Amendments made by Finance Act, 2007
1. Tax Rates for AY 2008-09
Individual/ HUF/ AOP / BOI and every artificial juridical person
Level of total income Rate of income-tax
Where the total income does not exceed Rs.1,10,000 Nil
Where the total income exceeds Rs.1,10,000 but does not exceed Rs.1,50,000 10% of the amount by which the total income exceeds Rs.1,10,000.
Where the total income exceeds Rs.1,50,000 but does not exceed Rs.2,50,000 Rs.4,000 plus 20% of the amount by which the total income exceeds Rs.1,50,000.
Where the total income
exceeds Rs.2,50,000 Rs.24,000 plus 30% of the amount by which the total income exceeds Rs.2,50,000.
For resident women below the age of 65 years at any time during the previous year
Level of total income Rate of income-tax
Where the total income does not exceed Rs.1,45,000 Nil
Where the total income exceeds Rs.1,45,000 but does not exceed Rs.1,50,000 10% of the amount by which the total income exceeds Rs.1,45,000.
Where the total income exceeds Rs.1,50,000 but does not exceed Rs.2,50,000 Rs.500 plus 20% of the amount by which the total income exceeds Rs.1,50,000.
Where the total income
exceeds Rs.2,50,000 Rs.20,500 plus 30% of the amount by which the total income exceeds Rs.2,50,000.
For resident individuals of the age of 65 years or more at any time during the prev.year
Level of total income Rate of income-tax
Where the total income does not exceed Rs.1,95,000 Nil
Where the total income exceeds Rs.1,95,000 but does not exceed Rs.2,50,000 20% of the amount by which the total income exceeds Rs.1,50,000.
Where the total income
exceeds Rs.2,50,000 Rs.11,000 plus 30% of the amount by which the total income exceeds Rs.2,50,000.
Level of total income Rate of income-tax
Where the total income does not exceed Rs.10,000 10% of the total income
Where the total income exceeds Rs.10,000 but does not exceed Rs.20,000 Rs. 1000 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.
Firm/ Local authority/ Domestic Company: 30% of total income
Company other than a domestic company: 50% of specified royalties and fees for rendering technical services and 40% on the balance of the total income.
Surcharge (as % of income tax)
Assessee AY 2008-09
- if net income does not exceed Rs. 10 lakh
- if net income exceeds the above limit
Artificial Judicial Person 10
Firm and Domestic Company
- if net income does not exceed Rs. 1 Crore
- if net income exceeds Rs. 1 Crore
- if net income does not exceed Rs. 1 Crore
- if net income exceeds Rs. 1 Crore
Cooperative Society and Local Authority 0
Education cess on income-tax
The amount of income-tax as increased by the surcharge should be further increased by an additional surcharge called the “Education cess on income-tax”, calculated at the rate of 2% of such income-tax and surcharge. Education cess is leviable in the case of all assessees i.e. individuals, HUF, AOP/BOI, co-operative societies, firms, local authorities and companies. Further, “Secondary and higher education cess on income-tax” @1% of income-tax and surcharge is leviable from A.Y.2008-09 to fulfill the commitment of the Government to provide and finance secondary and higher education.
Changes in Dividend Distribution Tax Rates
The rate of dividend distribution tax on any amount declared, distributed or paid by a domestic company has been raised from 12.5% to 15%. The rate of tax on income distributed by a money market mutual fund or a liquid fund has been levied at the rate of 25%.
New Rates of Dividend Distribution Tax
Dividend / Income distributed by Rate of tax
(i) A domestic company 15%
(ii) Money market mutual funds or liquid funds 25%
(iii) Other funds -
on income distributed to individuals/HUFs 12.5%
on income distributed to any other person 20%
2. The definition of Income under section 2(24) has now been amended to include any sum referred to in section 56(2)(vi).
3. The definition of Assessing Officer, as it stands at present, does not include Additional Commissioner and Additional Director. Additional Commissioner of income-tax and Additional Director of income-tax have now been included within the scope of definition of “Assessing Officer” with retrospective effect from 1.6.94 and1.10.96, respectively.
4. Explanation to section 9: It is now clarified that such income by way of interest, royalty or fee for technical services which is deemed to accrue or arise in India by virtue of clauses (v), (vi) and (vii) of section 9(1), shall be included in the total income of the non-resident, whether or not the non-resident has a residence or place of business or business connection in India. (Effective retrospectively from 1.6.76)
5. Exemption of compensation received on account of disaster [Section 10(10BC)]
This clause exempts any amount received or receivable as compensation by an individual or his legal heir on account of any disaster. Such compensation should be granted by the Central Government or a State Government or a local authority.
6. Exemption of income of Central Electricity Regulatory Commission [Section 10(23BBG)]
A new clause (23BBG) has been inserted in section 10 to provide exemption to any income of Central Electricity Regulatory Commission constituted under sub-section (1) of Section 76 of the Electricity Act, 2003. (Effective from A.Y. 2008-09)
7. Exemption of specified income of Investor Protection Fund set up by commodity exchanges [Section 10(23EC)]
This clause exempts income, by way of contributions received from commodity exchanges and the members thereof, of Investor Protection Fund set up by commodity exchanges in India, either jointly or separately, as the Central Government may, by notification in the Official Gazette, specify in this behalf.
8. Section 10(23FB) - The definition of Venture Capital Undertaking amended to mean such domestic company whose shares are not listed in a recognised stock exchange in India and which is engaged in
(i) the business of –
(B) information technology relating to hardware and software development;
(C) seed research and development;
(E) research and development of new chemical entities in the pharmaceutical sector;
(F) production of bio-fuels,
(G) building and operating composite hotel-cum-convention centre with seating capacity of more than three thousand; or
(H) developing or operating and maintaining or developing, operating and maintaining any infrastructure facility as defined in the Explanation to clause (i) of sub-section (4) of section 80-IA i.e.
(1) a road including toll road, a bridge or a rail system;
(2) a highway project including housing or other activities being an integral part of the highway project;
(3) a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system;
(4) a port, airport, inland waterway, inland port or navigational channel in the sea.
(ii) dairy or poultry industry.
Now exemption under this clause would be available only if the venture capital company/venture capital fund invests in the businesses or industries specified above. In such cases, tax would be payable by the investor under section 115U. If the venture capital company/venture capital fund invests in other businesses or industries, then it would not be eligible for exemption under this clause. (Effective from A.Y.2008-09)
9. Benefit under Section 10AA would no longer be available to those units which are formed by splitting up or reconstruction of a business already in existence (except in circumstances provided in section 33B), or formed by transfer to a new business, of plant and machinery previously used for any purpose exceeding 20% of the total value of machinery and plant used in the business.
For this purpose, any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose if the following conditions are fulfilled:
(a) such machinery or plant was not at any time used in India;
(b) such machinery or plant is imported into India from any country outside India; and
(c) no deduction on account of depreciation has been allowed in respect of such machinery or plant to any person earlier.
10. This requirement of filing an application for registration under section 12A within one year of creation of the religious or charitable trust or institution has been removed. The application can be filed at any time now. (applicable for applications made on or after 1.6.2007). Applications filed on or after the 1st day of June, 2007 will entitle the applicant to claim exemption of income from the financial year in which the application is made and not for earlier years. Sec 13(1) has now been relaxed to permit the charitable or religious trusts and institutions to invest in shares in a public sector company and shares prescribed as a form or mode of investment under section 11(5)(xii).
11. Valuation of Concession in the matter of Rent (Sec. 17)
Population of City as per 2001 census where the accommodation is provided Where the accommodation is owned by the empolyer Where the accommodation is taken on lease by the empolyer
Exceeding 25 lakh 15% of salary minus rent recoverable from the employee. Rent paid by the employer or 15% of salary, whichever is lower, minus rent recoverable from the employee.
Exceeding 10 lakh but not exceeding 25 lakh 10% of salary minus rent
recoverable from the employee. Same as above
Any other 7½% of salary minus rent
recoverable from employee. Same as above
This deeming provision is applicable to employees other than Government employees. In case of furnished accommodation provided to such employees, the excess of hire charges paid or 10% p.a. of cost of furniture, as the case may be, over and above the charges paid or payable by the employee would be added to the value determined in column (4) above for determining whether there is a concession in the matter of rent.
“Salary” includes pay, allowances, bonus or commission payable monthly or otherwise or any monetary payment, by whatever name called, from one or more employers, as the case may be. However, it does not include the following, namely–
(1) dearness allowance or dearness pay unless it enters into the computation of superannuation or retirement benefits of the employee concerned;
(2) employer’s contribution to the provident fund account of the employee;
(3) allowances which are exempted from the payment of tax;
(4) value of the perquisites specified in section 17(2);
(5) any payment or expenditure specifically excluded under the proviso to section 17(2) i.e., medical expenditure/payment of medical insurance premium specified therein.
In case of Government employees, the excess of licence fees determined by the employer as increased by the value of furniture and fixture over and above the rent recovered/recoverable from the employee and the charges paid or payable for furniture by the employee would be deemed to be the concession in the matter of rent.
12. Section 35(2AB) provides for a weighted deduction of one and a half times of the expenditure on in-house research and development incurred up to 31.3.2007 by a company engaged in the business of bio-technology or manufacturing or production of any drugs or pharmaceuticals etc. The benefit would now be available in respect of such expenditure incurred up to 31.3.2012.
13. Section 36(1)(ib) provides deduction in respect of premium paid by an employer to keep in force an insurance on the health of his employees under a scheme framed in this behalf by GIC or any other insurer. So far, only premium paid by cheque qualified for deduction under this section. Now, premium paid by any mode other than cash would qualify for deduction.
14. Deduction in respect of provision for bad and doubtful debts [Section 36(1)(viia)] which is allowable for Banks to be given Cooperative banks also. However, this deduction is not available to primary agricultural credit societies and primary co-operative agricultural and rural development banks, since they are still eligible for deduction under section 80P.
15. Deduction u/s. 36(1)(viii) is now admissible also to a co-operative bank other than a primary agricultural credit society and primary co-operative agricultural and rural development bank. Deduction was earlier available to the extent of 40% of the profits derived from such business of providing long-term finance carried to the reserve account. Now, this deduction is restricted to a maximum of 20% of the profits derived from eligible business.
16. Section 36(1)(x) withdrawn w.e.f A.Y.2008-09.
17. Deduction of contribution by a public financial institution to Credit guarantee fund trust for small industries [Section 36(1)(xiv)]
New clause (xiv) has been inserted in section 36(1) to provide for deduction of any sum paid by a public financial institution by way of contribution to such credit guarantee fund trust for small industries notified by the Central Government in the Official Gazette. Public financial institution has the meaning assigned to it in section 4A of the Companies Act, 1956. (Effective from A.Y.2008-09)
18. The disallowance under section 40A(3) has been raised from 20% to 100% of the expenditure. In case of an assessee following mercantile system of accounting, if an expenditure has been allowed as deduction in any previous year on due basis, and payment exceeding Rs.20,000 has been made in the subsequent year otherwise than by account payee cheque or account payee bank draft, then the payment so made shall be deemed to be the income of the subsequent year in which such payment has been made.
19. Now, archaelogical collections, drawings, paintings, sculptures or any work of art are included within the meaning of the term “Capital assets” as defined u/s 2(14). Therefore transfer of above mentioned personal effects will attract Capital gains tax w.e.f AY 2008-09.
20. Cost of acquisition of specified securities and sweat equity shares [Sec.49(2AB)]
The Finance Act, 2007 has brought ESOPs under the FBT net. Consequently, it has been provided that for the purpose of computing capital gains in the hands of the employee at the time of sale of such securities/shares by the employee, the cost of acquisition shall be the fair market value which has been taken into account for the purpose of computing the value of fringe benefits in the hands of the employer.
Further, the period of holding, in the case of a specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer free of cost or at concessional rate to his employees, including former employees, shall be reckoned from the date of allotment or transfer of such specified security or sweat equity shares. Such period of holding will determine whether the asset transferred is a long-term capital asset or short-term capital asset.
21. Section 54EC provides exemption in respect of capital gains arising from transfer of long-term capital assets if such capital gains are invested in long term specified assets, namely, bonds redeemable after three years issued by NHAI or RECL, within a period of 6 months from the date of such transfer.
This exemption has been restricted, by limiting the maximum investment on or after 1.4.2007 in such long-term specified assets to Rs.50 lakh during any financial year. "Long term specified assets" is now defined to mean any bond redeemable after three years and issued on or after 1st day of April, 2007 by the National Highways Authorities of India or by the Rural Electrification Corporation Ltd.
22. The benefit u/s. 72A (the benefit of carry forward of losses and unabsorbed depreciation of amalgamating company) has been extended to amalgamation of public sector companies engaged in the business of operation of aircrafts.
23. Benefit of deduction under section 80-IA has been extended to an undertaking which lays and begins to operate a cross country natural gas distribution network, including pipelines and storage facilities being an integral part of such network by inserting clause (vi) in sub-section (4).
The transfer of benefit of deduction under section 80-IA to the amalgamated/resulting company by virtue of sub-section (12) of section 80-IA would not be available in respect of any enterprise or undertaking which is transferred in a scheme of amalgamation or demerger effected on or after 1.4.2007.
The benefit provided under section 80-IA to an undertaking engaged in development of infrastructure facility like highways and ports, industrial parks etc. would not be available to a person who merely executes a works contract entered into with the undertaking or enterprise referred to in that section.
The deduction under section 80-IB has now been extended to all such industrial undertakings set up in Jammu and Kashmir which begin to manufacture or produce articles or things or operate a cold storage plant on or before 31.3.2012.
New section 80-ID has been inserted to provide a deduction of 100% of profits and gains derived by an undertaking from the eligible business i.e. business of hotel or business of building, owning and operating a convention centre in a specified area, for a period of 5 consecutive assessment years beginning from the year in which such hotel starts functioning or convention centre starts operating on a commercial basis. However, such hotel or convention centre should be constructed at any time during the period from 1.4.2007 to 31.3.2010. Specified area means the National Capital Territory of Delhi and the districts of Faridabad, Gurgaon, Gautam Budh Nagar and Ghaziabad
New section 80-IE has been inserted to provide a 100% tax holiday for 10 years in respect of profits and gains derived by certain undertakings, which has during the period between 1st April, 2007 and 1st April, 2017, begun or begins, in any of the North-Eastern States (i.e., the States of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim and Tripura)
Consequently, section 80AC has been amended to make filing of return on or before the due date mandatory for availing benefit of deduction under sections 80-ID and 80-IE.
24. Section 80C(2) has been amended to provide that the subscription to such bonds issued by NABARD (as the Central Government may notify in the Official Gazette) would qualify for deduction under section 80C w.e.f. A.Y.2008-09.
25. The benefit of deduction u/s. 80CCD is currently available only to individuals employed by the Central Government on or after 1.1.2004. This deduction is now extended also to individuals employed by any other employer on or after 1.1.2004. The entire employer’s contribution would be included in the salary of the employee. However, deduction under section 80CCD would be restricted to 10% of salary.
Accordingly, clause (iii) of section 7 has been amended to also deem the contribution made by any other employer in the previous year to the account of an employee under a pension scheme referred in section 80CCD as income received in the previous year. Further, clause (viii) of section 17(1) has been amended to provide for inclusion of the contribution made by any other employer in the previous year to the account of an employee under a pension scheme referred in section 80CCD in the salary of the employee.
26. The maximum permissible deduction under section 80D in respect of medical insurance premium has been increased from Rs.10,000 to Rs.15,000. Further, for senior citizens, the maximum permissible deduction has been increased from Rs.15,000 to Rs.20,000. So far, only premium paid by cheque qualified for deduction under this section. Now, premium paid by any mode other than cash would qualify for deduction.
27. The deduction under section 80E available to an individual in respect of interest on loan taken for his higher education has now been extended to also include interest on such loan taken for higher education of his relative i.e. his or her spouse and children.
28. The order of the Transfer Pricing Officer determining the arm’s length price of an international transaction is now binding on the Assessing Officer and the Assessing Officer shall proceed to compute the total income in conformity with the arm’s length
price determined by the Transfer Pricing Officer.
29. Now, MAT is leviable on income eligible for deduction under section 10A and 10B also. Thus Income of units established in Free Trade Zones or as Software Technology Park Units or as 100% export oriented units will be hit MAT provisions. The effective rate would be 11.33% of book profit, if the company’s total income is higher than Rs.1 crore and 10.30% if the total income is up to Rs.1 crore.
30. Fringe Benefit Tax
FBT exemption now extended to expenditure on advertisement by way of display of products and distribution of free samples. Therefore, the exemption is now not restricted to only distribution of free medical samples but is extended to distribution of all samples.
FBT on ESOPs:
A new clause (d) has been inserted in section 115WB(1) to provide for levy of FBT on the value of any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer free of cost or at concessional rate to his employees, including former employees. Sweat equity shares means equity shares issued by a company to its employees or directors at a discount or for consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called.
The value of specified security or sweat equity shares, for the purpose of levy of FBT, shall be the fair market value of such security or shares on the date on which the option vests with the employee, as reduced by any amount actually paid by, or recovered from, the employee in respect of such security or shares.
In a case where, on the date of the vesting of the option, the share in the company is listed on a recognized stock exchange, the fair market value shall be the average of the opening price and closing price of the share on that date on the said stock exchange:
Provided that where, on the date of vesting of the option, the share is listed on more than one recognized stock exchanges, the fair market value shall be the average of opening price and closing price of the share on the recognised stock exchange which records the highest volume of trading in the share:
Provided further that where, on the date of vesting of the option, there is no trading in the share on any recognized stock exchange, the fair market value shall be -
(a) the closing price of the share on any recognised stock exchange on a date closest to the date of vesting of the option and immediately preceding such date; or
(b) the closing price of the share on a recognised stock exchange, which records the highest volume of trading in such share, if the closing price, as on the date closest to the date of vesting of the option and immediately preceding such date, is recorded on more than one recognized stock exchange.
In a case where, on the date of vesting of the option, the share in the company is not listed on a recognized stock exchange, the fair market value shall be such value of the share in the company as determined by a merchant banker on the specified date.
Consequently, the proviso to section 17(2)(iii) has been omitted. So far, the value of any benefit provided by a company free of cost or at a concessional rate to its employees by way of allotment of shares, debentures or warrants, directly or indirectly under any Employees' Stock Option Plan or Scheme of the company offered to such employees was an exempt perquisite. Now, it is a taxable fringe benefit.
Advance payment of FBT
Advance FBT will be payable in four installments in the case of companies in the following manner:
Due date of installment Advance tax payable
On or before 15th June Not less than 15% of such advance tax
On or before 15th September Not less than 45% of such advance tax, as
reduced by the amount, if any, paid in the
On or before 15th December Not less than 75% of such advance tax, as
reduced by the amount or amounts, if any, paid in the earlier installment or installments.
On or before the 15th March The whole amount of such advance tax as
reduced by the amount or amounts, if any, paid in the earlier installment or installments.
Similarly, non-corporate assessees shall be liable to pay advance tax on the value of fringe benefits paid or payable in a financial year in three installments in the following manner
Due date of installment Advance tax payable
On or before the 15th September Not less than 30% of such advance tax.
On or before the 15th December Not less than 60% of such advance tax, as reduced by the amount, if any, paid in the earlier installment.
On or before the 15th March The whole amount of such advance tax as reduced by the amount or amounts, if any, paid in the earlier installment/installments
Interest for deferment of advance FBT in the case of corporate assesses [Section 115WJ(3)]
In case of corporate assessees, simple interest (calculated as per the table given below) is payable in case of failure to pay advance tax before the due date of any installment or shortfall in the advance tax paid vis-à-vis advance tax due in any installment –
Rate of Interest Amount on which interest is payable
1% per month for 3 months 15% of advance tax payable minus advance tax paid on or before 15th June.
1% per month for 3 months 45% of advance tax payable minus advance tax paid on or before 15th September.
1% per month for 3 months 75% of advance tax payable minus advance tax paid on or before 15th December.
1% 100% of advance tax payable minus advance tax paid on or before 15th March.
Interest for deferment of advance FBT in the case of non-corporate assessees [Section 115WJ(4)]
In the case of non-corporate assesses, simple interest (calculated as per the table given below) is payable in case of failure to pay advance tax before the due date of any installment or shortfall in the advance tax paid vis-à-vis advance tax due in any installment
Rate of Interest Amount on which interest is payable
1% per month for 3 months 30% of advance tax payable minus advance tax paid on or before 15th September.
1% per month for 3 months 60% of advance tax payable minus advance tax paid on or before 15th December
1% 100% of advance tax payable minus advance tax paid on or before 15th March.
Where an assessee has failed to pay the advance tax payable by him during a financial year or where the advance tax paid by him is less than 90% of the tax assessed under sections 115WE, 115WF or 115WG, the assessee shall be liable to pay simple interest @1% per month for every month or part of a month, from 1st April next following such financial year to the date of assessment of tax under sections 115WE or 115WF or 115WG [Section 115WJ (5)]. (Effective from 1.6.2007)
31. The Finance Act, 2007 has provided that the Assessing Officer is now required to give the assessee an opportunity of being heard before issuing directions for special audit under section 142(2A). Further, where the direction for special audit is issued by the Assessing Officer on or after 1.6.2007, the expenses of, and incidental to, such special audit, including remuneration of the Accountant, shall be determined by the Chief Commissioner or Commissioner in accordance with the prescribed guidelines. The expenses so determined shall be paid by the Central Government.
32. New section 153D has been inserted to provide that assessment or reassessment of search cases in respect of each assessment year referred to in section 153A(b) or the assessment year referred to in 153B(1)(b) shall not be made by an Assessing Officer below the rank of Joint Commissioner without the previous approval of the Joint Commissioner.
33. Section 172 provides for presumptive taxation at 7½% of the freight paid or payable in case of shipping business of a non-resident. However, the time limit for completion of assessment in such cases has not been provided in the Act. The Finance Act, 2007 now provides a time limit of 9 months for completing such assessments by inserting sub section (4A) in section 172.The period of 9 months is reckoned from the end of the financial year in which the return under section 172(3) is furnished.
34. TDS/ TCS
payment Existing provision Amendment by the Finance
securities Interest payable on these bonds is taxable under the
Income-tax Act. However, TDS provisions are not
attracted in respect of
interest payable on any
security of the Central
Government or State Govt. Tax has to be deducted at source in respect of 8% Savings (Taxable) Bonds, 2003, if interest payable exceeds Rs.10,000 during the financial year. (w.e.f 1-6-2007)
On securities” The threshold limit for tax deduction in respect of interest payable under section 194A(3)(i) is Rs.5,000 This limit is increased to Rs.10,000 in respect of interest paid on –
(i) time deposits with a banking company;
(ii) time deposits with a cooperative society engaged in banking business; and
(iii) deposits with post office
under notified schemes. (Senior Citizens Savings Scheme, 2004)
In all other cases covered under
section 194A(3)(i), the limit would continue to beRs.5,000.
Consequential amendment has
been made in section 206A(1)
requiring furnishing of quarterly
return in respect of payment of
interest to residents without deduction of tax. Interest
payments upto Rs.10,000 to
residents in respect of the above
category of deposits would be
covered under section 206A(1).
contractors TDS provisions are not
attracted in respect of
payments made by an
individual or a HUF to a contractor Scope of TDS provisions expanded w.e.f. 1.6.2007 to cover contract payments by specified individuals/HUFs also. Payments made by Individuals/ HUFs to a contractor to attract TDS if their total sales/turnover exceeds Rs.40 lakhs (in case of business) and gross receipts exceed Rs.10 lakhs (in case of profession) in the immediately
preceding financial year. However, relief has been provided in respect of payments made by individuals/HUFs to a contractor
exclusively for personal purposes
brokerage Tax to be deducted at
source in respect of
payment of commission or
brokerage at 5%. (i) The rate of TDS on commission and brokerage has been increased from 5% to 10% w.e.f. 1.6.2007.
(ii) However, there would be no
requirement to deduct tax at
source on commission or brokerage payments by BSNL or MTNL to their public call office (PCO) franchisees.
194-I Rent Rent includes payment for use of plant, machinery and equipment. Such rent
is subject to tax deduction at 15% if the payee is an individual/HUF and 20% in other cases. The rate of tax deduction has been reduced to 10% w.e.f. 1.6.2007 in respect of rental payments for use of plant, machinery and equipment,
irrespective of whether the payee is an individual/HUF, firm, company or any other person.
194J Fees for
services Tax has to be deducted at source @5% in respect of payment of fees for professional services or fees for technical services to a resident. This rate has been increased to
10% w.e.f. 1.6.2007
197A(1C) - Relief from TDS provisions in case of individual residents of the age of 65 years or more at any time during the previous year and entitled to rebate under section 88B. Omission of reference to section
88B, consequent to omission of
this section by the Finance Act,
2005 w.e.f. 1.4.06. This is a consequential amendment i.e. consequent to omission of section 88B. This change has no material effect and the substance of section
197A(1C) remains the same.
206C(1C) - This section provides for tax collection at source from the licensee or lessee
in respect of any licence, contract or lease relating
to, inter-alia, any ‘mining and quarrying’ specified in
column (2) of the table in section 206C(1C).
However ‘mining and
quarrying’ have not been defined. Two Explanations have been
inserted w.e.f. 1.6.2007 to clarify
the scope of the term ‘mining
Explanation 1 excludes mining
and quarrying of mineral oil from
the scope of ‘mining & quarrying’.
Explanation 2 clarifies that
‘mineral oil’ includes petroleum
and natural gas. This amendment seeks to relieve the oil exploration and incidental services from the
applicability of TCS provisions,
since these services are in the organized sector.
246A(1) - Section 206C(6A) deems a person responsible for collecting tax to be an
assessee in default if he fails to collect the whole or any part of the tax, or after
collection, fails to pay the same in accordance with the provisions of the Act. The Assessing Officer has to pass an order deeming such person as an assessee in default. There is no provision for filing of appeal by the assessee
against such order of the Assessing Officer. New clause (hb) has been inserted in section 246A(1) w.e.f. 1.6.2007 to entitle a person deemed as an assessee in default to appeal to the
Commissioner (Appeals). This amendment provides the right of appeal by a person deemed to be an assessee in default for failure to collect or pay tax. Also, an appeal filed by an assessee in default against an order made under section
206C(6A) on or after 1st April, 2007 but before 1st June, 2007 shall be deemed to have been filed before the Commissioner (Appeals) under new clause (hb) of section 246(1).
35. Change of method for calculation of interest from per annum basis to per month basis [Section 132B(4), 201(1A), 245D, Rules 60(1)(a) and 68A(3) of the Second Schedule]
(i) According to section 132B(4)(a), the Central Government shall pay simple interest at the rate of 6% per annum on the excess of money seized and the sale proceeds arising on the sale of assets seized over the amount required to meet the liabilities i.e. tax, interest and penalty.
(ii) Section 201(1A) provides that the person who has not deducted the whole or any part of the tax or after deduction has failed to pay the tax as required by or under the Act, shall be liable to pay simple interest at the rate of 12% per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid.
(iii) Section 245D(6A) provides for levy of interest @15% per annum in case of failure by the assessee to pay the additional amount of income-tax within a period of 35 days of receipt of copy of order of the Settlement Commission. Similarly, section 22D(6A) of the Wealth-tax Act provides for levy of interest @15% per annum in case of failure by the assessee to pay the additional amount of wealth-tax within a period of 35 days of receipt of copy of order of the Settlement Commission.
(iv) As per Rule 60(1)(a) of the Second Schedule requires the defaulter or any person, whose interests are affected by the sale of immovable property in execution of a certificate, to deposit the amount specified in the proclamation of sale along with interest @ 15%.
(v) As per Rule 68A(3) of the Second Schedule relating to acceptance of property in satisfaction of the amount due from the defaulter, the Central Government is required to pay simple interest @ 6% p.a., if the Assessing Officer fails to pay to the defaulter the excess of the price of the property over the amount due within a period of 3 months from the date of delivery of possession of the property.
(vi) Under sections 220(2), 234A, 234B, 234C, 234D and 244A, interest is chargeable on per month basis. Accordingly, the following sections/rules to the second schedule have now been amended to change the method of calculation of interest to per month basis from the existing per annum basis –
Section / Rule of Second Schedule Interest on per
annum basis Interest on per
month of part of a
Section 132B(4)(a) 6% ½%
Section 201(1A) 12% 1%
Section 245D (6A) 15% 1¼%
Rule 60(1)(a) 15% 1¼%
Rule 68A(3) 6% ½%
Similar amendment has been made in section 22(6A) of the Wealth-tax Act providing for calculation of interest @1¼% for every month or part of the month in case of failure by the assessee to pay the additional amount of wealth-tax within a period of 35 days of receipt of copy of order of the Settlement Commission.
(vii) The difference between calculation of interest on per-annum basis and permonth basis lies in the procedure followed for calculation of interest under these two methods. When interest is calculated on per annum basis, any fraction of a month is ignored and when interest is calculated for every month or part of a month basis, any fraction of a month is deemed a full month and interest is calculated for the full month. This principle has been followed in framing rule 119A which provides for procedure for calculation of interest on annual or monthly basis.
(viii) The amendments regarding change of method of calculation of interest to monthly basis will be applicable in respect of interest chargeable or payable for the period commencing on or after 1st April, 2008. For any period ending on or before 31st March, 2008, interest shall continue to be charged or paid on per annum basis under the aforementioned sections and rules to the Second Schedule which have been amended.
(ix) Further, in a case where interest is chargeable or payable in respect of both the periods, that is, the period before 31st March, 2008 and the period thereafter, interest shall be calculated on per annum basis upto 31.3.2008 and per month basis for so much of such period as falls after that date. (Effective from 1.4.2008)
36. SETTLEMENT OF CASES
The existing provisions relating to settlement of cases by the Settlement Commission have been amended to restrict the cases eligible to appear before the Settlement Commission. It has been provided that from 1.6.2007, an assessee can make an application to the Commission only during the pendency of the proceedings before the Assessing Officer. No proceedings, except original assessment proceedings, should be pending at the time of making an application to the Settlement Commission.
Further, the additional amount of income-tax offered should exceed Rs.3 lakh and the additional tax offered and interest thereon should be paid before filing the application and proof of payment should be attached with the application. The assessee should also intimate to the Assessing Officer in the prescribed manner that he has made an application to the Settlement Commission. Such intimation should be made on the same date when he makes an application to the Settlement Commission.
Under section 245H, the Settlement Commission may grant immunity from prosecution for any offence under the Indian Penal Code, Income-tax Act and any other Central Act. This power has now been restricted in respect of application made under section 245C on or after 1.6.2007. In respect of such cases, the Settlement Commission shall not grant immunity from prosecution for any offence under the Indian Penal Code or under any Central Act other than the Income-tax Act and Wealth-tax Act.
The entire procedure of admission and disposal of a settlement application has been revamped for speedy fast-track disposal as under:
Admission of Petition [New sub-section (1) of section 245D]
On receipt of the settlement application, the Settlement Commission shall issue a notice to the applicant within 7 days from the date of receipt of application.
After hearing the applicant, the Settlement Commission shall pass an order either rejecting or allowing the application to be proceeded with within 14 days from the date of application. Application not disposed off within 14 days shall be treated as admitted.
Time limit for furnishing report by Commissioner and passing order by the Settlement Commission [New sub-sections (2B) & (2C) of section 245D]
The Settlement Commission shall call for a report from the Commissioner within 30 days from the date of application.
The Commissioner is required to furnish the report within 30 days from the receipt of communication from the Settlement Commission.
The Settlement Commission can also pass an order declaring the application as invalid on the basis of the report of the Commissioner.
Such order should be passed in writing within 15 days of the receipt of report after giving the applicant an opportunity of being heard.
A copy of the order should be sent to the applicant and the Commissioner.
However, in a case where the Commissioner has not furnished the report within the prescribed time, the Settlement Commission shall proceed further in the matter without the report of the Commissioner.
Proceedings after admission [New sub-section (3) of section 245D]
The Settlement Commission may call for records from the Commissioner in respect of an application which has not been declared invalid under sub-section (2C) or an application which has been allowed to be further proceeded with under sub-section (2D).
After examination of such records, the Settlement Commission may require the Commissioner to make further enquiry or investigation and furnish a report on the matters covered by the application and any other matter relating to the case.
The Commissioner shall furnish the report within a period of 90 days of the receipt of communication from the Settlement Commission.
If the Commissioner fails to furnish the report within the said period of 90 days, the Settlement Commission may proceed to pass an order under sub-section (4) without such report.
Final order of settlement [New sub-sections (4) and (4A) of section 245D]
The Settlement Commission may pass such order as it thinks fit on the matters covered by the application and any other matter relating to the case not covered by the application but referred to in the report of the Commissioner. Such order should be passed by the Settlement Commission after –
(1) examining the records and report of the Commissioner, if any, received at the time of admission or on investigation or enquiry conducted as per the instructions of the Settlement Commission;
(2) giving an opportunity of being heard to the applicant and the Commissioner;
(3) examining such further evidence as may be placed before it or obtained by it.
The time limit for passing such order is –
(1) In respect of an application made on or after 1.6.2007: Within 12 months from the
end of the month in which the application was made.
(2) In respect of an application filed before 1.6.2007 [under sub-section (2A) or (2D)]: On or before 31.3.2008
Time restriction for provisional attachment removed [Section 245DD]
Under section 245DD, the Settlement Commission is empowered to provisionally attach the property belonging to the applicant for protecting the interest of the revenue. Such provisional attachment is valid for a period of 6 months, after which it ceases to have effect. The Settlement Commission may, for reasons to be recorded in writing, extend the aforesaid period by such further period or period as it thinks fit. However, the total period of extension cannot exceed two years. The Finance Act, 2007 has removed this limitation of 2 years so that the power to provisionally attach property would be available to the Settlement Commission for an unlimited period. (Effective from 1.6.2008)
The Settlement Commission shall not have any power to reopen the proceedings in respect of an application made on or after 1.6.2007.
Bar on subsequent application for settlement [New section 245K]
(i) In the event of occurrence any of the following, the person concerned shall not be entitled to apply for settlement in relation to any other matter –
(1) the order of settlement passed under section 245D(4) provides for imposition of penalty for concealment of income; or
(2) after the passing of order under section 245D(4) in relation to a case, the person is convicted of an offence under Chapter XXII in relation to that case; or
(3) the case of such person was sent back to the Assessing Officer by the Settlement Commission on or before 1.6.2002.
(ii) Further, with effect from 1.6.2007, the option of going to the Settlement Commission would be available only once in the lifetime of a person. Therefore, where an application for settlement is made on or after 1.6.2007 and such application has been allowed to be proceeded with, then such person will not be subsequently entitled to make any application under section 245C. (Effective from 1.6.2007)
37. Appeal by person denying liability to deduct tax under section 195 [New section 248]
(i) Under the existing section 248, in all such cases where any person denies his liability to deduct tax at source under section 195 or pay such tax under section 200, an appeal can be filed with the Commissioner (Appeals), after deducting and paying such tax.
(ii) Therefore, the existing provision covered cases where the tax is borne by the assessee and also cases where the tax is borne by the non-resident who is the recipient of income.
(iii) This section has been substituted to restrict the eligibility of filing an appeal only to cases where the tax is borne by the assessee. Therefore, the cases where the tax is to be borne by the non-resident is now outside the scope of section 248 and no appeal can be filed in such cases.
(iv) The new section 248 provides that where under an agreement or other arrangement, the tax deductible on any income, other than interest, under section 195 is to be borne by the person by whom the income is payable, and such person having paid such tax to the credit of the Central Government, claims that no tax was required to be deducted on such income, he may appeal to the Commissioner (Appeals) for a declaration that no tax was
deductible on such income.
(v) Consequential amendment has been made in section 249(2)(a) to provide that where the appeal is under section 248, it shall be presented within 30 days of the date of payment of the tax. (Effective from 1.6.2007)
38. Sec. 254 (2A) has been amended to provide that where an order of stay has been passed and the appeal has not been disposed of within the specified period of 180 days from the date of such order, the Appellate Tribunal may extend the period of stay or pass an order of stay for a further period or periods, as it thinks fit, on an application made in this behalf by the assessee and on being satisfied that the delay in disposing of the appeal is not attributable to the assessee. However, the aggregate period of stay, including the original stay granted and the extension allowed, cannot exceed 365 days. If such appeal is not disposed of within the period originally allowed or the extended period or periods, the order of stay stall stand vacated after the expiry of such period or periods.
39. The Section 271(1) has been amended retrospectively from A.Y.2003-04 to provide that no penalty shall be leviable in respect of tax on assessed income, to the extent the assessee has paid taxes before the date of issue of notice under section 148 by way of advance tax, tax deducted at source, tax collected at source or self-assessment tax.
New Explanation 5A has been inserted in section 271(1) w.e.f. 1.6.2007 which would be applicable in respect of searches conducted on or after 1st June, 2007.
This Explanation provides that where an assessee is found to be the owner of any
– asset and he claims that such assets have been acquired by him by utilizing his income for any previous year; or
– income based on any entry in the books of account or documents or transactions and he claims that such entry represents his income for any previous year, which has ended before the date of the search and the due date for filing of the return has expired and return has not been filed, such income would be deemed to be concealed income, even if such income is declared in the return of income filed on or after the date of search.
A new section 271AAA has been inserted w.e.f. 1.4.2007 to provide for imposition of penalty at 10% of undisclosed income of the specified previous year, in respect of searches initiated under section 132 on or after 1.6.2007.
Undisclosed income means –
(a) any income represented by any asset or entry in the books of accounts or other documents or transactions found in the course of search under section 132 which has -
(1) not been recorded in the regular books of accounts or documents on or before the date of search; or
(2) otherwise not been disclosed to the Chief Commissioner or Commissioner before the date of search.
(b) any income represented by any entry in respect of an expense recorded in regular books of accounts or documents, which is found to be false as a result of search.
Specified previous year means –
(i) the previous year which has ended before the date of search, but the due date of filing the return of income under section 139(1) has not expired before the date of search; or
(ii) the previous year in which the search was conducted.
Therefore, this section covers the previous year for which the due date of filing the return has not expired on the date of search and the year of search. No penalty under section 271(1)(c) is leviable in respect of such undisclosed income.
This section grants immunity from imposition of penalty, if:
(1) the assessee admits undisclosed income in a statement under section 132(4) during the course of search and,
(2) specifies the manner in which such income has been derived;
(3) substantiates the manner in which the undisclosed income was derived; and
(4) pays the tax, together with interest, if any, in respect of the undisclosed income.
40. Income-tax (Fourth Amendment) Rules, 2007
From AY 2007-08, the CBDT has notified the following new forms
ITR-1 - return of income for Individuals having salary / pension / family pension and interest income and no other income.
ITR-2 - return of income for Individuals and HUFs having income from any source except from business or profession.
ITR-3 - return of income for Individuals and HUFs being partners in firms and not having proprietory business or profession.
ITR-4 - return of income for Individuals and HUFs having proprietory business or profession.
ITR-5 - combined form for return of income and fringe benefits for Firms/AOP/BOI .
ITR-6 - combined form for return of income and fringe benefits for Companies.
ITR-7 - combined form for return of income and fringe benefits for Charitable / religious trusts, political parties and other non- profit organizations.
ITR-8 - stand alone form for return of fringe benefits for persons who are not liable to file return of income but are liable to file return of fringe benefits
All these Forms (except Form ITR-7) have been designed as annexure-less so as to make them amenable for electronic filing. A taxpayer is not required to file any document relating to computation of income or challans or TDS certificates (Form 16 or form 16A) or TCS certificates alongwith these annexure-less returns, irrespective of whether a refund is claimed or not. The taxpayers are advised to strictly follow the instruction annexed with the new return forms and Rule 12 of the Income Tax Rules.
In case of Firms (if audit is required under Sec.44AB) and Companies, returns should be submitted in electronic format with or without digital signature. In other cases, returns can be in paper format or electronic format. However ITR-7 can be submitted only in paper format. For these purposes CBDT vide NOTIFICATION NO. 210/2007, DATED 27-7-2007 notified Electronic Furnishing of Return of Income Scheme, 2007.
41. Income-tax (8th Amendment) Rules, 2007 [regarding Sec. 40A(3)]
In the Income-tax Rules, 1962, for rule 6DD, the following rule shall be substituted, namely:
6DD. No disallowance under clause (a) of sub-section (3) of section 40A shall be made and no payment shall be deemed to be the profits and gains of business or profession under clause (b) of sub-section (3) of section 40A where any payment in a sum exceeding twenty thousand rupees is made otherwise than by an account payee cheque drawn on a bank or account payee bank draft in the cases and circumstances specified hereunder, namely:
(a) where the payment is made to
(i) the Reserve Bank of India or any banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949);
(ii) the State Bank of India or any subsidiary bank as defined in section 2 of the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959);
(iii) any co-operative bank or land mortgage bank;
(iv) any primary agricultural credit society or any primary credit society as defined under section 56 of the Banking Regulation Act, 1949 (10 of 1949);
(v) the Life Insurance Corporation of India established under section 3 of the Life Insurance Corporation Act, 1956 (31 of 1956);
(b) where the payment is made to the Government and, under the rules framed by it, such payment is required to be made in legal tender;
(c) where the payment is made by
(i) any letter of credit arrangements through a bank;
(ii) a mail or telegraphic transfer through a bank;
(iii) a book adjustment from any account in a bank to any other account in that or any other bank;
(iv) a bill of exchange made payable only to a bank;
(v) the use of electronic clearing system through a bank account;
(vi) a credit card;
(vii) a debit card.
Explanation- For the purposes of this clause and clause (g), the term "bank" means any bank, banking company or society referred to in sub-clauses (i) to (iv) of clause (a) and includes any bank [not being a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949)], whether incorporated or not, which is established outside India;
(d) where the payment is made by way of adjustment against the amount of any liability incurred by the payee for any goods supplied or services rendered by the assessee to such payee;
(e) where the payment is made for the purchase of
(i) agricultural or forest produce; or
(ii) the produce of animal husbandry (including livestock, meat, hides and skins) or dairy or poultry farming; or
(iii) fish or fish products; or
(iv) the products of horticulture or apiculture,
to the cultivator, grower or producer of such articles, produce or products;
(f) where the payment is made for the purchase of the products manufactured or processed without the aid of power in a cottage industry, to the producer of such products;
(g) where the payment is made in a village or town, which on the date of such payment is not served by any bank, to any person who ordinarily resides, or is carrying on any business, profession or vocation, in any such village or town;
(h) where any payment is made to an employee of the assessee or the heir of any such employee, on or in connection with the retirement, retrenchment, resignation, discharge or death of such employee, on account of gratuity, retrenchment compensation or similar terminal benefit and the aggregate of such sums payable to the employee or his heir does not exceed fifty thousand rupees;
(i) where the payment is made by an assessee by way of salary to his employee after deducting the income-tax from salary in accordance with the provisions of section 192 of the Act, and when such employee -
(i) is temporarily posted for a continuous period of fifteen days or more in a place other than his normal place of duty or on a ship; and
(ii) does not maintain any account in any bank at such place or ship;
(j) where the payment was required to be made on a day on which the banks were closed either on account of holiday or strike;
(k) where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person;
(l) where the payment is made by an authorised dealer or a money changer against purchase of foreign currency or travellers cheques in the normal course of his business.
Explanation- For the purposes of this clause, the expressions "authorised dealer" or "money changer" means a person authorised as an authorised dealer or a money changer to deal in foreign currency or foreign exchange under any law for the time being in force.'
42. Cost Inflation Index for FY 2007-08 is 551. It may be noted that for FY 2006-07, it is 519.
43. Scope of mandatory filing of e-TDS returns has been expanded to include deductors who are required to get their accounts audited under section 44AB in the immediately preceding financial year and those having fifty or more deductee records (in a quarterly statement for any quarter of the immediately preceding financial year). Prior to this, government offices and corporates were the only two categories that were required to file their quarterly TDS/TCS returns electronically - Income-tax (Ninth Amendment) Rules, 2007