AMENDMENTS TO INCOME-TAX ACT
FINANCE ACT, 1982
Relaxation of tests of "residence" in India - Section 6
7.1 Under the existing provisions,
an individual is said to be ‘resident’ in India in any
year, if:
a. he
is in India in that year for a period or periods amounting in all to 182 days or
more; or
b. he
maintains or causes to be maintained for him a dwelling place in India for a
period or periods amounting in all to 182 days or more in that year and has been in
India for 30 days or more in that year; or
c. he,
having within the four years preceding that year been in India for a period or
periods amounting in all to 365 days or more, is in India for a period or periods
amounting in all to 60 days or more in that year.
FINANCE ACT, 1982
7.2 In the case of an Indian
citizen who is rendering service outside India, and who is on
leave or vacation in India, the period of 30 days and 60 days referred to in (b)
and (c)
above is taken as 90 days.
FINANCE ACT, 1982
7.3 With a view to avoiding
hardship in the case of Indian citizens, who are employed or
engaged in other avocations outside India, the Finance Act has made the following
modifications in the tests of residence in India:
1. The provision relating to
maintenance of a dwelling place coupled with stay in India of
30 days or more referred to in (b)
above has been omitted.
2. In the case of Indian citizens
who come on a visit to India, the period of "60 days or
more" referred to in (c)
above will be raised to "90 days or more".
3. Where an individual who is
a citizen of India leaves India in any year for the purposes
of employment outside India, he will not be treated as resident in India in that year unless
he has been in India in that year for 182 days or more. The effect of this amendment will
be that the test of residence in (c)
above will stand modified to that extent in such cases.
FINANCE ACT, 1982
7.4 These amendments will take
effect from April 1, 1983 and will, accordingly, apply in
relation to the assessment year 1983-84 and subsequent years.
[Section 3 of the Finance Act]
FINANCE ACT, 1982
Exemption from income-tax of interest accruing on credit balance in
Non-resident
(External) Account - Section 10(4A)
8.1 Under clause (4A
) of section 10 of the Income-tax Act, in the case of a non-resident,
any income from interest on moneys standing to his credit in a Non-resident (External)
Account in any bank in India in accordance with the Foreign Exchange Regulation Act
and the rules made thereunder is not included in computing his total income. The benefit
of this exemption is available only to a "non-resident" as defined in the Income-tax Act.
Under the Foreign Exchange Regulation Act, 1973, a person "resident outside India"
within the meaning of this expression as defined in section 2(q)
of that Act can open a
Non-resident (External) Account; but if he does not satisfy the test of being a "non-resident"
under the Income-tax Act, he does not qualify for this exemption.
FINANCE ACT, 1982
8.2 With a view to removing
this anomaly, the Finance Act has substituted the present
clause (4A) by a new
clause to provide that exemption from income-tax in respect of
interest on Non-resident (External) Account shall be available in the case of a "person
resident outside India" as defined in section 2(q)
of the Foreign Exchange Regulation
Act, 1973.
FINANCE ACT, 1982
8.3 Clause (q
) of section 2 of the Foreign Exchange Regulation Act provides that a
"person resident outside India" means a person who is not resident in India. The
expression "person resident in India" has been defined in clause (q)
of section 2 of the
Foreign Exchange Regulation Act. An extract from the definition is reproduced below:
"(q) ‘person resident in India’ means—
(i) a citizen of India, who has, at any time after the 25th day of March, 1947, been
staying in India, but does not include a citizen of India who has gone out of, or stays
outside, India, in either case—
(a) for or on taking up employment outside India, or
(b) for carrying on outside India a business or vocation outside India, or
(c) for any other purpose, in such circumstances as would indicate his intention to
stay outside India for an uncertain period;
(ii) a citizen of India, who having ceased by virtue of paragraph (a)
or paragraph (b) or
paragraph (c) of sub-clause
(i) to be resident in
India, returns to, or stays in, India, in
either case—
(a) for or on taking up employment in India, or
(b) for carrying on in India a business or vocation in India, or
(c) for any other purpose, in such circumstances as would indicate his intention to
stay in India for an uncertain period;
(iii) a person, not being a citizen of India, who has come to, or stays in, India, in either
case—
(a) for or on taking up employment in India, or
(b) for carrying on in India a business or vocation in India, or
(c) for staying with his or her spouse, such spouse being a person resident in India,
or
(d) for any other purpose, in such circumstances as would indicate his intention to
stay in India for an uncertain period;
(iv) a citizen of India, who, not having stayed in India at any time after the 25th day of
March, 1947, comes to India for any of the purposes referred to in paragraphs (a),
(b) and (c
) of sub-clause (iii)
or for the purpose and in the circumstances referred to
in paragraph (d) of that
sub-clause or having come to India stays in India for any
such purpose and in such circumstances.
Explanation:
A person, who has, by reason only of paragraph (a)
or paragraph (b) or
paragraph (d) of sub-clause
(iii) been resident in
India, shall, during any period in
which he is outside India, be deemed to be not resident in India."
FINANCE ACT, 1982
8.4 This provision takes effect
from April 1, 1982 and will, accordingly, apply in relation
to the assessment year 1982-83 and subsequent years.
[Section 4(a)
of the Finance Act]
JUDICIAL ANALYSIS
EXPLAINED IN - Paras 8.1 and
8.2 were explained in ITO
v. Hirachand B. Vaya
[1997]
61 ITD 264 (Ahd.), with the following observations :
"7.3 It is clear from the aforesaid Circular that this amendment was
made with a
view to removing this anomaly by which it was provided that exemption from
income-tax in respect of interest on non-resident (external) account shall be
available in the case of a ‘person resident outside in India’ as defined in section 2(
q)
of the Foreign Exchange Regulation Act, 1973. The amendment so made with the
object of removing the existing anomaly should be held to be clarificatory in
nature...." (p. 267)
FINANCE ACT, 1982
Exemption of interest income of non-residents from specified savings
certificates -
Section 10(4B)
9.1 With a view to encouraging
the flow of foreign exchange remittances into India, the
Finance Act has inserted a new clause (4B)
in section 10 of the Income-tax Act to
provide exemption from income-tax in the case of non-resident Indian citizens and
foreign nationals of Indian origin, in respect of income by way of interest on savings
certificates issued by the Central Government which that Government may by
notification in the Official Gazette specify in this behalf. This exemption will apply only
if such savings certificates have been subscribed to by the assessee in "convertible
foreign exchange" remitted from a country outside India in accordance with the Foreign
Exchange Regulation Act, 1973 and any rules made thereunder. The exemption will be
available only to the original subscriber of the savings certificates.
FINANCE ACT, 1982
9.2 For the purpose of this
exemption, a person will be deemed to be of Indian origin if
he or either of his parents or any of his grandparents was born in undivided India.
Further, the expression "convertible foreign exchange" means foreign exchange which is
for the time being treated by the Reserve Bank of India as convertible foreign exchange
for the purposes of the Foreign Exchange Regulation Act, 1973 and the rules made
thereunder.
FINANCE ACT, 1982
9.3 This provision will take
effect from April 1, 1983 and will, accordingly, apply in
relation to the assessment year 1983-84 and subsequent years.
[Section 4(b)
of the Finance Act]
FINANCE ACT, 1982
Exemption of amounts received by way of encashment of unutilised earned
leave by
retiring employees - Section 10(10AA)
10.1 Under the existing provisions
of the Income-tax Act, any amount received on
retirement from service by way of cash equivalent of unutilised earned leave is
chargeable to income-tax under the head "Salaries". With a view to avoiding hardship to
retiring employees, the Finance Act has inserted a new clause (10AA)
in section 10 of the
Income-tax Act to exempt such payment from income-tax in the case of employees of the
Central Government or a State Government. In the case of other employees, the
exemption will be determined with reference to the leave to his credit at the time of
retirement, subject to a maximum of 6 months’ leave. For this purpose, the entitlement to
leave, shall not exceed 30 days for every year of service. The exemption will be limited
to the amount payable for such unutilised leave on the basis of the average salary of the
employee for 6 months or Rs. 30,000, whichever is less. In the case of employees retiring
before January 1, 1982, the monetary ceiling limit will be Rs. 25,500. The average salary
shall be determined on the basis of the salary drawn for the 10 immediately preceding
months. In relation to non-Government employees, who retire on superannuation or
otherwise after December 31, 1981, the Central Government is being empowered by
notification in the Official Gazette, to raise the aforesaid monetary ceiling of Rs. 30,000
keeping in view the maximum amount which will qualify for exemption in the case of
Government servants.
FINANCE ACT, 1982
10.2 Where the cash equivalent
of unutilised earned leave is received by an employee
from two or more employers in the same year, the maximum amount exempt from tax
will not exceed Rs. 30,000 or, as the case may be, Rs. 25,500. In cases where an
employee, who has received any cash equivalent of unutilised earned leave in any year
from his former employer or employers, receives cash equivalent of unutilised earned
leave from his present employer in a later year, the ceiling limit specified above will be
reduced by the amount of cash equivalent of unutilised earned leave which has been
exempted in any earlier year or years.
FINANCE ACT, 1982
10.3 The new provision has been
given retrospective effect from April 1, 1978, and will,
accordingly, apply in relation to the assessment year 1978-79 and subsequent years.
Where an assessee has included the amount received by way of encashment of unutilised
earned leave in a return for the assessment year 1978-79, or any subsequent years, he can
file an application before the Income-tax Officer for rectification of his assessment for
claiming the exemption of the amount so received and the Income-tax Officer will pass
an order of rectification under section 154 of the Income-tax Act to give exemption in
respect of such amount. Similarly, other appellate authorities or the Appellate Tribunal
can grant the relief in view of the retrospective amendment made by the new clause
(10AA) in section 10
in this behalf. The Income-tax Officer will dispose of such
applications for rectification expeditiously and grant refunds wherever due.
[Section 4(c)
of the Finance Act]
FINANCE ACT, 1982
Exemption from income-tax in respect of interest on new Capital Investment
Bonds
- Section 10(15)(iib)
11.1 With a view to providing
a stimulus for increased savings by assessees, the Finance
Act has inserted a new sub-clause (iib)
in clause (15) of section
10 of the Income-tax Act
to provide for exemption from income-tax of the interest on such Capital Investment
Bonds as the Central Government may, by notification in the Official Gazette, specify in
this behalf. It may be noted that the interest on the Capital Investment Bonds will be
exempted from income-tax without any ceiling limit.
FINANCE ACT, 1982
11.2 This provision will take
effect from April 1, 1983 and will, accordingly, apply in
relation to the assessment year 1983-84 and subsequent years.
[Section 4(d)
of the Finance Act]
FINANCE ACT, 1982
Extension of time limit for religious or charitable trusts and institutions
for
compliance with specified investment pattern - Section 13(1)(d)
12.1 Under section 11 of the
Income-tax Act, a charitable or religious trust or institution
qualifies for exemption from income-tax, subject to certain conditions laid down in
sections 12, 12A and 13. One of the conditions laid down in this behalf is that such
charitable or religious trust or institution should invest or deposit its funds in the modes
or forms specified in sub-section (5) of section 13 of the Income-tax Act with effect from
an accounting year commencing on or after April 1, 1981.
FINANCE ACT, 1982
12.2 In other words, if the
funds of charitable or religious trusts or institutions are not
invested or deposited in conformity with the investment pattern laid down in section
13(5) of the Income-tax Act, at any time during any previous year commencing on or
after April 1, 1981, the trust will lose exemption from income-tax for the assessment year
1982-83 onwards. The Finance Act has amended clause (d)
of sub-section (1) of section
13 to provide that exemption from income-tax in such cases will not be denied for the
assessment year 1982-83.
FINANCE ACT, 1982
12.3 This amendment takes effect
from April 1, 1982.
[Section 5(a)
of the Finance Act]
FINANCE ACT, 1982
Modification of the provisions relating to investment pattern of charitable
or
religious trusts or institutions - Section 13(5)
13.1 As stated in paragraph
12.1 above, charitable or religious trusts and institutions are
required to invest their funds in certain forms and modes. For this purpose, the funds of
charitable or religious trusts or institutions have been divided into the following four
types:
a. funds
represented by corpus (including original corpus) of any charitable or
religious trust or institution existing immediately before June 1, 1973;
b. funds
represented by corpus coming into existence on or after June 1, 1973 and
being either the original corpus or contributions with a specific direction to form
part of the corpus, but not in the form of cash;
c. funds
represented by corpus coming into existence on or after June 1, 1973 and
being either original corpus or contributions made with specific direction to form
part of the corpus, in the form of cash;
d. funds
other than those represented by the corpus referred to in (a),
(b) and (c
) above.
FINANCE ACT, 1982
13.2 Funds of the type mentioned
at (a) and (b
) in paragraph 13.1 above have been
grouped into one category and clause (b)
of section 13(5) provides that they may be
invested or deposited in any form or mode except in equity shares of a company which is
neither a Government company nor a statutory corporation. In other words, in respect of
these funds there is no restriction regarding their investment except that they should not
be in the form of equity shares of a company which is neither a Government company nor
a statutory corporation.
FINANCE ACT, 1982
13.3 The funds of the type mentioned
at (c) in paragraph 13.1
above fall in another
category and clause (a)
of section 13(5) provides the following forms and modes for their
deposit or investment:
a. investment
in Government savings certificates;
b. deposit
in any Post Office Savings Bank Account;
c. deposit
in any account with any scheduled bank;
d. investment
in units of the Unit Trust of India ;
e. investment
in any Central Government or State Government securities;
f. investment
in debentures of any corporate body, the principal whereof and the
interest whereon are guaranteed by the Central or a State Government; and
g. investment
or deposit in any Government company.
FINANCE ACT, 1982
13.4 The funds of the type mentioned
at (d) in paragraph 13.1
above fall in the third
category and clause (c)
of section 13(5) provides that they can be invested or deposited
only in any of the four forms and modes mentioned at (a)
to (d) of paragraph above.
FINANCE ACT, 1982
13.5 Investment in immovable
property is not one of the specified forms of investment of
trust funds referred to in paragraphs 13.3 and 13.4. With a view to enlarging the specified
forms of investments, the Finance Act has amended sub-section (5) of section 13 to
provide that investment in "immovable property" will also constitute an approved form or
mode of investment of funds by all categories of charitable or religious trusts or
institutions. For this purpose, the term "immovable property" will not include any
machinery or plant even though attached to, or permanently fastened to anything attached
to, the earth.
FINANCE ACT, 1982
13.6 This amendment takes effect
from April 1, 1982.
[Section 5(b)
of the Finance Act]
FINANCE ACT, 1982
Raising the rate of standard deduction admissible in the case of salaried
assessees -
Section 16(i)
14.1 Under section 16(i
) of the Income-tax Act, assessees deriving income under the head
"Salaries" are entitled to a standard deduction in the computation of the taxable salary.
The standard deduction is allowed in an amount equal to 20 per cent of the salary subject
to a ceiling limit of Rs. 5,000. With a view to providing a large deduction to taxpayers
having salary income below Rs. 25,000, the Finance Act has raised the rate of standard
deduction to 25 per cent of the salary subject to the existing ceiling limit of Rs. 5,000.
FINANCE ACT, 1982
14.2 This provision will take
effect from April 1, 1983 and will, accordingly, apply in
relation to the assessment year 1983-84 and subsequent years.
[Section 6 of the Finance Act]
FINANCE ACT, 1982
Liberalisation of the "tax holiday" for newly constructed
residential units and
raising of the monetary limit of deduction in respect of self-occupied house property
- Section 23(1) and (2)
15.1 Under section 23(1) of
the Income-tax Act, income from a newly constructed house
property, the construction of which is completed after March 31, 1978, which is let out
on rent is charged to tax on a concessional basis for an initial period of 5 years. During
this period, the annual letting value of the house property is reduced by an amount up to
Rs. 2,400 in respect of each residential unit for a total period of 5 years from the date of
completion of the property [vide
clause (c) of the second
proviso to sub-section (1) of
section 23 read with the Explanation
below sub-section (2) of that section]. With a view
to encouraging the construction of houses, particularly for persons with relatively lower
incomes, the Finance Act, 1982 has inserted a new clause (d)
in the second proviso to
section 23(1) to provide that in the case of a house property comprising one or more
residential units, the erection of which is completed after March 31, 1982, the annual
letting value of the house property will be reduced by an amount up to Rs. 3,600 in
respect of each residential unit for a total period of 5 years from the date of completion of
the property.
FINANCE ACT, 1982
15.2 Under section 23(2) of
the Finance Act, the income from self-occupied house
property is computed in a concessional manner. The annual value of the self-occupied
house is first determined in the same manner as if the property had been let out and then
it is reduced by one-half of the amount so determined or Rs. 1,800, whichever is less.
Where, however, the sum so arrived at exceeds 10 per cent of the assessee’s total income
as computed without including the income from such property and without making any
deduction under Chapter VIA of the Income-tax Act, the excess is disregarded. Where
more than one house is in the occupation of the owner, this deduction is available only in
respect of one house which may be specified by the assessee.
FINANCE ACT, 1982
15.3 With a view to providing
some relief in cases where the annual letting value of the
house does not exceed 10 per cent of the other income of the assessee, the Finance Act
has raised the monetary limit of Rs. 1,800 to Rs. 3,600.
FINANCE ACT, 1982
15.4 These provisions will take
effect from April 1, 1983 and will, accordingly, apply in
relation to the assessment year 1983-84 and subsequent years.
[Section 7 of the Finance Act]
FINANCE ACT, 1982
Deduction in respect of payments to associations and institutions carrying
out
programmes of conservation of natural resources - Section 35CCB and section
80GGA
16.1 With a view to encouraging
liberal donation to associations or institutions engaged
in programmes of conservation of natural resources, the Finance Act has inserted a new
section 35CCB in the Income-tax Act to provide that sums paid by an assessee carrying
on business or profession to any association or institution which has as its object the
undertaking of programmes of conservation of natural resources to be used for such
programmes will be allowed as deduction in the computation of taxable profits. The
deduction under this provision will not be allowed unless the association or institution, as
also the programme of conservation of natural resources for which sums are paid, have
been approved by the prescribed authority to be notified by the Central Board of Direct
Taxes. In other words, the benefit of the deduction under this provision will be available
only where at the time of incurring the expenditure, the institution, association, etc., as
also the programme of conservation of natural resources have been approved by the
prescribed authority. It is proposed to notify the Secretary, Department of Environment,
as the prescribed authority for the purposes of this section. The prescribed authority will
not approve an association or institution for this purpose for more than 3 years at a time.
FINANCE ACT, 1982
16.2 Section 80GGA of the
Income-tax Act provides that in the case of assessees, other
than those carrying on business or profession, sums paid during the previous year to
approved scientific research associations or approved associations or institutions which
have as their object the undertaking of any programme of rural development to be used
for the purposes of carrying out any approved programme of rural development, etc., will
qualify for deduction in the computation of the total income. The Finance Act has
inserted a new clause (c)
in sub-section (2) of section 80GGA of the Income-tax Act to
provide that sums paid to any association or institution which is approved by the
prescribed authority for the purposes of section 35CCB, to be used for carrying out any
programme of conservation of natural resources, approved for the purpose of that section
will qualify for deduction under section 80GGA in the computation of taxable income.
FINANCE ACT, 1982
16.3 These provisions take effect
from June 1, 1982 and will, accordingly, apply in
relation to the assessment year 1983-84 and subsequent years.
[Sections 9 and 17 of the Finance Act]
FINANCE ACT, 1982
Deduction in respect of provisions for bad and doubtful debts relating
to advance
made by rural branches of non-scheduled commercial banks - Section 36(1)(viia)
17.1 Under the existing provisions
of the Income-tax Act, a mere provision for bad and
doubtful debts is not allowed as deduction in computing the taxable profits of a business
or profession. In order to qualify for deduction, the assessee has to establish that the debt
had become "bad" during the accounting year. Further, the debt must be written off in the
books of account of the assessee.
FINANCE ACT, 1982
17.2 By an amendment made by
the Finance Act, 1979, a deduction is allowed in the case
of all scheduled commercial banks in respect of provisions made by them for bad and
doubtful debts relating to advances made by their rural branches. The deduction is limited
to 1.5 per cent of the aggregate average advances made by their rural branches. For this
purpose, a branch situated in a place with a population not exceeding 10,000 is regarded
as a rural branch. The aggregate average advances for this deduction are computed in the
manner prescribed in the Income-tax Rules.
FINANCE ACT, 1982
17.3 As non-scheduled commercial
banks are also engaged in providing rural credit and
promoting rural banking, the Finance Act has amended clause (viia)
of sub-section (1) of
section 36 of the Income-tax Act to extend the provision relating to deduction in respect
of provisions made by scheduled commercial banks for bad and doubtful debts relating to
advances by rural branches to non-scheduled commercial banks as well. For this purpose,
the expression "non-scheduled bank" means a banking company as defined in clause (c
)
of section 5 of the Banking Regulation Act, 1949 but which is not a scheduled bank.
FINANCE ACT, 1982
17.4 This provision will take
effect from April 1, 1983 and will, accordingly, apply in
relation to the assessment year 1983-84 and subsequent years.
[Section 10(a)
of the Finance Act]
FINANCE ACT, 1982
Deduction in respect of profits transferred to special reserves in the
case of
scheduled banks having operations abroad - Section 36(1)(viiia)
18.1 Under section 36(1)(
viii) of the Income-tax Act, approved financial corporations
engaged in providing long-term finance for industrial or agricultural development in
India and approved public housing finance companies are entitled to a deduction, in the
computation of the taxable profits, in respect of the amount transferred by them out of
such profits to a special reserve account, up to 40 per cent of their taxable income. In
view of the important role being played by scheduled commercial banks in expanding
banking operations outside India, the Finance Act has inserted a new clause (viiia
) in
sub-section (1) of section 36 to provide for a similar tax concession to scheduled banks,
other than foreign banks, which are engaged in banking operations outside India. Under
this provision, such scheduled banks will be entitled to a deduction, in the computation of
the taxable profits, up to 40 per cent of the total income computed before making any
deduction under Chapter VIA carried by them to a special reserve account. However, this
concession will be available only where such scheduled bank is approved by the Central
Government for the purposes of this clause, taking into account the capital structure, the
extent of its operations outside India, its need for resources for operations outside India
and other relevant factors. For this purpose, the expression "scheduled bank" will have
the same meaning as in the Explanation
at the end of clause (b)
of sub-section (2) of
section 11. Accordingly, the expression "scheduled bank" means the State Bank of India,
the subsidiary banks of the State Bank of India, the nationalised banks or any other bank
included in the Second Schedule to the Reserve Bank of India Act, 1934.
FINANCE ACT, 1982
18.2 These provisions will take
effect from April 1, 1983 and will, accordingly, apply in
relation to the assessment year 1983-84 and subsequent years.
[Section 10(a)
and (b) of the Finance
Act]
FINANCE ACT, 1982
Modification of the provisions relating to exemption of capital gains
on transfer of
self-occupied house property on investment in other house property for self-occupation - Section 54
19.1 Under section 54 of the
Income-tax Act, capital gains arising on the transfer of a
house property which in the two years immediately preceding the date of its transfer was
used by the assessee or a parent of his for self-residence is exempted from income-tax if
the assessee, within a period of one year before or after that date, purchases or within a
period of two years after the date of such transfer constructs a house property for the
purposes of his own residence. The exemption of capital gains is restricted to the amount
of such capital gain utilised for the purchase or construction of the new house property.
Where the amount of capital gain is greater than the cost of the house property so
purchased or constructed, the balance amount of the capital gains is charged to tax. If,
however, the amount of the capital gain is equal to or less than the cost of the house
property purchased or constructed, the capital gain is completely exempted from income-tax. If such
house property purchased or constructed is transferred within a period of
three years of its purchase or construction, the capital gain on the property so transferred
is calculated by reducing the cost of its acquisition by the amount of the capital gain
exempted from income-tax.
FINANCE ACT, 1982
19.2 The conditions of self-occupation
of the property by the assessee or his parent
before its transfer and the purchase or construction of the new property to be used for the
residence of the assessee for the purposes of exemption of capital gains created hardship
for assessees. This was usually due to the fact of employment or business of the assessee
at a place different from the place where such property was situated.
FINANCE ACT, 1982
19.3 The Finance Act has made
the following modifications in section 54 of the Income-tax Act, namely :
1. The conditions of residence
by the assessee or his parent in the property which was
transferred, as also residence by the assessee in the new property purchased or
constructed by him, have been removed.
2. The period for construction
of a new property has been raised from two years to three
years since assessees sometimes experience difficulty in complying with the existing time
limit of two years for the construction of a house property.
3. It is clarified that this
exemption will be allowed only in the case of individual
assessees.
4. It has been provided that
this exemption will apply only in relation to long-term capital
gains, that is gains arising from the transfer of a house property which had been held by
the assessee for a period exceeding 36 months.
FINANCE ACT, 1982
19.4 This provision will take
effect from April 1, 1983 and will, accordingly, apply in
relation to the assessment year 1983-84 and subsequent years.
[Sections 11 and 23(a)
and (b) of the Finance
Act]
FINANCE ACT, 1982
Exemption from tax on capital gains in certain cases on investment of
the
consideration in residential house - Section 54F
20.1 Under the existing provisions
of the Income-tax Act, any profits and gains arising
from the transfer of a long-term capital asset are charged to tax on a concessional basis.
For this purpose, a capital asset which is held by an assessee for a period of more than 36
months is treated as a ‘long-term’ capital asset.
FINANCE ACT, 1982
20.2 With a view to encouraging
house construction, the Finance Act, 1982 has inserted a
new section 54F to provide that where any capital gain arises from the transfer of any
long-term capital asset, other than a residential house, and the assessee purchases within
one year before or after the date on which the transfer took place or constructs within a
period of three years after the date of transfer, a residential house, the capital gain arising
from the transfer will be treated in a concessional manner as under :
1. If the cost of the house
that has been purchased or constructed is not less than the net
consideration in respect of the capital asset transferred, the entire capital gain arising
from the transfer will be exempt from tax.
2. If the cost of the newly
acquired house is less than the net consideration in respect of
the capital asset transferred, the exemption from long-term capital gain will be granted
proportionately on the basis of investment of net consideration either for purchase or
construction of the residential house.
This concession will not be available in a case where the assessee owns
on the date of the
transfer of the original asset any residential house, or purchases within the period of one
year after such date, or constructs, within the period of three years after such date, any
other residential house. Where the assessee purchases or constructs any other residential
house within the period aforesaid, the exemption under the proposed provision, if
allowed, shall stand forfeited and the amount of capital gain arising from the transfer of
the original asset, which was not charged to tax, shall be allowed to be the income
chargeable under the head "Capital gains" relating to long-term capital assets of the
previous year in which such residential house is so purchased or constructed. "Net
consideration" in respect of the transfer of a capital asset means the full value of the
consideration received or accruing as a result of the transfer of the capital asset after
deduction of any expenditure incurred wholly and exclusively in connection with the
transfer.
FINANCE ACT, 1982
20.3 If the assessee transfers
the newly acquired residential house within three years of
its purchase or construction, then the amount of capital gain arising from the transfer of
the original asset which was not charged to tax shall be deemed to be the income of the
year in which the new asset is transferred and such income shall be charged to tax under
the head "Capital gains" relating to long-term capital assets.
FINANCE ACT, 1982
20.4 This provision will become
effective from April 1, 1983 and will, accordingly, apply
in relation to the assessment year 1983-84 and subsequent years.
[Sections 12, 23(c)
and 32(i) of the Finance
Act]
JUDICIAL ANALYSIS
EXPLAINED IN - In K.M.
Natarajan v. ITO
[1992] 41 ITD 226 (Mad.) it was held that
Circular No. 346, dated 30-6-1982 of the CBDT explains that the exemption was granted
with a view to encouraging house construction and obviously it was not meant to be
given to a person who already owned a house
FINANCE ACT, 1982
Deduction in respect of long-term specified media - Section 80C
21.1 Under section 80C of the
Income-tax Act, tax relief is allowed in respect of long-term savings effected by certain categories
of assessees out of their income chargeable to
tax. In the case of an individual, long-term savings through life insurance or deferred
annuity policies (without cash option) on the life of the individual, his spouse or child,
certain provident funds and superannuation funds, unit-linked insurance plan and 10-year
and 15-year cumulative time deposit accounts qualify for tax relief. In the case of Hindu
undivided families, long-term savings effected through insurance policies on the life of
any member of the family qualify for tax relief. In the case of an assessee being an
association of persons or a body of individuals, consisting only of husband and wife
governed by the system of community of property in force in the Union territories of
Dadra and Nagar Haveli and Goa, Daman and Diu, long-term savings of such association
or body or on the life of any child of either member, as also through the public provident
fund, unit-linked insurance plan, 10-year and 15-year cumulative time deposit accounts
qualify for tax relief.
FINANCE ACT, 1982
21.2 The tax relief, in all
cases, is allowed by deducting, in the computation of the
taxable income of the assessee, the whole of the first Rs. 5,000 of the qualifying savings
plus 50 per cent of the
next Rs. 5,000 plus 40
per cent of the balance of such savings.
Long-term savings qualify for the tax relief only to the extent of such savings do not
exceed the ceiling limits laid down in this behalf. In the case of individuals, Hindu
undivided families and specified associations of persons, the ceiling limit applicable is 30
per cent of the gross total income or Rs. 30,000, whichever is less. A higher ceiling limit
is laid down in the case of authors, playwrights, artists, musicians, actors, sportsmen and
athletes. The ceiling limit in their case is 40 per cent of the professional income of the
author, playwright, artist, musician, actor, sportsman and athlete plus
30 per cent of the
remaining part of the gross total income or Rs. 50,000, whichever is less.
FINANCE ACT, 1982
21.3 With a view to providing
further incentive for effecting long-term savings the
Finance Act, 1982 has made the following modifications in the relevant provisions :
1. The quantum of deduction
in respect of long-term savings has been increased to allow
deduction of the whole of the first Rs. 6,000 of the qualifying savings as against Rs.
5,000 at present. The second slab of deduction will be from Rs. 6,001 to Rs. 12,000 as
against the existing slab of Rs. 5,001 to Rs. 10,000 and the quantum of deduction in
respect of the revised slab will be 50 per cent as at present. The qualifying savings in
excess of Rs. 12,000 will qualify for deduction at 40 per cent as at present.
2. The monetary limit of the
savings qualifying for the deduction has been raised to Rs.
40,000 as against the existing limit of Rs. 30,000 in the case of the generality of
assessees. In the case of authors, playwrights, artists, musicians, actors, sportsmen and
athletes, the monetary limit has been increased to Rs. 60,000 as against the existing limit
of Rs. 50,000. The Income-tax Rules have been amended to secure this objective.
3. Apart from existing modes
of savings through life insurance, certain provident funds
and superannuation funds, unit-linked insurance plan and cumulative time deposits, it is
proposed to provide an additional savings medium. The Central Government has been
empowered to notify in the Official Gazette any Central Government security the
subscription to which will also qualify for deduction under section 80C of the Income-tax
Act.
FINANCE ACT, 1982
21.4 Under the existing provisions,
payments of life insurance premia qualify for
deduction irrespective of the time for which the policy is maintained. It was observed that
a large number of policies are terminated in a year or two of commencement after
deduction of premia is allowed in respect of these policies. With a view to discouraging
this trend, the Finance Act has provided that where an assessee discontinues a policy of
life insurance before premiums for two years have been paid, no deduction will be
allowed in respect of any premium paid in the year in which the policy is terminated.
Further, the amount of deduction allowed in respect of the premium paid in the year or
years preceding that year will be deemed to be the income of the assessee of the year in
which the policy is terminated.
FINANCE ACT, 1982
21.5 These provisions will take
effect from April 1, 1983 and will, accordingly, apply in
relation to the assessment year 1983-84 and subsequent years.
[Section 13 of the Finance Act]
FINANCE ACT, 1982
Deduction in respect of investment in equity shares of new industrial
companies and
public housing finance companies - Section 80CC
22.1 Under section 80CC of the
Income-tax Act, individuals, Hindu undivided families
and associations of persons or bodies of individuals consisting only of husband and wife
governed by the system of community of property in force in the Union territories of
Dadra, Nagar Haveli and Goa, Daman and Diu, who acquire any equity shares forming
part of an eligible issue of capital of new industrial companies or public housing finance
companies are entitled to a deduction, in the computation of their taxable income, of an
amount equal to 50 per cent of the cost of such shares, subject to a maximum amount of
investment of Rs. 10,000. With a view to stimulating investment in equity shares of such
companies, the Finance Act has raised the maximum amount of investment qualifying for
deduction under this provision from Rs. 10,000 to Rs. 20,000.
FINANCE ACT, 1982
22.2 This provision will
take effect from April 1, 1983 and will, accordingly, apply in
relation to the assessment year 1983-84 and subsequent years.
[Section 14 of the Finance Act]
FINANCE ACT, 1982
Donations to National Children’s Fund to be put on par with donations
to other
funds of national character - Section 80G
23.1 Under section 80G of the
Income-tax Act, an assessee is entitled to a deduction, in
the computation of his taxable income, of an amount equal to 50 per cent of the donations
made by him to certain funds and charitable institutions, or for the repair or renovation of
any temple, mosque, gurdwara, church or any other place which is notified by the Central
Government for this purpose to be of historic, archaeological or artistic importance or to
be a place of public worship of renown throughout any State or States. Donations made
to the Government or any approved local authority, institution or association to be
utilised for the purpose of promoting family planning, are eligible for 100 per cent
deduction. The amount of donations qualifying for deduction under section 80G is,
however, limited to 10 per cent of the gross total income of the donor, subject to a further
monetary limit of Rs. 5 lakhs. The aforesaid ceiling limits, however, do not apply in
relation to the donations made to the National Defence Fund, the Jawaharlal Nehru
Memorial Fund, the Prime Minister’s Drought Relief Fund and the Prime Minister’s
National Relief Fund.
FINANCE ACT, 1982
23.2 The National Children’s
Fund was established with a view to implementing
programmes for the welfare of children, including rehabilitation of destitute children,
particularly pre-school age children and other programmes envisaged in the National Plan
of Action for the International Year of Child. The programmes for welfare of children
belonging to Scheduled Castes and Scheduled Tribes and other backward classes receive
primary consideration from the fund.
FINANCE ACT, 1982
23.3 In view of the importance
of this Fund and its programmes, the Finance Act has put
the National Children’s Fund at par with other funds of national character, such as, the
National Defence Fund and the Prime Minister’s National Relief Fund. In other words,
there will be no monetary ceiling on the amount of the qualifying amount of donations to
the National Children’s Fund for the purposes of the aforesaid concession.
FINANCE ACT, 1982
23.4 This provision will take
effect from April 1,1983 and will, accordingly, apply in
relation to the assessment year 1983-84 and subsequent years.
[Section 15 of the Finance Act]
FINANCE ACT, 1982
Raising of monetary limit of deduction in respect of rents paid - Section
80GG
24.1 Under section 10(13A
) of the Income-tax Act, any house rent allowance granted to
an employee to meet expenditure actually incurred on payment of rent is exempted from
income-tax up to a maximum of Rs. 400 per month. Under section 80GG of the Income-tax Act, an assessee
not in receipt of house rent allowance is entitled to a deduction in
respect of house rent paid by him in excess of 10 per cent of his total income subject to a
ceiling of 15 per cent thereof, or Rs. 300 per month, whichever is less. The Finance Act
has raised the monetary ceiling of Rs. 300 per month to Rs. 400 per month. This would
place the ceiling under this provision on par with the ceiling for exemption of house rent
allowance under section 10(13A)
of the Act.
FINANCE ACT, 1982
24.2 This provision will take
effect from April 1, 1983 and will, accordingly, apply in
relation to the assessment year 1983-84 and subsequent years.
[Section 16 of the Finance Act]
FINANCE ACT, 1982
Deduction in respect of profits and gains from projects outside India
- Section
80HHB
25.1 With a view to encouraging
contractors to undertake construction and engineering
contracts outside India, the Finance Act has provided tax relief on the profits derived by
them from foreign contracts. The new section 80HHB in the Income-tax Act accordingly
provides that where an Indian company or a non-corporate assessee, resident in India
derives any profits and gains from the business of execution of a foreign project under a
contract entered into by him with the Government of a foreign State or any statutory or
other public authority or agency in a foreign State or with a foreign enterprise, he will be
entitled to a deduction, in the computation of his taxable income of 25 per cent of such
profits and gains, subject to certain conditions. This concession will also be available
where the assessee undertakes the execution of any work in connection with any foreign
project undertaken by any other person.
FINANCE ACT, 1982
25.2 The benefit of this concession
will be available in respect of projects for the
construction of any building, road, dam, bridge or other structure outside India, the
assembly or installation of any machinery or plant outside India and the execution of
such other work outside India of whatever nature as may be prescribed by the Board. The
assessee will not be eligible for this concession unless the consideration for the execution
of such project or work is payable in convertible foreign exchange.
FINANCE ACT, 1982
25.3 The deductions under the
new provision will be admissible subject to the fulfilment
of the following conditions, namely :
1. The assessee will have to
maintain separate accounts in respect of the profits and gains
derived from the business of execution of the project or work forming part of the project.
Where the assessee is a person other than a company or co-operative society, the
accounts relating to such project or work should be audited by a Chartered Accountant or
other qualified accountant as defined in the Explanation
below section 288(2) of the Act.
The assessee will be required to furnish along with his return of income, the report of
such audit in a form to be prescribed for this purpose which will have to be signed and
verified by a Chartered Accountant or such qualified accountant.
2. The assessee will be required
to debit to the profit and loss account of the accounting
year in respect of which the deduction under this provision is to be allowed and credited
to a "Foreign Projects Reserve Account" a sum equal to 25 per cent of the profits and
gains from such project or work. The reserve will be required to be utilised by the
assessee during a period of 5 immediately succeeding assessment years for the purpose of
his business and not for distribution by way of dividends or profits.
3. The assessee will be required
to remit into India in convertible foreign exchange an
amount equal to 25 per cent of such profits and gains within a period of 6 months from
the end of the relevant accounting year, or within such extended period as the
Commissioner of Income-tax may allow on being satisfied that the assessee was
prevented from complying with this provision for reasons beyond his control.
FINANCE ACT, 1982
25.4 Where, however, the amount
credited by the assessee to the Foreign Projects
Reserve Account or the amount so remitted into India by him or either of these amounts
is less than 25 per cent of such profits and gains, the deduction under this provision will
be restricted to the amount so credited to the Foreign Projects Reserve Account or the
amount actually brought into India, whichever is less.
FINANCE ACT, 1982
25.5 If, at any time, before
the expiry of 5 years from the end of the relevant accounting
year, the assessee utilises the amount credited to the Foreign Projects Reserve Account
for the purpose of distribution by way of dividends or by way of profits or for any other
non-business purpose, the deduction which has been originally allowed to him under this
provision will be deemed to have been wrongly allowed. Consequent rectification of the
relevant assessment to withdraw the tax benefit granted to the assessee can be made by
the Income-tax Officer within a period of 4 years from the end of the accounting year in
which the Foreign Projects Reserve Account is utilised by the assessee for any prohibited
purpose.
FINANCE ACT, 1982
25.6 This provision will take
effect from April 1, 1983 and will, accordingly, apply in
relation to the assessment year 1983-84 and subsequent years.
[Sections 18 and 32(ii)
and (iii) of the Finance
Act]
FINANCE ACT, 1982
Deduction in respect of income from specified financial assets - Section
80L
26.1 Under section 80L of the
Income-tax Act, income derived by an assessee being an
individual, a Hindu undivided family or an association of persons or a body of
individuals consisting only of husband and wife governed by the system of community of
property in force in the Union territories of Dadra and Nagar Haveli and Goa, Daman and
Diu, from investments in specified categories of financial assets is exempt up to an
aggregate amount of Rs. 3,000 which is deducted from the gross total income. In
addition, under a separate provision contained in the Unit Trust of India Act, 1963, a
further deduction of Rs. 2,000 is allowed in respect of income received on units. The
investments covered by this provision are : (i)
Government securities ; (ii)
notified
debentures ; (iii) deposits
under notified schemes of the Central Government ; (iv)
shares
in Indian companies ; (v)
units in the Unit Trust of India; (vi)
deposits with banking
companies, co-operative banks, land mortgage banks and land development banks ; (vii
)
deposits with approved financial corporations engaged in providing long-term finance for
industrial development in India or with a public company registered in India with the
main object of providing long-term finance for construction or purchase of house in India
for residential purposes ; (viii)
deposits with any authority constituted in India by or
under any law enacted either for satisfying the need for housing accommodation or for
planning, development or improvement of cities, towns and villages, or for both ; (ix
)
deposits with a co-operative society ; and (x)
shares in any co-operative society.
FINANCE ACT, 1982
26.2 With a view to stimulating
larger savings and investment in the specified assets the
Finance Act has raised the aforesaid monetary ceiling under section 80L from Rs. 3,000
to Rs. 4,000. Further the newly inserted proviso to section 80L provides for an additional
exemption of Rs. 2,000 in respect of interest on any Government security referred to in
clause (i) of sub-section
(1) or interest on bank deposits referred to in clause (vi)
of sub-section (1) being deposits for a period of one year or more. The effect of this amendment
is that the maximum deduction available to an assessee under section 80L in respect of
income from specified financial assets including interest on Government securities and
interest on fixed deposits with banks for one year or more will be Rs. 6,000.
FINANCE ACT, 1982
26.3 The Finance Act has also
amended section 32(1) of the Unit Trust of India Act,
1963 to raise the monetary ceiling in respect of exemption in relation to dividends on
units of the Unit Trust of India from Rs. 2,000 to Rs. 3,000.
FINANCE ACT, 1982
26.4 These provisions will take
effect from April 1, 1983 and will, accordingly, apply in
relation to the assessment year 1983-84 and subsequent years.
[Sections 19 and 56 of the Finance Act]
FINANCE ACT, 1982
Inclusion of synthetic rubber and rubber chemicals (including carbon
black) and
basic drugs industries for purposes of concession under section 80M - Section 80M
27.1 Under section 80M of the
Income-tax Act, full deduction is granted in respect of
income by way of dividends received by a domestic company from an Indian company
formed and registered under the Companies Act, 1956, after February 28, 1975, and
engaged exclusively or almost exclusively in the manufacture or production of specified
articles or things.
FINANCE ACT, 1982
27.2 With a view to encouraging
larger inter-corporate investment in the manufacture of
synthetic rubber and rubber chemicals (including carbon black) and basic drugs, the
Finance Act has amended section 80M of the Income-tax Act to provide that dividends
declared by Indian companies manufacturing synthetic rubber and rubber chemicals
(including carbon black) and basic drugs would also qualify for full exemption in the
hands of domestic companies.
FINANCE ACT, 1982
27.3 This provision will take
effect from April 1, 1983 and will, accordingly, apply in
relation to the assessment year 1983-84 and subsequent years.
[Section 20 of the Finance Act]
FINANCE ACT, 1982
Modifications of the provisions relating to deduction in respect of
long-term capital
gains in the case of non-corporate assessees - Section 80T
28.1 Under section 80T of the
Income-tax Act, in the case of a non-corporate assessee,
long-term capital gains are exempted from income-tax up to Rs. 5,000. Where the long-term capital gains
exceed Rs. 5,000, a deduction is given of Rs. 5,000 plus
25 per cent of
the long-term capital gains relating to buildings or lands or any rights in buildings or
lands as reduced by Rs. 5,000. The deduction in respect of other long-term capital gains
is given in an amount equal to Rs. 5,000 plus
40 per cent of the long-term capital gains
exceeding Rs. 5,000.
FINANCE ACT, 1982
28.2 The Finance Act has modified
the provisions relating to deduction in respect of
long-term capital gains in the case of non-corporate assessees in the following manner,
namely :
1. In respect of long-term capital
gains relating to all capital assets, a deduction of first
Rs. 5,000 will be given as at present. Thereafter, the deduction will be based on the
number of years for which the relevant long-term capital asset has been held by the
assessee. For this purpose, a two-fold classification has been made as at present and the
rate of deduction is provided as under :
|
Period of holding of capital assets
|
Rate of deduction in
respect of long- term
capital gains relating to
buildings or lands or
any rights therein
|
Rate of deduction of
long-term capital
gains relating to other
capital assets
|
|
More than 3 years but not exceeding 5 years
|
25%
|
40%
|
|
More than 5 years but not exceeding 10 years
|
28%
|
45%
|
|
More than 10 years but not exceeding 15 years
|
33%
|
50%
|
|
More than 15 years but not exceeding 20 years
|
37%
|
55%
|
|
Over 20 years
|
40%
|
60%
|
2. Where the long-term capital
gains relate to gold, bullion or jewellery, the maximum
deduction admissible will be restricted to Rs. 50,000.
3. Where the assessee has long-term
capital gains relating to buildings or lands or rights
in buildings or lands, as also gains relating to other capital assets, the initial deduction of
Rs. 5,000 will be given first in respect of long-term capital gains relating to buildings or
lands and if the amount of such capital gains is less than Rs. 5,000, the balance will be
adjusted against long-term capital gains relating to gold, bullion or jewellery and the
balance, if any, against the long-term capital gains relating to any other capital assets.
FINANCE ACT, 1982
28.3 These provisions will take
effect from April 1, 1983 and will, accordingly, apply in
relation to the assessment year 1983-84 and subsequent years.
[Sections 21 and 31 of the Finance Act]
FINANCE ACT, 1982
Tax relief in relation to incremental addition to the export turnover
- Section 89A
29.1 With a view to encouraging
larger exports of certain goods, the Finance Act has
provided tax relief to Indian companies and non-corporate assessees resident in India
whose export turnover for a year exceeds the export turnover for the immediately
preceding year by more than 10 per cent thereof. The tax relief will be calculated at a
specified rate with reference to such excess turnover. For this purpose, "export turnover"
will mean the sale proceeds of specified goods or merchandise exported outside India but
will not include freight or insurance attributable to the transport of the goods or
merchandise beyond the customs station as defined in the Customs Act, 1962.
FINANCE ACT, 1982
29.2 The benefit of this tax
concession will be available in relation to the assessment year
1983-84 and four immediately succeeding assessment years.
FINANCE ACT, 1982
29.3 The goods or merchandise
in relation to which the tax concession will be provided
and the rate at which the amount of deduction is to be calculated will be notified by the
Central Government in the Official Gazette. In specifying the goods or merchandise, as
also the destination of their export and the rate at which the deduction will be calculated,
the Central Government will have regard to the following factors, namely :
a. the
cost of manufacture or production of such goods or merchandise and the prices
of similar goods or merchandise in the foreign market ;
b. the
need to develop foreign markets for such goods or merchandise ;
c. the
need to earn foreign exchange ; and
d. any
other relevant factors.
FINANCE ACT, 1982
29.4 The maximum amount of deduction
to which an assessee will be entitled under this
provision will not exceed 10 per cent of the amount of "income-tax otherwise payable by
the assessee on the profits and gains" from the exports of such goods or merchandise
outside India. Where the total income of the assessee consists only of such profits and
gains, the income-tax chargeable (without any deduction under this section) on the total
income will be the income-tax otherwise payable by the assessee on the profits and gains
from such exports. Where the total income of the assessee includes other income besides
such profits and gains, the income-tax payable on such profits and gains shall be the
amount which bears to the income-tax chargeable (without any deduction under this
section) on the total income, the same proportion as the amount of such profits and gains
bear to the total income. The amount of profits and gains derived from the export of any
goods or merchandise outside India will be computed in accordance with the rules to be
prescribed by the Central Board of Direct Taxes.
FINANCE ACT, 1982
29.5 This provision takes effect
from June 1, 1982 and will, accordingly, apply in relation
to the assessment year 1983-84 and subsequent years.
[Section 22 of the Finance Act]
FINANCE ACT, 1982
Amendments of provisions relating to rectification of mistakes
30.1 Section 23 of the Finance
Act has amended section 155 of the Income-tax Act
dealing with other amendments relating to rectification of mistakes. Clause (a)
has
amended sub-section (8) of section 155. This amendment is consequential to the
amendment of section 54 by section 11 of the Finance Act.
FINANCE ACT, 1982
30.2 Clause (b
) has amended sub-section (8A) of section 155. This amendment is also
consequential to the amendment of section 54 of the Income-tax Act by section 11 of the
Finance Act.
FINANCE ACT, 1982
30.3 Clause (c
) has inserted a new sub-section (10C) in section 155 of the Income-tax
Act. The effect of these amendments is that where any capital gain arising from the
transfer of any such capital asset referred to in section 54F is charged to tax and the
assessee has within one year purchased or within a period of 3 years constructed a
residential house, the Income-tax Officer will amend the order of assessment to exclude
the amount of capital gain not chargeable to tax. For this purpose , the period of 4 years
will be reckoned from the date of assessment.
[Section 23 of the Finance Act]
FINANCE ACT, 1982
Exemption from the provision relating to deduction of income-tax at
source from
interest on securities - Section 193
31.1 Under section 193 of the
Income-tax Act, income-tax is deductible at source on
payment of any income chargeable under the head "Interest on securities". The Finance
Act has inserted a new clause (iiia)
in the proviso to section 193 to provide that income-tax will not be deducted at source from interest
paid on such securities of the Central
Government or any State Government to such class of persons, and subject to such
conditions as the Central Government may, by notification in the Official Gazette,
specify in this behalf.
FINANCE ACT, 1982
31.2 This provision takes effect
from June 1, 1982.
[Section 24 of the Finance Act]
FINANCE ACT, 1982
Raising of monetary limit for payments to contractors without deduction
of tax at
source - Section 194C
32.1 Under section 194C of the
Income-tax Act, income-tax is deductible at source from
income comprised in payments made by the Central Government or any State
Government or a local authority, statutory corporation or company to contractors
engaged for carrying out any work or for supplying labour for carrying out such work.
Income-tax is deductible at the rate of 2 per cent of such payments. Similarly, income-tax
is deductible from payments made by contractors, other than individuals or Hindu
undivided families, to sub-contractors at the rate of 1 per cent of the payment. No
deduction is, however, required to be made if the consideration for the contract or the
sub-contract does not exceed Rs. 5,000. This limit was fixed in 1972. In view of the
increase in cost of materials and labour, the Finance Act has enhanced the aforesaid
monetary ceiling from Rs. 5,000 to Rs. 10,000.
FINANCE ACT, 1982
32.2 This provision takes effect
from June 1, 1982.
[Section 25 of the Finance Act]
FINANCE ACT, 1982
Relaxation of provisions relating to deduction of tax on payment of
interest on
securities, dividends and interest other than interest on securities - Section 197A
33.1 Under section 193 of the
Income-tax Act, income-tax is deductible at source on
payment of any income chargeable under the head "Interest on securities". Further under
section 194 of the Income-tax Act, income-tax is deductible at source on income by way
of dividends paid by an Indian company or a company which has made the prescribed
arrangements for the declaration and payment of dividends within India. Further, section
194A of the Income-tax Act provides that any person who is responsible for paying to a
resident any income by way of interest other than interest chargeable under the head
"Interest on securities" is required to deduct income-tax thereon at the time of credit of
such income to the account of the payee or at the time of payment thereof, whichever is
earlier. The provisions of these sections as also section 197(1)(a)
provide for certain
circumstances in which this requirement of deduction of tax at source can be dispensed
with, subject to the fulfilment of the conditions laid down in this behalf. With a view to
enabling persons with income below the taxable limit to receive these categories of
income without deduction of income-tax at source, the Finance Act has inserted a new
section 197A in the Income-tax Act to provide that a person who is resident in India may
receive such income without deduction of income-tax on his furnishing a declaration in
writing (in duplicate) in the prescribed form and verified in the prescribed manner to the
person responsible for making the payment. The declaration will have to be to the effect
that the estimated total income of the declarant of the previous year including such
interest on securities, dividend or other interest will be less than the minimum liable to
income-tax. On the receipt of this declaration, the person responsible for making the
payment will be required to deliver or cause to be delivered to the Commissioner of
Income-tax who exercises the jurisdiction over him, one copy of the declaration on or
before the 7th day of the month following the month in
which the declaration is furnished.
FINANCE ACT, 1982
33.2 The Finance Act has also
amended section 272A of the Income-tax Act to provide
that in a case where the person responsible for making payment fails to deliver or cause
to be delivered such declaration to the Commissioner of Income-tax within the specified
time limit, a penalty of up to Rs. 10 will be leviable for every day for which the default
continues.
FINANCE ACT, 1982
33.3 These amendments take effect
from June 1, 1982.
[Sections 26 and 29 of the Finance Act]
FINANCE ACT, 1982
Rationalisation of procedure for functioning of Settlement Commission
- Section
245B and section 245D
34.1 Section 245B(2) of the
Income-tax Act provides that the Settlement Commission
shall consist of a Chairman and two other Members. The effect of this provision is that
the Settlement Commission cannot function if the vacancy of any of its Members is not
filled immediately. With a view to overcoming this difficulty, the Finance Act has
amended the relevant provisions to secure that the Settlement Commission shall be
competent to function even if the post of one of the Members (other than the Chairman)
is vacant. Where in any case, the Chairman and the other Member differ on any point or
points, such point or points will be referred to the new Member and the matter will be
decided according to his opinion.
FINANCE ACT, 1982
34.2 These provisions have taken
effect from April 1, 1982.
[Sections 27 and 28 of the Finance Act]
FINANCE ACT, 1982
Modification of provision relating to prosecution in certain matters
connected with
acquisition of immovable properties - Section 279
35.1 Sub-section (1) of section
279 of the Income-tax Act provides that a person shall not
be proceeded against for an offence under section 275A, section 276A, section 276B,
section 276C, section 276CC, section 276D, section 276E, section 277, section 278 or
section 278A except at the instance of the Commissioner. The Finance Act has amended
sub-section (1) of section 279 to provide that no person shall be proceeded against for an
offence under section 276AA of the Income-tax Act except at the instance of the
Commissioner. It may be mentioned that section 276AA which relates to the failure to
comply with the provisions of section 269AB or section 269-I was inserted in the
Income-tax Act by the Income-tax (Amendment) Act, 1981. The said Amendment Act
has extended the provisions of Chapter XXA of the Income-tax Act to cover transfers of
immovable property made through the medium of co-operative societies, part
performance as visualised in section 53A of the Transfer of Property Act, 1882 and long-term leases.
FINANCE ACT, 1982
35.2 This provision will take
effect from July 1, 1982 [vide
Notification No. GSR
472(E), dated June 26, 1982 which is the same date as has been notified by the Central
Government for the commencement of the provision of the aforesaid Amendment Act in
pursuance of section 1(2) of the said Act].
[Section 30 of the Finance Act]