analysis by nangia & co:budget 2015-16 presentation

UNION BUDGET 2015-16:KEY AMENDMENTS TO INCOME TAX ACT, 1961 (‘Act’)

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General key amendments

No changes in the personal and corporate income tax rates for FY 2015-16.

Corporate tax rate reduction from 30% to 25% for four years starting from FY 2016-17.

Amendment in Section 32 - effective from April 1, 2016.

- New section Section 32AD - Additional Investment allowance at 15% of the actual cost to be provided in the year of installation for new

manufacturing units set-up during the period April 1, 2015 to March 31, 2020 in notified areas of Andhra Pradesh and Telangana.

- Further, to promote industrialization and economic growth in both the states, additional depreciation at 35% instead of 20% to be given

under section 32(1)(iia) of the Act, for new plant and machinery (other than ships and aircrafts).

- Additionally, the balance 50% of the additional depreciation on new plant or machinery acquired and used for less than 180 days which

has not been allowed in the year of acquisition and installation of such plant or machinery, shall be allowed in the immediately

succeeding previous year in terms of section 32(1)(ii) of the Act.

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Section 47 – transactions not regarded as transfer - effective from April 1, 2016.

- Transfer of share of a foreign company [referred to in explanation 5 to section 9(1)(i)] in a scheme of amalgamation as well as in a

scheme of demerger, subject to fulfillment of certain conditions.

- Transfer by a unit holder under consolidation scheme of mutual funds.

Consequently, section 49 of the Act relating to cost with reference to certain modes of acquisition, amended with effect from April 1,

2016, to provide that in determining the period for which the capital asset was held, the period in which the units were held in the

consolidating scheme shall also be included.

Activity of YOGA to be recognized as activity within the meaning of term charitable purpose from April 1, 2016 in terms of amendment

in section 2(15) of the Act.

To mitigate the problem being faced by many genuine charitable institutions, the ceiling, on receipts from activities in the nature of

trade, commerce or business, modified to 20% of the total receipts from the existing ceiling of Rs. 25,00,000.

With a view to ease the detection and combating of the tax evasion and with a view to widen tax base, mandatory to quote PAN for any

purchase or sale exceeding Rs. 1,00,000.

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In order to increase participation of people in the initiative towards improving sanitation facilities and rejuvenation of river Ganga,

100% deduction for contributions, other than by way of Corporate Social Responsibility contribution, to Swachh Bharat Kosh and Clean

Ganga Fund under section 80G of the Act.

Further, 100% deduction under section 80G on the donation made to National Fund for Control of Drug Abuse (NFCDA) (effective from

April 1, 2016)

To encourage generation of employment, eligible threshold limit for all the business entities to claim deduction u/s 80JJAA of the Act

for employment of new regular workmen reduced from 100 to 50

Section 92BA of the Act amended, with effect from April 1, 2016, to increase domestic transfer pricing threshold limit from Rs. 5 crore

to Rs. 20 crore, to address the issue of compliance cost involved in the case of small businesses.

Section 132B of the Act to be amended with effect from June 1, 2015 to provide for adjustment of assets seized under section 132 or

requisitioned under section 132A,against amount of liability arising on application made before the settlement commission under

section 245C(1) of the Act.

With effect from June 1, 2015, intimation by the tax department received in case of any sum payable by an assessee [under section

143(1)], being a deductor of tax [under section 200A(1)], or a collector of tax [under section 206CB(1)] shall be deemed to be notice of

demand under section 156 of the Act.

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Section 246A to be amended, with effect from June 1, 2015, with a view to enable a income tax collector to prefer an appeal before

the CIT(A) against an intimation under section 206CB(1) of the Act.

Section 194C(6) to be amended with effect from June 1, 2015, to provide that no tax to be deducted on payment made to contractor

engaged in the business of plying, hiring or leasing goods carriage, who owns ten or less than ten goods carriages at any time during the

previous year(i.e. eligible to compute income under section 44AE of the Act), and who has furnished a declaration to this effect along

with PAN.

Section 200A to be amended, with effect from June 1, 2015, so as to take into account the fee payable for default in furnishing the

statement, under section 234E of the Act, at the time of processing of TDS statements.

With effect from June 1, 2015, monetary limit for a case to be heard by a single member bench of ITAT to be increased from Rs.

5,00,000 to Rs.15,00,000.

Wealth tax abolished with effect from assessment year 2016-17 and subsequent years, to reduce increased compliance burden on the

asseseess as well as administrative burden on the tax department.

However, levy of additional surcharge of 2 % on the super rich having annual total income exceeding 1 crore.

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In order to facilitate the banks, who have adopted core banking solutions, to identify the persons earning interest income greater than

Rs. 10,000 in a year, the ambit of TDS provisions have been widened. The limit of Rs. 10,000 for TDS to be calculated with reference to

the bank as a whole and not for each branch in case the bank has implemented core banking solution. (Amendment in section 194A

effective from June 1, 2015)

Further, TDS to be deducted on interest on recurring deposit account in case the interest exceeds the threshold limit of Rs. 10,000.

Presently, a cooperative society is not required to deduct TDS on the interest credited to its members. Many cooperative banks were

able to garner big chunk of deposits by making the depositors a member by allotting them nominal numbers of shares.

Therefore section 194A to be further amended with effect from June 1, 2015, to withdraw the exemption hitherto enjoyed by the

cooperative banks. Now even cooperative banks also will have to deduct TDS on interest exceeding Rs. 10,000 credited to fixed deposits

of their members.

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Amendments for Individual tax payers

Keeping in view the rising cost of medical expenditures, with effect from April 1, 2016, deduction of health insurance premium upto Rs.

25,000 available, as against Rs. 15,000 available earlier. Such limit for senior citizens increased from Rs. 20,000 to Rs.30,000.

Similar deduction towards medical expenditure of Rs. 30,000 for very senior citizens above the age of 80 years, who are not eligible to

take health insurance.

With effect from April 1, 2016, deduction limit under section 80U and section 80DD has been increased by Rs.25,000 i.e. medical

expense of disabled individual and dependent on Individual, from existing Rs.50,000 to Rs.75,000 and in case of severe disability the

addition amounts to Rs.50,000 i.e. from existing Rs.1,00,000 to Rs.1,50,000. Also, additional tax sop of Rs.20,000 (Rs. 80,000 instead of

Rs. 60,000) on the medical treatment of some specific diseases such as cancer, AIDS etc. for very senior citizens (aged 80 years or more)

under section 80DDB.

Abolition of requirement to obtain TAN by individual or HUF not liable for tax audit, who is required to deduct tax on acquisition of

immovable property from resident. It is intended to reduce compliance burden on such individual or HUF.

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Amendments for Individual tax payers

As part of an initiative for the welfare of girl child, investment in Sukanya Samriddhi Scheme - eligible for deduction u/s 80C. Further, no

tax on any payment from the scheme.

A total deduction of Rs. 1, 50,000, instead of Rs. 1,00,000, can be availed under section 80CCC for contribution to certain pension

funds. (effective from April 1, 2016)

To promote social security, additional deduction of 50,000 to be provided for contribution to the New Pension Scheme under Section

80CCD(1B) (effective from April 1, 2016). Importantly, the overall limit of Rs. 1,50,000 specified under section 80CCE is not applicable to

section 80CCD(1B) as it covers only Section 80C, Section 80CCC and Section 80CCD(1).

By virtue of newly inserted section 192A, effewctive from June 1, 2015 - In case the amount of premature withdrawal of employee

provident fund exceeds Rs. 30,000, tax at 10% shall be deducted and in case PAN details are not furnished, tax at 30% shall be

deducted. In case an individual’s taxable income is not likely to exceed the basic exemption amount, he can furnish Form 15G/15H to

avoid TDS. However, TDS provisions are not applicable in case of withdrawal after more than five years of continuous service.

By virtue of amendment in section 192 of the Act, effective from June 1, 2015, salaried taxpayers would be required to furnish the

documentary proof for all deductions/claims/exemptions (including claim for set off of loss) so that excess tax is not deducted from

salaries from next year and onwards.

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Amendments for Corporate tax payers

Residency in India - section 6 of the Act-

Pursuant to amendment in section 6 of the Act, effective from April 1, 2016, a company would be said to be resident in India in any

previous year if,

a) It is an Indian company; or

b) Its place of effective management, at any time in that year, is in India.

Place of effective management (‘POEM’) means a place where key management and commercial decisions that are necessary for the

conduct of the business of an entity as a whole are, in substance made.

Prior to the amendment, a company could become resident in India only when the whole of its control and management of affairs was

in India. A company could easily avoid becoming a resident by simply holding a board meeting outside India. This facilitated creation of

shell companies which are incorporated outside but controlled from India.

The concept of POEM would align the provisions of the Act with the Double Taxation Avoidance Agreements (DT AAs) entered into by

India with other countries and would also be in line with international standards as most of such tax treaties recognize the concept of

POEM as a tie breaker rule for avoidance of double taxation.

Domestic companies having income exceeding Rs.1 crore and upto Rs. 10 crore to pay surcharge at 7%. However surcharge at 12% to be

levied in case of domestic companies having income exceeding Rs.10 crore.

Further, no change in the effective tax rate in case of foreign companies, to attract more foreign investments in India.

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Amendments relating to indirect transfers

Section 9(1)(i) - subsisting provision

“Explanation 5.—For the removal of doubts, it is hereby clarified that an asset or a capital asset being any share or interest in a

company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in

India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India;”

In the landmark ruling on indirect transfers {DIT(International Tax) v. Copal Research Limited [TS-509-HC- 2014(DEL)}, the Delhi HC

interpreted the term ‘substantially’ and held that it would cover transfer of shares of a company incorporated outside India, which

derive more than 50% of their value from assets situated in India.

Explanation 6 and Explanation 7 to be inserted, with effect from April 1, 2016, in relation to subsisting explanation for indirect

transfers.

Explanation 6 to be inserted to provide that share or interest shall be deemed to derive its value substantially from assets located in

India, if, on the specified date –

- the value of such assets is more than ten crore rupees, and

- represents at least fifty per cent of the value of all the assets owned by the company or entity, as the case may be. The definition of

value of assets and the specified date also to be provided in the said Explanation.

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Amendments relating to indirect transfers

Further, explanation 7 introduced, in case the company or entity registered outside India (referred to in explanation 5) directly or

indirectly owns the assets situated in India, and provides the following –

- No income shall be accrue or arise to non resident if he along with its associated enterprises, neither holds the management right or

control nor holds voting power exceeding 5% in the foreign company directly holding Indian assets.

- Similarly, income shall not accrue or arise to non resident if he along with its associated enterprises, neither holds right of management

or control in relation to such foreign company nor holds any rights entitling him to exercise control of the direct holding company or

entitling him voting powers exceeding 5% in the direct holding company.

There shall be a reporting obligation on Indian concern through or in which the Indian assets are held by the foreign company or the

entity. The Indian entity shall be obligated to furnish information relating to the off shore transaction having the effect of directly or

indirectly modifying the ownership structure or control of the Indian company or entity. In case of any failure on the part of Indian

concern in this regard a penalty shall be leviable, under newly inserted section 285A of the Act.

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Amendments for non residents

As an initiative to promote domestic manufacturing and improving the investment climate in India and in order to implement the

General Anti Avoidance Rule (GAAR) provisions as part of a comprehensive regime to deal with Base Erosion and Profit Shifting (BEPS)

and aggressive tax avoidance, GAAR deferred by two years by virtue of amendment in secton 95 of the Act. Investments made upto

March 31, 2017, shall not be subjected to GAAR.

Section 115A of the Act to be amended with effect from April 1, 2016, to provide for taxation of income of non residents by way of

royalty or fees for technical services at 10% instead of 25%.

This move is intended to facilitate technology inflow and reduce hardships faced by small entities due to high rate of tax at 25%.

Concessional tax withholding rate of 5% on income, by way of interest on certain bonds and government securities, received by Foreign

Institutional investor or Qualified foreign investor can now be availed on interest payable before July 1, 2017, by virtue of amendment

in section 194LD effective from June 1, 2015.

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To identify the taxable foreign remittances on which tax was deductible but was not deducted, section 195(6) to be amended with

effect from June 1, 2015, so that details of such remittances, whether or not chargeable to tax under the provisions of the Act, are

furnished in the prescribed form (Form 15CA/15CB). Further, penalty of Rs. 1,00,000 under section 271 –I to be levied in case of non

furnishing of correct information.

However, no penalty to be levied in case of reasonable cause of non furnishing of correct information.

Section 295 of the Act to be amended with effect from June 1, 2015 so as to provide that CBDT will notify rules with regard to grant of

credit for the taxes paid outside India so as to bring clarity on the procedure for granting relief or deduction for taxes paid outside India,

under section 90/90A/91 of the Act.

With effect from April 1, 2016, section 9(1)(v)of the Act to be amended to provide that Interest income of a non resident person

engaged in banking business, from Permanent Establishment (‘PE’) of such non resident person in India, shall be chargeable to tax in

india in addition to income attributable to the PE in India.

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Earlier, presence of the fund manager in India under certain circumstances, led to the offshore fund being held to be resident in India

on the basis of its control and management being in and from India, even in the case of investments made outside India for the

offshore fund.

Section 9A of the Act to be introduced with effect from April 1, 2016, to provide that mere presence of a fund manager in India would

not constitute PE of the offshore funds. Such amendment is intended to facilitate relocation of offshore fund managers in India.

Subject to fulfillment of certain conditions by the fund and the fund managers, the tax liability in respect of income arising to the fund

from investment in India would be neutral to the fact as to whether investment is made directly by the fund or through fund manager

located in India.

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Amendment in MAT provisions relating to Foreign Institutional Investors (FIIs), and members of an AOP (effective from April 1, 2016)

Members of AOP - Section 115JB amended to provide that the share of a member of an AOP, in the income of the AOP, on which no

income tax is payable in accordance with the provisions of section 86 of the Act, to be excluded while computing the MAT liability of the

member under 115JB of the Act. The expenditures, if any, debited to the profit loss account, corresponding to such income (which is

being excluded from the MAT liability) are also proposed to be added back to the book profit for the purpose of computation of MAT.

FII - section 115JB further amended to provide that income from transactions in securities (other than short term capital gains arising

on transactions on which STT is not chargeable) arising to a FII, shall be excluded from the chargeability of MAT and the profit

corresponding to such income shall be reduced from the book profit. The expenditures, if any, debited to the profit loss account,

corresponding to such income (which is being proposed to be excluded from the MAT liability) are also proposed to be added back to

the book profit for the purpose of computation of MAT.

In addition to the above, the Finance Act, 2015 provides for relief from MAT to foreign companies as well. Accordingly, foreign

companies need not pay MAT on capital gains from transfer of securities, interest, royalty and Fees for Technical Services (FTS), if tax

payable on such income{ at the specified rate under Chapter XII of the Act} is less than 18.5%. Further, expenditures, if any, debited to

the profit loss account, corresponding to such income shall also be added back to the book profit for the purpose of computation of

MAT.

Fallout -Capital gains on sale of shares of listed / unlisted public companies and other securities (subject to tax at lower than 18.5%)

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Taxation regime for Business trusts i.e. Real Estate Investment Trust (REIT) and Infrastructure Investment Trust (Invit)

A step was taken in the last Budget to encourage REITs’ and Invits’ by providing partial pass through to them. However, to provide parity

and release the locked up funds in the completed projects, to facilitate start of new infrastructure projects, the following amendment to

take place:

(i) the sponsor would get the same tax treatment on offloading of units under an Initial offer on listing of units, i.e. divesting the units

on stock exchange, as it would have been available had he offloaded the underlying shareholding through an IPO.

(ii) the Finance (No. 2) Act, 2004 be amended to provide that STT shall be levied on sale of such units of business trust which are

acquired in lieu of shares of SPV, under an Initial offer at the time of listing of units of business trust on similar lines as in the case of

sale of unlisted equity shares under an IPO.

(iii) the benefit of concessional tax regime of tax @15% on STCG and exemption on LTCG under section 10(38) of the Act shall be

available to the sponsor on sale of units received in lieu of shares of SPV subject to levy of STT.

Further, in case of a business trust, being REITs, the income is predominantly in the nature of rental income. This rental income arises

from the assets held directly by REIT or held by it through an SPV. Prior to Finance bill, 2015, the rental income received at the level of

SPV gets passed through by way of interest or dividend to the REIT, the rental income directly received by the REIT is taxable at REIT

level and does not get pass through benefit.

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In order to provide pass through to the rental income arising to REIT from real estate property directly held by it, it is provided vide

Finance Act, 2015 that :-

Clause (23FCA) to be inserted in section 10 to provide for exemption of any income of REIT, by way of renting or leasing or letting out

any real estate asset owned directly by such REIT

Accordingly, proviso to section 194I has been inserted, with effect from June 1, 2015, to provide that no deduction shall be made

under this section where the income by way of rent is credited or paid to a REIT in respect of any real estate asset, referred to in clause

23FCA of section 10, owned directly by such business trust.

Section 194LBA to be amended with effect from June 1, 2015, to provide that REIT shall deduct tax on the distributed income or any

part thereof, received by a unit holder from the REIT, which is in the nature of income by way of renting or leasing or letting out any

real estate asset owned directly by such REIT(such distributed income to be deemed to be income of the unit holder and shall be

charged to tax by virtue of amendment in section 115UA of the Act with effect from April 1, 2016).

- In case of resident unit holder, tax shall be deducted @ 10%, and in case of distribution to non-resident unit holder, the tax shall be

deducted at rate in force as applicable for deduction of tax on payment to the non-resident of any sum chargeable to tax .

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Further, the following is provided vide Finance Act, 2015 incorporating the amendments made by the Lok Sabha :

MAT relief on notional gain on transfer of shares of SPV

Vide Finance Act, 2014, it was provided that no capital gain would arise to the transferor on transfer of shares of Special Purpose

Vehicle (SPV) in exchange of units allotted by business trust.

The Finance Act, 2015 thus provides for exclusion of the following from the purview of MAT provisions:

- Such aforementioned gain on transfer of shares in exchange of units of business trust;

- Notional gain resulting from any change in carrying amount of said units;

- Actual gains from transfer of said units.

[The expenditure, corresponding to such gain on transfer of units shall also be added back for MAT computation. Further, gain/loss from

the transfer of the said units shall be computed after taking into account the cost of the shares exchanged or the carrying amount of the

shares at the time of exchange, where such shares are carried at a value other than the cost through profit & loss account]

In addition to the above, in case of notional and/or actual losses arising in the abovementioned three circumstances, such losses shall

be added back to the book profit for the purpose of computation of MAT.

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Taxation regime of certain investment funds and its unit holders

New section 115UB under new chapter XII – FB inserted vide Finance Act, 2015 to provide tax “pass through” to both category I and

category II Alternative Investment Funds (‘AIFs’) (irrespective of whether they are set up as a trust, company, or limited liability

partnership firm etc.), in respect to any income received or receivable by the unit holder out of investment in such funds, in order to

tax the investors in these funds and not the funds per se. (Amendment to be applicable from April 1, 2016).

Relevant extract provided in Annexure A.

Accordingly, new clause 23FBA inserted in section 10 w.e.f April 1, 2016 to exempt any income of an investment fund other than

income chargeable under the head “Profits and gains of business or profession”

Consequentially, section 194LBB inserted with effect from June 1, 2015 to provide for deduction of TDS at 10% on any income of the

unit holder in respect of units of an investment fund, being category I or category II AIF.

Further, the existing pass through regime will continue to apply to Venture Capital Fund(‘VCF’)/Venture Capital Company which had

been registered under SEBI (VCF) Regulations, 1996. Remaining VCFs, being part of Category-1 AIFs, shall be subject to the new pass

through regime.

This is intended to encourage such funds to mobilize higher resources and make higher investments in small and medium enterprises,

infrastructure and social projects and provide the much required private equity to new ventures and start-ups.

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Measures to curb generation of black money

“Acceptance” or “re-payment” of loan or deposit or any sum of money, whether as advance or otherwise, of Rs. 20,000 or more in cash

for purchase of immovable property will be covered under prohibitory provisions of section 269SS and section 269T of the Act with

effect from 1st June, 2015. In case of contravention, penalty to be levied under section 271D or 271E, as the case may be.

To strengthen collection of information from domestic sources, new structure of electronic filing of statements by entities reporting

foreign assets to ensure seamless integration of data for more effective enforcement.

Beneficial owner or beneficiary of foreign assets to mandatorily file return of income, even if no taxable income.

The income tax department has shifted its attention from civil consequences to criminal consequences in serious cases of tax evasion

A)Concealment of income and evasion of tax in relation to foreign assets to have the effect of :

- Rigorous imprisonment upto 10 years

- Being a non-compoundable offence

- Penalty of 300% of the tax

- No permission to approach the Settlement Commission.

B)Prosecution with rigorous imprisonment upto 7 years for non-filing of return/filing of return with inadequate disclosures of foreign

assets.

C)Undisclosed income from any foreign assets to be taxable at the maximum marginal rate with no exemptions or deductions.

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Measures to curb generation of black money

Prevention of Money-laundering Act, 2002 and FEMA to be amended to enable administration of new Act on black money.

A new and more comprehensive Benami Transactions (Prohibition) Bill to be introduced to enable confiscation of benami property and

also provide for prosecution.

Leverage of technology by CBDT and CBEC to access information from either’s data bases.

Swiss authorities have already agreed to provide information in respect of cases independently investigated by IT department but major

breakthrough can be said to be achieved when automatic exchange of information is finalized.

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Further provided by Finance Act, 2015 (Amendments made by Lok Sabha)

Amendment with regard to residential status of a company

Pursuant to amendment brought by original bill in section 6 of the Act, effective from April 1, 2016, a company would be said to be

resident in India in any previous year if,

- It is an Indian company; or

- Its place of effective management, at any time in that year, is in India.

Place of effective management (‘POEM’) means a place where key management and commercial decisions that are necessary for the

conduct of the business of an entity as a whole are, in substance made.

The Finance Act, thus provides to omit the words 'at any time' which shall have effect that a company shall be deemed to be resident in

India if its place of effective management is in India in that year.

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Return filing for taxpayers holding foreign assets

The Finance Act, 2015 mandates the filing of return of income, even if there is no taxable income, by a person, being a resident other

than not ordinarily resident in India, who at any time during the previous year, beneficially holds or is the beneficiary of any foreign

asset.

However, filing of return of income shall not be mandatory for an individual beneficiary of foreign asset, if income arising from such an

asset is includible in the income of the beneficial owner of such an asset.

The Finance Act, further provides the following definitions –

- ‘Beneficial owner' in respect of an asset means an individual who has provided, directly or indirectly, consideration for the asset for the

immediate or future benefit, direct or indirect, of himself or any other person;

- ‘Beneficiary' in respect of an asset means an individual who derives benefit from the asset during the previous year and the

consideration for such asset has been provided by any person other than such beneficiary.

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Cost of Acquisition and period of holding for the purposes of capital gains in case of shares acquired on redemption of GDRs

Finance Act, 2015 provides for computation of period of holding in case of shares which are acquired by a non resident assessee on

redemption of GDRs (referred to in Section 115AC(1)(b) of the Act) .

As per sub-section (2ABB) inserted in Section 49 of the Act vide the amendments made by Lok Sabha, such period of holding shall be

reckoned from the date on which a request for redemption is made by the taxpayer.

It is provided that cost of acquisition of shares acquired by a non-resident on redemption of GDRs shall be the price of such shares as

prevailing on any recognized stock exchange on the date on which a request for redemption is made by the taxpayer.

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Relaxation of some conditions for offshore investment funds

Earlier, presence of the fund manager in India under certain circumstances, led to the offshore fund being held to be resident in India

on the basis of its control and management being in and from India, even in the case of investments made outside India for the

offshore fund.

Vide the original Finance bill enacted, section 9A of the Act has been introduced with effect from April 1, 2016, to provide that mere

presence of a fund manager in India would not constitute PE of the offshore funds, subject to fulfillment of certain conditions by the

fund and the fund managers. The tax liability in respect of income arising to the fund from investment in India would be neutral to the

fact as to whether investment is made directly by the fund or through fund manager located in India.

The amendments brought by Lok Sabha to the original bill, provide to withdraw following conditions, out of many conditions as

referred above, in case of an investment fund set-up by the Government or Central Bank of a foreign State or a sovereign fund or any

other notified fund:

- The fund has a minimum of 25 members who are, directly or indirectly, not connected persons;

- Any member of the fund along with the connected persons shall not have participation interest, directly or indirectly, in the fund

exceeding 10%; and

- The aggregate participation interest, directly or indirectly, of ten or less members along with their connected persons in the fund,

shall be less than 50%.

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Additional deprecation benefit extended to Bihar and West Bengal as well

As per the new section 32AD proposed vide the original bill, additional Investment allowance at 15% of the actual cost of new asset

installed, to be provided in the year of installation for new manufacturing units set-up during the period April 1, 2015 to March 31,

2020 in notified areas of Andhra Pradesh and Telangana.

Further, to promote industrialization and economic growth in both the states, additional depreciation at 35% instead of 20% to be given

under section 32(1)(iia) of the Act, for new plant and machinery (other than ships and aircrafts).

The Finance Act, 2015 provides to extend the benefit of additional depreciation and investment allowance to the manufacturing

undertaking or enterprise set-up in the notified backward area of State of Bihar and State of West Bengal as well.

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Additional deduction for contribution to New Pensions Scheme (NPS) under section 80CCD

Vide the Finance Act, 2015 it is clarified that if taxpayer makes investment of Rs. 50,000 in NPS and say, Rs. 1.50 lakhs in investments

qualifying under other provisions, he can claim deduction of Rs. 2 lakhs.

Deduction of medical insurance/expense under section 80D

The original bill proposed to enhance limits for deduction for payment of premium on medical insurance for self and family members

from existing limits of Rs. 15,000/Rs. 20,000 to Rs 25,000/Rs. 30,000. The text of original bill, however, did not contain specific

amendment to increase the limit from Rs.15,000 to Rs. 25,000. The Finance Act, 2015 vide amendments made by Lok Sabha removes

this anomaly.

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Bad debts even if not written off in books, can be claimed as deduction

No amendment with respect to bad debts was proposed in the original bill. However, the amended bill which has been given the assent

of the President, provides that deduction of bad-debts can be claimed without writing off in books of account if the amount of debt or

part thereof has been taken into account in computing the income of the taxpayer of the previous year in which the amount of such

debt or part thereof becomes irrecoverable or of an earlier previous year.

No deduction from business income for interest cost on borrowings taken for acquisition of asset in any case

Current provisions of the Act specifically provide for disallowance of interest paid in respect of capital borrowed for acquisition of an

asset for extension of existing business or profession (whether capitalized in the books of account or not) for any period beginning from

the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use.

However, the Finance Act, 2015 now provides for removal of the words ‘for extension of existing business or profession’ . Thus, interest

on borrowings used for acquisition of asset till the asset is put to use shall not be allowed as deduction in any case.

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Government subsidy to be a part of income

In line with ICDS VII, the Finance Act, 2015 provides to insert a new clause (xviii) to section 2(24) of the Act to provide that assistance in

the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called)

by the Central Government or a State Government or any authority or body or agency in cash or kind to the taxpayer [other than such

assistance considered under Explanation 10 to Section 43(1) of the Act which defines the term actual cost relevant to income from

profits and gains of business or profession] would be included in taxpayer’s income.

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Annexure A

“CHAPTER XII-FB

SPECIAL PROVISIONS RELATING TO TAX ON INCOME OF INVESTMENT FUNDS AND INCOME RECEIVED FROM SUCH FUNDS

115UB. (1) Notwithstanding anything contained in any other provisions of this Act and subject to the provisions of this Chapter, any

income accruing or arising to, or received by, a person, being a unit holder of an investment fund, out of investments made in the

investment fund, shall be chargeable to income-tax in the same manner as if it were the income accruing or arising to, or received by,

such person had the investments made by the investment fund been made directly by him.

(2) Where in any previous year, the net result of computation of total income of the investment fund [without giving effect to the

provisions of clause (23FBA) of section 10] is a loss under any head of income and such loss cannot be or is not wholly set-off against

income under any other head of income of the said previous year, then,—

(i) such loss shall be allowed to be carried forward and it shall be set-off by the investment fund in accordance with the provisions of

Chapter VI; and

(ii) such loss shall be ignored for the purposes of sub-section (1).

(3) The income paid or credited by the investment fund shall be deemed to be of the same nature and in the same proportion in the

hands of the person referred to in sub-section (1), as it had been received by, or had accrued or arisen to, the investment fund during the

previous year subject to the provisions of sub-section (2).

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Annexure A (Contd…)

(4) The total income of the investment fund shall be charged to tax—

(i) at the rate or rates as specified in the Finance Act of the relevant year, where such fund is a company or a firm; or

(ii) at maximum marginal rate in any other case.

(5) The provisions of Chapter XII-D or Chapter XII-E shall not apply to the income paid by an investment fund under this Chapter.

(6) The income accruing or arising to, or received by, the investment fund, during a previous year, if not paid or credited to the person

referred to in sub-section (1), shall subject to the provisions of sub-section (2), be deemed to have been credited to the account of the

said person on the last day of the previous year in the same proportion in which such person would have been entitled to receive the

income had it been paid in the previous year.

(7) The person responsible for crediting or making payment of the income on behalf of an investment fund and the investment fund shall

furnish, within such time as may be prescribed, to the person who is liable to tax in respect of such income and to the prescribed income-

tax authority, a statement in the prescribed form and verified in such manner, giving details of the nature of the income paid or credited

during the previous year and such other relevant details, as may be prescribed.

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Annexure A (Contd…)

Explanation 1.—For the purposes of this Chapter,—

“investment fund” means any fund established or incorporated in India in the form of a trust or a company or a limited liability

partnership or a body corporate which has been granted a certificate of registration as a Category I or a Category II Alternative

Investment Fund and is regulated under the Securities and Exchange Board of India (Alternative Investment Fund) Regulations, 2012,

made under the Securities and Exchange Board of India Act, 1992;”

NEW DELHISuite 4A, Plaza M 6, Jasola, New Delhi 110025‐ ‐ ‐

Tel: +91 (11) 4737 1000, Fax: +91 (11) 4737 1010, Email: [email protected]

MUMBAIThe Summit Level 2, Unit No. 210, Western Express Highway, Ville Parle (East), Mumbai – 400 001

T: +91 (22) 6455 9696, F: +91 (22) 2617 4676, Email: [email protected]

DEHRADUN3rd Floor, NCR Plaza, Municipal No. 24-A

New Cantt Road, Dehra Dun – 248 001, Uttarakhand, IndiaPh.: +91-0135-274 7080, 274 7081, Fax: +91-0135-274 7082, Email: [email protected]

SINGAPORENangia & Co (Singapore) Pte Ltd., 24 Raffles Place, #25-04A Clifford Centre, Singapore 048621

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