CA.

DURGESH SINGH

DIRECT TAX LAWS AND

INTERNATIONAL TAXATION
Amendment Book And Practical Problems
CA Durgesh Singh

0 Relevant for Old and New Syllabus for July & November, 2020 CA Final Exams.
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INDEX

Sr. NO Topics Page

Nos
1. Income-tax Rates (for A.Y 2020-21) 2
2. Income from Salary 18
3. Income from House Property 20
4. Profits & Gains from Business & Profession 24
5. Business Deductions Under Chapter VIA & 10AA 31
6. Capital Gains 34
7. Income from Other Sources 37
8. Set-off & Carry Forward of Losses 39
9. Surrogate Taxation 41
10. Chapter VIA Deductions 46
11. Tax Incentives to International Financial Service Center (IFSC) 54
12. Assessment Procedure 61
13. Other Penalties & Prosecution 72
14. Trust, Institution, and Political Parties 75
15. Special Tax Rates of Companies 77
16. Tax Deducted at Source (TDS) 93
17. Advance Tax and Interest 101
18. International Taxation 102
19. Transfer Pricing & Other Provisions to Check Avoidance of Tax 108
20. Amendment in Recovery Process 121
21. Surgical Strike on Cash Transactions 123

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1. Tax Rates As Per Finance Act, 2019

1) Individual

Refer the Table on the Next Page

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Sr.No 1. Male/HUF/AOP & BOI/ Tax Rate

Artificial juridical person
1. Taxable Income up to Rs.2,50,000 Nil
2. Rs. 2,50,000 to Rs. 5,00,000 5%
3. Rs. 5,00,000 to Rs. 10,00,000 20%
4. Above Rs. 10,00,000 30%
Sr.No 2. Female Tax Rate
1. Taxable Income up to Rs. 2,50,000 Nil
2. Rs. 2,50,000 to Rs. 5,00,000 5%
3. Rs. 5,00,000 to Rs. 10,00,000 20%
4. Above Rs. 10,00,000 30%
Sr.No 3. Resident Senior Citizen Tax Rate
1. Taxable Income up to Rs. 3,00,000 Nil
2. Rs. 3,00,000 to Rs. 5,00,000 5%
3. Rs. 5,00,000 to Rs. 10,00,000 20%
4. Above Rs. 10,00,000 30%
Sr.No 4. Resident Super Senior Tax Rate
Citizen
1. Taxable Income up to Rs. 5,00,000 Nil
2. Rs. 5,00,000 to Rs. 10,00,000 20%
3. Above Rs. 10,00,000 30%
Add:
Surcharge
→ if taxable income exceeds Rs. 50 lakhs but less than Rs. 1
crore. 10% of the Income-tax
→ if taxable income exceeds Rs. 1 crore but less than Rs. 2
crore. 15% of the Income-tax
→ if taxable income exceeds Rs. 2 crore but less than Rs. 5
crore. 25% of the Income-tax
→ if taxable income exceeds Rs. 5 crore.
** (See note below) 37% of the Income-tax
Add:
4% of (Income-tax +
Health & Education Cess (EC) Surcharge)

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DS Comment: It is pertinent to note that…

1. There is not any change in slabs of tax rates, but these are changes in
surcharge rates for Individual, Hindu undivided family, association of persons,
body of individuals, artificial juridical person w.e.f AY 2020-21.
2. Thus, the increased maximum marginal rate is 42.744%.
3. The Finance (No. 2) Act, 2019 has levied an enhanced surcharge of 25% and
37%, where the total income of individuals/HUF/AOPs/BOIs exceeds Rs. 2
crores and Rs. 5 crores, respectively.
4. However, the enhanced surcharge has been withdrawn on tax payable at special
rates under section 111A and 112A on short-term and long-term capital gains
arising from;
• the transfer of equity share in a company or
• unit of an equity-oriented fund/ business trust,
• Which has been subject to securities transaction tax?
Refer below table containing rates of surcharge for understanding the manner
of computation of surcharge on capital gains and other income components of
total income

Rate of Surcharge applicable to Individuals/HUF/AOPs/BOIs for

A.Y.2020-21

Particulars Rate of Example

Surcharge
on Income Components of total Applicable rate
income of surcharge
Tax

(i) Where the total income 10% • STCG u/s 111A Rs. 10 Surcharge would be
(including income under lakhs; levied@10% on income-
section 111A and • LTCG u/s 112A Rs. 5 tax computed on total
112A) Exceed Rs.50 lakhs; and income of Rs.55 lakhs
lakhs but does not • Other income Rs.40
exceed Rs.1 crore lakhs
(ii) Where the total income 15% • STCG u/s 111A Rs. 20 Surcharge would be
(including income under lakhs; levied@15% on income-
section 111A and • LTCG u/s 112A Rs. 25 tax computed on total
112A) Exceed Rs. 1 lakhs; and income of Rs.1.25Crores
• Other income Rs.80

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Crore but does not lakhs

exceed Rs.2 crores
(iii) Where the total income 25% • STCG u/s 111A Rs. 24 Surcharge would be
(Excluding income lakhs; levied@15% on income-
under section 111A and • LTCG u/s 112A Rs. 25 tax on:
112A) Exceed Rs. 2 lakhs; and
Crore but does not • Other income Rs.3 • STCG of Rs.24 lakhs
exceed Rs.5 crores Crores chargeable to tax
u/s 111A; and
The rate of surcharge on 15%
the income-tax payable • LTCG of Rs. 25
lakhs chargeable to
on the portion of
tax u/s 112A.
income chargeable to Surcharge@25% would
tax under section 111A be leviable on income-
and 112A tax computed on other
income of `Rs.3 crores
included in total income
(iv) Where the total income 37% • STCG u/s 111A Rs. 40 Surcharge would be
(Excluding income lakhs; levied@15% on income-
under section 111A and • LTCG u/s 112A Rs. 55 tax on:
112A) Exceed Rs. 5 lakhs; and
Crore • Other income Rs.6 • STCG of Rs.40 lakhs
Crores chargeable to tax
The rate of surcharge on 15%
u/s 111A; and
the income-tax payable
on the portion of • LTCG of Rs. 55
lakhs chargeable to
income chargeable to
tax u/s 112A.
tax under section 111A Surcharge@37% would
and 112A be leviable on income-
tax computed on other
income of `Rs.6 crores
included in total income.
(v) Where total income 15% • STCG u/s 111A Rs.40 Surcharge would be
(including income lakhs; levied@15% on income-
under section 111A • LTCG u/s 112A Rs. 55 tax computed on total
and 112A) exceeds Rs. lakhs; and income of Rs.2.25 crore
2 crore in cases not • Other income
covered under (iii) and Rs.1.3 Crores
(iv) above

Example:
Mr. A is a resident. He has the total income of Rs.1,15,00,000. Comprising of following:
i. LTCG u/s 112A= Rs.25,00,000
ii. STCG u/s 111A= Rs.20,00,000
iii. IFOS = Rs.70,00,000
Calculate his tax liability for AY 2020-21.

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Solution:
Particulars Rs. Rs.
Tax on Rs.24lakhs(Rs.25 lakhs -Rs.1 lakhs) u/s 112A @10% 2,40,000
Tax on Rs.20lakhs u/s 111A @15% 3,00,000
Tax on balance total income on Rs.70lakhs : 19,12,500
Income Range Tax
0-2.5lakhs 0
2.5lakhs-5lakhs @5% 12,500
5lakhs-10lakhs @20% 1,00,000
Above 10 lakhs @ 30% 18,00,000
19,12,500
Tax liability 24,52,500
Add: Surcharge @15% 3,67,875
28,20,375
Add: Cess @4% 1,12,815
Total Tax Liability 29,33,190

Example:
Mr. B is a resident. He has the total income of Rs.4,00,00,000. Comprising of following:
i. LTCG u/s 112A= Rs.1,00,00,000
ii. STCG u/s 111A= Rs.2,00,00,000
iii. IFOS = Rs.1,00,00,000
Calculate his tax liability for AY 2020-21.

Solution:
Particulars Rs. Rs.
Tax on Rs.99 lakhs(Rs.1 crore -Rs.1 lakhs) u/s 112A @10% 9,90,000
Tax on Rs.2 Crores u/s 111A @15% 30,00,000
Tax on balance total income on Rs.1 crore: 28,12,500
Income Range Tax
0-2.5lakhs 0
2.5lakhs-5lakhs @5% 12,500
5lakhs-10lakhs @20% 1,00,000
Above 10 lakhs @ 30% 27,00,000
28,12,500
Tax liability 68,02,500
Add: Surcharge @15% 10,20,375
78,22,875
Add: Cess @4% 3,12,915
Total Tax Liability 81,35,790

Example :
Mr. C is a resident. He has the total income of Rs.4,00,00,000. Comprising of following:
i. LTCG u/s 112A= Rs.40,00,000
ii. STCG u/s 111A= Rs.60,00,000
iii. IFOS = Rs.3,00,00,000

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Calculate his tax liability for AY 2020-21.

Solution:
Particulars Rs. Rs.
Tax on Rs.39 lakhs(Rs.40 lakhs -Rs.1 lakhs) u/s 112A @10% 3,90,000
Tax on Rs.60lakhs u/s 111A @15% 9,00,000
Tax on balance total income on Rs.3 crores: 88,12,500
Income Range Tax
0-2.5lakhs 0
2.5lakhs-5lakhs @5% 12,500
5lakhs-10lakhs @20% 1,00,000
Above 10 lakhs @ 30% 87,00,000
88,12,500
Tax liability 1,01,02,500
Add: Surcharge:- On balance total income @25% 22,03,125
On Capital Gain @15% 1,93,500
1,24,99,125
Add: Cess @4% 4,99,965
Total Tax Liability 1,29,99,090

Example:
Mr. D is a resident. He has the total income of Rs.2,50,00,000. Comprising of following:
i. LTCG u/s 112A= Rs.2,00,00,000
ii. IFOS = Rs.50,00,000
Calculate his tax liability for AY 2020-21.
Solution:
Particulars Rs. Rs.
Tax on Rs.1.99 crores(Rs.2 crores-Rs.1 lakhs) u/s 112A @10% 19,90,000
Tax on balance total income on Rs.50 lakhs: 13,12,500
Income Range Tax
0-2.5lakhs 0
2.5lakhs-5lakhs @5% 12,500
5lakhs-10lakhs @20% 1,00,000
Above 10 lakhs @ 30% 12,00,000
13,12,500
Tax liability 33,02,500
Add: Surcharge @15% 4,95,375
37,97,875
Add: Cess @4% 1,51,915
Total Tax Liability 39,49,790

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Rebate

Assessment Year Total Income of Amount of rebate u/s 87A

RESIDENT
individual should
not exceed the
amount given
below
Assessment year 2017-18 Rs. 5,00,000 100% of income-tax or Rs. 5,000,
whichever is less
Assessment year 2018-19 & 2019-20 Rs. 3,50,000 100% of income-tax or Rs. 2,500,
whichever is less
Assessment year 2020-21 Onward Rs. 5,00,000 100% of income-tax or Rs. 12,500,
whichever is less

2) Co – Operative Society

Sr. Income Status Tax Rate

No
1. Where the taxable income does 10%
not exceed Rs. 10,000
2. Where the taxable income Rs. 1000 + 20% in
exceeds Rs.10,000 but does not income in excess of
exceed Rs. 20,000 Rs. 10,000
3. Where the taxable income Rs. 3000 + 30% of the
exceeds Rs. 20,000 amount by which the
taxable income
exceeds Rs. 20,000.
Add:
Surcharge: if taxable income exceeds Rs. 1 crore. 12% of the Income-
tax
Add:
Health &Education Cess (EC) 4% of (Income-tax +
Surcharge)

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Rate of Surcharge applicable on tax on total income of FII (having any

income under section 115AD) for A.Y.2020-21

Particulars Rate of Example

Surcharge
on Income Components of total Applicable rate of
income surcharge
Tax

(i) Where the total income 10% • Capital gains on Surcharge would be
>Rs.50 lakhs but is ≤Rs. securities referred to in levied@10% on income- tax
1 crore section 115AD(1)(b) Rs. computed on total income
30 lakhs; and
of Rs.80 lakhs
• Other income Rs. 50
lakhs;
(ii) Where the total income 15% • Capital gains on Surcharge would be
>Rs.1 crores but is ≤Rs. securities referred to in levied@15% on income- tax
2 crore section 115AD(1)(b) Rs. computed on total income
70 lakhs; and of Rs.1.40 Crores
• Other income Rs. 70
lakhs;
(iii) Where total income 25% • Capital gains Surcharge would be levied:
on
[excluding STCG/LTCG on securities referred to in
@15% on income- tax
securities referred to in section 115AD(1)(b)
leviable on capital gains
Rs.20 lakhs; and of Rs. 20 lakhs referred to in
section115AD(1)(b)] >
section 115AD; and
Rs.2 crore ≤ Rs.5 crore
@25% on income-tax
Rate of surcharge on the 15% computed on
• Other income Rs. 2.5 other income of Rs. 2.5
income-tax payable on crores; crores included in total
the portion of income income
chargeable to tax u/s
115AD(1)(b)

(iv) Where total income 37% • Capital gains on Surcharge would be levied:
[excluding STCG/LTCG securities referred to in @15% on income- tax
on securities referred section 115AD(1)(b) ` leviable on capital gains
to in section 60 lakhs; and of Rs. 60 lakhs referred to in
115AD(1)(b)] > Rs. 5 section 115AD; and
crore @37% on income-tax
Rate of surcharge on 15% • Other income Rs. 5.5 computed on
the income-tax crore other income of Rs. 5.5
payable on the portion crores included in total
of income chargeable

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to tax u/s 115AD(1)(b) income

(v) Where total income 15% • Capital gains on Surcharge would be

[including STCG/LTCG securities referred to in levied@15% on income- tax
on securities referred section 115AD(1)(b) computed on total income
to in 115AD(1)(b)] > Rs.80 lakhs; and
of Rs.2.60 crores
Rs. 2 crore in cases not • Other income
covered under (iii) and Rs.1.80 crore;
(iv) above

DS Comment: It is pertinent to note that…

Unlike Individual/HUF, in the case of BOI or AOP the benefit of lower surcharge to FIIs
covered u/s 115AD(1)(b) is available on capital gains from transfer of any securities like
Debt oriented Funds, Derivates, Unlisted/ Listed securities etc.

3) Firm/Local Authority
Tax rate: 30%

Add:
Surcharge: 12% of the Income Tax if taxable income exceeds Rs.
1 crore.
Health & Education Cess: 4% of the total of Income-tax and
Surcharge.

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4) Domestic Company

General Tax Rate General Tax Rate-Special Case 2-

30% 25% if turnover or gross receipt
of the company in the PY 2017 –
18 doesn’t exceeds Rs.400 crore.
Add: (in all cases) xxx
(i) Tax charged at special rates (Sec. 110 to 115BBG)
Income Tax (IT)
xxx

(ii) Surcharge: 7% of IT
12% of IT
→ if taxable income exceeds Rs.1 crore.
→ if taxable income exceeds Rs.10 crores.
Health & Education Cess: 4% of the total of Income Tax and
Surcharge.

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Special Provisions for Domestic Company

Note– The Taxation Laws (Amendment) Ordinance, 2019 was promulgated by the President
of India on 20.9.2019 to amend the Income-tax Act, 1961 and the Finance (No.2) Act,
2019 and is in force. This Ordinance has inserted two new sections, section 115BAA and
115BAB, in the Income-tax Act, 1961 to be applicable from A.Y.2020-21. Section 115BAA
provides for concessional rate of tax@22% (plus surcharge@10% and HEC@4%) for
domestic companies, subject to certain conditions, like non- availability of profit-linked
deductions and investment- linked tax deduction under the Act, non-availability of
deduction (weighted or otherwise) for contribution to research and development,
additional depreciation etc.
Section 115BAB provides for concessional rate of tax@15% (plus surcharge@10%plus
HEC@4%) to new manufacturing domestic companies set up and registered on or after
1.10.2019, and commences manufacturing on or before 31.3.2023, subject to certain
conditions, like non-availability of profit-linked deductions and investment-linked tax
deduction under the Act, non-availability of deduction (weighted or otherwise) for
contribution to research and development, additional depreciation etc.
Domestic Companies have to exercise the option to be governed by these special
provisions of the Act. The option for section 115BAB has to be exercised in the very first
year in which the eligible company is set up, failing which it cannot exercise such option in
the future years. However, a company eligible to exercise option u/s 115BAA can defer
exercise of such option to a future year, if it is availing sizable profit-linked or investment-
linked deductions or additional depreciation in the P.Y.2019-20. However, once the
company exercises such option under section 115BAA or 115BAB, as the case may be, in a
year, it would continue to be governed by the special provisions u/s 115BAA or 115BAB, as
the case may be, thereafter and cannot opt for regular provisions in any subsequent year.
It may be noted that companies exercising option under section 115BAA or section 115BAB
are not liable to minimum alternate tax under section 115JB.
Detailed discussion will be provided in MAT chapter special rates for companies.

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5) Foreign Company

Tax rate: 40%

Add:
Surcharge:
→ 2% of the Income-tax if taxable income exceeds Rs.1 crore.
→ 5% of the Income-tax if taxable income exceeds Rs.10 crores.
Health & Education Cess: 4% of the total of Income Tax and Surcharge.

DS Comment: It is pertinent to note that…

The distinction between domestic and foreign companies is significant for the purpose of
rates of tax prescribed.

Domestic companies are taxed at 30% but where the total turnover or gross receipt in the
previous year 2017-18 does not exceed Rs.400 crore, it shall be taxed at 25% of the total
income. However, a foreign company will be taxed at 40%. In respect of specified royalties
and fees for technical services received from Government or an Indian concern in pursuance
of an agreement, approved by the Central Government, made by the foreign company with
the Government or Indian concern between 1.4.1961 and 31.3.1976 (in case of royalties) and
between 1.3.1964 and 31.3.1976 (in case of FTS), the rate of tax is 50%. A surcharge @ 7% of
the tax payable is leviable in the case of domestic companies and @2% of tax payable in the
case of foreign companies, if the total income exceeds Rs. 1 crore but does not exceed Rs. 10
crore. Surcharge@12% of the tax payable is leviable in the case of domestic companies and
@5% of tax payable in the case of foreign companies, if the total income exceeds Rs. 10 crore.

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6) Marginal Relief

1) Individual/HUF/AOP/artificial juridical person (for the assessment year 2020-21) –

Income Marginal Relief
Exceed The total amount payable as income-tax and surcharge on such income shall
Rs.50 not exceed the total amount payable as income-tax on net income of Rs.50
Lakh lakh by more than the amount of income that exceeds Rs.50 lakh.
Above The total amount payable as income-tax and surcharge on such income shall
Rs.1 not exceed the total amount payable as income-tax and surcharge on net
crore income of Rs.1 crore by more than the amount of income that exceeds Rs.1
crore.
Above The total amount payable as income-tax and surcharge on such income shall
Rs. 2 not exceed the total amount payable as income-tax and surcharge on net
crore income of Rs. 2 crore by more than the amount of income that exceeds Rs. 2
[FA crore.
2019]
Above The total amount payable as income-tax and surcharge on such income shall
Rs. 5 not exceed the total amount payable as income-tax and surcharge on net
crore income of Rs. 5 crore by more than the amount of income that exceeds Rs. 5
[FA crore.
2019]

2) Firms/co-operative societies/ local authorities –

Income Marginal Relief
Above The total amount payable as income-tax and surcharge on such income shall
Rs.1 crore not exceed the total amount payable as income-tax and surcharge on net
income of Rs.1 crore by more than the amount of income that exceeds Rs.1
crore.
3) Domestic company/foreign company –
Income Marginal Relief
Above The total amount payable as income-tax and surcharge on such income shall
Rs.1 not exceed the total amount payable as income-tax and surcharge on net
crore income of Rs.1 crore by more than the amount of income that exceeds Rs.1
crore.
Above The total amount payable as income-tax and surcharge on such income shall
Rs.10 not exceed the total amount payable as income-tax and surcharge on net
crore income of Rs.10 crore by more than the amount of income that exceeds
Rs.10 crore.

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7) Special Tax Rates under Income Tax Act

Income-
Section Income
tax rates
(1) (2)
(3)
Winnings from lotteries, crossword puzzles, or race
including horse race(not being income from activity of
115BB owning and maintaining race horse) or card game and
30
other game of any sort or for gambling or betting of any
form or nature
Income of a non-resident foreign citizen sportsman for
participation in any game in India or received by way of
115BBA advertisement or for contribution of articles relating to any
20
game or sport in India or income of a non-resident sports
association by way of guarantee money
115BBC Anonymous Donation 30
Income of an Indian company by way of dividend declared,
distributed or paid by specified foreign company ( in which
115BBD
the Indian company holds 26 percent or more of equity 15
share capital)
Aggregate dividend from a domestic companies in excess of 10
115BBDA
Rs.10 Lacs [ excluding deemed dividend u/s 2(22)(e)]
Income referred to in sections 68, 69, 69A, 69B, 69C and
115BBE 60
69D
Income by way of royalty in respect of patent developed
115BBF and registered in India (received by resident assessee who
10
is a patentee)
Income by transfer of carbon credits ( applicable from the
115BBG 10
assessment year 2018-19)
Income from foreign exchange assets and capital gains of
non-resident Indian:
1) Income from foreign exchange assets[*not
115E 20*
applicable in case of dividends referred to in
section 115- O]
10
2) Long term capital gains
Minimum alternate tax
• Book profits of the company 15
115JB • Book profits of the company in International
Financial Service Centre and derives its income
solely in convertible foreign exchange 9
Alternate minimum tax in the case of non-corporate
115JC 18.5
assessee
115TD Accreted income of certain trusts and institutions 34.94

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Income-
Section Income
tax rates
(1) (2)
(3)
115UB(4) Business income of investment funds-
1) Where investment fund is a domestic company 30
2) Where investment fund is a foreign company 40
3) Where investment fund is any other person
[*taxable at MMR which is 35.88s percent(for MMR
assessment year 2019-20) and 42.744 per cent
(for assessment year
2020-21)]
115AB Income of an overseas financial organization on transfer of 10
units purchased in foreign currency being long term capital
gains

115AC Income from bonds or Global Depository Receipts or bonds 10

or

Global Depository Receipts of public sector company sold by

the government and purchased in foreign currency or long
term capital gains arising from transfer [not applicable in
the case of dividends referred to in section 115-O]

115BA Income of certain domestic companies 25

111A Short term capital gains on the transfer of equity shares or 15

equity oriented mutual fund on which STT is paid

112 Long term capital gains 20/10

115A(1)(a)(i) Dividend received by a foreign company or a non-resident

non-corporate assesse [*it is not applicable in case of
dividends referred in section 115-O] 20*

115A(1)(a)(ii) Interest received by a foreign company or a non-resident

non-corporate assesse from government of Indian concern
on moneys borrowed or debt incurred by Government or 20
Indian concern in foreign currency

115A(1)(a)(iia) Interest received from a infrastructure debt fund referred in 5

section 10(47)

115A(1)(a)(iiaa) Interest received by a Indian company specified in section 5

194LC

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Income-
Section Income
tax rates
(1) (2)
(3)
115A(1)(a)(iiab)(iiac) Interest of nature and extent referred in section 194LD or 5
section 194LBA

115A(1)(b) Royalty or fees for technical services (not referred in section

44DA) received by a foreign company or non-resident non
corporate assesse from an Indian concern or Government.
10

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2. Income from Salary

1) Standard deduction to salaried individuals

Provision:

Clause (ia) of section 16, inserted vide the Finance Act, 2018 provided for standard deduction of Rs.40,000 or
the amount of salary, whichever is lower, while computing income under the head salary.

Amendment:
As per FA 2019, the aforesaid standard deduction increased from Rs.40,000 to Rs.50,000.

SNIPPET:

Standard Deduction: [Section 16(ia)] Gross Salary or Rs.50,000 whichever

is lower.

Example:
Mr. Prashant is employed in a private limited company and has earned salary of Rs. 14 lakhs for the year
ended 31.03.2020. He has paid profession tax of Rs.14,000, life insurance premium of Rs.1,70,000 (capital
sum assured is Rs.16 lacs on policy taken on 01.02.2016), donation of Rs. 86,000 to a project eligible for
deduction under section 35CCA and donation of Rs.1,00,000 by cheque to a charitable trust recognised for
section 80G. Compute his total income for the assessment year 2020-21.
Solution:
Computation of Total income of Mr.Prashant for the AY 2020-21
Particulars Rs. Rs.
Income chargeable as "Salaries"
Gross salary 14,00,000
Less: Profession tax (14,000)

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Less: Standard Deduction {FA 2019} (50,000)

Chargeable amount/Gross total income 13,36,000
Less: Deductions under Chapter VIA
Section 80C : LIP Paid Rs.1,70,000.
Restricted to 10% of capital sum assured 1,60,000
Maximum permissible deduction u/s 80C 1,50,000
Section 80GGA : Donation to project eligible u/s 35CCA, 100% 86,000
allowable
Total deductions excluding section 80G 2,36,000
Adjusted total income for deduction u/s 80G 11,00,000
Total donations to charitable trusts not to exceed 10% of above. 1,10,000
Permissible deduction 50% of lower of Rs.1,10,000/ 1,00,000 50,000
Total income 10,50,000

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3. Income from House Property

1) Annual Value in Case of Self-occupied Property - Section

23(2)
a) Where the property is self-occupied for own
residence or unoccupied throughout the previous
year, its Annual Value will be Nil, provided no other
benefit is derived by the owner from such property.
SNIPPET:
The expression “Unoccupied property” refers to
a property which cannot be occupied by the Two of such house property, at the
owner by reason of his employment, business
or profession at a different place and he resides Option of assessee, shall be treated as
at such other place in a building not belonging self-occupied and the other shall be
to him.
treated as “deemed to be Let out
property“.

b) The benefit of “Nil” Annual Value is available only for

upto two self-occupied or unoccupied house properties i.e. for either one house property or two
house properties owned by the assessee. Aggregate interest on capital borrowed for the purpose
of purchase/construction of these properties, will be deductible up to Rs. 2,00,000 (subject to
similar conditions as were applicable earlier).
c) The benefit of “Nil” Annual Value in respect of upto two self-occupied house properties is available
only to an individual/ HUF.
d) No deduction for municipal taxes is allowed in respect of such property.

Example:
Ganesh has three houses, three of which are self-occupied. The particulars of the houses for the P.Y.2019-20
are as under:
Particulars House 1 House 2 House 3

Municipal valuation p.a. 3,00,000 3,60,000 3,30,000

Fair rent p.a. 3,75,000 2,75,000 3,80,000

Standard rent p.a. 3,50,000 3,70,000 3,75,000

Date of completion/purchase 31.3.1999 31.3.2001 01.4.2014

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Municipal taxes paid during the year 12% 8% 6%

Interest on money borrowed for repair of - 55,000

property during the current year

Interest for current year on money borrowed

in July 2013 for purchase of property 1,75,000

Compute Ganesh’s income from house property for A.Y.2020-21 and suggest which house should be
opted by Ganesh to be assessed as self-occupied so that his tax liability is minimum.

Solution:
Let us first calculate the income from each house property assuming that they are deemed to be let out.

Computation of income from house property of Ganesh for the A.Y.2020-21

Particulars House 1 House 2 House 3

Gross Annual Value (GAV)

ER is the GAV of house property

ER = Higher of MV and FR, but restricted to SR 3,50,000 3,60,000 3,75,000

Municipal taxes (paid by the owner during

the previous year)
36,000 28,800 19,800
Net Annual Value (NAV)

Deductions under section 24

3,14,000 3,31,200 3,55,200
(a) 30% of NAV

(b) Interest on borrowed capital

94,200 99,360 1,06,560

- 55,000 1,75,000

Income from house property 2,19,800 1,76,840 73,640

Ganesh can opt to treat any two of the above house properties as self-occupied.

OPTION 1 (House I and II– self-occupied and House III – deemed to be let out)
If House I and II are opted to be self-occupied, the income from house property shall be –
Particulars Amount in Rs.

House I (Self-occupied) Nil

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House II (Self-occupied) (interest deduction restricted to Rs. 30,000) (30,000)

House III (Deemed to be let-out) 73,640

Income from house property 43,640

OPTION 2 (House I and III – self-occupied and House II – deemed to be let out)
If House I and III are opted to be self-occupied, the income from house property shall be –
Particulars Amount in Rs.

House I (Self-occupied) Nil

House II (Deemed to be let-out) 1,76,840

House III (Self-occupied) (1,75,000)

Income from house property 1,840

OPTION 3 (House II and III – self-occupied and House I – deemed to be let out)
If House II and III are opted to be self-occupied, the income from house property shall be –
Particulars Amount in Rs.

House I (Deemed to be let-out) 2,19,800

House II (Self-occupied) (interest deduction restricted to ` 30,000) (30,000)

House III (Self-occupied) (1,75,000)

(Total interest deduction restricted to ` 2,00,000) (2,00,000)

Income from house property 19,800

Since Option 2 is most beneficial, Ganesh should opt to treat House I and III as self-occupied and House II
as deemed to be let out. His income from house property would be Rs. 1,840 for the A.Y. 2020-21.

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2) Property Held as Stock-in-Trade - Section 23(5)

1. If the property (consisting of any building and land

appurtenant thereto) is HELD AS STOCK IN
TRADE by the owner of the property
SNIPPET:
2. The property (or any part of the property) is NOT
LET during the whole (or any part) of the previous Annual value of property held as
year. stock-in trade (not let out) = NIL

If the above conditions are satisfied, ANNUAL VALUE Upto 2 year from end of FY in
of such property (or part of the property) = NIL. which completion certificate is
However, this concession shall be only available for the obtained
period upto 2 year from the end of F.Y. in which the
certificate of completion of construction of the property
is obtained from the competent authority.

Notional income shall be considered instead of real income in the following cases:

• Where the assessee owns more than 2 HP for the purpose of self-occupation, the annual value of
any two of those properties, at the option of the assessee, will be nil and the other properties are
deemed to be let-out and income has to be computed on a notional basis, then GAV = ER

• If the property is held as stock in trade by the owner of the property and is not let during the
whole (or any part) of the previous year., GAV = Expected Rent after 2 year from the end of F.Y. in
which the certificate of completion of construction of the property is obtained from the competent
authority.

Rationale of amendment:

In case of real estate developers who develop properties for the purposes of selling,
property is held as stock-in-trade. Therefore, in cases where, there is time gap between completion
of construction and sale of property, notional rent is charged on the basis of deemed annual value.
This used to pose problem as the deemed annual value used to be taxed as IFHP in their hands.
Therefore, to provide relief to real estate developers, Sec. 23(5) is added.

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4. Profits & Gains from Business/Profession

1) Depreciation Rate Table (For Other than Power Generating Units)

PART A Tangible Assets Rates
I. Building
Buildings which are not used mainly for residential purposes[Explanation: Building used 10%
for commercial purpose &not connected to deduction u/s 80-IA(4)]
Buildings acquired for installing machinery and plant forming part of water supply project 40%
or water treatment system and which is put to use for the purpose of business of
providing infrastructure facilities u/s 80-IA(4)(i)
Purely temporary erections such as wooden structures 40%
II. Furniture and Fittings
Furniture and fittings including electrical fittings 10%
III. Plant & Machinery
(i) Motor cars other than those used in a business of running them on hire, [acquired 30%
during the period from 23.8.2019 to 31.3.2020 and put to use on or before
31.3.2020] [FA 2019]
(ii)Motor cars other than those used in a business of running them on hire, acquired or 15%
put to use on or after 1-4-1990 [Other than mentioned in (i) above]
(i) Motor buses, motor lorries and motor taxis used in a business of running them on 45%
hire, acquired during the period from 23.8.2019 to 31.3.202 and put to use on or
before 31.3.2020.

(ii) Motors buses, motor lorries, motor taxis used in the business of running 30%
them on hire [Other than mentioned in (i) above]
Moulds used in rubber and plastic goods factories 30%

Aeroplanes, aero engines 40%

Specified air, water pollution control equipments, solid waste control equipment and 40%
solid waste recycling and resource recovery systems
Energy saving devices &Windmills and any specially designed devices which run on 40%
windmills or any special devices including electric generators and pumps running on wind
energy installed on or after 1.4.2014
Motor cars other than those used in a business of running them on hire 15%
Computers including computer software (Computer Accessories &Peripherals included, 40%
Router & EPABX excluded)
Books, being annual publications, owned by assessees carrying on a profession 40%
Books owned by assessees carrying on business in running lending libraries 40%
Books, other than annual publications, owned by assessees carrying on a profession 40%
Plant & machinery (General rate) (includes Router & EPABX) 15%
IV Ships
Ocean-going ships 20%
Vessels ordinarily operating on inland waters, not being a speed boat 20%
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Speed boats operating on inland water 20%

PART B INTANGIBLE ASSETS Rate
Know-how, patents, copyrights, trademarks, licenses, franchises orany other business or 25%
commercial rights of similar nature

Clarification regarding treatment of expenditure incurred on purchase of participating interest by the Oil
Exploration and Production (E&P) Companies [Circular No. 20/2019, dated 19.08.2019]

Over the life cycle of an Oil & Gas block, Oil Exploration and Production (E&P) companies generally
buy ('Farm in') and sell ('Farm out') their participating interests (PI) in the 'Production Sharing
Agreement' (PSC). 'Farm-in' expenditure is incurred when an entity in this line of business
acquires a PI from another entity(s) in oil/gas block(s) and becomes part of the PSC entered into
with the Central Government.
The Government of India (Gol) offers exploration and development rights through global bidding
for specified blocks in various rounds under the New Exploration and Licensing Policy (NELP),
Hydrocarbon Exploration & Licensing Policy (HELP), Open Acreage Licensing Policy (OALP) etc. by
signing the Production Sharing Contracts (PSC’s) with the Oil & Gas companies. The successful Oil
& Gas Companies are granted license to explore, develop and carry out production operations in
Oil & Gas blocks and in India under a PSC
With the Gol. Typically, owing to the large investments required and the risks involved, multiple
E&P companies execute the PSC with the Gol in which each member has its agreed and defined
PI.
It is common international practice for the upstream companies to buy (farm-in) and sale (farm-
out) their PI in the PSC or similar contracts with the Government and thereby to share risk, bring
new and niche expertise and technologies. In such transactions, PI are treated as interests in
rights, licences and obligation under the PSC. Such farm-in purchase price is accounted as an asset
as per guidance note issued by the Institute of Chartered Accountants of India. International
accounting rules for Oil & Gas followed in Australia, Indonesia, UK etc. also require that such
acquisition cost to be capitalized and depreciated. A perusal of the Model PSC’s {as per the
website of the Director General of Hydrocarbon (DGH)} indicates that participating interests are
share in rights and obligation to explore, exploit and sell petroleum under the PSC along with
related licences, permits etc. A few of the case-laws on this issue also support treatment of
acquisition rights in a PSC as Intangible asset.
In this regard, it is relevant to mention that earlier vide Notification No. G.S.R. 117(E) dated
08.03.1996, in exercise of its powers under section 293A of the Act, Central Government had laid
down that the persons with whom it enters into agreement for the association or participation in
any business consisting of the prospecting for or extraction or production of mineral oils on or
after the 1st day of April,1992 -
a) shall not be assessed on the income as association of persons or body of individuals
consisting of such persons; but
b) each of the persons referred to above be assessed in respect of his or its share of income,
as the case may be, in the same status in which the person enters into the agreement with the
Central Government.
Thus, as persons participating in an E&P contract are assessed individually in respect of their
share of income, the sum expended on acquisition of whole or part of such 'Participating Interest'
in an E&P contract where such acquisition is approved by the Government of India, represents the
amount paid to acquire the underlying share (expressed as a percentage) being interests in
rights, licences and obligations under the E&P contract.

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In view of the above legal position, it is hereby clarified as under:-

i. amount paid for acquiring the 'Participating Interest' shall not be treated either as
cost for acquiring the share in partnership or investment for' acquisition of a
member's interest in an association of persons or body of individuals, rather it would
be treated as an amount paid to acquire the underlying assets; and\
ii. the amount paid for acquiring the 'Participating Interest', after reducing component
of cost attributable to tangible assets for purposes of section 32(1)(i), would be
treated as an 'intangible asset' (being a business or commercial right akin to a
licence), eligible for claim of depreciation for purposes of section 32(1)(ii).

DS Comment:
W.e.f. 2018-19, as per Rule 5(1) of Income tax Rules, maximum depreciation
allowable is 40% on WDV. Therefore, only one block shall be prepared for all
SNIPPET:
the plant& machinery which qualifies for 40% rate of depreciation. The
As additional
per Amendment Act, (20%/
depreciation 2019:-“The
35%) isbusiness
governed of
by manufacture or production
section 32(1)(iia) & not underof
rule 5(1). Hence, there shall be no change in additional depreciation claim for
Any article or thing shall not be include business of development of computer
the relevant AY.
Software in any form or media, mining, conversion of marble blocks or similar

item into slabs, bottling of gas into cylinder, printing of books or production

Of cinematograph film, or any other business as may be notified by the

Central Government in this behalf.”

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2) Section 40(a)(i): Non-Compliance of Provisions of TDS

Where Payment is made to Non-Resident

INTEREST ROYALTY
PAYABLE
OUTSIDE IN INDIA
ANY OTHER INDIA OR TO A NON
FEES FOR SUM RESIDENT
TECHNICAL CHARGEABLE (not being a
SERVICES UNDER THE
ACT company)
OR A
FOREIGN
COMPANY
No disallowance if following condition satisfied [FA 2019]
O
R

Tax is deductible on
aforesaid payment but it is
not deducted (wholly or
And The payer is not deemed to be
assesee-in-default under the
partly) by the payer first proviso to section 201(1)

OTHERWISE DISALLOWANCE =100%

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DS Comment: It is pertinent to note that…

1. If the above conditions are satisfied, then for the purpose of section 40(a)(i) it
shall be deemed that the payer has deducted and paid the tax on such amount
on the date of the furnishing of return of income by the receipient.
2. the payer is not deemed to be an assessee-in-default if-
• The recipient has furnished his return of income under section 139;
• The recipient has taken into account the above income in such return of
income;
• The recipient has paid the tax due on the income declared in such return of
income, and
• The payer furnishes a certificate to this effect from a chartered
accountant in prescribed form.
it would be deemed that the assessee has deducted and paid the tax on such sum on
the date on which return of income has been furnished by the payee.
Since the date of furnishing the return of income by the payee is taken to be the date
on which the payer has deducted tax at source and paid the same, such
expenditure/payment in respect of which the payer has failed to deduct tax at source
shall be disallowed under section 40(a)(i) in the year in which the said expenditure is
incurred. However, such expenditure will be allowed as deduction in the subsequent
year in which the return of income is furnished by the payee, since tax is deemed to
have been deducted and paid by the payer in that year.

Example:
X Ltd. Pays a sum of Rs. 9,00,000 as commission to Y Inc. (a US company) on October 15,2019.Tax is
deductible under section 195 (read with Indo- US tax treaty) but it is not deducted by X Ltd. Y Inc. pays
advance tax on the due dates on its income (including Rs. 9,00,000). Entire liability is paid by Y Inc. during
the financial year 2019-20 by way of advance tax. Return of income of Y Inc. for the assessment year 2020-
21 is submitted on September 20, 2020. X Ltd. Has a certificate to this effect from a chartered accountant
in the prescribed form.
Solution:

In this case, tax is no deducted by X Ltd. In the F.Y 2019-20. By Virtue of Section 40(a)(i), the payment of Rs.
9,00,000 will be disallowed in computing the income for the assessment year 2020-21. However, X Ltd.
Cannot be treated as an Assessee-in-default under the amended provisions of first proviso to section 201(1),
as the following conditions are satisfied -
• The recipient has furnished his return of income under section 139;
• The recipient has taken into account the above income in such return of income;
• The recipient has paid the tax due on the income declared in such return of income, and
• The payer furnishes a certificate to this effect from a chartered accountant in prescribed form.
Under the amended provisions, it will be assumed that X Ltd. Has deducted and paid tax on September 20,
2020. As a consequence, Rs. 9,00,000 will be allowed as deduction in the hand of X Ltd. For the financial year
2020-21 (i.e., Assessment year 2021-22)

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Example:
On December 8, 2019, Z Ltd. Pays Rs. 40,00,000 as royalty to C (a non-resident individual) after deducting
tax at the rate of 10% under section 195, read with section 115A. The tax so deducted by Z Ltd. is not
deposited till November 30, 2020. However , C submit his return of income on July 31, 2020 after including
Rs. 40,00,000 in his income. As per his return of income, a refund of Rs. 82,000 is due to him.
Solution:
In this case, the amended provisions are not applicable(the amended provisions are applicable only when
payer fails to deduct the whole or any part of tax). If tax is deducted but not paid, the amended provisions
[as well as the first proviso to section 201(1)] are not applicable. Z Ltd. Cannot claim any deduction for the
previous year 2019-20 or 2020-21 in respect of royalty payment of Rs. 40,00,000

3) Deduction on payment basis u/s 43B

a) TAX*,
DUTY,CESS OR
FEE (INDIRECT
TAXES)

g) SUM PAYABLE BY THE b) EMPLOYER CONTRIBUTION

EMPLOYER IN LIEU OF TO ANY PROVIDENT
ANY LEAVE to the credit FUND/SUPERANNUATION
of his employee FUND/GRATUITY FUND or any
other fund for the welfare of
the employees
EXPENSE SHOULD BE OF THE
P.Y. +
f) INTEREST ON ANY LOAN OR ADVANCE
ACTUAL PAYMENT should be
FROM A SCHEDULE BANK (includes co- made on or before DUE DATE
operative bank (other than a primary
agricultural credit society or a primary
specified u/s 139(1)
co operative agricultural and rural c) BONUS OR COMISSION
development bank) payable to employees

e) Any sum payable by the assessee as interest

on any loan or borrowing from a deposit

d) INTEREST ON ANY LOAN/
taking non-banking financial company or
BORROWING FROM PFI
systemically important non-deposit taking non- /SFC/SIIC** in accordance with
banking financial company, in accordance with
the terms & conditions of the
agreement governing such loan/
the terms and conditions of the agreement borrowing
governing such loan or borrowing

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DS Comment: It is pertinent to note that…

Section 43B extended to non- banking finance companies FA 2019
Section 43B is applicable only if the taxpayer maintains books of account on the basis
of mercantile system of accounting. Provisions of section 43B have been amended by
inserting clause (da) as per FA 2019. After this, the scope of section 43B has been
extended to cover interest payable on laon or borrowing from-
a. “Systemically important non-deposit taking non- banking financial company
(NBFC)”; or
b. “Deposit taking NBFC”.

Impact of amendment-
1. Deduction on payment basis - Interest payable on loan or borrowing to the
aforesaid entities will be deductible on payment basis in the year in which
interest is actually paid.
2. When deductible on accrual basis – If, however, interest is paid after the end
of the previous year but on or before the due date of submission of return of
income, interest will be deductible on “accrual” basis in the year in which it
becomes due for payment.
3. Double deduction not allowed - Explanation 3AA has been inserted to provide
that where a deduction in respect of aforesaid interest is allowed as
deduction in any earlier year (i.e., prior to the assessment year 2020-21) on
accrual basis , such interest is not again deductible on payment basis in the
year in which the payment is made.
4. Conversion of interest into loan - Explanation 3CA has been inserted to
provide that if an outstanding interest is converted into loan, conversion will
not be treated as payment of interest.
5. Systemically important non- deposit taking NBFC - It means a non- banking
financial company (NBFC) which is not accepting or holding public deposits and
is having total assets of not less than Rs. 500 crore as per the last audited
balance sheet and is registered with RBI under the provision of the Reserve
Bank of India Act.
6. Deposit taking NBFC -“Deposit taking NBFC” means a non-banking financial
company which is accepting or holding public deposits and is registered with
RBI under the provisions of Reserve Bank Of India Act

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5. Business Deductions

1) Deductions in respect of profits and gains from housing

projects U/S 80- IBA
1. Eligible Business: Developing and building housing projects
2. Year Of commencement of eligible business: Project is approved after 1st June 2016 but on or
before 31st March 2020 [FA 2019]
3. Quantum of Deduction: 100% of the profits and gains derived from such housing project.
4. (Conditions to be fulfilled for claim of deduction:-
a. the project is approved by the competent authority after 1st June, 2016 but on or before 31st
March, 2020
b. the project is completed within a period of five years from the date of approval by the
competent authority
However, in a case where the approval in respect of a housing project is obtained more than
once, the project shall be deemed to have been approved on the date on which the building
plant of such housing project was first approved by the competent authority and the project
shall be deemed to have been completed when a certificate of completion of project as a whole
is obtained in writing from the competent authority.
c. the carpet area of the shops and other commercial establishments included in the housing
project does not exceed 3% of the aggregate carpet area
5. Additional conditions to be fulfilled if the project is approved by the competent authority before
1st September, 2019
a. where a residential unit in the housing project is allotted to an individual, no other residential
unit in the housing project shall be allotted to the individual or the spouse or the minor children
of such individual
b. Conditions relating to size of plot of land, residential units etc
Location of the Size on plot of Carpet area of Percentage of floor area
housing project land on which the residential ratio to be utilised by the
the project is unit comprised in project
located the housing
project
(1) (2) (3) (4) (5)

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(i) Within the cities Not less than Not more than 30 Not less than 90% of the
of Chennai, Delhi, 1,000 sq. m. sq. m. floor area ratio permissible
Kolkata or in respect of the plot of
Mumbai land under the rules to be
made by the Central
Government or the State
Government or the local
authority, as the case may
be.
(ii) In any other place Not less than Not more than 60 not less than 80% of such
2,000 sq. m. sq. m. floor area ratio

c. The project is the only housing project on the plot of land [referred to in column (3)].
d. The assessee maintains separate books of account in respect of the housing project.
6. Additional conditions to be fulfilled if the project is approved by the competent authority on or
after 1st September, 2019
a. where a residential unit in the housing project is allotted to an individual, no other residential
unit in the housing project shall be allotted to the individual or the spouse or the minor
children of such individual;
b. Conditions relating to size of plot of land, residential units etc. [FA 2019]
Location of the housing Size on plot Carpet area of Percentage of floor area
project of land on the residential ratio to be utilised by the
which the unit comprised project
project is in the housing
located project
(1) (2) (3) (4) (5)
(i) Within the Not less Not more than Not less than 90% of the
metropolitan cities of than 1,000 60 sq. m. floor area ratio permissible
Bengaluru, Chennai, sq. m. in respect of the plot of
Delhi National Capital land under the rules to be
Region (limited to Delhi, made by the Central
Noida, Greater Noida, Government or the State
Ghaziabad, Gurugram, Government or the local
Faridabad), Hyderabad, authority, as the case may
Kolkata and Mumbai be.
(whole of Mumbai
Metropolitan Region)
(ii) In any other place Not less Not more than not less than 80% of such
than 2,000 90 sq. m. floor area ratio
sq. m.
c. The project is the only housing project on the plot of land [referred to in column (3) above].
d. the assessee maintains separate books of account in respect of the housing project.
e. the stamp duty value of a residential unit in the housing project does not exceed Rs.45 lakhs

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7. No deduction for person executing the housing project as a works contract: An assessee who
merely executes the housing project as a works-contract awarded by any person (including the
Central Government or the State Government) would not be eligible for deduction under this
section.
8. Consequence of non-completion of
housing project within 5 years: In a case
where the housing project is not completed
within the period of five years from the
SNIPPET: date of approval by the competent
authority and in respect of which a
1. Section 80-IBA Developing deduction has been claimed and allowed
and Building Housing projects under this section, the total amount of
deduction so claimed and allowed in one
2. Project is approved after 1st or more previous years, shall be deemed to
June 2016 but on or before be the income of the assessee chargeable
under the head “Profits and gains of
31st March 2020 business or profession” of the previous
3. Quantum of Deduction= 100% year in which the period for completion so
expires.
of the profits and gains
9. No deduction under any other
derived from such housing provision of the Act in respect of such
project profits

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6. Capital Gain

1) Section 47(viiab) - Transfer of Specified Capital Asset by a Non-resident

on a Recognised Stock Exchange in any IFSC
• Provision:
To promote development of world class financial infrastructure in India, transfer of the following capital
assets by a non-resident on a recognized stock exchange located in any International Financial Services
Centre (IFSC) shall not be regarded as transfer, where the consideration for such transaction is paid or
payable in foreign currency:
- Bond or GDR referred to in section 115AC (1); or
- Rupee denominated bond of an Indian company; or
- Derivative

• Amendment: SNIPPET:
The scope of exemption is widened to include capital
gains on such other securities as may be notified by Exemption on capital gain is also
the Central Govt in this behalf. available on other securities as may
It is not that all securities covered by section 2(h) of
SCRA would be eligible for exemption; it is only such be notified by CG.
securities as are notified will be eligible for
exemptions.

2) Section 54- Exemption

• Provision:
Section 54 of the Act provides for exemption from long term
capital gain arising on transfer of a residential house property,
if such gain is utilized in acquiring one residential house
property, subject to fulfilment of certain other conditions SNIPPET:
specified therein.
Exemption benefit on investment
• Amendment: of gain has increased to 2
✓To extend benefit of said exemption on investment of gain in Residential House properties;
maximum of 2 residential house properties, instead of one subject amount of LTCG does
house earlier, subject to the condition that the amount of not exceeds Rs.2 Crores.
long-term capital gain does not exceed Rs.2 crores.
✓The aforesaid benefit/ option can be exercised by the
taxpayer only once in a lifetime.

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✓In other words the options available for purchase/constructions of new residential houses are;
a) Purchase 1 house OR
b) Construct 1 house OR
c) Purchase 1 house and construct 1 house or
d) Purchase 2 house or
e) Construct 2 houses

Similar amendment is not made in section 54F

3) Section 54GB- Exemption

• Provision:
Section 54GB provides exemption to an Individual
and HUF from the long-term capital gains arising
from transfer of a residential house property. The
exemption is allowed if the amount of capital gains
is invested in equity shares of an ‘eligible SNIPPET:
company’. The exemption is allowed subject to
fulfilment of following conditions: 1. Period of Investment in eligible start
i. The company is incorporated in India on or
after April 1 of the previous year, in which up has extended from 31.03.19 to
capital gains arise, and up to the due date of 31.03.21.
furnishing the return of income. 2. Minimum holding is reduced from 50%
ii. It is engaged in the business of manufacture
to 25% of share capital.
of any article or thing or in an eligible
business. 3. Restriction period on transfer of new
iii. The transferor (assessee) of residential asset has been reduced from 5 yrs to
property has more than 50% share capital (or
3 yrs in case of Computer or computer
voting right) of such company (after
subscription). software.
iv. The company is either an eligible start-up or
SME.
v. The company utilizes the amount to purchase
new assets, which shall not be transferred for 5 years from the date of acquisition.
The exemption is available only if the original asset is transferred between April 1, 2012 and March 31,
2017. However, if the capital gain has to be invested in an eligible start-up, the original asset can be
transferred up to March 31, 2019.

• Amendment:
To incentivize the start-ups, following amendments in section 54GB:
i. It is extended the sunset date for transfer of original capital asset (residential property) for
investment in eligible start-ups from March 31, 2019 to March 31, 2021

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ii. The condition of minimum holding of 50% of share capital or voting rights in the start-up is
proposed to be relaxed to 25%
iii. The condition which restricts the transfer of new asset for 5 years is proposed to be reduced to 3
years in case of computer or computer software.
Example:
Mr. Sarthak a software engineer wants to commence a business in manufacture of solar powered car. He
provides the following information:
i) The project cost is estimated at Rs.5 crores.
ii) He has a residential house in Surat since 2010 which could be sold for Rs.3 crores.
iii) And the balance Rs.2 crores could be financed through bank borrowings at a cost of 13% per annum.
iv) He has another option viz. his friend Miss. Juhi who is willing to contribute Rs.2 crores & become a
proportionate co-promoter.

The indexed cost of acquisition of the residential house(Computed) is Rs.70 lakhs.

Mr. Sarthak seeks your guidance on the project finance taking into account any tax incentives available
under Income Tax Law besides the funding of project through bank finance or accepting Miss. Juhi as Co-
Promoter.
You are requested to advise Mr. Sarthak on Income Tax aspects to avail tax benefits within the four
corners of law.

Solution:
Under section 80-IAC, where the Gross total income of an eligible start-up includes any profits and
gains derived from eligible business, a deduction of 100% of the profits & gains derived from such
business would be available for any 3 consecutive assessment years out of 7 consecutive assessment
years, beginning from the previous year in which eligible start-up is incorporated.
Under Section 54GB, the capital gains arising to an individual from transfer of his long-term capital
asset, being a residential house, would be exempt if he invests the net consideration in a company
which is an eligible start-up carrying on eligible business under section 80-IAC.
In this case the business of manufacture of a solar powered car falls within the meaning of eligible
business, since it is driven by technology.
In order to avail the benefit of deduction under section 54GB, Mr Sarthak must invest the net
consideration of Rs.3 crores on transfer of long term capital asset, being his residential house in Surat,
in an eligible start-up, by setting up a new company before 31.03.2021 and subscribing to the equity
shares of company.
The start-up company formed to carry on the business of manufacture of solar powered car would be
an eligible start-up which is technology driven if it obtains a certificate of eligible business from IMBC &
its turnover doesn’t exceeds Rs.25 crores in any of the previous year upto P.Y 2020-21.
Mr. Sarthak should subscribe to more than 25% of the share capital of the company on or before the
due date of filing of return of income under section 139(1) & the company should purchase new plant
& machinery within 1 year from date of subscription in equity shares by him.
If these conditions are fulfilled, the long term capital gains of Rs.2,30,00,000(Rs.3,00,00,000-
Rs.70,00,000) arising to Mr. Sarthak would not be chargeable to tax, since the entire net consideration
of Rs.3 crores has been utilised to subscribe to the shares of a company, being an eligible start-up.
Furthermore, in any 3 consecutive assessment years out of 7 consecutive assessment years, beginning
from previous year in which eligible start-up is incorporated, the company would be eligible to claim
deduction of 100% of the profits & gains the business.
If the balance Rs.2 crores is funded through bank borrowings, the interest payable would qualify for
deduction u/s 36 while computing the business income of the company, which would be beneficial in

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those years in which the company has not availed 100% deduction u/s 80-IAC.
On the other hand, if Rs.2 crores are funded through subscription of shares by Miss. Juhi, who would be
a co-promoter, there would be a sharing of both the risk & reward with Miss. Juhi. Since her
shareholding would be only 40%, this arrangement will also not effect Mr. Sarthak’s claim for deduction
under section 54GB.

7. Income from Other Sources

1) Section 56(2)(viib): Consideration received in excess of FMV of shares issued by a

closely held company to be treated as income of such company, where shares are
issued at a premium

1. Provision:

Section 56(2) (viib)

Closely held company receives in any previous year from a resident, consideration for
issue of shares > Face value then,
Taxable amount = Consideration (-) FMV
However, this section shall not apply to a venture capital undertaking receiving excess
consideration from Venture Capital Company or venture capital fund. Till AY 2019-20 the
benefit of exemption was available to Category I Alternative Investment Fund (AIF). The
FA, 2019 amend this provision to extend the exemption to capital received by venture
capital undertakings from Category II AIF as well.

2. FMV
FMV = (A-L) X PV/PE
A = Book value of all assets
L = book value of all liabilities
PV = total amount of paid up equity share capital
PE = Paid up value of such equity shares

Amendment:

Non Applicability of Sec 56(2)(viib)-

i. ‘Specified Fund’ means a 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 & is registered under the

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Securities and Exchange Board of India (Alternative Investment Fund) Regulations, 2012made under
the Securities and Exchange Board of India Act, 1992.
Accordingly, if the share premium in excess of FMV is received by the venture capital undertakings
from specified fund (i.e Category I or Category II AIF) on issue of shares, it shall not be liable to tax.
ii. Eligible Start Up satisfying the condition laid down in Notification dated 19/02/19 are satisfied.
However, if there is failure to comply with the condition of the notification then it shall have the
following consequences:-
(a) Deemed Income u/s 56(2)(viib) of the company for the P.Y in which failure to comply with any
of the said condition has to be taken place.
Illustration: A Closely held company issues a share of Rs.10 (Face value) at a premium of
Rs.490 & its fair market value is Rs.250. Thus, the excess premium is Rs.250, which is exempt
under the first proviso. If any condition is not fulfilled, in the year of non-compliance, the
company will have to pay tax on excess premium of Rs.250 which was not considered as
income earlier.
(b) Income is deemed as misreported income u/s 270A(8)(9):
Newly inserted second proviso further provides that the company which is non-compliant of
the conditions of Notifications and in its case, the excess premium is deemed as income, it
shall be Deemed that the company has under-reported the said income in consequences of
the misreporting as provided under section 270A(8) and 270(9)
Section 270A(9) lists out the circumstances under which under-reported income can be
treated as misreported income. There is no amendment in the said section. However, second
proviso to section 56(2)(viib) deems excess premium as income and it also deems such
income as misreported income by making reference to section 270A(8) and (9). In case of
misreporting of income the quantum of penalty is 200% of the amount of tax payable on
under reported income.
As per the above illustration Rs.250 could be treated as underreported/misreported income;
tax thereon is payable say 30% Rs.75. Penalty could be Rs.150. However, it may not be able
to avail immunity as provided by section 270AA.

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8. Set-off & Carry Forward of Losses

1) Set-off & Carry Forward of Losses of Closely Held Company -

Section 79
1. Carry forward and set-off of losses in case of closely held company not being an eligible start-up
referred to in section 80-IAC
In the case of a company in which the public are not substantially interested and not being an
eligible start-up referred to in section 80-IAC, no loss incurred in any year prior to the previous year
shall be carried forward and set-off against the income of the previous year, unless
• on the last day of the previous year, the shares of the company carrying not less than 51%
of the voting power were beneficially held by persons
• who beneficially held shares of the company carrying not less than 51% of the voting power
on the last day of the year or years in which the loss was incurred.
2. Carry forward and set-off of losses in case of closely held company being an eligible start-up
referred to in section 80-IAC
In case of a company in which the public are not substantially interested but being an eligible start-
up as referred to in section 80-IAC, any unabsorbed loss of the company shall be allowed to be
carried forward and set off against the income of the previous year if either of the conditions are
satisfied –
Section 79(2)(a):
• on the last day of the previous year, the shares of the company carrying not less than 51%
of the voting power were beneficially held by persons who beneficially held shares of the
company carrying not less than 51% of the voting power on the last day of the year or
years in which the loss was incurred; or

Section 79(2)(b):

• all the shareholders of such company who held shares carrying voting power on the last day
of the previous year or years in which the loss was incurred continue to hold those shares
on the last day of such previous year in which the loss is to be set-off and such loss has been
incurred during the period of 7 years beginning from the year of incorporation of such
company.

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Rationale of amendment:

1.section 80-IAC ,To facilitate ease of doing business in case of eligible start-up, the scheme
of section 79 has been modified (with effect from the assessment year 2020-21) so as to
provide that brought forward loss of a closely held eligible start-up shall be carried forward
and set off against the income of previous year on satisfaction of either of the two
conditions stipulated currently under clause (a) or clause (b) of section 79.
2.For other closely held companies, there would be no change, and loss incurred in any year
prior to the previous year shall be carried forward and set off only on satisfaction of
condition currently provided at clause (a).

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9. Surrogate Taxation

Section 115QA- Tax on Buy Back of shares

• Provision:
In case of buy-back of shares by the unlisted
companies, Section 115QA provides for the levy
of additional Income-tax on the companies at the
rate of 20% of the distributed income.
Consequently, the capital gain arising in the SNIPPET:
hands of the shareholders aren’t charged to tax
as tax is levied at the level of the company. Listed Company are also brought in gambit
of Tax on Buyback of shares. Consequently,
• Amendment:
Capital Gain arising in hands of shareholders
Any buy back of shares from a shareholder by a
Listed Company shall also be covered by the will be exempt as per amendment in Sec
provision of Section 115QA. 10(34A)
Consequently, Section 10(34A) has also been
amended to exempt the capital gains arising in
the hands of shareholders on account of buy-back of shares on which additional income-tax has been
paid by the company.

Rationale of amendment:

Section 115QA was introduced as an anti-abuse provision to check the practice of unlisted
companies resorting to buy-back of shares instead of payment of dividends. This practice was
noted amongst unlisted companies as tax rate for capitals gains was lower than the rate of DDT.

The instances of similar tax arbitrage have now come to notice in case of listed companies as
well, whereby the listed companies are also indulging in such practice of resorting to buy-back of
shares, instead of payment of dividends. Hence, in order to curb such tax avoidance practice
adopted by the listed companies, the Government has extended the existing anti abuse provision
of Section 115QA in case of listed company as well.

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Section 115R- Tax on distributed income of Mutual Fund

• Provision:
As per provisions of Section 115R, income
distributed by specified company or mutual funds
to their unit holders shall be chargeable to tax
and such specified company or mutual fund shall
SNIPPET:
be liable to pay additional tax on such income
distributed. Section 115R provide that no additional
income tax shall be levied on income
• Amendment:
distributed by a specified mutual fund
In order to incentivize relocation of Mutual Fund
in International Financial Services Centre (IFSC), listed on a recognized stock exchange
the above provisions of section 115R have been located in any IFSC.
amended with effect from 1stSeptember 2019.
The Amended version provides that no additional
income tax shall be chargeable under section
115R if the following conditions are satisfied-
1. Income is distributed by “specified mutual fund”. “Specified Mutual fund “ for this purpose is-
✓ It is a mutual fund specified under section 10(23D).
✓ It is located in any IFSC
✓ All the units are held by non-residents
2. Such income is distributed out of its income derived from transactions made on a recognized stock
exchange located in any IFSC and where the consideration for such transactions is paid or payable in
convertible foreign exchange.
3. Such income is distributed on or after September 1, 2019.

Section 115UB- Alternative Investment Funds(AIF)

• Before Amendment:
As per section 115UB, If in any year there is a loss at the fund level either current loss or the loss which
remained to be set off, the loss shall not be allowed to be passed through to the investors but would be
carried over at fund level to be set off against income of the next year in accordance with the provisions,
of Chapter VI.
• Amendment:
The Finance Act, 2019 has amended Section 115UB to allow pass through of losses and to remove
genuine hardship faced by Category I and II AIFs. Following amendments are made:

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i. The business loss of the investment fund, if

any, shall be allowed to be carried forward to
set-off in accordance with the provisions of
Chapter VI and it shall not be passed onto the SNIPPET:
unit holder.
ii. The loss (other than business loss) shall be Loss (other than Business loss) as on
ignored for the purposes of pass through to 31.3.2019 shall be deemed to be of unit
its unit holders, if such loss has arisen in holders who held the unit on 31.03.2019 &
respect of a unit which has not been held by hold such unit for more than 12 months.
the unit holder for a period of at least 12
months
iii. The loss (other than business loss)
accumulated at the level of investment fund
as on March 31, 2019, shall be deemed to be the loss of a unit holder who held the unit on March 31,
2019 in respect of the investments made by him in the investment fund and allowed to be carried
forward by him for the remaining period calculated from the year in which the loss had occurred for
the first time taking that year as the first year and it shall be set-off by him.
iv. The loss so deemed in the hands of unit holders shall not be available to the investment fund on or
after April 1, 2019.
Case Study:
Case Study on Tax Treatment of AIF Income and its Losses
Business
AIF Income/(Loss)
Income taxable income Carry
Year in the hands of taxable in forward Explanation
CG IFOS PGBP unit holders the hands of loss
of fund
1 800 200 - 1000 - -
2 700 200 100 900 100 0
3 (300) 400 (100) IFOS= 300 - (300) PGBP loss can be set off
against IFOS income and
thereafter the net IFOS
shall be assessed in the
hands of unit holders.
Whereas losses of CG can
be carry forward by
Investor as pass through
will be available provided
Investor holds units in the
AIF for a period of more
than 12 (twelve) months.

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4 450 500 100 CG 150={450- 100 - Brought forward loss of

300} year 3 will be set off
against CG income for
IFOS=500 investor because of pass
through status.
Note: The current year loss under ANY head shall be first set off at the fund level wherever possible and
thereafter the pass through concept shall be applied on the balance loss.

Example:

Parul Ltd. is a category 2 AIF as registered with the SEBI. It has 6 high net worth individual as equal
investor.

The date from which the investments is held by the investors in the AIF are as under:

→ Investor 1 = 01/06/2019
→ Investor 2 = 01/12/2019
→ Investor 3 = 31/01/2019
→ Investor 4 = 01/02/2019
→ Investor 5 = 01/03/2019
→ Investor 6 = 01/11/2018

The following details of A.Y. 2019-20 was furnished:

• Business loss = Rs. 25 lakhs

• Long term capital loss = Rs. 50 lakhs

For A.Y. 2020-21 following details are furnished:

• Business income = Rs. 75 lakhs

• Short term capital gain = Rs. 20 lakhs
• Long term capital gain = Rs. 20 lakhs
• IFOS (loss) = Rs. 1.5 crore

Compute the total income of AIF for A.Y. 2020-21 and discuss the treatment of loss both in the hands of
AIF and the unitholder.
Solution:
Computation of Total Income of AIF Parul Ltd for A.Y. 2020-2021

Particulars Amount Amount

Business Income 75Lakhs

Less: Brought Forward loss for A.Y. 2019-2020 (25Lakhs) 50 Lakhs

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Short Term Capital Gain 20 Lakhs

Long Term Capital Gain 20 Lakhs 40 Lakhs

IFOS loss restricted to Rs. 90 Lakhs (90 Lakhs)

Total Income Nil

Notes:

1. Income of 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. [Section 115UB(1)]
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) out of such loss, the loss arising to the investment fund as a result of the computation under the
head "Profits and gains of business or profession", if any, shall be,

(a) allowed to be carried forward and it shall be set off by the investment fund in accordance with
the provisions of Chapter VI; and
(b) ignored for the purposes of sub-section (1);

(ii) the loss other than the loss referred to in clause (i), if any, shall also be ignored for the purposes
of sub-section (1), if such loss has arisen in respect of a unit which has not been held by the unit
holder for a period of atleast twelve months. [Section 115UB(2)]
In the present case as on 31/03/2020 out of 6 Investors, Investor 1 &2 does not hold the unit for a
period of atleast 12months. Accordingly (1.5crores-90Lakhs)*2/6= 20 lakhs Shall be lapsed. The
balance loss of Rs.40Lakhs shall be allowed to pass through amongst the remaining investors in
equal proportion for the purpose of set-off in terms of section 70 & 71.
3. The loss other than the loss under the head "Profits and gains of business or profession", if any,
accumulated at the level of investment fund as on the 31st day of March, 2019, shall be,
I. deemed to be the loss of a unit holder who held the unit on the 31st day of March, 2019 in
respect of the investments made by him in the investment fund, in the same manner as provided
in sub-section (1); and
II. allowed to be carried forward by such unit holder for the remaining period calculated from the
year in which the loss had occurred for the first time taking that year as the first year and shall be
set off by him in accordance with the provisions of Chapter VI:
III. Provided that the loss so deemed under this sub-section shall not be available to the investment
fund on or after the 1st day of April, 2019. [Section 115UB(2A)].
In the present case for A.Y. 19-20 the accumulated long term capital loss will be allowed to be
pass through in the hands of investors holding the unit as on 31/03/2019 irrespective of their
period of holding.

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Section 10(15)- To Facilitate External Borrowing by Unit Located in IFSC

• Amendment:
Sub clause (ix) to Sec 10(15) is inserted in relation to any income by way of interest payable to a non-
resident by a unit located in an International Financial Services Centre in respect of monies borrowed by
it on or after the 1st day of September, 2019 is exempt from tax.
It is applicable if the following conditions are satisfied-
1. Recipient of interest is a non-resident.
2. Interest is payable by a unit located in an International Financial Service Centre.
3. Interest pertains to money borrowed by it on or after September 1, 2019.
If the aforesaid conditions are satisfied, interest income will be exempt.

10. Chapter VIA Deductions

1) Deduction In Respect Of Contribution U/S 80CCE

Section Particulars Amount of deduction

Deduction for contribution:

80C Applicable to Individual & HUF: Maximum of Rs. 1,50,000 including

u/s 80CCC/80CCD(1).
1) Life insurance premium: Life Insurance
Premium paid by a person to effect or to Maximum limit for LIC premium:
keep in force a life insurance policy in case of (a) Premium on insurance policy in
individual for self, spouse or child or in case excess of10% of the actual sum
of HUF any member thereof. assured shall not qualify for
2) Public Provident Fund Contribution. deduction in respect of policies
3) Contribution for participating in the Unit issued on or after 01-04-2012.
linked Insurance Plan (ULIP) of Unit Trust of (b) Premium on insurance policy in
India (UTI) or ULIP of LIC Mutual fund u/s excess of 20% of the actual sum
10(23D). assured shall not qualify for
4) Payment to notified annuity plan of LIC or deduction in respect of policies
any other notified insurer (Jeevan Dhara, issued before 01-04-2012.
Jeevan Akshay, etc.) (c) Premium on insurance policy in
5) Deposit in such account allowed as excess of 15% of the actual sum
deduction for girl child, Payment to notified

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security or deposit in notified deposit assured shall not qualify for

scheme deduction in respect of policies
Applicable to individual: issued on or after 01-04-2013,
on the life of a person with
1. Deferred annuity plan or annuity plan of
the government. disability or severe disability.
2. Contribution by employee to recognized
provident fund.
3. Tuition fees: Any payment by way of tuition
fees (whether at the time of admission or
thereafter) to any university, college, school
or other educational institution situated
within India for the purpose of full-time
education for two children of individual.
4. Repayment of home loan installment and
payment of stamp duty, registration fee
and other expenses for purchase of house.
5. 5 years FDR with scheduled bank or post
office.
6. Deposit to SukanyaSamridhi Account in the
name of individual himself or girl child.
7. Deduction in respect of contribution made
to employee NPS (Tier-II) account of the
pension scheme by a Central Government
employee. When such contribution is for a
fixed period of not less than 3 years. [FA
2019]
80CCC Applicable to individual: Maximum of Rs. 1,50,000.

The assessee has paid or deposited during the

PY, a sum under an annuity plan of the Life
Insurance Corporation of India (LIC) or any
other insurer for receiving pension from the
fund referred to in Section 10(23AAB).

80CCD(1) Applicable to individual or salaried employee: The amount of deduction shall be as

follows:
Contribution to approved pension plan.
1) For employees: restricted to 10%
of salary or 14% of Salary(in case
of CG employees)
2) For others: restricted to 20% of
Gross total income.

80CCE Limit on deductions under sections 80C, 80CCC and 80CCD(1)

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Section Particulars Ceiling Limit (Rs.)

80C Investment in LIP, Deposit in PPF/SPF/RPF etc. 1,50,000

80CCC Contribution to certain pension funds 1,50,000

80CCD(1) Contribution to NPS of Government 10% of salary(For

contribution by CG
=14%) or 20% of
GTI, as the case may
be.

80CCE Aggregate deduction under sections 80C, 1,50,000

80CCC & 80CCD(1)

80CCD(1B) Contribution to NPS notified by the Central 50,000

Government (outside the limit of Rs. 1,50,000
under section 80CCE)

80CCD(2) Contribution by the employer to NPS of 10% of salary(For

Government (outside the limit of Rs. 1,50,000 contribution by CG
under section 80CCE) =14%)

80CCD(1B) Additional deduction upto Rs. 50,000 for employee contribution to National Pension
Scheme(NPS) available additionally over & above limit of section 80CCE.

80CCD(2) Where the employer makes contribution in the account of the employee in respect of
notified Pension Scheme(NPS) then the employee shall be allowed additional
deduction of the whole amount contributed by the employer restricted to 10%(For
contribution by CG =14%)of his salary in the P.Y.

Sec 80CCD (2) to allow deduction of 20% of gross total income to in case of Self
employed person.(i.e individual other than salaried employees)

Note: For computation of limit under section 80CCD(1) and (2), salary includes dearness allowance, if
the terms of employment so provide, but excludes all other allowances and perquisites.

Rationale of Amendment
Section 80C amended version applicable if the following conditions satisfied-
1. The tax payer is an employee of the Central Government.
2. He contributes to his NPS (Tier-II) account.
3. Such contribution is for a fixed period of not less than 3 years.
4. Such contribution is in accordance with the scheme as may be notified by Central
Government for this purpose.
Further, if these conditions are satisfied, the aforesaid contribution will be deductible within the
overall limit of Rs. 1,50,000 under section 80C.
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2) Withdrawal of NPS U/S Section 10(12)

The existing provisionof section 10(12A) provides that payment from National Pension System
(NPS) to an employee or non- employee on closure of his account (or on opting out) shall be
exempt up to 60 per cent of total amount payable to him.
Withdrawal from NPS will not be chargeable to tax if following conditions are satisfied.
➢ Subscriber to NPS can be an employee or non- employee
➢ He takes partial withdrawal from NPS ( not exceeding 25% of contribution made by him to NPS)
➢ Partial withdrawal is made in accordance with the terms & conditions specified under Pension Fund
Regulatory Development Authority Act & regulations made thereof.
Payment from NPS when Taxable & when exempted
Particulars For A.Y
2020-21
1) Partial withdrawal from NPS to the extent of 25% of employees contribution Exempt
2) Amount received by assessee on closure of account or on his opting out of 40%
NPS scheme Taxable
3) In (2) amount is received by nominee on death of assesesee Exempt

4) Pension received out of NPS Taxable

5) Amount received in 2,3,4, is utilized for purchasing an annuity plan in the Exempt
same P.Y
6) Pension received out of annuity plan purchased in (5) Taxable
Tax free withdrawal from NPS to non- employees also available. To extend the same benefit too non-
employee subscribers, section 10(12A) has been amended.

SNIPPET: Amendment to Section 10(12A)

With a view to enable pensioner to have more disposable funds,
Exemption u/s 10(12A) has been increased to 60% with effect
from assessment year 2020-21. 60% of total amount payable to
the person At the time of closure or at the time of his opting out
of NPS, shall be exempt from tax u/s 10(12A).

Example :
The following are the particulars of investments & payments made by Mr. M, employed with MAC Ltd,
during the PY 2019-20:
− Deposited Rs. 1,20,000 in PPF
− Paid life insurance premium of Rs. 15,000 on the policy taken on 1.5.2014 to insure his life (Sum
Assured - Rs. 1,20,000)
− Deposited Rs. 30000 in a 5 year term deposit with bank

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− Contributed Rs. 1,80,000 being 15% of his salary to the NPS of the Central Govt. A matching
contribution was made by MAC Ltd. Compute the deduction available to Mr. M under chapter VI A
for AY 2020-21.Would your answer be different if Mr. M contributed Rs. 1,20,000 (being ,10% of
his salary) to NPS of CG?

Solution:
Deduction available to Mr. M for AY 2020-21
Section Particulars Amount Amount
(Rs.) (Rs.)
80C Deposit in PPF 1,20,000
Life insurance premium paid Rs.15,000 (deduction 12,000
restricted to Rs.12,000,being 10% of Rs.1,20,000 as the
policy was taken after 1.4.2012
5 year term deposit with bank 30,000
Total 1,62,000
Restricted to 1,50,000
80CCD(1) Contribution to NPS of central govt.Rs.1,30,000(Rs. 1,20,000
1,80,000-Rs.50,000,being deduction u/s 80CCD (1B)),
restricted to 10% of salary [1,80,000*10/15] Note 1
Total 2,70,000
80CCE Aggregate deduction restricted to 1,50,000
80CCD(1B) Rs.50,000 would be eligible for deduction i.r.t. 50,000
contribution to NPS
80CCD(2) Employer contribution to NPS, restricted to 10% of 1,20,000
salary.
Total Deduction available under chap VI A 3,20,000
Notes:
1. The deduction u/s 80CCD (1B) is not subject to overall limit of Rs. 1.5L u/s 80CCE.
Therefore, it is more beneficial for Mr. M to claim deduction u/s 80CCD (1B) first and then
remaining u/s 80CCD (1).
2. If the contribution towards NPS is Rs. 1,20,000, here again, it is beneficial for Mr. M to first
claim deduction u/s 80CCD(1B) and the balance Rs.70,000 can be claimed u/s 80CCD(1)
since the deduction u/s 80CCD(1B)is over & above the aggregate limit of Rs. 1,50,000 u/s
80CCE.
In any case, the aggregate deduction of Rs. 2,20,000 [i.e Rs.1,50,000 u/s 80C + Rs.70,000 u/s
80CCD(1) cannot exceed overall limit of Rs.1,50,000 u/s 80CCE. Total deduction would
remain same.
3. The deduction u/s 80CCD(2) in respect of employer’s contribution to the Notified Pension
Scheme is over & above the aggregate limit specified u/s 80CCE.

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3) Deduction in Relation to House Property & Vehicles

Deduction in relation to House Property & Vehicles

80EEA Deduction shall be allowed to an individual for Deduction is available in respect
the interest paid on loan taken for acquisition of interest payable on loan or Rs.
of a residential house property, subject to 1,50,000, whichever is less.
fulfillment of following conditions: Deduction is available for the
a) The assessee is an individual. assessment year 2020-21 and
b) He is not eligible to claim any deduction subsequent assessment years.
under section 80EE.
c) He has taken loan for the purpose of
acquisition of residential house
property.
d) The loan is sanctioned by a financial
institution (i.e., a bank or banking
institution or a housing finance
company) during April 1, 2019 and
March 31, 2020.
e) Stamp duty value of the house property
should not exceed Rs. 45 lakhs
f) Loan should be sanctioned by the
financial institution during the period
April 01, 2019 to March 31, 2020
g) The assessee should not own any
residential house property on the date
of sanction of loan.
Note: Same interest is not deductible twice
if interest is claimed as deduction under
section80EEA, such interest (or such portion
of interest) is not again deductible under
section 24(b) or under any other provision of
the act for the same or any other
assessment year.
80EEB Deduction shall be allowed to an individual for Deduction is available in respect
the interest paid on loan taken for purchase of of interest payable on loan or Rs.
an electric vehicle, subject to the condition that 1,50,000, whichever is less.
the loan should be sanctioned during the period Deduction is available for the
April 1, 2019 to March 31, 2023. assessment year 2020-21 and
Note: Same interest is not deductible twice if subsequent assessment years.
interest is claimed as deduction under section
80EEA, such interest (or such portion of
interest) is not again deductible under section
24(b) or under any other provision of the act for
the same or any other assessment year.

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Example :
The following are the particulars relating to Mr.A, Mr.B, Mr.C and Mr.D, salaried individuals, for
A.Y.2020-21 –
Particulars Mr. A Mr. B Mr. C Mr. D
Amount of loan taken Rs. 43 lakhs Rs. 45 lakhs Rs. 20 lakhs Rs. 15 lakhs
Loan taken from HFC Deposit taking Deposit Public sector
NBFC taking NBFC bank
Date of sanction of 1.4.2019 1.4.2019 1.4.2019 30.3.2019
loan
Date of disbursement 1.5.2019 1.5.2019 1.5.2019 1.5.2019
of loan
Purpose of loan Acquisition of Acquisition of Purchase of Purchase of
residential residential electric electric vehicle
house house vehicle for for personal use
property for property for personal use
self- self-
occupation occupation
Stamp duty value Rs. 45 lakhs Rs. 48 lakhs - -
of house
property
Cost of electric vehicle - - Rs. 22 lakhs Rs. 18 lakhs
Rate of interest 9% p.a. 9% p.a. 10% p.a. 10% p.a.
Compute the amount of deduction, if any, allowable under the provisions of the Income-tax Act,
1961 for A.Y.2020-21 in the hands of Mr. A, Mr. B, Mr. C and Mr. D. Assume that there has been no
principal repayment during the P.Y.2019-20.

Solution:

Particulars Amount
Mr. A
Interest deduction for A.Y.2020-21
(i) Deduction allowable while computing income under the
head “Income from house property”
Deduction u/s 24(b) Rs.
3,54,750
[Rs. 43,00,000 × 9% x 11/12]
Restricted to 2,00,000
(ii) Deduction under Chapter VI-A from Gross Total Income

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Deduction u/s 80EEA Rs.

1,54,750
(Rs. 3,54,750 –2,00,000) 1,50,000
Restricted to
Mr. B
Interest deduction for A.Y.2020-21
(i) Deduction allowable while computing income under the
head “Income from house property”
Deduction u/s 24(b) Rs.
3,71,250
[Rs. 45,00,000 × 9% x 11/12]
Restricted to 2,00,000
(ii) Deduction under Chapter VI-A
Deduction u/s 80EEA is not permissible since:
(i) loan is taken from NBFC
(ii) stamp duty value exceeds Rs. 45 lakh. Nil
Deduction under section 80EEA would not be permissible
due to either violation listed above.
Mr. C
Deduction under Chapter VI-A
Deduction u/s 80EEB for interest payable on loan taken for 1,50,000
purchase of electric vehicle [Rs. 20 lakhs x 10% x 11/12 = Rs.
1,83,333, restricted to Rs. 1,50,000, being the maximum
permissible deduction]
Mr. D
Deduction under Chapter VI-A
Deduction u/s 80EEB is not permissible since loan was not Nil
sanctioned in the P.Y.2019-20.

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11. Tax Incentives to International Financial

Service Center (IFSC)

WHAT IS AN IFSC?
An international financial services center caters to customers outside the jurisdiction of
domestic economy, dealing with flows of finance, financial products and services across borders

A) Incentive For Investor In Securities Listed In Recognized Stock Exchange in IFSC

Section Exemption/Levy Incentive to Investor

(i) - Levy of STT and CTT Exemption from levy of STT and CTT
The provisions of Chapter VII of Provisions of Chapter VII of the Finance
the Finance (No.2) Act, 2004 (No.2) Act, 2004 providing for levy of
provides for levy of securities STT, not to apply to taxable securities
transaction tax (STT) on transactions entered into by any person
transactions in taxable on a recognized stock exchange located
securities. in IFSC where the consideration for such
transaction is paid or payable in foreign
currency, thereby exempting such
transactions from STT with effect from
1stJune,2016
The provisions of Chapter VII of The provisions of Chapter VII of the
the Finance Act, 2013 provides Finance Act, 2013 providing for levy of
for levy of commodities CTT, not to apply to taxable
transaction tax (CTT) on commodities transactions entered into
transactions in taxable by any person on a recognised
commodities. association located in unit of IFSC where
the consideration for such transaction is
paid or payable in foreign currency,
thereby exempting such transaction
from CTT with effect from 1stJune,2016.

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(ii) 112A Exemption of LTCG uptoRs. 1 Exemption of LTCG upto Rs. 1 lakh and
lakh and taxability @10% on taxability @ 10% on Long term capital
Long term capital gain gain exceeding Rs. 1 lakh even if STT not
exceeding Rs. 1 lakh only if STT paid:
is paid: Section 112A(3) exempts tax on long-
Exemption of income by way of term capital gains upto Rs. 1 lakh and
long term capital gains Rs. 1 subjects long term capital gains
lakh arising from transfer of exceeding Rs. 1 lakh @ 10%, in respect
listed equity shares or listed of income arising from transaction
units of an equity oriented fund undertaken in foreign currency on a
or business trust provided recognised stock exchange located in an
securities transaction tax is paid International Financial Services Centre
at the time of sale and at the even when securities transaction tax is
time of acquisition in certain not paid in respect of such transaction.
cases.
Long term capital gains in excess
of Rs. 1 lakh is subject to tax @
10%, if STT is paid as above.
(iii) 111A Levy of STCG @ 15% if STT is paid Levy of STCG @ 15% even if STT is not
Short term capital gains arising paid
from transfer of listed equity Second proviso to section 111A(1)
shares or listed units of an provides that short term capital gains
equity oriented fund or business arising from transaction undertaken in
trust is taxable at a concessional foreign currency on a recognised stock
rate of 15% provided securities exchange located in an International
transaction tax is paid. Financial Services Centre would be
taxable at a concessional rate of 15%
even when securities transaction tax is
not paid in respect of such transaction.
(iv) 47(viiab) Transfer of specified capital asset by a non-resident on a recognized stock
exchange in any IFSC:
Transfer of the following capital assets by a non-resident on a recognised stock
exchange located in any International Financial Services Centre (IFSC) shall not be
regarded as transfer, where the consideration for such transaction is paid or
payable in foreign currency:
• bond or GDR referred to in section 115AC(1); or
• rupee denominated bond of an Indian company; or
• derivative; or
• other securities notified by the Central Government

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(v) 10(4D) Any income accrued or arisen to, or received by Category I & II AIF as a
result of transfer of Capital Asset referred to in clause [viiab] of section 47,
on a recognized stock exchange located in any International Financial
Services Centre & where the consideration for such transaction is paid or
payable in convertible foreign exchange, to the extent such income
accrued or arisen to, or is received in respect of units held by a non-
resident.

B) Incentive For Units situated in IFSC:

(i) 115JB MAT levy @ 15%: Concessional rate of MAT @ 9%:
In case of a company, if the Sub-section (7) of section 115JB provides
tax payable on the total that in case of a company, being a unit
income as computed under located in International Financial
the Income-tax Act, is less Services Centre and deriving its income
than 15% of its book profit, solely in convertible foreign exchange,
such book profit shall be the minimum alternate tax shall be
deemed to be the total chargeable at the rate of 9% instead of
income of the company and 15%.
the Minimum Alternate Tax
(MAT) payable by the
company for the relevant
previous year shall be 15% of
such book profit.
(ii) 115JC AMT levy @ 18.5%: Concessional rate of AMT @ 9%:
Where the regular income- Sub-section (4) has been inserted in
tax payable by a person, section 115JC to provide that where the
other than a company, person subject to AMT is a unit located
computed under Income-tax in International Financial Services Centre
Act, 1961 is less than the and deriving its income solely in
AMT payable, then adjusted convertible foreign exchange, the
total income would be alternate minimum tax shall be
deemed to be the total chargeable at the rate of 9% instead of
income of the person and 18.5%.
such person shall be liable
to pay income-tax on the
adjusted total income @
18.5%.
(iii) 115-O Levy of DDT @ 15%: Exemption from levy of DDT:
Additional income-tax Sub-section (8) of section 115-O provides
@15% is attracted on any that no tax on distributed profits shall
amount declared, distributed be chargeable in respect of the total
or paid by a domestic income of a company being a unit

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company by way of located in International Financial

dividends. Services Centre, deriving income solely
in convertible foreign exchange, for any
assessment year on any amount
declared, distributed or paid by such
company, by way of dividends (whether
interim or otherwise) on or after 1st
April, 2017 out of its current income,
either in the hands of the company or
the person receiving such dividend.
Further, any dividend paid out of income
accumulated as a unit of International
Financial Services Centre after 1st April,
2017 shall not be liable for tax on
distributed profits either in the hands of
the company or the person receiving
such dividend
(iv) 115-R Levy of tax on distributed Exemption from of tax on distributed
profits profits
Additional income-tax is No additional income-tax shall be
attracted on any amount of chargeable in respect of any amount of
income distributed by income distributed on or after 1st
specified company or mutual September, 2019 by a specified Mutual
fund to its unit holders. Fund, out of its income derived from
transactions made on a recognised
stock exchange located in any
International Financial Services Centre
and where the consideration for such
transaction is paid or payable in
convertible foreign exchange.
(v) 80LA Deduction in respect of Deduction@100% of profits increased
certain income of off shore to 10 consecutive assessment years out
banking units and IFSC of 15 consecutive assessment years.
Deduction@100% of such Section 80LA has been amended to
income of offshore banking provide 100% deduction in respect of
unit in a SEZ is allowed for 5 income of unit of IFSC from its business
consecutive assessment which is approved for setting up in SEZ
years. Thereafter, 50% of for any 10 consecutive assessment years
such income is allowable as at the option of the assessee, out of 15
deduction for the next 5 assessment years, beginning with the
consecutive assessment assessment year relevant to the previous
years. year, in which the permission under

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section 23(1)(a) of the Banking

Regulation Act, 1949 or permission or
registration under the SEBI Act, 1992 or
any other relevant law was obtained.
(vi) 115A Special rate of tax on Section 115A(4) has been amended to
dividend and interest provide that such condition of non-
income in case of non- availability of deduction under
corporate non-resident and section80LA shall not be applicable
foreign company. to deduction allowed to a unit of
Section 115A(1) provides IFSC i.e., a unit of an IFSC can claim
special rate of tax on, inter deduction under section 80LA against
alia, interest and dividend
interest and dividend income
income arising to non-
specified therein.
corporate non-resident and
foreign company.
Section 115A(4) prohibits any
deduction under chapter VI-
A from such income.
C) Incentive for Non -resident giving loan to the units situated in IFSC:
Section 10(15)(ix):Any income by way of interest payable to a non-resident by a unit located in an
International Financial Services Centre in respect of monies borrowed by it on or after the 1st day of
September, 2019 is exempt from tax.
D) Exemption to File ROI: Section 139(1C) FA 2019:
A non-corporate non-resident OR a foreign company having any income (
other than business income) chargeable under the Act during a previous year from any investment fund
(Cat. I or Cat. II AIF) set up in an IFSC located in India, shall be exempt to furnish ROI u/s 139(1)
(however this exemption is not available for a ROI required to be filed under other provision of the Act),
provided that the TDS in respect of such income has been deducted and remitted to CG by such
Investment Fund and there is no other income during the previous year for which the person is
otherwise liable to file the ROI.

Example
HSBC Hong kong undertake its banking business in India through its various branches in India, including
a branch in IFSC. All the consideration received by IFSC unit is in foreign currency. It furnishes the
following information based on which you are suppose to calculate its tax liability (Including MAT);
Particulars IFSC Branch Other Branch
1) Profit before taxation Rs. 50 Lakhs Rs. 300 Lakhs
(Out of the above profits, Rs. 30 lakhs and Rs. 80
lakhs represents interest income on monies
borrowed by Indian concern in foreign currency from
IFSC Branch and other Branches respectively)
2) Provision for NPA as per the prudential norms Rs. 10 lakhs Rs. 30 lakhs
Other Information:

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Particulars As per Books As per Income tax laws

1) B/f loss for A.Y. 2019-2020 (Rs.20 lakhs) (Rs. 30 lakhs)
(the loss pertains only to Non-IFSC unit)
2) UAD of A.Y. 2019-2020 Rs. 5 lakhs Rs. 10 lakhs

Solution:
Computation of Total Income & Tax Liability as per Normal Provision:

Particulars Amount (Rs. in Lakhs)

Net Profit As per Books 350

Add: Provision for NPA as per prudential Norms 40
Less: Provision for Bad debts u/s 36(1)(viia) (17.5)
(5% of {390 Lakhs-30 Lakhs-10Lakhs})
372.5
Less: Brought Forward Business Loss u/s 72(2) (30)
Less: UAD u/s 32(2) (10)
Gross Total Income 332.5
Less: Chapter VIA:
Deduction u/s 80LA:
Profit derived from the eligible business*100%(W.N..1) (57)
Total Income 275.5
Tax Liability
On Rs. 80 Lakhs Tax U/s 115A @ 20% 16
On Balance total Income(275.5 lakhs-80lakhs)@40% 78.2
94.2
Add: surcharge @2% 1.88
Add: Cess@4% 3.84
Total Tax Liability 99.92

Calculation of Book Profit & MAT

Particulars Amount (Rs. in Lakhs)
Net Profit as per Books 350
Less: Brought forward loss or UAD as per Books whichever is less (5)
Book Profit 345
MAT@ 9% 4.5
MAT @15% on (345 Lakhs-50 Lakkhs=295 Lakhs) 44.25
48.75
Add: surcharge @2% 0.975
Add: Cess@4% 1.989
Total MAT Liability 51.714
Working Note 1:
Particulars Amount (Rs. in Lakhs)
Profit Before Tax 50
Add: Provision for NPA as per Books 10
Less: Provision for NPA u/s 36(1)(viia) (3)
Profit derived from the eligible business 57

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Notes:

1) Section 115A(4) has been amended to provide that such condition of non- availability of
deduction under section80LA shall not be applicable to deduction allowed to a unit of IFSC
i.e., a unit of an IFSC can claim deduction under section 80LA against interest and dividend
income specified therein." Accordingly in the present case Rs. 30 lakhs being the interest
income derived by IFSC which is chargeable u/s 115(4) will qualify for deduction u/s 80LA.
2) It is assumed that the profit before taxation as after deducting the provision for NPA as per
prudential norms.
3) The deduction u/s 80LA is in respect of the profit derived by the banking business of the
eligible unit in IFSC which is included in the GTI. The other branch has brought forward loss
and UAD which is fully adjusted against it's current year profit. Accordingly such losses will
not have any impact while calculating the profit derived from the eligible business in the IFSC
for the purpose of the deduction in section 80LA in working note 1.
4) As per section 115JB In computing the book profit, the brought forward loss or UAD as per
books whichever is less shall qualify for deduction.

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12. Assessment Procedure

1) Inter-changeability of PAN with the Aadhaar Number FA 2019

a) Furnishing of documents for application of PAN:

Every person who is required to furnish or intimate or quote his PAN may furnish or intimate or quote his
Aadhaar Number in lieu of the PAN w.e.f. 1.9.2019 if he;

• has not been allotted a PAN but possesses the Aadhaar number
• has been allotted a PAN and has intimated his Aadhaar number to prescribed authority in
accordance with the requirement contained in section 139AA(2) [Sub-section (5E)]

PAN would be allotted in prescribed manner to a person who has not been allotted a PAN but possesses
Aadhaar number.

Note:

Rule 114(4) requires submission of application for allotment of PAN by the applicant in the prescribed form
accompanied by the prescribed documents as proof of identity, address and date of birth of such applicant.
Sub-rule (1A) has been inserted in Rule 114 w.e.f. 1.9.2019 to provide that any person, who has not been
allotted a PAN but possesses the Aadhaar number and has furnished or intimated or quoted his Aadhaar
number in lieu of the PAN in accordance with section 139A(5E), shall be deemed to have applied for
allotment of PAN and he shall not be required to apply or submit any documents under Rule 114.

Further, sub-rule (1B) has been inserted in Rule 114 w.e.f. 1.9.2019 to provide that any person, who has not
been allotted a PAN but possesses the Aadhaar number may apply for allotment of the PAN under section
139A(1)/(1A)/(3) by intimating his Aadhaar number and he shall not be required to apply or submit any
documents under Rule 114.

b) Quoting and Authentication of PAN or Aadhaar Number FA 2019:

Section 139A, inter alia provides that every person specified therein, who has not been allotted a PAN, shall
apply to Assessing Officer for allotment of PAN.

• To ensure ease of compliance, modifications have been made to provide for inter-changeability of PAN
with the Aadhaar number. For this purpose, provisions of section 139A have been amended (with
effect from September 1, 2019) as follows-

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1. Every person who is required to furnish or intimate or quote his PAN under the Act, and who has
not been allotted a PAN but possesses the Aadhaar number, may furnish or intimate or quote his
Aadhaar number in lieu of PAN, and such person shall be allotted a PAN in the prescribed
manner.
2. Every person who has been allotted a PAN, and who has linked his Aadhaar number under
section 139AA, may furnish or intimate or quote his Aadhaar number in lieu of a PAN

• Section 139A, inter alia, provides that every person, receiving a document relating to a transaction for
which PAN is required to be Quoted, shall ensure that the PAN has been duly quoted therein. This
provision has been amended (with effect from September 1, 2019) to provide that every person
receiving such documents shall also ensure that the PAN or the Aadhaar number, as the case may be,
has been duly quoted. Moreover, sub-section (6A) has been inserted in section 139A (with effect from
September 1, 2019) to ensure quoting of PAN or Aadhaar number for entering into prescribed
transactions and authentication thereof in the prescribed manner. Moreover, sub-section (6B) has
been inserted to provide that the person receiving any document relating to such transactions, shall
ensure that PAN/ Aadhaar number is duly quoted and authenticated.

Rationale of amendment:

In many cases, person entering into high value transaction (such as purchase of foreign currency
or huge withdrawal from the banks), do not possess a PAN. In order to keep an audit trail of such
transactions, for widening and deepening of the tax base, new clause(vii) has been inserted ( with
effect from September 1,2019) in section 139A(1) so as to provide every person, who intends to
enter into certain prescribed transactions and has not been allotted a PAN, shall also apply for
allotment of a PAN.

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2) Section 272B: Penalty for Failure to Comply with the Provisions

of Section 139A

Section Default Penalty

272B(2A) Failure to quote PAN/Aadhaar 10,000 for each such default

Number in documents section
Inserted with effect from
139A(6A) or authenticate such
1.9.2019 each such number in
accordance with the provisions
contained therein .

272B(2B) inserted w.e.f. Failure to ensure that 10,000 for each such default
1.9.2019 PAN/Aadhaar Number is duly
quoted in the documents
relating to transactions
referred to in section
139A(5)(c) or section 139A(6A)

Failure to ensure that

PAN/Aadhaar Number has

default been duly

authenticated in respect of
transactions referred to under
section 139A(6A)

Note- It is necessary to give an opportunity to be heard to the person on whom the penalty under
section 272B is proposed to be imposed.

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3) Section 139AA: Aadhaar number

Section 139AA(2) provides that the PAN allotted to a person shall be deemed to be invalid, in case the
person fails to intimate the Aadhaar number, on or before the notified date(31-12-2019).

In order to protect validity of transactions previously carried out through such PAN, the scheme of section
139AA has been modified (with effect from September 1,2019) to provide that if a person fails to intimate
the Aadhaar number, the PAN allotted to such person shall be made inoperative in the prescribed manner.

4a) Penalty for Furnishing Inaccurate Statement of Financial

Transaction or Reportable Account [Section 271FAA]
Section 271FAA relates to penalty for furnishing inaccurate statement of financial transaction or
reportable account under section 285BA.
The said section, prior to its amendment, inter alia provided for penalty of a sum of Rs. 50,000 if a
person referred to in section 285BA(K) furnished inaccurate information in the statement. [Section
285BA(K) : a Prescribed reporting financial Institutions]

The said section has been amended with effect from 01.09.2019 by deleting references to clause (k).
In other words section 271FAA now extends the penalty for furnishing inaccurate information in the
statement to all the person referred to in section 285BA(1). The said list, apart from assessee, includes
various Government officers such as Registrar under section 6 of the Registration Act, 1908, Post
Master General under section 2(j) of the Indian Post Offices Act, 1898 and so on.

4b) Obligation to furnish statement of financial transactions or

reportable account (Section 285BA)
Section 285BA, inter alia, provides for furnishing of statement of financial transaction (SFT) or reportable
account by person specified therein. Following amendments have been made to the said section with
effect from 01.09.2019.
a) Section 285BA(1) inter alia specifies the persons who are required to furnish statement in respect of
SFT or reportable account. Section 285A(1) (l) is inserted to provide that apart from those persons
referred to in clause (a) to (k) of the said section, the CBDT may prescribe any other person and a
person , if so prescribed, shall also be required to furnish a statement under the said section.
b) Section 285BA(3) defines SFT to mean any transaction of the type mentioned in section 285BA(a) to
section 285BA(e) as may be prescribed. Second proviso to section 285BA(3) of the said section
specifies that the value or aggregate value of prescribed transaction during a financial year shall not

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be less than Rs.50,000. In other words, information was required to be furnished only in respect
transactions with aggregate value of Rs.50,000 or more. The said proviso has been omitted.
c) As per memorandum explaining the provisions of the Finance (No2) Bill, 2019 this threshold has been
removed with a view to ensure filing of information relating to small account of transactions as well.
d) Section 285BA(4) inter alia provides that if a defect in the statement is not rectified within the time
specified therein, the statement shall be treated as invalid. The said sub section has been amended to
provide that if the defect in the statement is not rectified within the time specified therein, the
provisions of the Act shall apply as if such person had furnished inaccurate information in the
statement. Consequent to the above, the penalty provisions contained in section 271FAA have been
amended so as to ensure correct furnishing of information in the SFT and widen the scope of penalty
to cover all the reporting entities under section 285BA.

5) Section 139: Mandatory Furnishing of Return of Income by

Certain Person FA 2019

• High value transactions- Currently, a person (other than a company or a firm) is required to furnish the
return of income only if his total income exceed the maximum amount not chargeable to tax, subject to
certain exceptions. Therefore, a person entering into certain high value transaction is not necessarily
required to furnish his return of income. In order to ensure that persons who enter into certain high
value transactions do furnish their return of income, section 139 has been amended with effect from
April 1,2020 ( i.e., from the assessment year 2020-21 onward). A person (other than a company or a firm)
shall be mandatorily required to file his return of income, if during the previous year, he;
a) Has deposited an amount ( or aggregate of the amounts ) exceeding Rs. 1 crore in one or more
current account maintained with a banking company or a co-operative bank ; or
b) Has incurred expenditure of an amount (or aggregate of the amounts ) exceeding Rs. 2 lakh for
himself or any other person for travel o a foreign country; or
c) Has incurred expenditure of an amount (or aggregate of the amounts ) exceeding Rs. 1 lakh towards
consumption of electricity; or
d) Fulfil such other prescribed conditions, as may be prescribed
• Persons claiming exemption under sections 54, 54B, etc.- Currently, a person claiming rollover benefit of
exemption from capital gains tax on investment in specified assets like house, bonds, etc., is not required
to furnish a return of income, if after claim of such rollover benefits, his total income is not more than the
exemption limit. In order to make furnishing of return compulsory for such persons, sixth proviso to
section 139(1) has been amended with effect from Assessment year 2020-21onwards. Impact of sixth
proviso is given below.

Who is covered by sixth proviso Individual/HUF/AOP/BOI/artificial juridical person`

When return is required to be submitted on If total income (or net income or taxable income)
exceed the exemption limit without claiming the

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compulsory basis following exemptions or deductions-

(1) Deduction under section 10A, 10B, 10BA,

80C to 80U.
(2) Exemption under section 10(38) [applicable
only for the assessment years 2017-18 and
2018-19].
(3) Exemption under sections 54, 54B, 54D,
54EC, 54F, 54G,54GA and 54GB[applicable
from the assessment year 2020-21 onwards]

Example:
Smt. Kanti engaged in the business of growing, curing, roasting and grounding of coffee after mixing
chicory had a total income of Rs. 6,00,000 from this business which was her only source of income during
the year ended on 31.3.2020. She consults you to have an opinion whether she is required to file return of
income for the A.Y. 2020-21 as per provisions of section 139(1).
Would your answer change if she had travelled to USA during the P.Y 2019-20 and incurred Rs. 2.20 Lakhs
for the same?
Solution:

The clarification regarding filing of return of income by the coffee growers being individuals covered by
Rule 7B of the Income-tax Rules, 1962 is given in Circular No.10/2006 dated 16.10.2006. According to
the Circular, an individual deriving income from growing, curing, roasting and grounding of coffee with
or without mixing chicory, would not be required to file the return of income if the aggregate of 40% of
his or her income from growing, curing, roasting and grounding of coffee with or without mixing chicory
and income from all other sources liable to tax in accordance with the provisions of this Act, is equal to
or less than the basic exemption limit prescribed in the First Schedule of the Finance Act of the relevant
year.
In this case, Smt. Kanti has a total income of Rs. 6, 00,000 from this business, which was her only source
of income for P.Y.2019-20. 40% of her total income works out to Rs. 2,40,000, which is less than the
basic exemption limit of Rs. 2,50,000 in respect of an individual assessee. Therefore, Smt. Kanti is not
required to file a return of income for the A.Y.2020-21ss as per the provisions of section 139(1).
If smt. Kanti had travelled to USA during the P.Y 2019-20 and incurred Rs. 2.20 Lakhs on such travel,
she would be required to mandatorily file a return of income for the A.Y 2020-21 on or before the
due date u/s139(1, even though her total income does not exceed the basic exemption limit.[FA
2019]

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6) Scheme to be Notified by the CG for Greater Efficiency,

Transparency and Accountability – Section 143(3A)/(3B)/(3C)

E assessment scheme

In exercise of the powers conferred by sub-section (3A) of section 143 of the Income-tax Act, 1961 (43
of 1961), the Central Government hereby makes e assessment scheme as per notification 61/2019
dated 12.9.2019.
Scope: The assessment under this Scheme shall be made by the Board in respect of:
1. such territorial area, or
2. persons or class of persons, or
3. incomes or class of incomes, or cases or
4. class of cases, as may be specified.

Hierarchy of E-assessment centers may be set up by the Board:

National e-assessment Centre:

Scope: To facilitate the conduct of e-assessment proceedings in a centralised manner,
which shall be vested with the jurisdiction to make assessment.

Regional e-assessment Centre:

Scope: To facilitate the conduct of e-assessment proceedings in the cadre controlling
region of a Principal Chief Commissioner, which shall be vested with the jurisdiction to
make assessment. (eg: Delhi, Mumbai, Chennai etc.)

Assessment unit Verification unit Technical unit Review unit

Additional points:
1. All communication among the assessment unit, review unit, verification unit or technical
unit or with the assesse with respect to the information or documents or any other details,
for the purposes of making an assessment shall be through the National e-assessment
Centre.
2. All the units shall have authorities of Additional CIT/Additional DIT/JCIT/JDIT as the case may be;
DCIT/DDIT/ACIT/ADIT or of such other Income Tax Authority as the Board may consider
necessary.
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Assessment unit:
Scope:
To perform the function of making assessment, which includes:
• identification of points or issues material for the determination of any liability or refund
under the Act,
• seeking information or clarification on points or issues so identified,
• analysis of the material furnished by the assessee or any other person, and
• such other functions
Verification unit:
Scope:
To perform the function of verification, which includes:
• enquiry,
• cross verification,
• examination of books of accounts, witnesses and recording of statements, and
• such other functions
Technical unit:
Scope:
To perform the function of technical assistance, which includes:
• any assistance or advice on legal, accounting, forensic, information technology, valuation,
transfer pricing, data analytics, management or
• any other technical matter
Review unit:
Scope:
To perform the function of review of the draft assessment order, which includes checking:
• whether the relevant and material evidence has been brought on record,
• whether the relevant points of fact and law, the issues on which addition or disallowance
made should be duly incorporated in the draft order,
• whether the applicable judicial decisions have been considered and dealt with in the
draft order, checking for arithmetical correctness of modifications proposed, and
• such other functions

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E Assessment procedure

 National e assessment centre (NEC) shall serve notice u/s 143(2), specifying the issues for selection
of his case to the assessee
 NEC shall assign the case through automated allocation system to assessment unit of any one
regional e assessment centre (REC)
 Assessment unit may request to NEC for:
a) obtaining such other information, documents from assesse or any other person
b) conduct of certain enquiry or verification by verification unit
c) seeking technical assistance from technical unit
 On receipt on request of assessment unit, NEC shall:
a) issue notice or requisition to assessee or any other person
b) assign request to verification unit through automated allocation system
c) assign request to technical unit
 The assessment unit shall, after taking into account all the relevant material available on the record,
make a draft assessment order with penalty proceedings to be initiated either accepting the returned
income of the assessee or modifying the same, as the case may be, and send a copy of such order to
the NEC;
 The NEC shall examine the draft assessment order in accordance with the risk management strategy
specified by the Board, including by way of an automated examination tool, whereupon it may decide
to –
a) finalise the assessment as per the draft assessment order and serve a copy of such order and
notice of demand of sum payable or refundable as per such assessment along with initiating
penalty proceedings; or
b) provide an opportunity to the assessee, in case a modification is proposed, by serving a show
cause notice; or
c) assign the draft assessment order to a review unit in any one REC, through an automated
allocation system, for conducting review of such order;
 review unit shall conduct review and may concur or suggest modification of such order to NEC;
 i. NEC on receipt of concurrence from review unit shall finalise the order or provide opportunity of
being heard to the assesse as per Step 6 point (a) or (b);
ii. NEC on receipt of suggestion or modification from review unit communicate it to assessment unit;
 Assessment unit after considering suggestions and modification of review unit send final draft
assessment order to NEC;
 NEC on receipt of final draft order from assessment unit shall finalise the order or provide
opportunity of being heard to the assesse as per Step 6 point (a) or (b); if procedure as per point (b) is
followed then assesse may file response to show cause notice to NEC within time limit specified;
 I. NEC on non receipt of response from the assesse finalise order as per step 6 point (a)
II. NEC on receipt of reply from the assesse send it to the assessment unit and assessment unit after
considering such response make revised draft assessment order and send it to the NEC
 NEC upon receiving revised draft assessment order:

a) if modification of order is not prejudicial to the interest of the assesse then, finalise order as per
step 6 point (a)

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b) if modification of order is prejudicial to the interest of assesse then, provide opportunity of being
heard to the assesse as per step 6 point (b) and if response of the assesse is received then should
be dealt with as per point II of step 11.
 NEC shall, after completion of assessment, transfer all the electronic records of the case to the
jurisdictional AO, for –
(a) imposition of penalty;
(b) collection and recovery of demand;
(c) rectification of mistake;
(d) giving effect to appellate orders;
(e) submission of remand report, any other report or any representation to be made, or any record
to be produced before the CIT(A), ITAT or Courts, as the case may be;
(f) proposal seeking sanction for launch of prosecution and filing of complaint before the Court;
 Notwithstanding anything contained in step 13, the NEC may at any stage of the assessment, if
considered necessary, transfer the case to the jurisdictional AO
General points:
• All the communication of NEC to assessee or other person and internal communication between
NEC, REC and their units shall be exchanged by electronic mode and all electronic record should be
authenticated by digital signature of the originator.
• Every notice or order under the scheme delivered to the assessee by:
a. placing an authenticated copy thereof in the assessee's registered account; or
b. sending copy to registered mail id of the assesse or his authorized representative; or
c. uploading it on assessee’s mobile app; and followed by real time alert.
Assessee shall file response to such notice from his registered account.
• No personal appearance in any centre or unit is allowed however, opportunity of being heard given
in any steps referred above to the assesse then, he may seek personal hearing and, such hearing
shall be conducted by video conferencing including any telecommunication software which support
video telephony.
• Any examination or recording of statement of assesse or any other person (other than statement
recorded in survey u/s 133A) shall be by video conferencing including any telecommunication
software which support video telephony.
• Board shall establish such facilities of video conferencing for the benefit of the assesse or other
person if it is necessary to do so.
• The PCCIT or the PDG, in charge of the NEC shall lay down the standards, procedures and processes
for effective functioning of the NEC, REC and their units, in an automated and mechanised
environment, including format, mode, procedure and processes in respect of the following,
namely:
a) service of the notice, order or any other communication;
b) receipt of any information or documents from the person in response to the notice, order or
any other communication;
c) issue of acknowledgment of the response furnished by the person;
d) provision of “e-proceeding” facility including login account facility, tracking status of
assessment, display of relevant details, and facility of download;
e) accessing, verification and authentication of information and response including documents
submitted during the assessment proceedings;
f) receipt, storage and retrieval of information or documents in a centralised manner;
g) general administration and grievance redressal mechanism in the respective Centres and units.

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Penalty for non compliance:

(1) Any unit may, in the course of assessment proceedings, for non- compliance of any notice,
direction or order issued on the part of the assessee or any other person, send
recommendation for initiation of any penalty proceedings under Chapter XXI of the Act,
against such assesse or any other person, as the case may be, to the NEC, if it considers
necessary to do so.
(2) The NEC shall, on receipt of such recommendation, serve a show cause notice on the assessee
or any other person, as the case may be.
(3) The response to show - cause notice furnished by the assessee or any other person, if any,
shall be sent by the NEC to the concerned unit.
(4) The said unit shall, after taking into consideration the response furnished by the assesse or
any other person, as the case may be, -
(a) make a draft order of penalty and send a copy of such draft to NEC; or
(b) drop the penalty after recording reasons, under intimation to the NEC.
(5) The NEC shall levy the penalty as per the said draft order of penalty and serve a copy of the same
on the assessee or any other person, as the case may be.

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13. Other Penalties & Prosecution

1) Section 270A- Penalties for Under-reporting & Mis-reporting

• Provision:
Section 270A contains provisions relating to penalty for under-reporting and misreporting of income. The
existing provisions provide for various situations for the purposes of levy of penalty under this section.

• Amendment:
However, these provisions do not contain the mechanism for determining under-reporting of income and
quantum of penalty to be levied in the case where the person has under-reported income and furnished
the return of income for the first time under section 148. Therefore to overcome the above situation
below amendment has been made:-
The aforesaid provisions of section 270A have been amended (with retrospective effect from April 1,
2017) to provide for manner of computing the quantum of penalty in a case where the person has under-
reported income and furnished his return for the first time under section 148.

Rationale of amendment:

These provisions did not contain the mechanism for determining under-reporting of income and
quantum of penalty to be levied in the case where the person has under-reported income and
furnished the return of income for the first time under section 148.

Section 269SU- Mandating Acceptance of Payments through Prescribed

Electronic Modes (w.e.f 01.11.2019)

New Section has been inserted:

• Provision:
Every person, carrying on business, shall, arrange facility for accepting payment through the prescribed
electronic modes, in addition to the facility for other electronic modes of payment, if any, being provided
by such person.

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However, this provision is applicable only if total sales, turnover or gross receipts of the person in
business exceed Rs. 50 crores during the immediately preceding previous year.

• Effects of Failure: In order to ensure compliance of the aforesaid provisions, section 271DB has been
inserted with effect from November 1, 2019. It provides that the failure to provide facility for electronic
modes of payment prescribed under section 269SU, shall attract penalty of a sum of Rs. 5,000, for every
day during which such failure continues.
However, the penalty shall not be imposed if the person proves that there were good and sufficient
reasons for such failure. Any such penalty shall be imposed by the Joint Commissioner.

Rationale of amendment:

This section is inserted in order to achieve the mission of the Govt to move towards a less
cash Economy to reduce generation & circulation of Black money & to promote Digital Economy.

Section 276CC- Prosecution for failure to furnish return in certain cases

• Amendment:
In order to rationalise the aforesaid provisions of
section 276CC, the following amendment have been
made with effect from the assessment year 2020-21
– SNIPPET:
i. The aforesaid threshold ceiling of Rs. 3,000
has been increased to Rs. 10,000. Threshold limit of income has increased
ii. The threshold ceiling of Rs. 10,000 shall be
calculated as follows – from Rs.3,000 to Rs.10,000. And for
(a) Tax payable by the defaulter (not being a Computation of above threshold TCS &
company) on total income determined Self- assessment are now considered.
on regular assessment
(b) Less: Advance tax or self-assessment tax
paid before the expiry of assessment
year.
(c) Less: Tax deducted or collected at source.
If the balance is Rs. 10,000 or less, section 276CC will not be applicable.

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Rationale of amendment:

Section 276CC, inter alia, provides that prosecution proceedings for failure to furnish returns of
income against a person shall not proceeded against, for failure to furnish the return of income in
due time, if the tax payable by such person(not being a company), on the total income determined
on regular assessment does not exceed Rs. 3,000. For determining this monitoring ceiling, tax credit
pertaining to TCS/self-assessment tax is not considered.

Example:
The Assessing Officer lodged a complaint against M/s. KLM, a firm, under section 276CC of the Income-
tax Act, 1961 for failure to furnish its return of income for the A.Y.2020-21 within the due date under
section 139(1). The tax payable on the assessed income, as reduced by the advance tax paid and tax
deducted at source, was Rs. 60,000. The appeal filed by the firm against the order of assessment was
allowed by the Commissioner (Appeals). The Assessing Officer passed an order giving effect to the
order of the Commissioner (Appeals). The tax payable by the firm as per the said order of the Assessing
Officer was Rs. 1,000. The Assessing Officer has accepted the order of the Commissioner (Appeals) and
has not preferred an appeal against it to the Income Tax Appellate Tribunal. The firm desires to know
of the maintainability of the prosecution proceedings in the facts and circumstances of the case.
Would your answer change if the person against whom complaint was lodged was KLM Ltd.,a
company, instead of a firm?

Solution:

Section 276CC of the Income Tax Act, which deals with prosecution for failure to furnish returns of
income provides as under:
1) Failure to file ROI within the time allowed in a notice under section 142(1)/ 148/ 153A
-PROSECUTION WILL BE THERE
2) Failure to file ROI within the time allowed under section 139(1)
-PROSECUTION WILL BE THERE
Exceptions

If ROI filed before the If ROI filed after the

expiry of the relevant AY In case of person other than expiry of the relevant AY
company:
Tax on Income Assessed
No prosecution In case of Company:
Less: TDS/TCS XXX
whatever may be the Prosecution will be there
Less: Advance tax XXX
amount of income tax Less: Self assessment even if no tax is payable.
payable. Tax paid before
The end of the AY XXX
Balance Rs. 10,000 or less
NO PROSECUTION

In the present question, in view of the aforesaid provision the prosecution proceedings against KLM
are not maintainable since tax payable by firm is Rs. 10,000 or less.

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14. Trust Taxation, Institution and Political

Parties

1) Section 10(23C)- Exemptions in respect of income of certain

Trusts/Funds/Institution

• Provision:
An exemption is available in respect of any income received by any person on behalf of the specified
entities as per section 10(23C), after making an online application to the prescribed authority. Before
providing the approval prescribed authority may call for any such documents which it may consider
necessary in order satisfy the genuineness of activities.

• Amendment:
i. Prescribed authority has been empowered to satisfy himself about the Compliance to
requirements of any other law which is material for the purpose of achieving its objects.
ii. Enquiry at the time of rescinding of notifications:
Where a trust or an institutions has been granted approval under the aforesaid provisions and,
subsequently, it is noticed that the trust or institutions has violated requirements of any other law
which was material for the purpose of achieving its objects, and the order (or direction or decree),
holding that such violation has occurred , has not been disputed (or has attained finality), the
prescribed authority /central government may, rescind the notifications or withdraw the approval
and forward a copy of the order rescinding the notification or withdrawing the approval to such fund
or institutions or trust or university, etc, to the Assessing officer.

2) Section 12AA- Procedure for Registration

• Provision:
Section 12AA provides about the manner in which the Registration of Trust or Institution will carried out
for the purpose of availing of exemption under sec 11.

• Amendment:
Principal Commissioner or Commissioner shall also satisfy himself about the Compliance to
requirements of any other law which is material for the purpose of achieving its objects at time of
granting registration.

• Provision:
Further it also provides procedure for cancellation of registration by Principal Commissioner or
Commissioner on the basis of the following grounds after giving a reasonable opportunity of being heard:

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a. the activities of such Trust or Institution

are not genuine; or
b. the activities are in contravention of the
objects; or SNIPPET:
c. its income does not ensure for the benefit
of general public; or 1. During granting registration, PCIT/CIT
d. it is for the benefit of any particular also satisfy compliance to any other law
religious community or caste (in case it is
established after the commencement of which has material effect on object of
this Act); or Trust.
e. any income or property of the trust is 2. If after Registration is granted, there is
applied for the benefit of specified
violation of such any other law which has
persons; or
f. its funds are invested in prohibited material effect on object of Trust, then
modes. PCIT/CIT can pass order for cancellation
of registration.
• Amendment:
Below is addition to the grounds for
cancellation-
Where a trust or an institution has been granted registration under section 12AA(1)(b) and,
subsequently, it is noticed that the trust or institution has violated requirements of any other law which
was material for the purpose of achieving its objects, and the order for direction or decree holding that
such violation has occurred, has not been disputed (or has attained finality), CIT/PCIT may, by an order in
writing, cancel the registration of such trust or institution.

3) Section 13A- Donation to Political Party

• Provision:
No exemption shall be allowed to a political party if it receives donation in excess of Rs. 2,000 otherwise
than by an account payee cheque/draft/ECS.

• Amendment:
Approved Mode of payment now includes other notified electronic modes (i.e. e-wallets, etc).

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15. Special Tax Rates of Companies

1) Rate of MAT

Amendment:
Rate of tax:

For normal companies 15%

For Company located in IFSC 9%

2) Computation of Book Profits

1. Brought forward and unabsorbed depreciation: Aggregate amount of unabsorbed depreciation

and loss brought forward in case of a –
A. company, and its subsidiary and the subsidiary of such subsidiary, where, the Tribunal, on
an application moved by the Central Government under section 241 of the Companies
Act, 2013 has suspended the Board of Directors of such company and has appointed new
directors who are nominated by the Central Government under section 242 of the said
Act;
B. company against whom an application for corporate insolvency resolution process has
been admitted by the Adjudicating Authority under section 7 or section 9 or section 10 of
the Insolvency and Bankruptcy Code, 2016.
It may be noted that loss does not include depreciation.
A company would be a subsidiary of another company if such other company holdsmore than
half in the nominal value of equity share capital of the company.
2. Brought forward loss or unabsorbed depreciation in case of other companies: Amount of
brought forward loss or unabsorbed depreciation, whichever is less, in case of other companies as
per books of account.
The loss shall not include depreciation; If either the figure of brought forward loss or unabsorbed
depreciation is “NIL”, no deduction will be allowed from the book profit of the relevant year;

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3) Table of Section 115BAB, Section 115BAA and Section 115BA

(Ordinance Passed by Parliament)

Particulars Section 115BAB Section 115BAA Section 115BA

(1) Applicability Domestic Any domestic Certain domestic

manufacturing company companies
company (Newly Setup)

(2) Rate of Tax 15% 22% 25%

(3) Effective rate of 17.16%(Surcharge 25.168%(Surcharge 25% +(Surcharge

Tax (including @ 10% always @ 10% always @if applicable)
surcharge included) included)
&cess)

(4) Applicability of The rate of tax The rate of tax (i.e. The rate of tax
concessional (i.e. 17.16%) is 25.168%) is (i.e. 25%) is
rate of tax on Notwithstanding Notwithstanding Notwithstanding
total income of anything anything contained anything
company contained in the in the income tax contained in the
income tax act,1961 but income tax
act,1961 but subject to the act,1961 but
subject provision of subject to the
chapter XII, other provision of
to the provision than section chapter XII, other
of chapter XII,
115BA and 115BAB than section
other than 115BAA and
section 115BA 115BAB.
and 115BAA.

Note – This implies that this rate (i.e.

17.16%/25.168%/25%) would prevail in respect of all
income. Other than income subject to special rates of tax
under chapter XII, for which the special rates would
continue to apply. For example, in case of such companies
opting for section 115BAA, 115BAB and 115BA, long term
capital gains chargeable to tax under section 112 and 112A
and short-term capital gains chargeable to tax under

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section 111A would be subject to tax at the rates

mentioned in the said sections. However, other income, like
short term capital gains (other than those covered under
section 111A), income from house property and income
from other sources would be taxable at the rate of
17.16%/25.168%/25%, as the case may be.

(5) Conditions to be (i) The company NO time limit The company

fulfilled for should be setup specified. Both should be setup
availing the existing companies or registered on
concessional and registered on and new or after
rate of tax and or after companies can 01.03.2016.
exemption from 01.10.2019. avail benefit.
MAT

(ii) It should Need not be a The company

commencing manufacturing should be
manufacturing on company engaged in
or before business of
31.03.2023. Manufacturing or
Production.

(iii) It should not be No Similar No Similar

formed by condition has been condition has
splitting up or the prescribed. been prescribed.
reconstruction of
a business
already in
existence (except
in case of an
undertaking
formed by
reconstruction or
revival of a
person of the
business of any
undertaking
referred to in
section 33B in the
circumstances
and within the

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period specified
therein)

(iv) It does not use No Similar No Similar

any machinery or condition has been condition has
plant previously prescribed. been prescribed.
used for any
purpose [Refer
Note at the end]

(v) It does not use No Similar No Similar

any building condition has been condition has
previously used prescribed. been prescribed.
as a hotel or a
convention
Centre [meanings
assigned in
section 80-ID(6)]

(vi) It should not be No Similar The company is

engaged in any condition has been not engaged in
business other prescribed. any business
than the business other than the
of manufacture business of
or production of manufacture or
any article or production of any
thing and article or thing
research in and research in
relation to, or relation to, or
distribution of, distribution of,
such article or such article or
thing thing
manufactured or manufactured or
produce by it. produced by it.

(6) Common The total income should be computed -

condition for all
sections for (i) Without providing for deduction under any of the following
availing the provisions -
concessional Section Provision
rate of tax and
exemption from 10AA Deduction of profit and gains derived
from export of articles or things or

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MAT from services by an assessee, being an

entrepreneur from his unit in SEZ.

32(1)(iia) Additional depreciation @20% or 35%,

as the case may be, of actual cost of
new plant and machinery acquired and
installed by manufacturing and power
sector undertaking. Not applicable only
on section 115BA.

32AC Deduction to invest considerable

amount in Acquisition and installation
of new plant and machinery. Applicable
only on section 115BA.

32AD Deduction @ 15% of actual cost of new

plant and machinery acquired and
installed by as assessee in a
manufacturing enterprise located in
the notified backward areas of Andhra
Pradesh, Telengana, Bihar and West
Bengal.

33AB Deduction@20% of the profits of a

business of prospecting for, or
extraction or production of, petroleum
or natural gas or both in India, to the
extent deposited with SBI in an
approved scheme or deposited in Site
Restoration Account

35(1)(ii)/(iia)/(iii) Deduction/weighted deduction for

payment any research to association,
company, university etc. for
undertaking scientific research or social
science or statistical research.

35(2AA) Weighted deduction@150% of

payment to a National Laboratory or
University or IIT or approved specified
person for scientific research

35(2AB) Weighted deduction@150% of in-

house scientific research expenditure

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incurred by a company engaged in the

business of biotechnology or in the
business of manufacture or production
of an article or thing

35AC Deduction@100% of payment to a PSU

or a local authority or to an association
or institution approved by the National
Committee for Carrying-out any eligible
project or scheme. Applicable only on
section 115BA

35AD Investment-linked tax deduction for

specified businesses

35CCC Weighted deduction@150% of

expenditure incurred on notified
agricultural extension project.

35CCD Weighted deduction@150% of

expenditure incurred by a company on
notified skill development project

80-IA to 80RRB Deductions from gross total income

under chapter VI-A under the heading
“C – Deductions in respect of certain
incomes” other than the provisions of
section 80JJAA.

Note – Therefore only the deduction

u/s 80JJAA shall be available

Without set-off of any loss carried

forward from any earlier assessment
year, if such loss is attributable to any
of the deductions listed in (i) above
[Such loss would be deemed to have
been already given effect to and no
further deduction for such loss shall be
allowed for any Subsequent year]

By claiming depreciation u/s 32

determined in the prescribed manner.
However, additional depreciation u/s

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32(1)(iia) cannot be claimed.

(ii) Note – A domestic company exercising

option for availing benefit of lower tax
rate under section 115BAA shall not be
allowed to claim set off of any brought
forward loss on account of additional
depreciation for an assessment year
for which the option has been
exercised and for any subsequent
assessment year.

(iii) Since there is no time line within which

option under section 115BAA can be
exercised, a domestic company having
brought forward losses on account of
additional depreciation may, if it so
desires, exercise the option after set of
the losses so accumulated.

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Particulars Section 115BAB Section 115BAA Section 115BA

(7) Applicability of
MAT Not applicable Not applicable applicable

(8) Availability of Since it is a new Brought forward MAT Brought forward MAT
set-off of MAT company, there would credit cannot be set-off credit can be set-off
credit brought be no brought against income u/s against income u/s 115BA.
forward from forward MAT credit 115BAA.
earlier years.

(9) Adjustments If the assessing officer No such requirement to No such requirement to

for transactions opines that the course make any adjustment. make any adjustment.
with persons of business between
having close the company and any
connection other person having
close connection
therewith is so
arranged that the
business transected
between them
produces more than
the ordinary profits to
the company, he is
empowered to take
into account the
amount of profits as
may be reasonably
deemed to have been
derived there from,
while computing
profits and gains of
such company.

In case the
arrangement referred
to above involves a
specified domestic
transaction referred
to in section 92BA,
then, the amount of
profits from such
transaction would be

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determined by
considering the arm’s
length price (ALP).

Note – The extent of

“specified domestic
transaction” referred
to in section 92BA has
been expended to
include within it’s
field, any business
transected between
such persons with
close connection,
where one such
person is a company
claiming under section
115BAB.

(10) Exercise of The provisions of this The provisions of this The provision of this
option by the section would apply if section would apply if section would apply if
company beneficial owner beneficial owner would beneficial owner would
within the would exercised in the exercised in the exercised in the
prescribed time prescribed manner on prescribed manner on or prescribed manner on or
or before the due before the due date before the due date
date u/s 139(1) for u/s139(1) for furnishing u/s139(1) for furnishing
furnishing the first the return of income for the return of income for
return of income for any previous year any previous year relevant
any previous year relevant to A.Y.2020-21 to A.Y. 2020-21 or any
relevant to A.Y.2020- or any following A.Y.. following A.Y.
21 or any following
A.Y. Once above Once above option Once above option
option exercised, it exercised, it would apply exercised, it would apply
would apply to to subsequent to subsequent assessment
assessment years. years.
subsequent
assessment years. Further, once option Further, once exercised
Further, once option exercised for any for any previous year,
exercised for any previous year, then it then it cannot be
previous year, then it cannot be withdrawn for withdrawn for the same
cannot be withdrawn the same or any other or any other previous
for the same or any previous year. year.

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other previous year. Note – The option can be Note - The company once
exercised even in a later exercised the option for
Note – The option has
year, but once exercised, any previous year, then it
to be exercised at the then it cannot be cannot be withdrawn for
time of furnishing the withdrawn. the same or any other
first of the returns of previous year.
the income for any
previous year, if a Further, where the person
person fails to so exercise option under
exercise such option, section 115BAA, the
then it cannot option under section
exercise the option for 115BA may be withdrawn.
any subsequent
previous year.

Domestic Company
Note – In relation to point no.5(iv) in column (3) of the above table, any machinery or plant which was used
outside India by any other person shall not be regarded as machinery or plant previously used for any
purpose, if all the following conditions are fulfilled, that is: -
(a) Such machinery or plant was not, at any time before the date of installation by the person, used in
India;
(b) Such machinery or plant is imported into India from any other country;
(c) Deduction not granted on account of depreciation in respect of such machinery or plant has been
permitted or is permissible under provisions of the income- tax act, 1961 in computing the total
income of any person for any period before to the date of installation of the machinery or plant by
the person.
Further, where in the case of a person, any machinery or plant or any part there of previously used for any
purpose is put to use by the company and the total value of the machinery or plant or part so transferred
does not exceed 20% of the total value of machinery or plant used by the company, then , the condition
specified that the company does not use any machinery or plant previously used for any purpose would be
deemed to have been complied with.

Question:

Anustup Chandra Ltd., a domestic company incorporated on 01/04/2017, engaged in manufacture of sugar,
furnishes the following information pertaining to the year ended 31-3-2020:

(i) Net profit as per the Statement of Profit and Loss is Rs. 77 lakhs after considering the items listed in (ii)
to (vi) below.
(ii) The company is a member of Vishnu Foods & Co., an AOP in which the members' shares are
determinate and their shares in profit/loss are clearly known. The entire income of the AOP is from
business activities. During the year, the company has derived share income of Rs. 9 lakhs from the AOP.
The company has spent a sum of Rs. 90,000 towards earning such income.
(iii) The company has provided for income-tax (including interest under sections 234B and 234C of Rs.

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62,000) for Rs. 3 lakhs and Rs. 5 lakhs towards share in loss of foreign subsidiary.
(iv) Amount debited to the Statement of Profit and Loss towards interest to a public financial institution is
Rs. 12 lakhs. Of this, Rs. 4 lakhs was paid on 12-12-2019 only.
(v) The company committed breach of building norms while extending the factory building. The City
Corporation initiated proceedings against the company and the company settled the issue by paying
compounding fee of Rs. 1 lakh. This amount forms part of general expenses, which has been debited to
the Statement Profit and Loss.
(vi) In the administrative expenses, the company has debited a sum of Rs.70,000 towards fee for delayed
filing of statement of TDS under section 234E of the Income-tax Act,1961.
(vii) The company has credited revaluation surplus of Rs. 10 lakhs on fair valuation of assets under Ind AS
16 and Ind AS 38 to other equity.
(viii) The company has credited Rs. 5 lakhs to other comprehensive income on fair valuation of equity
instruments in which the company has Investment.
(ix) Depreciation debited in the profit and loss account of Rs. 1.5 lakhs, the actual cost of the asset was
already allowed as deduction u/s 35AD in P.Y. 2017-18.
(x) The brought forward loss u/s 73A of A.Y. 2018-19 is Rs. 3 lakhs.
(xi) Rs. 5 lakhs debited for expenditure towards agriculture extension project.
(xii) The company sold its land and has credited to its profit and loss account Rs.15 lakhs being the
difference between the sale price and the carrying amount as on 31 st March 2019.
The land was sold on 1/10/2019 at Rs.50 lakhs whereas it was acquired on 1/1/2017 at Rs.30 lakhs.
On 1/2/2020 it invested Rs.12 lakhs in NHAI bond. CII of F.Y. 2019-2020 is 289 and of 2016-2017 is
264.

You are required to compute the income-tax payable by the company for the assessment year 2020-21. The
company is an Indian Accounting standard compliant company. Also suggest whether the company should opt
for the provision of Section 115BAA.

Note: The Turnover of company for the P.Y 2017 -18 was Rs. 390 crore.
Solution:

Computation of Total Income of Anustup Chandra Ltd.

For the A.Y. 2020-21
Particulars Amount Amount
Profit and Gains of Business and Profession
Net Profit as per statement of profit and loss (Books of account) 77,00,000
Less: Income Chargeable to other head of Income

(xii) sale of Land (15,00,000)

Net Profit as per statement of profit and loss (Business) 62,00,000

Add: Items debited but to be considered separately or to be disallowed/

amount taxable but not credited

(i)Expenditure on earning share income in AOP 90,000

[Share income in AOP, which pays tax at the maximum

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marginal rate is exempt in the hands of the member. Consequently,

expenditure incurred on earning exempt income is not allowable as
deduction. Since the same has been debited in the statement of
profit and loss, it has to be added back]
(iii)Provision of income-tax(including interest u/s 234B and 234C) 3,00,000
[Provision of income-tax is not allowable as deduction. Also, any
interest payable for default committed by the assessee for
discharging his statutory obligations under Income-tax Act, 1961
which is calculated with reference to the tax on income is not
allowable as deduction.
Since the provision and interest have been debited to statement of
profit and loss, they have to be added back]
(iii)Provision for loss of foreign subsidiary 5,00,000
[Since the loss of foreign subsidiary is not a loss incurred for the purpose
of business of the assessee, it is not allowed while computing business
income. Since the same has been debited in the statement to profit and
loss, it has to be added back]
(iv)Interest to a public financial institution 8,00,000
[Deduction of any sum, being interest payable on any loan or borrowing
from a public financial institution shall be allowed, if such interest has
been actually paid. Since Rs.4lakhshasbeen paid on 12.12.2019, the
balance Rs.8 lakhs debited to statement of profit and loss has to be added
back, assuming that such sum is not paid on or before due date of filing
of return of income]

(v)Compounding fee paid for violation of building norms 1,00,000

[The amount paid for compounding an offence is inevitably a penalty and
the mere fact that it has been described as compounding fee cannot, in
any way, alter the character of the payment which is in the nature of
penalty. Hence, the same is not allowable as revenue expenditure. Since
the same has been debited to statement of profit and loss, it has to be
added back]

(vi)Fee for delayed filing of statement of TDS -

[Under section 37, any expenditure incurred wholly and exclusively for
the purpose of business or profession is
allowed as deduction. The fee for delayed submission of the statement of
TDS is not in the nature of interest for delayed remittance of TDS or in the
nature of penalty, which are not allowable as deduction while computing
business income. Hence, it is allowable as deduction.
Since the same has been debited to statement of profit and loss, no
further adjustment is required]
(vii) Revaluation surplus on fair valuation of assets under Ind AS 16 and 38 -
credited to other equity
[No treatment is required under the regular provisions of the Income-tax
Act, 1961. Since the same has not been credited to statement of profit

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and loss, no adjustment is required]

(viii) Fair valuation of equity instruments -
[No treatment is required under the regular provisions of the Income-tax
Act, 1961. Since the same has not been credited to statement of profit
and loss, no adjustment is required]
(ix) Depreciation 1,50,000 19,40,000
(as the actual cost is already allowed deduction u/s 35AD, hence no
depreciation can be claimed on such assets)
81,40,000

Less: Items credited to statement of profit and loss, but not includible in
business income/ permissible expenditure and allowances
(ii) Share income in AOP 9,00,000
[Where a company is a member in an AOP, the AOP would have to pay tax
at the maximum marginal rate owing to which, company's share in the
total income of AOP will not be included in its total income and will be
exempt. Since the same has been credited to the statement of profit and
loss, the same has to be reduced while computing business income]
(xi)Expenditure incurred on notified agricultural extension project 2,50,000
qualifies for 150% deduction under section 35CCC {5,00,000*50%}
(x) Brought Forward loss of A.Y. 2018-19 3,00,000 (14,50,000)

66,90,000
Income from PGBP
Capital Gain:
Fair value of consideration 50,00,000
Less: Indexation cost of Acquisition{30,00,000*289/264} (32,84,091)
Long Term Capital Gain 17,15,909
Less: Exemption u/s 54EC (12,00,000)
Taxable LTCG 5,15,909
Total Income 72,05,909

Computation of book profit under section 115JB for A.Y. 2020-21

Particulars Rs. Rs.
Net profit as per the statement of profit and loss 77,00,000
Less: Profit on Sale of Land which was credited to p&L account (15,00,000)
Add: LTCG on sale of Land {Sale price –Cost of Land*-Exemption u/s 54EC} 8,00,000 70,00,000
*At the time of disposal of asset for calculation of capital Gain need to
compare sale price with cost.
(Case Law: CIT v. Metal and Chromium Plater (P) Ltd. [2019] 415 ITR 123
(Mad)

Conclusion: The High Court affirmed the decision of the Tribunal holding
that capital gains which forms part of the net profit in the statement of
profit and loss of the assessee- company, in respect of which exemption

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under section 54EC is available while computing total income under the
regular provisions of the Income-tax Act, 1961, should not be taken into
account for calculation of minimum alternate tax on book profits under
section 115JB)
Add: Net profit to be increased by the following amounts as per
Explanation 1 to section 115JB(2):
(ii) Expenditure on earning share income in AOP 90,000
[Expenditure related to share income in AOP has to be added back while
computing the book profit, since no income-tax is payable by the
company on share income in AOP]

(iii) Provision of income-tax(including interest under section 234B and 3,00,000

234C)
[Income-tax shall include, inter alia, any interest charged under the Act,
therefore, whole of the amount of provision for income-tax including
Rs.62,000 towards interest payable has to be added]

(iii) Provision for loss of foreign subsidiary 5,00,000 8,90,000

[Provision for losses of subsidiary companies has to be added back]
78,90,000

Less: Net profit to be decreased by the following amounts as per

Explanation 1 to section 115JB(2):
(i) share income in AOP 9,00,000
[Share income of company in AOP has to be reduced while computing
the book profit, since no income-tax is payable by the company on share
income in AOP]
(x) Brought Forward loss of A.Y. 2018-19 3,00,000 12,00,000
Book profit computed in accordance with Explanation 1 to section
115JB(2)
Book profit computed in accordance with Explanation 1 to section 66,90,000
115JB(2)
Add: Items credited to OCI that will not be reclassified to profit or loss
(vii) Revaluation surplus on fair valuation of assets Rs. 10 lakhs [Book -
profit not to be increased by revaluation surplus for assets]

(viii) Income on fair valuation of equity instruments of Rs. 5 lakhs [Book -

profit not to be increased by income in fair values of equity instruments]
Book Profit for levy of MAT 66,90,000

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Computation of tax liability for A.Y. 2020-21

Particulars Rs.
Minimum Alternate Tax on book profit under section 115JB = 15% of Rs. 66,90,000 10,03,500
Income-tax computed as per the normal provisions of the Act on PGBP Income 16,72,500
[Rs.66,90,000 x 25% since, the turnover of the company for the P.Y. 2017-18 does not exceed
Rs. 400crores]
[on Long Term Capital Gain Rs. 5,15,909*20%] 103181
17,75,681
Since the income-tax liability of Rs.17,75,681 is higher than the MAT liability of Rs. 10,03,500
the income-tax liability would be computed as per the normal provisions of the Income-
taxAct,1961:
Income-tax computed as per the normal provisions of the Act 17,75,681
Add: Education cess and SHEC@4% 71,027
Tax Payable 18,46,708
Tax Payable (rounded off) 18,46,710
Note - The number used in the computation are not the serial number but are the number of each of the
adjustment or of additional information given there against in the question.

Tax u/s 115BAA:

The general rate of tax to be applied in respect of total income computed in accordance with section 115BAA
is 25.168%. This is however subject to special rates to be applied on specific income. Following shall be the
adjustment required to be made to compute the total income in accordance with section 115BAA in the
present problem.

1. Disallowance of additional depreciation, investment allowance claim u/s 32(i)(iia) and section 32AD
respectively.
2. shall not be allowed to claim set off of any brought forward loss
3. Although no deduction is allowed u/s 35CCC, the expenditure incurred in respect of notified agricultural
extension project shall still qualify for deduction u/s 37(1) being expenditure incurred for the purpose of
business and profession. Therefore, the weighted deduction (Rs.2.5 lakhs) shall only be disallowed.
Total Income u/s 115BAA

Particulars Amount
Total Income as per Computed Above 72,05,909
(+) Brought Forward Losses 3,00,000
(+)agricultural extension project u/s35CCC 2,50,000
Total income as per sec 115BAA 77,55,909
Tax Liability as per section 115BAA:

Particulars Amount
1) Tax as per special Rate:
On LTCG: Rs5,15,909 * 20.8% 1,07,309
2) Tax on balance Income @ 25.168%
(Rs.77,55,909– Rs5,15,909) * 25.168% 18,22,163

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Total Tax Liability 19,29,472

Tax Payable (rounded off) 19,29,470
Decision:

Since the tax as per Section 115BAA is higher as compared to tax as per Normal Provision it is advised that the
company should not opt for the provision u/s 115BAA.

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16. TDS

Section 194A- Interest other than Interest on Securities

• Provision:
As per sec 194A, if the interest paid or payable during
the financial year by:
i. Banking company or
ii. co-operative society engaged in carrying on the
SNIPPET:
banking business or
iii. Post Office The threshold for interest paid by
Exceeds Rs.10,000 then TDS need to be
Bank, Co-op soc, Post office has
deducted.(Except in case of Senior citizen the limit is
increased to Rs.40,000 from
Rs.50,000). And If the interest paid or payable during the
financial year by any person otherthan above, exceeds Rs.10,000
Rs.5,000 then TDS need to be deducted.

• Amendment:
The aforesaid threshold limit of Rs.10,000 have been
increased to Rs.40,000.

Section 194DA- Payment in respect of Life Insurance Policy

• Provision:
Any payment in respect of life insurance policy to a
resident person shall be subject to TDS at the rate of
1% under Section 194DA. The tax shall be deducted SNIPPET:
under this provision at the time of payment, if sum
payable exceeds Rs. 1 lakh. Tax is not required to be The rate of Tax deduction has been
deducted if amount payable under an insurance policy increased to 5% on the income
is exempt from tax under Section 10(10D) or the sum is
component
received on the occasion of death of the insured
person.
• Amendment:
Any person making payment under life insurance policy
on or after 01.09.2019 is required to deduct tax @ 5% on the amount of income component.
Note:- Limit of Rs.1 lakh is applicable to gross amount even if the income component therein is less than
Rs.1 lakh.

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• Question:
Determine the applicability of the provisions for tax deduction at source under section 194DA in the
following cases:
(i) Mr. X, a resident, is due to receive Rs.4.50 Lakhs on 31.3.2020, towards maturity proceeds of LIC
policy taken on 1.4.2017, for which the sum assured is Rs. 4 Lakhs and the annual premium is
Rs.1,10,000.
(ii) Mr. Y, a resident, is due to receive Rs.3.25 Lakhs on 31.3.2020 on LIC policy taken on 31.3.2012 for
which the sum assured is Rs.3 lakhs and the annual premium is Rs.35,000.
(iii) Mr. Z, a resident, is due to receive Rs.95,000 on 1.08.2019 towards maturity proceeds of LIC policy
taken on 1.08.2013 for which the sum assured is Rs.90,000 and the annual premium was Rs.15,000.

Solution:

(i) Since the annual premium exceeds 10% of sum assured in respect of a policy taken after
31.3.2012, the maturity proceeds of Rs.4.50 lakhs due on 31.3.2020 are not exempt under
section 10(10D) in the hands of Mr. X. Therefore, tax is required to be deducted@5% under
section 194DA on the amount of income comprised therein i.e., on Rs. 1,20,000 (Rs. 4,50,000,
being maturity proceeds – Rs. 3,30,000, being the entire amount of insurance premium paid).
(ii) Since the annual premium is less than 20% of sum assured in respect of a policy taken before
1.4.2012, the sum of Rs. 3.25 lakhs due to Mr. Y would be exempt under section 10(10D) in his
hands. Hence, no tax is required to be deducted at source under section 194DA on such sum
payable to Mr. Y.
(iii) Even though the annual premium exceeds 10% of sum assured in respect of a policy taken after
31.3.2012, and consequently, the maturity proceeds of Rs. 95,000 due on 1.8.2019 would not be
exempt under section 10(10D) in the hands of Mr. Z, the tax deduction provisions under section
194DA are not attracted since the maturity proceeds are less than Rs. 1 lakh.

Section 194I- Rent

• Provision:
Tax is deductible @2%/10% under section 194-I only if
rent paid/payable during the financial year exceeds Rs.
1,80,000p.a.
SNIPPET:
• Amendment:
The threshold limit has been increased to Rs. The threshold limit has increased from
2,40,000p.a with effect from April 1, 2019. Rs.1,80,000 to Rs.2,40,000 from AY
2020-21

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• Question:
Discuss the liability for tax deduction at source in the following cases for the assessment year 2020-21:
Mr. Anand has been running a sole proprietary business whose accounts are audited under section
44AB with turnover Rs.202 lakhs for the A.Y. 2019-20. He pays a monthly rent of Rs.15,000 for the
office premises to Mr. R, the owner of building and an individual. Besides, he also pays service charges
of Rs. 6,000 per month to Mr. R towards the use of furniture, fixtures and vacant land appurtenant
thereto.
Solution:
Where the payer is an individual or HUF whose turnover exceeds the monetary limits specified in
clause (a) of section 44AB, he has to deduct tax at source. Since the turnover of Mr. Anand was Rs.
202 lakhs for the A.Y.2019-20, he is liable to deduct tax at source under section 194-I in respect of
rental payments during the financial year 2019-20.
Accordingly, Mr. Anand is liable to deduct tax at source under section 194-I on the rental payments
made. Section 194-I provides that rent includes any payment, by whatever name called, for the
use of land or building together with furniture, fittings etc. Therefore, in the given case, apart from
monthly rent of Rs. 15,000 p.m., service charge of Rs. 6,000 p.m. for use of furniture and fixtures
would also attract TDS under section 194-I. Since the aggregate rental payments of Rs. 2,52,000 to
Mr. R during the financial year 2019-20 exceeds Rs. 2,40,000, Mr. Anand is liable to deduct tax at
source @10% under section 194-I from rent paid to Mr. R.

Section 194IA- Transfer of Immovable Property

• Provision:
Any payment made on transfer of certain immovable property (other than agricultural land) and provides
for levy of TDS at the rate of 1 % on the amount of consideration paid or credited for transfer of such
property.

• Amendment:
Accordingly, section 194-IA has been amended (with effect from September 1,2019) to provide that the
term "consideration for immovable property" shall include all charges of the nature of club membership
fee, car parking fee, electricity and water facility fees, maintenance fee, advance fee or any other charges
of similar nature, which are incidental to transfer of the immovable property.

Rationale of amendment:

The term "consideration for transfer of any immovable property" is not defined for the purposes of
section 194-IA. In the case of purchase of immovable property, there are other types of payments
made besides the sales consideration and the buyer is contractually bound to make such payments
to the builder /seller, either under the same agreement or under a different agreement. Some of
these payments are those for rights to amenities like club membership fee, car parking fee,
electricity and water facility fees, maintenance fee, advance fee, etc

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Section 194M- TDS ON CERTAIN PAYMENTS BY INDIVIDUAL/HUF

(w.e.f. 01.09.2019)
New Section has been inserted:
• Deductor: Individual or HUF :-
i. whose books of accounts are not required to be audited u/s 44AB(a)/(b) during preceding F.Y.] or
ii. Making Payment for services received for personal use.
(It may be noted that only individuals and HUFs (other than those who are required to deduct income-tax
as per the provisions of section 194C or 194H or 194J) are required to deduct tax in respect of the above
sums payable during the financial year to a resident.)
• Deductee: Resident
• Threshold limit: Tax is not deductible if aggregate amount paid or payable during the financial year to a
resident does not exceed Rs. 50 lakh.
• Payment covered: TDS under section 194M is applicable in respect of amount paid/payable to a resident
for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract
or by way of commission (not being insurance commission) or brokerage or by way of fees for
professional services.
• Time of Deduction: Credit or Payment, whichever is earlier.
• Rate of TDS: 5% of the aforesaid payment or credit.
• TAN requirement: Individual/HUF (who is required to deduct tax under section 194M)shall be able to
deposit the tax deducted using his PAN and shall not be required to obtain TAN.
• Lower TDS Certificate: Recipient can apply for nil/lower TDS certificate under section 197.

Rationale of amendment:

At the present there is no liability on an Individual or Hindu Undivided Family(HUF) to deduct tax at
source on any payment made to a resident contractor or professional when it is for personal use.
Further, if Individual or HUF is carrying on business or profession which is not subjected to audit,
there is no obligation to deduct tax at source on such payment to a resident even if the payment is
for the purpose of Business & profession. Due to this exemption, substantial payments where made
by Individuals or HUFs in respect of Contractual work or a profession services.

Example:
X is an individual. He makes the following payments to a resident consultant (or to a resident
contractor for a work contract or to a resident by way of commission/brokerage).

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Amount of payment is Rs. 27,00,000 on August 10, 2019 and Rs. 26,00,000 on November 22, 2019. The
following situations are examined –
Situation 1 - X is a businessman. His books of account are audited every year under section 44AB.
Payment to consultant (or contractor or broker) is for business purposes.
Situation 2 - X is a businessman. His books are not audited in the immediately preceding financial year
(as turnover is lower than the threshold limit of Rs. 1 crore). Payment to consultant (or contractor or
broker) is for business purposes.
Situation 3 - Payment to consultant (or contractor) is for personal purposes [not deductible under
section 37(1)].
Situation 4 - X is a non-resident Indian (or foreign citizen). He does not have any income in India.
Payment to consultant (or contractor) is for personal purposes.
Situation 5 - X is a farmer. His entire income is exempt under section 10(7). Payment to consultant (or
contractor) is for personal purposes.

Solution:

Situation 1 - Tax is deductible under section 194J (if the recipient is consultant) or under section
194C (if recipient is a contractor) or under section 194H (if recipient is a broker). Consequently,
TDS provisions of section 194M are not applicable. If it is payment to a consultant, amount of TDS
under section 194J is 10% of Rs. 27,00,000 on August 10, 2019 and 10% of Rs. 26,00,000 on
November 22, 2019.
Situation 2 - Provisions of sections 194C, 194H and 194J are not applicable. Aggregate payment to
the recipient during the financial year 2019-20 is Rs. 53,00,000 (more than the threshold of Rs.
50,00,000 under section 194M). Tax is deductible under section 194M. Payment of Rs. 27,00,000 is
made prior to September 1, 2019 (i.e., before the application of section 194M). Therefore, tax
deduction is not required at the time of payment of Rs. 27,00,000 on August 10, 2019. However,
payment on November 22, 2019 is subject to TDS under section
194M (amount of TDS will be Rs. 1,30,000, being 5% of Rs. 26,00,000).
Situation 3 - It is payment to a consultant or contractor. Payment is for personal purposes. Tax is
not deductible under section 194C or 194J. Consequently, tax is deductible under section 194M.
No tax deduction at the time of payment of Rs. 27,00,000 on August 10, 2019. Tax of Rs. 1,30,000
will be deducted by X at the time of payment of Rs. 26,00,000 on November 22, 2019
Situation 4 - Even if X is non-resident (not having income in India), TDS provisions of section 194M
are applicable (as given above, no TDS on August 10, 2019 and Rs. 1,30,000 will be deducted on
November 22, 2019).
Situation 5 - Even if income of X is exempt under section 10(7), TDS provisions of section 194M (as
given above) are applicable.

Section 194N- TDS ON CERTAIN PAYMENTS BY INDIVIDUAL/HUF

(w.e.f. 01.09.2019)
New Section has been inserted:
• Deductor: A bank, co-operative bank or a post office, who is responsible for paying any sum in cash to an
account holder, is required to deduct tax at source under section 194N.
• Deductee: Any person

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• Threshold limit: It is Rs. 1 crore. In other words, tax is deductible by a bank (or cooperative bank or post
office) if aggregate payment in cash from one or more accounts during a previous year to an account
holder, exceeds Rs. 1 crore.
• Time of Deduction: at the time of payment in cash.
• Rate of TDS: Tax is deductible at the rate of 2% of payment (or aggregate payment) in cash exceeding Rs.
1 crore.
• Lower TDS Certificate: Not possible.
• Exceptions: No tax shall be deducted if amount is withdrawn from the bank or post office by following
recipients:
i. Central or State Government
ii. Banks
iii. Co-op. Banks
iv. Post Office
v. Banking correspondents
vi. White label ATM operators
vii. Other persons notified by the Govt. in consultation with the RBI.
• Exclusion from Income: The tax deducted under Sec 194N shall not be deemed to be income received for
computing income of recipient( Amendment of Sec 198).

Example
Suppose cash payment by SBI to X Ltd. in the above example is as follows –
- from SBI Mumbai by head office on July 10, 2019: Rs. 1.1 crore
- from SBI Kolkata by branch office on October 10, 2019: Rs. 30 lakhs
- from SBI Mumbai by head office on January 10, 2020: Rs. 20 lakhs

Solution:

Cash payment exceeds Rs.1 crore on July 16, 2019. No tax is, however, deductible on July 10, 2019
(as section 194N is applicable only from September 1, 2019). Up to October 10, 2019, cash
payment by SBI to X Ltd. is Rs.1.40 crore. Amount in excess of Rs.1 crore (up to October 10, 2019)
is Rs. 40 lakh (this includes cash payment of Rs.10 lakh by SBI to X Ltd. prior to September 1,
2019). Therefore, tax deductible by SBI on October 10, 2019 is Rs. 60,000 (being 2% of Rs. 30
lakh). Further SBI will deduct tax at source under section 194N on January 10, 2020 which comes
to Rs. 40,000 (i.e., 2% of Rs. 20 lakh).

Rationale of amendment:

In order to further discourage cash transactions & move towards less cash economy it is proposed.
To provide for levy of TDS @2% on cash payments in excess of Rs.1 crore in aggregate made
during the year .

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Section 195- Payments to Non-Resident

• Provision:
Under section 195(2), a person (who is responsible for tax deduction on payment of any sum to a non-
resident) considers that the whole of such sum would not be income chargeable in the case of the
recipient, he can make an application to the Assessing Officer to determine the appropriate proportion of
such sum (chargeable to tax in the hands of recipient) which is subject to TDS. This provision is used by a
person making payment to a non-resident to obtain certificate/order from the Assessing Officer for lower
or nil withholding tax.

• Amendment:
The process of obtaining above certificate/order is
currently manual. In order to use technology to
streamline the process, the scheme of section 195
has been amended (with effect from November 1,
SNIPPET:
2019) to allow for prescribing the form and manner
of application to the Assessing Officer and also for
Making of application u/s 195 has been
the manner of determination of appropriate portion
of sum chargeable to tax by the Assessing Officer. made available Online to streamline
Manual Process

Section 197- Certificate of Lower/Nil Tax deduction

• Provision:
Section 197 regulates the provisions pertaining to certificate of lower/ nil tax deduction.

• Amendment:
It has been amended (with effect from September 1,2019) so as to provide that the sums on which tax is
deductible under section 194M, shall also be eligible for certificate for deduction at lower rate or nil rate.

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Section 201- Consequences on failure to pay or deduct TDS

• Provision:
If any person, responsible for deduction of tax at source, fails to deduct the whole or any part of the tax
or after deduction fails to deposit the same to the credit of the Central Government, then he shall be
deemed to be an assessee-in-default.
However, he will not be treated as an
assessee-in- default if:
i. payment is made to a resident
person, who has paid tax on such
income and SNIPPET:
ii. has included such income in the
Benefit of Proviso u/s 201 are now
return submitted under Section 139.
iii. The payer will have to obtain a extended to Non-Resident also
certificate to this effect from a
Chartered Accountant in Form No.
26A and submit it electronically.

This concession was available only for the payment made to a resident person.

• Amendment:
The provision have extended to provide the benefit of this proviso to a deductor, even in respect of
failure to deduct tax from sum paid to NON-RESIDENT.
• Consequential amendment:
Amendment has been made in the provision for computation of interest. Thus, where deductor fails to
deduct the tax from the amount paid or payable to payee (resident or non- resident) but he is not
deemed to be assessee-in-default, he shall continue to be liable to pay the interest from the date on
which tax was required to be deducted to the date of furnishing of return of income by the payee.

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17. Advance Tax

Section 234A , 234B & 234C

For Section 234A, 234B & 234C:-

• Amendment:
For purpose of computing of Interest payable, the deduction of tax relief under section 89 is allowed on
retrospective effect from 01.04.2007.

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18. International Taxation

1) Section 9(1)(viii):
Gift of Money to a Non-resident/Foreign Company

Amendment:

Any sum of money paid by a resident

Indian to a non-corporate non-
resident or foreign company [Section
9(1)(viii)]
SNIPPET:
Income arising outside India, being
any sum of money paid without
Income arising outside India, being any sum
consideration, by a Indian resident
person to a non-corporate non- of money paid without consideration, by a
resident or foreign company on or Indian resident person to a non-corporate
after 5.7.2019 would be deemed to
non-resident or foreign company would be
accrue or arise in India if the same is
chargeable to tax under section deemed to accrue or arise in India
56(2)(x) i.e., if the aggregate of such
sum received by a non-corporate non-
resident or foreign company exceeds
Rs.50,000.

This clause is applicable if the following conditions are satisfied-

1. Payer is resident in India (or money is received from a person resident in India). Payer may be
resident and ordinarily resident in India or resident but not ordinarily resident in India. Payer may be
an Individual, HUF, AOP, BOI, artificial juridical person, firm LLP, company or any other person.
2. Recipient is non-resident/foreign company (or money is received by a non-resident/foreign
company).
3. A sum of money is received by non-resident/foreign company on or after July 5, 2019.
4. Income arises outside India. The transaction not covered by any of the exceptions specified by
section 56(2)(x).
If these conditions are satisfied, money received by a non-resident/foreign company, shall be deemed to
accrue or arise in India.

Example:
Mr. Durgesh is resident in India. He transfers the following assets to his friends Ram (a non-resident Indian
or foreign citizen currently located in USA) or to Ram Ltd. (a foreign company)-

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1. Gift of Rs. 9 lakh NEFT transfer from Durgesh’s bank account (SBI, Mumbai) to Ram’s bank account in
California.
2. Gift of Rs. 10 lakh to Ram (this money is gifted to Ram in India by an account payee cheque when Ram
visited India on a short trip).
3. Gift of Rs. 11 lakh to Ram (Durgesh has a bank account in Citibank, New York. Permission of RBI has
taken for this purpose. This gift is transferred from Citibank, New York account of Durgesh to the
account of Ram in Deutsche Bank, New Jersey).
4. Gift of house property situated in Pune (stamp duty value: Rs. 45 lakh).
5. Gift of house property situated in New Jersey (market value: Rs. 2.70 crore).
6. Shares in Reliance Industries Ltd.(market value per stock exchange quotation : Rs. 20 lakh).
7. Shares in US company, not having tangible/intangible asset in India (market value:Rs. 18 lakh).
8. Shares in Malaysian company (net worth of the company: Rs. 900 crore, more than 95 per cent assets
located in India) (market value of shares gifted: Rs.10.5 crore).
9. Jewellery (market value:Rs. 30 lakh) (it is given as gift to Ram when he visited India).
10.Diamonds (market value:Rs. 10 lakh) (given as gift outside India from Durgesh’s locker in a foreign
bank).
11.Tagore painting (market value:Rs. 6 crore) (it is given as gift to Ram when he visited India).
12.Raja Ravi Verma painting (market value: Rs. 2 crore) (taken from India by Durgesh when he visited USA
and given as a gift on birthday of Ram in California).
13.Computer and car (market value: Rs. 8 lakh) (given as gift to Ram when he visited India).
14.Gift of Rs. 11 lakh by electronic transfer from Indian bank account of Durgesh to Ram’s bank account in
USA (gift given on the occasion of marriage of Ram).
15.Transfer of a plot of land in Nagpur too Ram (stamp duty value: Rs. 62.8 lakh, sale consideration :Rs. 60
lakh).
Answer: In these cases amount taxable in India in the hands of Ram will be as follow-

Sr No. Assets If takes place If takes place Sections

before July 5, after July 5, 2019
2019
1. Gift of Rs. 9 lakh by way of NEFT Not taxable Taxable* 9(1)(viii), 56(2)(x)
to foreign bank
2. Gift of Rs. 10 lakh in India Taxable* Taxable* 5, 56(2)(x)

3. Gift of Rs. 11 lakh by bank transfer Not taxable Taxable* 9(1)(viii), 56(2)(x)
in New Jersey
4. Pune property Taxable* Taxable* 5, 56(2)(x)

5. New Jersey property Not taxable Not taxable 5

6. Shares in Reliance Taxable* Taxable* 9(1)(i), 56(2)(x)

7. Shares in US company Not taxable Not taxable 9(1)(i), 56(2)(x)

8. Shares in Malaysian company Taxable* Taxable* 9(1)(i), 56(2)(x)

9. Jewellery Taxable* Taxable* 5, 56(2)(x)

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10. Diamond Not taxable Not taxable 5, 56(2)(x)

11. Tagore painting Taxable* Taxable* 5, 56(2)(x)

12. Raja Ravi Verma painting Not taxable Not taxable 5, 56(2)(x)

13. Computer and car Not taxable Not taxable 5, 56(2)(x)

14. Marriage gift Not taxable Not taxable 5, 56(2)(x)

15. Transfer of Nagpur land (stamp Not taxable Not taxable 5, 56(2)(x)
duty value does not exceed 105%
of sale consideration)
*Subject to provisions of relevant Double Taxation Avoidance agreement.

Rationale of amendment:

1. There was no provision in the Act which covered income of the type mentioned in section
56(2)(x) if it did not accrue or arise in India (e.g. gifts given to a non-resident outside India)
Such Gift therefore escaped tax in India.
2. To plug this loophole the Finance (No.2) Act 2019 has inserted section 9(1)(viii) with effect
from assessment year 2020-21 to provide that income of the nature referred to in section
2(24)(xviia) arising outside India from any sum of money paid, on or after 5th July 2019, by a
person resident in India to a non-resident or foreign company shall be deemed to accrue or
arise in India.

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2) Section 9A: Presence of Eligible Fund Manager in India Not to

Constitute Business Connection in India

Section 9 of the Income-tax Act specifies the situation in which income is deemed to accrue or arise in
India. One of the conditions for the income of a non-resident to be deemed to accrue or arise in India is the
existence of a business connection in India. Therefore, in a situation in which business connection is
established, income attributable to such activities which constitute business connection becomes taxable in
India.
However, to ensure ease of doing business in India, Section 9A was inserted in the Income-tax Act to
provide that an offshore investment fund shall not be said to be resident in India or having business
connection in India merely because it carries out fund management activity through a fund manager
located in India. This immunity is provided to an offshore fund if it meets certain conditions.

Amendment:

To give an impetus to fund management activities in India, the Finance Bill has further proposed to relax
following condition:

The monthly average of the corpus of the fund shall not be less than Rs.100 crore fund has been
established or incorporated in the previous year, the corpus of fund should not be less than Rs.100 crore
rupees at the end of a period of six months from the last day of the month of its establishment or
incorporation, or the end of such previous year, whichever is later;

The funds are required to remunerate the fund manager at arm’s length price for his activities. It has been
proposed that the Government shall provide separate set of rules to determine the amount of
remuneration for fund managers.

3) EXEMPTION OF INTEREST INCOME OF RUPEE DENOMINATED

BONDS

Amendment:

Section 10(4C) has been inserted with retrospective effect from the assessment year 2019-20 to provide that
interest income shall be exempt if the following conditions are satisfied.
1. The income by way of interest
2. Interest is payable to a non-resident or a foreign company.
3. It is payable by an Indian company or a business trust.
4. It is payable in respect of money borrowed from a source outside India by way of issue of rupee
denominated bonds [as referred to in section 194LC(2)(ia)].
5. The aforesaid bonds are issued during September 17, 2018 and March 31, 2019. If these conditions
are satisfied, interest income will be exempt under section 10(4C).

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SNIPPET:

Interest payable by an Indian company or business trust in respect of

moneys borrowed from a source outside India by way of issue of rupee
denominated bond during the period from 17.9.2018 to 31.3.2019.

Available to: A non-corporate non- resident or foreign company.

4) SECTION 10(4D): EXEMPTION OF CAPITAL GAINS RECEIVED OF A

SPECIFIED FUND
Amendment:

Section 10(4D) has been inserted with effect from the assessment year 2020-21 to provide that capital gains
shall be exempt if the following conditions are satisfied.
1. The Capital gain arise to a specified fund.
For this purpose, "specified fund" means a fund which satisfies the following conditions -
- It is a fund established or incorporated in India in the form of a trust or a company or a
limited liability partnership or a body corporate.
- It has a certificate of registration as a Category III Alternative Investment Fund and is
regulated under SEBI (Alternative Investment Fund) Regulations, 2012.
- It is located in any International Financial Services Centre.
- All units of fund are held by non-residents.
2. The gains arise as a result of transfer of capital asset referred to in section 47(viiab).
3. Income arises as a result of transfer of a capital asset on a recognised foreign exchange located in
any International Financial Services Centre.
4. Consideration for transfer is paid or payable in convertible foreign exchange

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SNIPPET:

Income on transfer of a capital asset, being a bond of an Indian Company or a public

sector company (sold by the Government and purchased by the specified fund in
foreign currency), GDR or rupee denominated bond or derivative or any other notified
security, on a recognized stock exchange located in any IFSC is exempt;

i) where the consideration is paid or payable in convertible foreign exchange;

ii) to the extent such income accrues or arises to, or is received in respect of
units held by anon-resident.
Available to: A specified fund

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19. Transfer Pricing

1) Power of AO in respect of Modified Return of income filed in

pursuance to signing of APA

I. What is Modified Return?

➔ In case a person has entered into an APA and prior to the date of entering into such APA, he has
furnished the return of income under the provisions of section 139 in respect of any assessment
year relevant to a previous year to which the APA applies, then, such person shall, within a
period of three months from the end of the month in which the said agreement was entered
into, furnish a modified return, notwithstanding any contrary provision contained in section
139.
II. Effect of Modified Return:-
➔ Such modified return shall be in accordance with and limited to the provisions of such APA i.e.,
modifications can only be made on account of such APA in the return to be filed.
➔ All other provisions of this Act shall apply as if the modified return is a return furnished under
section 139, unless anything to the contrary is provided in this section.

III. Provision related to Assessment or Re-assessment of Modified Return:-

Assessment or Re-assessment
of Modified Return

If assessment or reassessment proceedings is If assessment or reassessment proceedings

completed before the expiry of period is pending on the date of filing of modified
allowed for furnishing of modified return : return:
A.O shall assess or reassess or re-compute the A.O shall assess or reassess or re-compute
total income of the relevant assessment year the total income of the relevant assessment
having regard to and in accordance with the year having regard to and in accordance with
APA. the APA taking into consideration the
Note: w.e.f 01.09.2019 AO shall pass an modified return so furnished.
order modifying the total income of the Time period of completion of pending
relevant assessment year determined in such assessment or reassessment mentioned
assessment or reassessment. under section 153 or 153B or 144C shall be
This order shall be passed within 1 year from extended by 12 months.
the end of the financial year in which the
modified return was furnished.
The appeal against such order shall lie to
Commissioner (Appeals) [Section 246A]

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IV. Assessment or Re-assessment proceedings deemed to be completed where:

➔ an assessment or reassessment order has been passed; or
➔ no notice has been issued under section 143(2) till the expiry of the limitation period provided
under the said section.

Example:
DIY Ltd. a company registered in India and subsidiary of CD Inc., a company registered in Austria. DIY Ltd.
engaged in the manufacturing of fabric. To arrive at the arm’s length price applicable to its transactions
with CD Inc., DIY Ltd. enters into an advance pricing agreement with the Board on 25th November 2019.
Accordingly, there will be a substantial change in the income of DIY Ltd. Also, DIY Ltd. wishes to apply for
roll back provisions to PY 2015-16, 2016-17, 2017-18 & 2018-19 .The AO wants to apply such transfer
pricing provisions from the year in which DIY Ltd. became the subsidiary of CD Inc. i.e., AY 2012-13
onwards.
DIY Ltd. had filed its return of income for the AY 2019-20 on 26th August 2019 and for AY 2020-21 on 31st
August, 2020. The assessments for the AYs. 2016-17 to 2019-20 are completed but the assessment of AY
2020-21 is pending on the date of entering into APA.
You are required to answer the following questions:
(i) Whether the AO is correct to apply the transfer pricing provisions from AY 2012-13 onwards ?
(ii) In respect of AY 2017-18, the transfer price arrived at by the Board is resulting in reduction in
income of the assessee. Discuss whether the roll back provisions can he applied for that
assessment year as well.
(iii) What will happen to completed as well as pending assessments

Solution:

(i) In order to reduce current pending as well as future litigation in respect of the transfer pricing
matters, roll back mechanism is provided for period not exceeding 4 PY preceding the first of
the PY for which the APA applies in respect of the international transaction to be undertaken.
APA can be applied for the transaction undertaken in past 4 years.
Therefore, AO cannot apply the transfer pricing provisions from AY 2012-13 onwards as it
doesn’t fall within preceding 4 consecutive years.
(ii) Roll Back Provisions: In order to reduce current pending as well as future litigation in respect
of the transfer pricing matters, roll back mechanism is provided for period not exceeding 4 PY
preceding the first of the PY for which the APA applies in respect of the international
transaction to be undertaken. APA can be applied for the transaction undertaken in past 4
years.
Not Applicable if, the application of rollback provision has the effect of reducing the total
income or increasing the loss, as the case may be, of the applicant as declared in the return of
income of the said year.
Therefore, in given case for AY 2017-18 rollback provisions would not be applied because the
transfer price arrived at by the Board is resulting in reduction in income of the assessee.
(iii) If the assessment or reassessment proceedings for an assessment year relevant to a
previous year to which the APA applies have been completed before the expiry of period
allowed for furnishing of modified return, the Assessing Officer shall, in a case where
modified return is filed in accordance with the provisions of this section, proceed to assess
or reassess or re-compute the total income of the relevant assessment year having regard to

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and in accordance with the APA.

However, w.e.f 1.9.2019, Assessing Officer shall pass an order modifying the total
income of the relevant assessment year determined in such assessment or reassessment,
as the case may be, having regard to and in accordance with the APA, instead of
proceeding to assess or reassess the total income.
Such order for assessment or reassessment or re-computation of total income shall be
passed within a period of 1 year from the end of the financial year in which the modified
return was furnished. This shall apply notwithstanding the period of limitation contained
under section 153 or 153B or 144C.
Where the assessment or reassessment proceedings for an assessment year relevant to
the previous year to which the APA applies, are pending on the date of filing of modified
return, the Assessing Officer shall proceed to complete the assessment or reassessment
proceedings in accordance with the APA taking into consideration the modified return so
furnished.

In this case, the time period of completion of pending assessment or reassessment

mentioned under section 153 or 153B or 144C shall be extended by 12 months. This shall
apply notwithstanding the period of limitation contained under section 153 or 153B or
144C.
Therefore, in case of AYs. 2016-17 to 2019-20 for which assessment has been completed the
total income will be computed having regard to and in accordance with the APA. Whereas in
case of AY 2020-21 for which assessment is pending, the assessment proceedings will be
completed in accordance with the APA taking into consideration the modified return so
furnished.

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2) Section 92CE: Secondary Adjustment

Provision:

Transaction not at ALP

Resulting in TI/ in loss

Indian Co. Non- resident AE

Primary Adjustment
Secondary Adjustment
(ALP – Transaction Price)
If primary adjusted amounts (i.e.
>Rs. 1 cr
difference) is not remitted to India
within 90 days.

SNIPPET:
Deemed Loan by Indian Co. to
option to pay additional income- Non-Resident AE
tax @20.9664% (i.e., tax@18%
plus surcharge@12% plus cess@4%)
on such excess money or part Interest on deemed loan shall be
added in hands of Indian Co
thereof, as the case may be

If the additional income due to primary adjustment is

brought into India, no further secondary adjustment shall be made.
What is primary “Primary Adjustment” to a transfer price means the determination of transfer
Adjustments - price in accordance with the arm’s length principle resulting in an increase in
the total income or reduction in the loss, as the case may be, of the assessee.
What is secondary “Secondary Adjustment” means an adjustment in the books of account of the
Adjustment assessee and its AE to reflect that the actual allocation of profits between the
assessee and its AE is consistent with the transfer price determined as a result
of primary adjustment, thereby removing the imbalance between cash
account and actual profit of the assessee.

Forms of Secondary As per the OECD's Transfer Pricing Guidelines for Multinational Enterprises
Adjustment and Tax Administrations (OECD transfer pricing guidelines), secondary

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adjustment may take the form of constructive dividends, constructive equity

contributions, or constructive loans.
Alignment of The provisions of secondary adjustment are internationally recognisedand
economic benefit of are already part of the transfer pricing rules of many leading economies in
the transaction with the world. Whilst the approaches to secondary adjustments by individual
the arm’s length countries vary, they represent an internationally recognised method to align
position the economic benefit of the transaction with the arm's length position.
When secondary Secondary adjustments will be applicable in the following situations:
adjustment will be 1. Where a primary adjustment to transfer price has been made by Suo-moto
applicable - by the assessee in his return of income.
2. Where primary adjustment to transfer price made by the AO has been
accepted by the assessee.
3. Where a primary adjustment to transfer price is determined by an APA
entered into by assessee u/s 92CC.
4. Where a primary adjustment to transfer price is made as per the safe
harbor rules framed u/s 92CB.
5. Where primary adjustment to transfer price is arising as a result of
resolution of an assessment by way of the mutual agreement procedure
under DTAA entered into u/s 90 /90A.
Threshold limit- When secondary adjustment is not applicable- If the following two conditions
are not satisfied, secondary adjustment is NOT REQUIRED—
a. The amount of primary adjustment made in the case of an assessee in any
previous year DOESN’T EXCEED Rs.1 CRORE; OR
b. The primary adjustment is made in respect of the AY 2016-17(or any
earlier assessment year)
Quantification of 1. As a result of primary adjustment to the transfer price, there is an
secondary increase in the total income or reduction in the loss, as the case may be,
adjustment of the assessee.
2. The difference between the ALP determined in Primary adjustment and
the price, at which the international transaction has actually been
undertaken, is Excess Moneyor part thereof, as the case may be,.
Such excess money or part thereof may be repatriated from any of the
associated enterprises of the assessee which is not resident in India.
“Excess money” means the difference between the arm’s length price
determined in primary adjustment and the price at which the
international transaction has actually taken place.
3. The excess money or part thereof is not repatriated to India by the
associated enterprise within 90 days(in general term, repatriation means
effectively reversing the funds so that the account of the parties involved
are in line with the economic intend of the primary adjustment). The
excess money (which is not repatriated to India) shall be deemed to be
an advance made by the assessee to such associated enterprise and the
interest on such advance shall be computed as the income of the
assessee in the manner as may be prescribed.

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Time limit for Rule 10CB(1) prescribes the time limit for repatriation of excess money i.e., on
repatriation of or before from the date given in column (3) in the cases mentioned in column
excess money or part (2) of the table below:
thereof Case Date

1 2 3

(i) Where primary adjustments to the due date of filing of

transfer price has been made suo- return u/s139(1)
moto by the assessee in his return
of income
(ii) If primary adjustments to transfer The date of the said order
price as determined in the order of
the Assessing Officer or the
appellate authority has been
accepted by the assessee

(iii) Where agreement for advance the due date of filing of

pricing has been entered into by the return u/s 139(1)
assessee under section92CD

(iv) Where option has been exercised by the due date of filing of
the assessee as per the safe harbour return u/s 139(1)
rules under section 92CB

(v) Where agreement under the Mutual the due date of filing of
agreement procedure under a DTAA return u/s 139(1)
has been entered into u/s 90 or 90A

The imputed per (i) at the 1 year marginal cost of fund lending rate of SBI as on 1st of April of
annum interest the relevant PY + 325 basis points in the cases where the international
income on excess transaction is denominated in Indian rupee; or
money which is not (ii) at 6 month LIBOR as on 30thSeptember of the relevant PY + 300 basis
repatriated within points in the cases where the international transaction is denominated in
the time limit shall foreign currency.
be computed,—

Amendment

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Option to pay Amendments applicable from September 1, 2019

additional income- In a case where the excess money or part thereof has not been repatriated
tax, if the excess within the prescribed time as mentioned above, the assessee has the option
to pay additional income-tax @20.9664% (i.e., tax@18% plus
money not
surcharge@12% plus cess@4%) on such excess money or part thereof, as the
repatriated case may be; If following Conditions are satisfied
a) If the assessee pays the additional income-tax, he will not be required to
make secondary adjustment or compute interest from the date of
payment of such tax.
b) The tax so paid shall be the final payment of tax and no credit shall be
allowed in respect of amount of tax so paid.
c) The deduction in respect of the amount on which such tax has been paid,
shall not be allowed under any other provision.

Rationale of amendment relating to payment of

additional payment of tax:

1. Effectively, payment of such additional tax is in lieu of the DDT saved by the Indian
company on the eventual distribution of additional funds repatriated to it by the AE.

2. Section92CE(2a) states that additional tax may be paid where the excess money or part
thereof has not been repatriated within the prescribed time. thus on a literal reading the
payment of additional tax cannot be made till the expiry of the prescribed time for
repatriation under section 92CE(2).

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3) Time limit for repatriation of excess money or part thereof and

manner of computation of interest on excess money not
repatriated prescribed [Notification No. 76/2019, dated 30.9.2019]
Section 92CE(2) requires repatriation, within the prescribed time, of the excess money or part thereof, as
the case may be, which is available with the associated enterprise, in a case where, as a result of primary
adjustment to the transfer price, there is an increase in the total income or reduction in the loss, as the
case may be, of the assessee. If the excess money or part thereof is not repatriated to India within the
prescribed time, it shall be deemed to be an advance made by the assessee to such associated
enterprise and the interest on such advance, shall be computed in the prescribed manner.
The CBDT has, vide this notification, amended Rule 10CB(1) which prescribes the time limit for
repatriation of excess money or part thereof i.e., on or before 90 days from the specified date. The 90
days period is to be reckoned from the date specified in column (2) in the cases mentioned in column (1)
of the table below. Further, the date from which interest is chargeable on the excess money or part
thereof which is not repatriated in the cases mentioned in column(1) is given in column (3) in the table
below
Case Time limit for Date from which interest is
repatriation of excess chargeable on the non-
money or part thereof: repatriated excess money
Within 90 days from or part thereof within the
specified time limit
(1) (2) (3)
(i) Where primary adjustments to the due date of filing of the due date of filing of
transfer price have been made suo- return u/s 139(1) return u/s 139(1)
motu by the assessee in his return
of income
(ii) If primary adjustments to transfer the date of the said order the date of the said order
price as determined in the order of
the Assessing Officer or the
appellate authority has been
accepted by the assessee
(iii) Where primary adjustment to
transfer price is determined by an
advance pricing agreement (APA)
entered into by the assessee u/s
92CC in respect of a previous year -
• If the APA has been entered into on the date of filing of return the due date of filing of
or before the due date of filing of u/s 139(1) return u/s 139(1)
return for the relevant P.Y.
• If the APA has been entered into on the end of the month in the end of the month in
or after the due date of filing of which the APA has been which the APA has been
return for the relevant P.Y. entered into entered into

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(iv) Where option has been exercised the due date of filing of the due date of filing of
by the assessee as per the safe return u/s 139(1) return u/s 139(1)
harbour rules u/s 92CB
(v) Where the primary adjustment to the the date of giving effect by the date of giving effect by
transfer price is determined by a the A.O. under Rule 44H to the A.O. under Rule 44H to
resolution arrived at under Mutual such resolution such resolution
Agreement Procedure under a
DTAA has been entered into u/s 90
or 90A

Rule 10CB(2) prescribes the rate at which the per annum interest income shall be computed in case of
failure to repatriate the excess money or part thereof within the above time limit. The interest would
be computed inter alia at six month London Interbank Offered Rate (LIBOR) as on 30th September of
the relevant previous year + 3.00%, where the international transaction is denominated in foreign
currency.
Rate of exchange for the calculation of the value in rupees of the international transaction
denominated in foreign currency shall be the telegraphic transfer buying rate of such currency on the
last day of the previous year in which such international transaction was undertaken.

Example:

Vishnu Polymers Ltd., is an Indian company having transactions which are subject to transfer pricing
regulations. In June, 2019, the assessments for assessment years 2018-19 and 2019-20 were concluded after
the due process under law:

In both the years, in respect of the transactions with its associated enterprises, the ALP had been determined
in Euro. For the assessment year 2018-19, the primary adjustment, as translated into INR was Rs.90 lakhs (for
transactions with N Inc., Singapore) and for the AY 2019-20, the same being Rs.2.4 crores (for transactions
with PK Inc., Melbourne). The assessment order was passed on 12/06/2019. The assessee is inclined to accept
the same and not prefer any appeal.

You are required to answer the following in the light of above:

(i) How will the quantum of primary adjustment be treated in the books of the assessee vis-a-vis
secondary adjustment? How will the aforesaid completed assessments impact the assessee?
(ii) What steps are to be taken to prevent the secondary adjustment? Will there be any secondary
adjustment in the hands of the assessee if the required steps are not taken? You are required to
outline the concept involved.
(iii) Calculate the secondary adjustment for PY 2019-20 assuming that money hasn’t been repatriated
during the period.
(iv) Calculate the additional tax payable u/s 92CE(2A) assuming the Indian AE wants to exercise the one
time settlement option as on 31/10/2020.

6 months Libor Rate = 2.6%

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Solution:

Secondary adjustment:

(i) Where a primary adjustment has been made by the AO, the same impacts the assessee, inter
alia, when
• The same relates to an assessment year after 2016-17.
• The quantum of primary adjustment (PA) made in each year is above Rs.1 crore.
• The same is accepted by the assessee.
In such a situation, the same will be treated as loan or advance given by the assessee to the
associated enterprise (AE).
In the given case, since the quantum of PA made in the AY 2018-19 is below Rs.1 crore, the
same is to be ignored for secondary adjustment (SA) purposes. Only the PA made in AY 2019-20
will have to be considered.
(ii) If the SA is to be avoided, then
• The AE should repatriate the funds into India in foreign exchange
• within 90 days from the date of order.
If the same is not done, then interest will be deemed to accrue on such advance at the
prescribed rate.
Interest would be calculated on such advance at the rate of six month LIBOR as on 30 th
September + 3%, since the international transaction is denominated in Euro.
(iii) Calculation of Secondary Adjustment
As per notification no.79/2019, if repatriation of excess money or part thereof is not made on or
before 90 days, then interest will be calculated from the date of the order (where the primary
adjustments to transfer price as determined in the order of the AO has been accepted by the
assessee). Accordingly the amount of secondary adjustment for PY 2019-20 shall be
Rs.10,79,606.56 (Rs.2.4 crores x 5.6%[2.6%+3%] x 294*/366)
*No . of days=294(19+31+31+30+31+30+31+31+29+31)
(iv) Additional Income Tax payable
This option is available w.e.f. 01.09.2019, in a case where the excess money or part thereof has
not been repatriated within the prescribed time as mentioned above, the assessee has the option
to pay additional income-tax @20.9664% on such excess money or part thereof.
“Excess money” means the difference between the arm’s length price determined in primary
adjustment and the price at which the international transaction has actually taken place.
So Additional Income Tax payable in given case is Rs.50,31,936(Rs.2.4 crores*20.9664%).

4) Section 92D: Reporting of MNE Group required even if

constituent entity doesn’t enter into any international transaction

Explain the requirement to maintain transfer pricing documentation as per the provisions of Section 92D
of the Act.
a) Section 92D of the Act provides that taxpayers, who have entered into an international or specified
domestic transaction, must keep and maintain information and contemporaneous documents as
provided under Rule 10D.

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b) The documentation is required to be maintained if the aggregate value of international transaction

exceeds Rs. 1 crore.
c) Information and documentation should be contemporaneous and should exist latest by the specified
date i.e. 30th November.
d) The specified information and document are required to be maintained by the taxpayer for a period
of 8 years from the end of the relevant AY.
e) Fresh documentation need not be maintained separately in respect of each tax year, unless there is
any significant change in the nature or terms of international transactions, in the assumptions made

Amendment:
Every person:
1. who has entered into an international transaction or specified domestic transaction shall keep and
maintain such information and document in respect thereof as may be prescribed
2. Being a constituent entity of an international group, shall keep and maintain such information and
document in respect of an international group as may be prescribed.

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Documentation requirement for

constituent entity

Whether
No
constituent entity Maintain local files as
has entered into an prescribed in Rule 10D
International
transaction?

Yes

Whether the dual

monetary threshold No
prescribed in Rule
10DA is satisfied?

Yes

Maintain & submit Master file as

prescribed in Rule 10DA

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Rationale of amendment:

Amendment to section 92D

The scheme of section 92D (relating to maintenance and keeping of information and document by
persons entering into an international transaction or specified domestic transaction) has been modifies
with effect from assessment year 2020-21 on following lines
1. Sub-section (1) provides for keeping and maintaining of prescribed information and document
by the person entering into an international transaction or specified domestic transaction, and
by the constituent entity of an international group referred to in section 286. The requirement
of information and document to be kept and maintained by a constituent entity of
international group (and filing of required form) shall be applicable even when there is no
international transaction undertaken by such constituent entity.
2. Sub-section (2) empower the Board to prescribe the period for which said information and
document shall be kept and maintained.
3. Sub-section (3) provides that the assessing Officer or the Commissioner (Appeals) may, in the
course of any proceeding under the Act, require a person who has entered into an
international transaction (or specified domestic transaction) to furnish any information or
document referred to therein, within a period of 30 days from the date of receipt of notice
issued in this regard. The period of 30 days may be further extended upto 30days on such
person’s application.
4. Sub-section (4) provides that the constituent entity shall furnish
the information and document referred to therein to the
authority prescribed in such manner, on or before such
date as may be prescribed.

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5) Safe Harbour Rules

On 20th May,2020; CBDT has notified that the earlier Safe Harbour Rule applicable for AY 2018-19 & AY
2019-20 shall be extended for AY 2020-21 without any change.

20.Amendment in Recovery Procedure

Recovery Process

Where assessee is in default of making payment of taxes then, Tax Recovery Officer (TRO) will prepare
certificate to recover amount due by attaching & selling movable & immovable properties of assessee, arresting
assessee & detain in prison & appointing receiver to manage properties of assessee. Movable & immovable
properties includes properties transferred (directly or indirectly) to spouse, minor child, son's wife or son's
minor child for other than adequate consideration. [Section 221]. Further, as per Rule 68B(1) no sale of
immovable property attached towards the recovery of tax, penalty, etc., shall be made after the expiry of 7 years
from the end of the financial year in which the assessment or Penalty or other order was passed. Further the
CBDT may extend the aforesaid period by a further period not exceeding 3 years. Thus the total time period for
sale of attached immovable property could not extend to 10 years from the end of the financial year in which
order is conclusive.

Jurisdiction of TRO: (i) Business assessee: TRO within whose jurisdiction assessee carries on business, (ii) Other
assessee: TRO within whose jurisdiction assessee resides or other movable or immovable property of assessee is
situated. From his jurisdiction, if TRO unable to recover arrears & assessee has property in other than TRO's
jurisdiction, then TRO send certificate copy to other TRO having jurisdiction over such property & other TRO
will proceed as if certificate issued by him [Section 223]

Cases where TRO may grant stay on recovery proceeding : ❶ TRO may grant time for payment of taxes or ❷
Order giving rise to demand is subject matter of appeal & in an appeal, demand is reduced & order is subject
matter of further appeal, then stay is allowed on amount pertaining to reduction till appeal is pending [Section
225]

Assessee shall not make any type of transfer or mortgage of property during the pendency of
proceeding. If such transfer or mortgage is made, then it will be considered as void. However, other
party not known to it & transfer is for adequate consideration or prior permission of AO is obtained or
tax payable ≤ `5,000 or Asset valued ≤ `10,000, then transfer cannot be declared void

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During pendency of proceeding, AO may, in order to protect the interest of revenue, with prior
permission of CCIT/PCCIT/CIT/CIT/DGIT/PDGIT and after recording reasons in writing,
provisionally attach any property of the assessee. Every provisional attachment order is valid for 6
months & the said time limit can be further extended if approved by the CCIT. However, in no case,
aggregate period shall exceed: 2 years from the end of the month in which provisional attachment
order was passed.

Amendment FA 2019 – Section 228A

1) Foreign country defaulter and connection with India:

• Where an agreement is entered into by the CG with Government of foreign country for
recovery of income tax and
• the government of that foreign country send to CBDT a certificate for recovery of any tax
due in foreign country from
a) Resident in India; or
b) A person having any property in India
• the CBDT may forward such certificate to any TRO having jurisdiction over the resident or
within whose jurisdiction such property is situated for the purpose of recovery.
2) Defaulter in India with foreign connection:
• Where an assessee is in default or is deemed to be in default in making payment of tax,
• the TRO may, if the assessee is
a) Resident of a foreign country (with whom India has tax recovery agreement) or
b) has any property in that country,
c) forward to the board a certificate drawn upon by him under section 222 and the board
may thereafter take appropriate action as per the agreement

Example:
Rose N, LLP of UK, carried business in India against which a demand of Rs. 50 lakhs for A.Y 2017-18 is
outstanding. The LLP does not have any assets in India and has also closed the business. The Tax Recovery
Officer (TRO) cannot recover such demand by having attachment on the assets of Rose N, LLP located in
UK.
Solution:
The statement is Correct.
Where an assessee is in default or is deemed to be in default in making a payment of tax, the TRO may, if
the assessee has property in a country outside India ( being a country with which India has an agreement for
the recovery of income-tax under this Act and the corresponding law in force in that country), forward to
the CBDT a certificate drawn up by him under section 222 and the CBDT may take such action thereon as it
may deem appropriate having regard to the term of the agreement with such country.
Accordingly, since India has an agreement with UK, the Tax Recovery Officer (TRO) cannot recover such
demand by having attachment on the assets of Rose N, LLP located in UK, but has to forward to the CBDT, a
certificate drawn up by him under section 222

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21. Surgical Strike on Cash Transactions

a) Legal Measure Applicable to Receipt of Money

SR. Section Section Key point

NO. No
For Recipient
a) 13A Exemption for certain No donation exceeding Rs.2000 is received by such
income of political political party otherwise than by an account payee
parties cheque drawn on a bank or an account payee bank
draft or use of electronic clearing system through a
bank account[or through such other electronic mode
as may be prescribed]
Contravention : Exemption u/s 13A shall not be
allowed
b) 269ST & Mode of undertaking NO PERSON (except banking company, Government,
271DA transaction post office, co-operative bank & CG notified person)
shall receive an amount of RS.2 LAKHS OR MORE
otherwise than by an account payee cheque or an
account payee bank draft or use of electronic clearing
system through a bank account[or through such other
electronic mode as may be prescribed]
(a) in aggregate from a person in a day (SAME
PERSON); or
(b) in respect of a single transaction (SAME
TRANSACTION); or
(c) in respect of transactions relating to one event or
occasion (SAME EVENT/OCCASION) from a person
Contravention: Penalty u/s 271DA = 100% of
transaction amount
c) 269SS & Mode of • No person (except banking company, Government,
271D taking/accepting post office, co-operative bank & CG notified
loans/deposits/specified person) shall take or accept from any other
sum person, otherwise than by an account payee
cheque or account payee bank draft or use of
electronic clearing system through a bank
account[or through such other electronic mode as
may be prescribed]
• any Loan/any Deposit/any Specified Sum for
transfer of immovable property (eg. Advance for
transfer of immovable property)(L/D/S) if:
(a) The amount of such L/D/S or aggregate of such
L/D/S; or
(b) On the date of taking such L/D/S, any L/D/S

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taken earlier from the depositor is remaining

unpaid; or
(c) The amount or aggregate amount referred to
in (a) & (b)
exceeding Rs.20,000
Contravention: Penalty u/s 271D equal to
Loan/Deposit taken or specified sum accepted
d) 269SU Acceptance of payment Every person, carrying on business to provide facility
& through prescribed for accepting payment through the prescribed
271DB electronic modes. electronic modes, in addition to the facility for other
electronic modes of payment, if any, being provided by
such person, if his total sales, turnover or gross
receipts in business turnover or gross receipts in
business during the immediately preceding previous
year.
Contravention: Penalty u/s 271DB, is Rs. 5,000, for
every day during which such failure continues
e) 43CA Stamp duty valuation For the purpose of Sec. 43CA, where date of
for transfer of L&B held agreement is not same as date of registration, SDV on
as stock-in-trade the date of agreement shall be considered if the
consideration or part thereof is received other than
cash on or before the date of the agreement for
transfer.
Else, SDV on date of registration shall be considered.
If Value adopted for the purpose of stamp duty
payment ≤105% of consideration received/ accruing ,
then FVOC= consideration received/ accruing.
f) 56(2)(x) Gift of immovable Section 56(2)(x) will be applicable if the following
property conditions are satisfied;
→ A person receives an immovable property
from any person
→ Stamp duty value exceed 105% of
consideration
→ Difference between consideration and stamp
duty >Rs. 50000
If the above condition are satisfied the difference
between stamp duty value and consideration is
taxable under the head IFOS.
Note: Fourth proviso to section 56(2)(x) has been
amended w.e.f the A.Y 2018-19 as per which section
56(2)(x) will not be applicable , if a capital asset is
received by a holding company from 100% subsidiary
company (and vice versa) provided the transferee
company is an Indian company.
g) 50C Stamp duty valuation For the purpose of Sec.50C, where date of agreement
is not same as date of registration, SDV on the date of
agreement shall be considered if the consideration or

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part thereof is received other than cash on or before

the date of the agreement for transfer.
Else, SDV on date of registration shall be considered.
If Value adopted for the purpose of stamp duty
payment ≤105% of consideration received/ accruing ,
then FVOC= consideration received/ accruing
h) 44AD Presumptive taxation If turnover/gross receipts received through mode
other than cash before due date of filing ROI u/s
139(1) - 6% of the total turnover/gross receipts shall
be deemed to be PGBP
Else, 8% of the total turnover/gross receipts shall be
deemed to be PGBP
i) 69D & Amount borrowed/ • Any amount borrowed on hundi from any
271AAC repaid on hundi person or any amount due thereon is repaid to
such person otherwise than by an account
payee cheque.
• Deemed Income is amount so borrowed or
repaid
• Tax on such income shall be levied u/s 115BBE
@60% + 25%(surcharge) + 4% (cess)
• Penalty u/s 271AAC @ 10% of tax u/s 115BBE

b) Legal Measures Applicable to Payment of Money

SR. Section Section Key point

NO. No
For Payer
a) 40A(3)/(3 Cash expenditure Disallowance of expenditure in respect of which a payment
A) Sec. 40A(3) is for or aggregate of payments made to a person in a day,
payment of CY otherwise than by an account payee cheque drawn on a
expenditure bank or account payee bank draft, or use of electronic
Sec.40A(3A) is for clearing system through a bank account[or through such
payment of other electronic mode as may be prescribed] exceeds
earlier year Rs.10,000 (Rs.35,000 for contractor)
expenditure
b) 43(1) Actual Cost for • Actual cost of asset shall not include asset in respect of
depreciation which a payment or aggregate payment is made to a
person in a day, otherwise than by an account payee
cheque drawn on a bank or an account payee bank draft
or use of electronic clearing system through a bank
account [or through such other electronic mode as may
be prescribed] in excess of Rs.10,000.
• Therefore, depreciation u/s 32 or additional depreciation
u/s 32(1)(iia) or investment allowance u/s 32AD shall not
be allowed on asset purchased in cash in excess of
Rs.10,000.
• Further, for the purpose of Sec. 50 [CG in respect of

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depreciable asset], the actual cost would not include

cost of asset purchased in cash in excess of Rs. 10,000.
c) 35AD Deduction for Deduction u/s 35AD shall not be allowed for expenditure in
specified respect of which payment or aggregate payment made to a
expenditure person in a day, otherwise than by an account payee cheque
drawn on a bank or an account payee bank draft or use of
electronic clearing system through a bank account [or
through such other electronic mode as may be prescribed]
exceeds Rs. 10,000
d) 80D Deduction for Deduction shall not be allowed u/s 80D in respect of Health
Health insurance insurance Premium, unless payment shall be made any
mode other than cash.
Exception: Payment can be made in any mode, including
cash, in respect of any sum paid on account of preventive
health check-up.
e) 80G Deduction for Deduction shall not be allowed u/s 80G in respect of
donation donation made in excess of Rs.2,000, unless such sum is paid
by any mode other than cash.
f) 80GGB/8 Donation to Deduction shall not be allowed unless such donation is paid
0GGC political party/ by any mode other than cash.
electoral trust
g) 80JJAA Deduction in For the purpose of deduction u/s 80JJAA, additional
respect of employee cost shall not include emoluments paid otherwise
employment of than by an account payee cheque or account payee bank
new employees draft or by use of electronic clearing system through a bank
account [or through such other electronic mode as may be
prescribed]However, this shall not apply in the first year of
business.
h) 269T & Mode of • No Company including banking company & its branches,
271E repayment of Co-operative banks & its branches, Co-operative
loan/deposits societies, Firm or other person (except banking
company, Government, post office, co-operative bank &
CG notified person) Shall repay otherwise than by an
account payee cheque or account payee bank draft
drawn or by use of electronic clearing system through a
bank account [or through such other electronic mode as
may be prescribed] if:
(a) Such L/D/S repaid together with interest; or
(b) The aggregate amount of Loan/Deposits together
with interest held by Depositor with the Branch of
the above persons, or specified advance together
with interest received by such person either in his
own name or jointly with any other person on the
date of such repayment
Exceeding Rs. 20,000
Contravention: Penalty u/s 271E equal to L/D/S repaid.

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c) Legal Measures on Huge Withdrawals of Cash

Section No Section Key point

194N Withdrawals in cash from any Payment from one or more accounts to an
Account (saving or current account holder in cash by bank/ co-operative
account) [FA 2019] bank/ Post office in excess of Rs. 1 crore in the
financial year (applicable with effect from
September 1,2019)

d) Legal Measures on Deposit of Money and Specific Expenditure

Section Section Key point

No
139 Mandatory Furnishing of A person (other than a company or a firm) shall be mandatorily
Return of Income by required to file his return of income, if during the previous
Certain Person [FA 2019] year, he-
a. Has deposited an amount ( or aggregate of the amounts )
exceeding Rs.1 crore in one or more current account
maintained with a banking company or a co-operative bank ; or
b. Has incurred expenditure of an amount (or aggregate of the
amounts ) exceeding Rs. 2 lakh for himself or any other person
for travel o a foreign country; or
c. Has incurred expenditure of an amount (or aggregate of the
amounts ) exceeding Rs. 1 lakh towards consumption of
electricity; or
d. Fulfill such other prescribed conditions, as may be
prescribed.

CA. Durgesh Singh