
2015-16 2016-17
Amount of investment
30
40
Under section
1.
32AC(1A)
Deduction allowable
4.5
6
Amount of investment
70
20
Under section
2.
32AC(1A)
Deduction allowable
10.5
Nil

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Additional Investment Allowance [Sec. 32AD]

It provides for man an additional investment allowance of an amount equal to 15% of the cost of
new asset acquired and installed by an assessee, if
1. He sets up an undertaking or enterprise for manufacturing or production of any article or
things on or after 1st April, 2015 in any notified backward areas in the State of Andhra
Pradesh and the State of Telangana; and
2. The new assets are acquired and installed for the purpose of the said undertaking or
enterpise during the period beginning from the 1st April, 2015 to 31st March, 2020.
This deduction shall be available over and above the existing deduction available under Sec. 32AC of
the Act. Accordingly, if an undertaking is set up in the notified backward areas in the State of Andhra
Pradesh or Telangana by a company, it shall be eligible to claim deduction under the existing
provisions of section 32AC of the Act as well as under Sec. 32AD if it fulfills the conditions (such as
investment above a specified threshold) specified in the said section 32AC and conditions specified
under the proposed section 32AD.
With a view to ensure that the manufacturing units which are set up by availing this incentive
actually contribute to economic growth of these backward areas by carrying out activity of
manufacturing for a substantial period of time, it is proposed to provide suitable safeguards for
restricting the transfer of the plant or machinery for a period of 5 years. However, this restriction
shall not apply to the amalgamating or demerged company or the predecessor in a case of
amalgamation or demerger or business reorganization but shall continue to apply to the
amalgamated company or resulting company or successor, as the case may be.
The likely scenario of benefits due to investment in the notified backward areas of Andhra Pradesh
and Telangana vis-avis the other states is depicted as under:
Particulars
Notified backward
Other States
areas of Andhra
Pradesh & Telangana
Investment in plant & machinery
100
100
Normal Depreciation
15
15
Investment Allowance u/s 32AC
15
15
Investment Allowance u/s 32AD
15

Additional Depreciation u/s 32(1)(iia)

35
20
Total benefits & flow thereof
80
50
The above table shows that 80% of the investment during the specified period in the Notified
backward areas of Andhra Pradesh & Telangana would be eligible for deduction in the year of
investment itself.

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CAPITAL GAIN
Cost Inflation Index
CII for PY 2015-16 is 1081

DDT
Dividend and Income Distribution Tax [Section 115-0 and 115R]
Dividend/ Income distribution tax is to be paid after grossing up of Dividend/ Income
Distributed. Thus, for example, where the amount of dividend paid or distributed by a company is
` 1,00,000 then DDT under the amended provision would be calculated as follows:
Dividend amount distributed = ` 1,00,000
Basic Rate of DDT is 15%
15
Basic DDT Payable @ 15%
=
1,00,000
=17,647
100 15
Basic DDT Payable
Add: Surcharge 12%

17,647
2,118
19,765
593
20,358

Add: Cess @ 3%
CDT Payable
Effective Rate of CDT

20,358
1,00,000

20.358%

DEDUCTION
Deduction under section 80C to be available in respect of deposit in Sukanya Samriddhi Account
Scheme for the welfare of girl child
Sec. 80CCG (Rajiv Gandhi Equity Scheme) deleted
Sec.
Available to
80CCD(1) Individual

Condition
Contribution to NPS (National Pension Scheme)
Upto 10% of Salary (Employer & Employee both
contribution)
or Upto 10% of GTI

Deduction
Up to
` 1,50,000
For 80C,
80CCC &
80CCD(1)
(Sec.
80CCE)

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80CCD(1B) Individual

80D

Individual
/HUF

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Contribution to NPS (National Pension Scheme)

Mediclaim Policy of GIC or Central Government Health

Scheme paid by any mode other than cash and medical
expenditure in respect of very senior citizen without
any health insurance.
Insurance taken on the health of Self, Spouse and
Dependent Children and medical expenditure
incurred if anyone is very senior citizen.
Insurance taken on the health of Parents (Father &
Mother whether dependent or not) and medical
expenditure incurred if any parent is very senior
citizen.

80DD

Resident
Individual/
HUF

Preventive health check up of Self, Spouse, Parents

& dependent children paid by any mode (cash
payment allowed).

Maintenance including Medical Treatment of

dependent with disability
Medical Treatment.
Deposit in Scheme of LIC or other insurer
Disable dependent must not claim deduction u/s 80U
Spouse, Parent, Children, Brother and Sister.

Additional
deduction
of 50,000
on
payment in
excess of
10%
Up to
` 25,000
Upto
` 30,000
(if anyone
is Senior
Citizen)
Upto
` 25,000
Upto
` 30,000
(if anyone
is Senior
Citizen i.e.
60 years or
more)
Upto
` 5,000.
However,
the overall
qualifying
limit given
above
remains
unchanged
Fixed
Deduction
` 75,000 or
` 1,25,000
(if
disability >
80%)

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80DDB
Resident
Individual/
HUF

80JJAA

80U

Any Assessee

Individual

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Medical Treatment of Specified disease of Self, Spouse,
Parent, Children, Brother and Sister.
Amount received from Insurance Company shall
be reduced from deduction computed.

Additional Wages paid to new Workmen

Deduction available only to Factory
manufacturing goods
Deduction available for 3 AY
Any wages to workmen beyond 50 workmen is
additional wages
Additional wages is Nil, if increase in number of
regular workmen employed during the year is
less than 10% of existing workmen.
Suffering from disability (Blindness, Low vision,
Leprosy-cured, Hearing impairment, Locomotors
disability, Mental retardation, Mental illness)

Up to
` 40,000 or
Up to
` 60,000 if
incurred in
respect of
Senior
Citizen or
upto
` 80,000 if
incurred in
respect of
very senior
citizen
30% of
Additional
Wages Paid

Fixed
Deduction
` 75,000 or
` 1,25,000
(if
disability >
80%)

Deduction under Section 80G

Donations eligible for deduction without any limit:
100% Deduction will be allowed if donations are given to(a) National Fund for Control of Drug Abuse.
(b) Swachh Bharat Kosh
(c) Clean Ganga Fund

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RETURN OF INCOME

Sec. 139C

Annexure Less Return

The Central Board of Direct Taxes has notified the following forms:
New ITR
Subject
Forms
ITR 1
SAHAJ

For an individual if his total income includes:

(a) Salary and family pension;
(b) Income from one house property (excluding losses);
(c) Income from other sources but does not include:
Winnings from lottery;
Winnings from horse races; and
Loss under this head.

ITR 2

For individuals and HUFs not having business/professional income

ITR 2A

For individual and HUF not having capital gain, PGBP or foreign asset /
foreign income

ITR 3

For individuals/HUFs being partners in firms and not carrying out

business or profession under any proprietorship

ITR 4

For individuals and HUFs having income from a proprietary business or

profession

ITR 4S
SUGAM

Individual & HUF having income computed on presumptive basis u/s

44AD & 44AE

ITR 5

For Firms, LLP, AOPs and BOIs artificial judicial persons, co-operative
society or local authority.

ITR 6

For Companies

ITR 7

For persons required to furnish return under section 139(4A)/ (4B)/

(4C)/ (4D) (i.e. trusts, political parties, institutions, colleges etc.)

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Note:
1. The assessee will have the following 3 options of filling return electronically
(a) E-filing with digital signature
(b) E-filing with electronic verification code (EVC)
(c) E- filing and submitting ITR-V to CPC
2. Return in ITR 1 cannot be filed by a person, who:
(a) Is a resident person (other than not ordinarily resident in India), and has:
Any asset (including financial interest) located outside India;
Signing authority in any account located outside India;
Earned any Income from source outside India.
(b) Has claimed any relief of tax under sections 90, 90A or 91;
(c) If assessee claims exemption in respect of any income exceeding ` 5,000 under
sections 10, 10A, 10AA, etc.
3. Return in ITR 4S cannot be filed by a person, who:
(a) Is a resident Individual or a HUF (other than not ordinarily resident in India)
deriving income as referred to in Section 44AD or 44AE, and has:
Any asset (including financial interest) located outside India;
Signing authority in any account located outside India;
(b) Has claimed any relief of tax under sections 90, 90A or 91;
(c) If assessee claims exemption in respect of any income exceeding ` 5,000 under
sections 10, 10A, 10AA, etc

Sec. 139D

10

e-return
(1) ITR-1, ITR-2 & ITR 2A can be e-filed or submitted in paper form.
(2) ITR-3 & ITR-4 (where Audit not applicable) can only be e-filed with or without
digital signature.
(3) ITR-4 & ITR-5 (in the case of an individual/HUF/ firm which is subject to audit
under section 44AB), ITR-6 (in the case of any company) can only be e-filed
with digital signature.
(4) ITR-7 (in case of political party) can only be e-filed with digital signature, ITR 7
(other assessee) can only be e-filed with or without digital signature.
(5) Individual (other than super senior citizen) / HUF having taxable income
exceeding ` 5 lakh or having assets located outside India shall submit e-return
with or without digital signature.
(6) Every person claiming tax relief under sec. 90, 90A, 91 or claiming refund in ITR
shall submit e-return.

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TDS
TDS Rates
Section

194 A

194 C

Nature of Payment

Interest on Fixed Deposit &

Recurring
Deposit
from
Banking
Company
/
Cooperative Society engaged in
banking/ deposit with Post
office
Interest other than from
Banking company
Payment to contractor/ sub
contractor
Payment
to
Transport
contractor. who is eligible to
compute income u/s 44AE

Threshold limit to
deduct tax

In case
recipient is
an Ind/
HUF

In case
recipient is
other than
Ind./ HUF

` 10,000 p.a.

10%

10%

` 5,000 p.a.

10%

10%

` 30,000 per single

contract or
` 75,000 in aggregate

1%

2%

--

Nil

Nil

For detailed discussion on the subject matter refer to our publication:

Taxation Book in 3 Volumes

To buy online visit www.studyathome.org

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11

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