Latest Reforms in Taxation Sector in India

IAS Prelims 2023

Enabling provision made for implementation of various provisions of the Act in case of a foreign company held to be resident in India.

Income of Foreign Company from storage and sale of crude oil stored as part of strategic reserves exempted.

Exemption given in respect of certain activity related to diamond trading in “Special Notified Zone”.

Conditions of special taxation regime for off shore funds modified.

Exemption from Dividend Distribution Tax (DDT) given on distribution made by an SPV to Business Trust.

Section 115QA has been amended to provide that the provisions shall apply to any buy back of unlisted share undertaken by company in accordance with the provisions of the law relating to the Companies and not necessarily restricted to section 77A of the Companies Act, 1956.

New Taxation Regime for securitization trust and its investors.

Rationalization of tax deduction at source provisions relating to payments by Category-I and Category-II Alternate Investment Funds to its investors.

BEPS action plan – Country-By-Country Report and Master file: a specific reporting regime in respect of CbC reporting and also the master file has been provided for.

Rationalization of taxation of income by way of dividend

In case of shares of unlisted companies period of holding shall be 24 months instead of 36 months for them to be treated as long term capital assets.

Tax incentives for start-ups

Incentives for Promoting Housing for All

Tax incentive for employment generation

Provision for Tax benefits to Sovereign Gold Bond Scheme, 2015.

Provisions for tax benefits to Rupee Denominated Bond

Consolidation of ‘plans’ within a ‘scheme’ of mutual fund

Rationalization of limit of deduction allowable in respect of rents paid under Section 80GG

Tax benefits extended to Gold Monetization Scheme, 2015

Rationalization of section 56 of the Income-tax Act

Rationalization of limit of rebate in income-tax allowable under Section 87A from existing two thousand rupees to five thousand rupees.

Applicability of Minimum Alternate Tax (MAT) on foreign companies for the period prior to 01.04.2015 rationalized with a view to provide certainty in taxation of foreign companies.

Tax Incentives given to International Financial Services Centre

Definition of the term ‘unlisted securities’ for the purpose of Section 112 (1) (c) clarified.

Rationalization of Section 50C in case sale consideration is fixed under agreement executed prior to the date of registration of immovable property

Rationalization of conversion of a company into Limited Liability Partnership (LLP)

Rationalisation of tax treatment of National Pension Scheme

Equalisation Levy on Notified Digital services

The Finance Minister in his Budget Speech, 2015 had indicated that the rate of corporate tax will be reduced from 30% to 25% over the next four years along with corresponding phasing out of exemptions and deductions. Accordingly, the Government implemented this decision in a phased manner based on certain guiding principles and proposed phasing out plan. Subsequently taking into account the response of the stakeholders on the proposed phasing out plan, incentives under the Income-tax Act are being phased out.

Exemption of income of Foreign Company from storage and sale of crude oil stored as part of strategic reserves.

In order to reduce the cash transactions in sale of goods and services, the Act 2016 has amended section 206C (1D) of the Income-tax Act to provide that the seller shall collect tax at the rate of one per cent from the purchaser on sale in cash of any goods (other than bullion and jewellery) or providing of any services (other than payment on which tax is deducted at source under chapter XVII-B) exceeding two lakh rupees. So far as sale of bullion and jewellery is concerned, the provisions of sub-section (1D) of section 206(C) prior to its amendment by the Act, 2016 shall continue to apply.

Further, with a view to bring high value transactions within the tax net, it has been provided in sub- section (1F) of section 206C of the Income-tax Act that the seller who receives consideration for sale of a motor vehicle exceeding ten lakh rupees, shall collect one per cent of the sale consideration as tax from the buyer.

It has also been further amended to provide that the sub-section (1D) relating to TCS in relation to sale of any goods (other than bullion and jewellery) or services shall not apply to certain class of buyers who fulfil such conditions as may be prescribed.
Moreover, the Board has issued Circular No 22/2016 dated 8th June, 2016 and Circular No 24/2016 dated 24th June, 2016 to clarify the scope, applicability and the procedure to be followed in case of the amended provisions of section 206C.

Exemption given in respect of certain activity related to diamond trading in “Special Notified Zone”.

Benefit of initial additional depreciation under section 32(1) (iia) for power sector extended.

Amortization of spectrum fee for purchase of spectrum allowed.

In order to encourage indigenous research & development activities and to make India a global R & D hub, the Government has decided to put in place a concessional taxation regime for income from patents.

Presumptive taxation scheme introduced for persons having income from profession

Threshold limit for audit for persons having income from profession increased

Threshold limit for presumptive taxation scheme for persons having income from business increased.

Deduction in respect of provision for bad and doubtful debt allowed in the case of Non-Banking Financial companies.

Scope of tax incentive under section 32AC rationalized.

Exemption from requirement of furnishing PAN under section 206AA to certain non-resident.

Exemption of Central Government subsidy or grant or cash assistance, etc. towards corpus of fund established for specific purposes from the definition of Income

Extension of scope of section 43B to include certain payments made to Railways

Clarification regarding set off losses against deemed undisclosed income introduced.

The provisions of clause (va) of section 28 of the Income-tax Act have been amended so as to bring the non-compete fee received/receivable( which are recurring in nature) in relation to not carrying out any profession, within the scope of section 28 of the Income-tax Act i.e. the charging section of profits and gains of business or profession.

The provision of section 55 has been amended so as to provide that the ‘cost of acquisition’ and ‘cost of improvement’ for working out “Capital gains” on capital receipts arising out of transfer of right to carry on any profession shall also be taken as ‘nil’

Rationalization of tax deduction at Source (TDS) provisions.

In order to reduce compliance burden in such cases, the provisions of section 197A of the Income-tax Act have been amended so as to provide that the recipients of payments referred to in section 194-I shall also be eligible for filing self-declaration in Form no 15G/15H for non-deduction of tax at source in accordance with the provisions of section 197A of the Income-tax Act.

In view of the fact that housing projects often take longer time for completion, the second proviso to clause (b) of section 24 has been amended to provide that the deduction under the said proviso on account of interest paid on capital borrowed for acquisition or construction of a self-occupied house property shall be available if the acquisition or construction is completed within five years from the end of the financial year in which capital was borrowed.

Provisions relating to taxation of unrealized rent and arrears of rent simplified and rationalized.

Time limit provided for disposing applications made by assessee under section 273A, 273AA or 220(2A)

Legal framework has been provided for automation of various processes and paperless assessment.

Time allowed for filing of returns, completion of proceedings, and realization of revenue rationalized to reduce compliance burden on the taxpayer, and to promote the culture of compliance.

Time limit for assessment, reassessment and re-computation rationalized.

Time limit for assessment in search cases rationalized.

Advance tax payment schedule under section 211 and charging of interest under section 234C rationalized.

It has been provided that where a refund arises out of appeal effect being delayed beyond the time prescribed under sub-section (5) of section 153, the assessee shall be entitled to receive, in addition to the interest payable under sub-section (1) of section 244A, an additional interest on such refund amount calculated at the rate of three per cent per annum.

Provisions relating to Appellate Tribunal rationalized.

In line with the decision of the Government to minimize litigation, sub-sections (2A) and (3A) of section 253 have been omitted in order to do away with the filing of appeal by the Assessing Officer against the order of the DRP. Consequent amendments have been made in sub-section (3A) and (4) of the said provision.

Penalty provisions rationalized.

In order to rationalize the rate of penalty and to reduce discretion, clause (c) of sub-section (1) of section 271AAB has been amended to provide for levy of penalty on such undisclosed income at a flat rate of sixty per cent of such income.

It has been provided that the Assessing Officer shall revoke provisional attachment of property made under sub -section (1) of section 281B in a case where the assessee furnishes a bank guarantee from a scheduled bank, for an amount not less than the fair market value of such provisionally attached property or for an amount which is sufficient to protect the interests of the revenue.

Legislative framework introduced to enable and expand the scope of electronic processing of information.

Immunity from penalty and prosecution in certain cases given by inserting new section 270AA.