wt is income tax slab 2006-2007 in India?

Answer 1

For the Assessment Year 2006/2007

For Individuals
Upto 1Lac No tax
1Lac to 1.5Lac 10%
1.5lacto2.5lac 20%
2.5lac and above 30%
If the income exceeds above 10 lac then surcharge of 2%
and also the education cess on the taxpayble is 2%
There is a marginal Relief applicable in the surcharge

For womens
Upto1.35lacs No Tax
1.35lacs to 1.5Lacs 10%
1.5Lacs to 2.5 Lacs 20%
Above2.5 Lacs 30%
Surcharge and the education cess are the same as above

For the Senior Citizens
Upto1.85lacs No Tax
1.85Lacsto2.5lacs 20%
Above 2.5lacs 30%
Cess and Surcarge same as above

Answer 2

Individual Tax Rates for the assessment year 2006-07 Taxable income Rates Upto Rs 100,000 - NIL Rs 100,000 to 150,000 - 10% Rs 150,000 to 250,000 - 20% Above Rs 250,000 - 30% A surcharge of 10 percent is levied if net income of an individual assessee exceeds Rs.10 Lacs.

Answer 3

For the year 2006-067
Taxable income slab (Rs.) Rate (%)
1,00,000
1,35,000 (for women)
1,85,000 (for senior citizens) NIL
1,00,001 - 1,50,000 10%
1,50,001 - 2,50,000 20%
2,50,001 upwards 30%
10,00,000 upwards 30%*
* A surcharge of 10% on income tax is levied where taxable income exceeds Rs. 1 million which makes it effective 33% including surcharge

Answer 4

Rama's answer is correct. but with that one one can save upto 100000/- in insurance, nsc, ppf, pf, pension fund, education loan, tution fee etc.

So if ur income is 200000/- and if u save 100000/- in the above then u need not pay any thing

Answer 5

Go to this site:
http://www.taxmann.com/TaxmannDit/Displaypage/dpage2.aspx?md=24&typ=cn&yr=2006&chp=4

Answer 6

I dont know :D

Answer 7

Circular No : 8
Date of Issue : 27/8/2002
Statute : Income-Tax Act

Section(s) Referred : s. 2 , 10 , 10A , 10B , 11 , 12 , 12A , 14A , 17 , 24 , 28 , 32 , 33AC , 35AC , 35CCB , 35DDA , 36 , 40 , 44E , 47 , 54EC , 55 , 72A , 74 , 80G , 80GGA , 80HHD , 80-IA , 80-IB , 80L , 88 , 92A , 92C , 92F , 113 , 115A , 115AC , 115ACA , 115AD , 115C , 115JA , 115JB , 115-O , 115R , 119 , 132 , 133A

Circular No. 8 of 2002, dt. 27th Aug., 2002 Subject: Finance Act, 2002--Explanatory Notes on provisions relating to Direct Taxes

1. INTRODUCTION

1.1 The Finance Act, 2002 as passed by the Parliament, received the assent of the President on 1lth May, 2002 and has been enacted as Act No. 20 of 2002. This circular explains the substance of the provisions of the Act relating to direct taxes.

2. CHANGES MADE BY THE FINANCE ACT, 2002

2.1 The Finance Act, 2002 (hereinafter referred to as the 'Act') has,

-Amended sections 2, 10, 10A, 10B, 11, 12, 12A, 14A, 17, 24, 28, 32, 33AC, 35AC, 35CCB, 35DDA, 36, 40, 44E, 47, 54EC, 55, 72A, 74, 80G, 80GGA, 80HHD, 80-IA, 80-IB, 80L, 88, 92A, 92C, 92F, 113, 115A, 115AC, 115ACA, 115AD, 115C, 115JA, 115JB, 115-0, 115R, 119, 132, 133A, 139, 143, 153, 155, 158A, 158B, 158BB, 158BC, 158BD, 158BE, 190, 192, 193, 194, 194A, 194C, 194H, 194-I, 194J. 195, 195A, 196A, 196C, 196D, 197A, 198, 199, 200, 201, 203, 210, 244A, 245C, 245D, 252, 253, 271, 272A, 273B, 279 and rule 68A of the Second Schedule of the Income-tax Act, 1961.

-Inserted new sections 50C, 80M, 92CA, 115BBB, 174A, 206CA, 269UP, 272B, 272BBB and 275B of the Income-tax Act, 1961;

-Substituted new sections for sections 43A, 70, 89, 92, 132B, 194K, 269T and 271F of the Income-tax Act, 1961;

-Omitted section 245HA of the Income-tax Act, 1961;

-Amended sections 18, 18C, 22D and 34 of the Wealth-tax Act, 1957;

-Omitted section 22HA of the Wealth-tax Act, 1957;

-Amended sections 3 and 5 of the Expenditure-tax Act, 1987;

-Omitted section 44 of the National Dairy Development Board Act, 1987;

-Omitted section 22 of the Prasar Bharati (Broadcasting Corporation of India) Act, 1990.

-Omitted section 22A of the Oil India (Development) Act, 1974;

-Omitted section 43A of the Life Insurance Corporation Act, 1956;

-Omitted section 35A of the General Insurance Business (Nationalisation) Act, 1972.

3. PROVISIONS IN BRIEF

3.1 The provisions of the Act in the sphere of direct taxes relate to the following matters -:

(i) Prescribing the rates of income-tax on income liable to tax for the assessment year 2002-2003; the rates at which the tax will be deductible at source in the financial year 2002-2003 from interest (including interest on securities), winnings from lotteries or cross-word puzzles, winnings from horse races, insurance commission and other categories of income liable for tax deduction at source under the Income-tax Act, rates for computing 'advance tax', deduction of income-tax from 'Salaries' and charging of income-tax on current incomes in certain cases for the financial year 2002-2003.

(ii) Amendment of the Income-tax Act, 1961, Wealth-tax Act and Expenditure tax Act with a view to

-provide clarification of the definition of persons;

-provide that all casual and non-recurring receipts shall become taxable;

-provide a sunset clause for exemption with respect to bonds, etc.

-withdraw exemption for grossing up of tax in certain cases;

-withdraw exemption on certain remuneration received by an employee who is a foreign citizen;

-extend exemption of amount received under VRS to employees of institutions having importance throughout India or throughout a State;

-withdraw exemption on Exchange Risk Premium received by Public Financial Institutions;

-withdraw exemption of Agricultural Marketing Societies and Agricultural Marketing Boards etc.;

-withdraw exemption of income of certain Housing Boards;

-provide power to Central Government and the prescribed authority to withdraw approval or rescind notification issued in the cases of scientific research association, news agency, notified trust or institution, educational and medical institution etc.;

-withdraw exemption of income for certain Sports Bodies;

-modify conditions for accumulation of income of any fund, trust or institution, university or other educational institution and hospital or other medical institution and to provide for restriction on payment or credit out of such accumulation;

-exempt income of the Credit Guarantee Fund Trust for Small Industries;

-withdraw exemption to the Authorities for Marketing of Commodities;

-modify provisions relating to deduction under section 10A to units in Free Trade Zones, Special Economic Zones;

-modify conditions for accumulation of income of the charitable or religious trusts;

-restrict the application of accumulated income of the charitable or religious trusts;

-withdraw the condition of publication of accounts by religious and charitable trusts in a local newspaper;

-amend section 14A to clarify that no reassessment under section 147 or rectification under section 154 shall be made for any assessment year beginning on or before 1st April, 2001;

-make perquisites non-taxable in the case of low-paid salaried employees;

-modify provisions relating to income from house property;

-tax the receipts in the nature of non-compete fees and exclusivity rights;

-provide for additional depreciation on new machinery and plant;

-provide for fiscal incentives for modernisation and fleet expansion of the shipping business;

-tax amounts/donations received as income in cases of withdrawal of approval to associations/institutions or withdrawal of notification in respect of eligible projects or schemes;

-provide a sunset clause for expenditure by way of payment to associations and institutions for carrying out programmes of conservation of natural resources;

-provide that balance instalments of expenditure incurred under voluntary retirement scheme to be allowed to the resulting entity;

-enhance fiscal incentive for provisioning in respect of bad and doubtful debts in the case of banks and financial institutions;

-rationalize interest paid to partner from 18 percent to 12 percent;

-provide that addition or deduction to the actual cost of a capital asset on account of change in the rate of exchange to be allowed on actual discharge of the liability;

-revise presumptive income for truck owners for inflation-adjustment;

-exempt capital gains on lending of securities through the RBI;

-provide for computation of capital gains in real estate transactions;

-extend benefit of exemption under section 54EC in case of investment in bonds issued by Small Industries Development Bank of India (SIDBI) and the National Housing Bank;

-amend section 55 of the Income-tax Act, 1961;

-modify the provisions relating to set off of long-term capital loss;

-extend incentive for amalgamation in telecom sector;

-extend date of utilisation for donations received for Gujarat earthquake relief;

-enhance rate of deduction on foreign exchange earnings of hotels or tour operators;

-provide for separate audit for undertakings claiming deduction under sections 80-IA and 80-IB mandatory for companies and co-operative societies also;

-extend benefit of tax holiday for Convention centers and Multiplex theatres;

-extend tax holiday for new industrial undertakings set-up in industrially backward States, industrially backward district by 2 years;

-amend section 80L to include income from dividend, units of Unit Trust of India (UTI) and Mutual Funds specified under section 10(23D) for deduction,

-rationalize tax rebate under section 88;

-provide for relief under section 89 for recipients of family pension,

-clarify provisions of Transfer Pricing;

-amend section 115AC;

-provide for taxation of dividends;

-amend provisions of Minimum Alternate Tax (MAT) on companies under section 115JB;

-provide for taxation of income received in respect of units of UTI and Mutual Funds;

-modify provisions relating to search and seizure;

-provide for power to impound books during survey under section 133A;

-provide for bulk filing of returns in computer readable medium by certain salaried taxpayers;

-provide for assessment of income on limited issues under section 143;

-amend section 158A;

-rationalize the provisions of Chapter XIV-B relating to block assessments in cases of search and requisition-,

-provide for special provision for early assessment of bodies formed for short duration;

-provide for credit for tax deduction at source;

-provide for tax not to be deducted at source from dividends and interest on securities in certain cases;

-provide for individuals and Hindu undivided families to deduct tax in cases where total turnover or gross receipts exceed the specified limit under section 44AB;

-reduce the rate of tax deduction at source on commission or brokerage;

-provide that provisions of section 197A will not apply in certain cases

-insert provision for requirement to apply for tax collection account number,

-provide limitation of time for admission of application and passing of orders by the Settlement Commission;

-modify provision relating to appointment of President of Appellate Tribunal;

-abolish the scheme of pre-emptive purchase of immoveable properties under Chapter XX-C;

-modify the provisions relating to mode of repayment of certain deposits;

-clarify provision relating to penalty for concealment of income etc., under section 271;

-modify provisions relating to penalty for late filing of return, and defaults relating to PAN;

-provide for issue of notice in respect of payment of advance-tax;

-modify provisions relating to interest payable to the assessee;

-withdraw exemption for National Dairy Development Board, Prasar Bharati and Oil Industry Development Board;

-provide relief to hotel industry under Expenditure-tax Act.

INCOME TAX

4. RATE STRUCTURE

4.1 Rates of income tax in respect of incomes liable to tax for the assessment year 2002-2003

In respect of incomes of all categories of taxpayers (corporate as well as non-corporate) liable to tax for the assessment year 2002-2003, the rates of income tax have been specified in Part I of the First Schedule to the Act and are the same as those laid down in Part III of the First Schedule to the Finance Act, 2001, for the purposes of computation of "advance tax", deduction of tax at source from "Salaries" and charging of tax payable in certain cases during the financial year 2001-2002. It has also been specified that in the case of individuals, Hindu undivided families, association of persons and body of individuals having a total income exceeding sixty thousand rupees, the tax so computed after rebate under Chapter VII-A shall be enhanced by a surcharge of two percent for purposes of the Union. In the case of every artificial juridical person, a firm, a local authority, a co-operative society and a domestic company, the tax so computed shall be enhanced by a surcharge of two percent.

4.2 Rates for deduction of income-tax at source during the financial year 2002 2003 from income other than "Salaries"

4.2.1 The rates for deduction of income-tax at source during the financial year 2002-2003 from incomes other than "Salaries", have been specified in Part II of the First Schedule to the Act. These rates apply to income by way of interest on securities, interest other than "interest on securities", insurance commission, winnings from lotteries or cross-word puzzles, winnings from horse races and income of non-residents (including non-resident Indians). The tax so computed for deduction at source shall be enhanced by a surcharge calculated at the rate of five percent of such tax.

4.2.2 These rates are broadly the same as those specified in Part II of the First Schedule to the Finance Act, 2001, for the purposes of deduction of income-tax at source during the financial year 2001-2002. However, the rate of deduction of tax with respect to dividends paid to a person other than a company, where the person is resident in India and in the case of a domestic company, has been prescribed as ten percent. The rate of deduction of tax in respect of income of a foreign company other than those, for which specific rates are prescribed in Part II, has been reduced to forty percent from the existing rate of forty-eight percent. The tax deducted at source in each case (including a foreign company) shall be enhanced by a surcharge of five percent. Surcharge is also applicable in the case of a foreign company.

4.3 Rates for deduction of income tax at source from "Salaries", computation of "advance tax" and charging of income tax in special cases during the financial year 2002-2003

The rates for deduction of income-tax at source from or payment of tax on "Salaries" during the financial year 2002-2003 and also for computation of " advance tax" payable during that year in the case of all categories of taxpayers have been specified in Part III of the First Schedule to the Act. These rates are also applicable for charging income-tax during the financial year 2002-2003 on current incomes in cases where accelerated assessments have to be made, e.g., provisional assessment of shipping profits arising in India to non-residents, assessment of persons leaving India for good during that financial year or assessment of persons who are likely to transfer property to avoid tax, or assessment of bodies formed for short duration, etc. The salient features of the rates specified in the said Part III are indicated in the following paragraphs.

4.3.1 Individuals, Hindu undivided families, etc.

Paragraph A of Part III of the First Schedule specifies the rates of income tax in the case of individuals, Hindu undivided families, association of persons, etc. There is no change in the rate structure. However, the tax payable would be enhanced by a surcharge for the purposes of the Union at the rate of five percent of the tax payable (after allowing rebate under Chapter-VIII of the Income tax Act) in cases of persons having total income exceeding Rs. 60,000. No surcharge would be payable by persons having income of Rs. 60,000 or below. Marginal relief would be provided to ensure that the additional amount of income-tax payable, including surcharge, on the excess of income over Rs. 60,000 is limited to the amount by which the income is more than Rs. 60,000. It is clarified that the surcharge payable under paragraph A of Part III of the First Schedule in the case of individuals, Hindu undivided families, association of persons and body of individuals is also payable by non-residents.

The following Table gives the income slabs and the rates of income tax. Column (a) specifies the rates given in Paragraph A of Part I of the First Schedule to the Act; and column (b) specifies the rates given in Paragraph A of Part III of the First Schedule to the Act.


Existing Rates New Rates

Income slab Rates as specified in Income slab Rates as specified in
Para A of Part I of Para A of Part III of
first Schedule to the Act First Schedule to the
Act
Upto Rs. 50,000 Nil Upto Rs. 50,000 Nil
Rs. 50,001 to 10% Rs. 50,001 to 10%
Rs. 60,000 Rs. 60,000
Rs. 60,001 to 20% + Surcharge @ 2% Rs. 60,001 to 20% + Surcharge @ 5%
Rs. 1,50,000 Rs. 1,50,000
Above 30% + Surcharge @ 2% Above 30% + Surcharge @ 5%
Rs.1,50,000 Rs. 1,50,000

4.3.2 The effect of levy of surcharge in the case of individuals, HUFs, etc. at different income levels would be as under:

Total income Existing tax New tax liability Additional tax Additional
liability liability tax
(Rs.) (Rs.) (Rs.) (Rs.) percent

50,000 Nil Nil Nil Nil
55,000 500 500 Nil Nil
60,000 1,000 1,000 Nil Nil
60,010 1,010* 1,010* Nil Nil
60,020 1,020* 1,020* Nil Nil
60,050 1,030 1,050* 20 1.94
60,100 1,040 1,071 31 2.98
60,200 1,061 1,092 31 2.94
65,000 2,040 2,100 60 2.94
75,000 4,080 4,200 120 2.94
1,50,000 19,380 19,950 570 2.94
2,00,000 34,680 35,700 1,020 2.94
3,00,000 65,280 67,200 1,920 2.94
4,00,000 95,880 98,700 2,820 2.94
5,00,000 1,26,480 1,30,200 3,720 2.94
10,00,000 2,79,480 2,87,700 8,220 2.94
25,00,000 7,38,480 7,60,200 21,720 2.94
1,00,00,000 30,33,480 31,222,700 89,220 2.94


*Marginal relief would be provided to ensure that the additional income-tax payable, including surcharge, on the excess of income over Rs. 60,000 is limited to the amount by which the income is more than Rs. 60,000.

4.3.3 Co-operative societies

In the case of co-operative societies, the rates of income tax have been specified in Paragraph B of Part III of the First Schedule to the Act. These rates are the same as those specified in the corresponding Paragraph of Part I of the First Schedule to the Act. However, the tax payable would be enhanced by a surcharge for the purposes of the Union at the rate of five percent of the tax payable.

4.3.4 Firms

In the case of firms, the rate of income tax has been specified in Paragraph C of Part III of the First Schedule to the Act. This rate remains at 35 percent. However, the tax payable by firm would be enhanced by a surcharge, for the purposes of the Union, at the rate of five percent of the tax payable.

4.3.5 Local authorities

In the case of local authorities, the rate of income tax has been specified in Paragraph D of Part III of the First Schedule to the Act. This rate is the same as that specified in the corresponding Paragraph of Part I of the First Schedule to the Act. However, the tax payable would be enhanced by a surcharge for the purposes of the Union at the rate of five percent of the tax payable.

4.3.6 Companies

In the case of companies, the rate of income tax has been specified in Paragraph E of Part III of the First Schedule to the Act. There is no change in the existing rates of 35 percent for domestic companies. However, for foreign companies, the rate has been reduced to 40 percent from the existing 48 percent. The tax payable by the domestic as well as foreign companies would be enhanced by a surcharge at the rate of five percent of the tax payable for the purpose of the Union.

[Section 2 & First Schedule]

5. Clarification in the definition of persons.

5.1 Under the existing provision contained in clause (31) of section 2, the expression "person" includes an individual, a Hindu undivided family, a company, a firm, an association of persons or a body of individuals, whether incorporated or not, a local authority and every other artificial juridical person, not falling within any of the above definitions. Although, the definition of "person" is inclusive and starts with the qualifying words "unless the context otherwise requires", in some cases, a claim has been made that certain bodies do not fall within any of the definition of "person" provided in clause (31) of section 2 due to sole reason that they are not supposed to have any income or profits and gains.

5.2 To clarify the correct legal position, an Explanation in clause (31) of section 2 has been inserted through Finance Act, 2002 so as to provide that an association of persons or a body of individuals or a local authority or an artificial juridical person shall be deemed to be a person, whether or not, such person or body or authority or juridical person, was formed or established or incorporated with the object of deriving income, profits or gains.

5.3 This amendment takes effect retrospectively from 1st April, 2002 and applies in relation to the assessment year 2002-2003 and subsequent assessment years.

[Section 3(b)]

6. Casual and non-recurring receipts to become taxable

6.1 Under the existing provisions contained in clause (3) of section 10, any receipt below Rs. 5,000, which is of casual and non-recurring nature is exempt from payment of income tax. In the case of winnings from horse races, the exemption is available for Rs. 2,500 only. This clause does not apply to receipts arising from business or profession or receipts by way of addition to the remuneration of an employee or to the capital gains income.

6.2 Through Finance Act, 2002 clause (3) of section 10 has been omitted so as to bring all the casual and non-recurring receipts including windfall gains from betting, horse racing, lotteries, etc., under the tax net.

6.3 This amendment will take effect from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-2004 and subsequent assessment years.

[Section 4(a)]

7. Sunset clause for exemption with respect to bonds etc.

7.1 The existing sub-clause (i) of clause (4) of section 10 provides for exemption in respect of income by way of interest on notified securities or bonds, including income by way of premium on redemption of such bonds. Clause (4B) of section 10 provides for exemption with respect to income by way of interest on notified saving certificates subscribed by an individual in convertible foreign exchange. Sub-clause (iib) of clause (15) of section 10 provides for similar exemption in respect of interest on notified Capital Investment Bonds. Sub clause (iid) of clause (15) of section 10 provides for exemption in respect of interest from notified bonds arising to a non-resident Indian or a nominee or survivor of the non-resident Indian or any individual to whom the bonds have been gifted by the non-resident Indian.

7.2 In order to withdraw these exemptions, a sunset clause has been provided in all the aforesaid clauses of section 10 so that interest on bonds, certificates, securities, savings certificates, etc., which are issued on or after 1st June, 2002 shall not be exempt.

7.3 These amendments will take effect from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-2004 and subsequent assessment years.

[Sections 4(b), 4(c), 4(k)(i) & 4(k)(ii)]

8. Withdrawal of exemption of grossing up of tax in certain cases

8.1. Under the existing provision contained in clause (5B) of section 10, the tax paid by an employer (being the Government, local authority, any corporation set up under any special law or any approved institution or body carrying on scientific research), on remuneration payable to a technician, (being an individual not resident in India in any of the four financial years immediately preceding the year in which he arrived in India) is not included in computing the total income of the technician.

8.2 Under the existing provision of clause (6A) of section 10, the tax paid by Government or Indian concern, on royalty/or fees for technical services paid by them under an agreement, which either relates to a matter included in the industrial policy of the Government and is in accordance with that policy or is approved by Central Government, is not included in computing the total income of the person on whose behalf the tax is paid.

8.3 Under the existing provision of clause (6B) of section 10, the tax paid by Government or an Indian concern, under certain conditions, is not included in computing the total income of the non-resident/foreign company, on whose behalf the tax is so paid.

8.4 Since the tax paid by another person on behalf of an assessee is a part of the total income of the assessee and in a moderate tax regime, such exemptions are not required, clause (5B) has been deleted and a sunset clause has been provided in clauses (6A) and (6B) of section 10 through Finance Act, 2002 so that exemptions will not be made available with respect to agreements entered into on or after 1st June, 2002.

8.5 These amendments will take effect from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-2004 and subsequent assessment years.

[Sections 4(d), 4(f) & 4(g)]

9. Withdrawal of exemption on certain remuneration received by an employee who is a foreign citizen

9.1 Under the existing provisions contained in sub-clause (i) of clause (6) of section 10, passage money or the value of any free or concessional passage, received by or due to an employee, who is not a citizen of India, for himself, his spouse and children, is exempt, subject to certain conditions.

9.2 Sub-clause (i) of clause (6) of section 10 has been omitted through Finance Act, 2002 so as to withdraw this exemption.

9.3 This amendment will take effect from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-2004 and subsequent years.

(Section 4(e)]

10. Exemption of amount received under VRS extended to employees of institutions having importance throughout India or throughout a State

10.1 Under the existing provision contained in clause (10C) of section 10, an amount up to 5 lakhs received by an employee of a public sector company or any other company or an authority established under a Central, State or Provincial Act or a local authority or a co-operative society or a University or an Indian Institute of Technology or any State Government or the Central Government or a notified institute of management, at the time of his voluntary retirement/separation is not included in computing his total income. The exemption is available if the payment is in accordance with a scheme of voluntary retirement/separation framed by the employer as per the prescribed guidelines.

10.2 Clause (10C) of section 10 has been amended through Finance Act, 2002 so as to extend the exemption to employees of an institution having importance throughout India or throughout any State or States, as may be specified by the Central Government by notification in the Official Gazette.

10.3 Through Notification No.151/2002, dated 19th June, 2002, rule 2BA of the Income-tax Rules, 1962 has been amended so as to provide the exemption to employees of institutions having importance throughout any State or States only if the conditions mentioned in the said rule 2BA are satisfied.

10.4 These amendments take effect retrospectively from 1st April, 2002 and apply in relation to the assessment year 2002-2003 and subsequent assessment years.

[Section 4(h)]

11. Withdrawal of exemption on Exchange Risk Premium received by Public Financial Institutions

11.1 Under clause (23E) of section 10, the income of a notified Exchange Risk Administration Fund (ERAF) set up by Public Financial Institutions is exempt from payment of income tax. Under clause (14A) of section 10, any income received by a Public Financial Institution, as Exchange Risk Premium from any person borrowing in foreign currency from such institutions is exempt, provided the premium is credited by the Institution to the ERAFs.

11.2 These exemptions were introduced in 1989 for providing exchange risk protection to borrowers of foreign currency loans from the financial institutions. The operations of these ERAFs are commercial in nature, wherein they collect an exchange risk premium to meet the actual losses on account of exchange fluctuation. The ERAFs have been in existence for a considerable period now and the tax exemptions have outlived their utility. However, any sum paid by a public financial institution by way of contribution to any such Exchange Risk Administration Fund shall continue to get deduction under section 36(1)(x).

11.3 In view of this, through Finance Act, 2002, clauses (14A) and (23E) of section 10 have been deleted so as to withdraw exemption on income of Exchange Risk Administration Funds and also on income received as Exchange Risk Premium by a Public Financial Institution.

11.4 These amendments will take effect from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-2004 and subsequent assessment

(Sections 4(j) & 4(u)]

12. Income of certain Local Authorities to become taxable

12.1 Under the existing provisions contained in clause (20) of section 10, the income of a local authority chargeable under the head 'Income from house property', 'Capital gains' or 'Income from other sources' or from a trade or business carried on by it which accrues or arises from the supply of a commodity or service within its jurisdictional area or from the supply of water or electricity within or outside its own jurisdictional area is exempt from payment of income-tax.

12.2 Through Finance Act, 2002, this exemption has been restricted to the Panchayats and Municipalities as referred to in Articles 243(d) and 243(p)(e) of the Constitution of India respectively, Municipal Committees and District Boards, legally entitled to or entrusted by the Government with the control or management of a Municipal or a local fund and Cantonment Boards as defined under section 3 of the Cantonments Act, 1924.

12.3 The exemption under clause (20) of section 10 would, therefore, not be available to Agricultural Marketing Societies and Agricultural Marketing Boards etc. despite the fact that they may be deemed to be treated as local authorities under any other Central or State legislation. Exemption under this clause would not be available to Port Trusts also.

12.4 This amendment will take effect from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-2004 and subsequent assessment years.

[Section 4(1)]

13. Income of certain Housing Boards etc. to become taxable

13.1 Under the existing provisions contained in clause (20A) of section 10, income of the Housing Boards or other statutory authorities set-up for the purpose of dealing with or satisfying the need for housing accommodations or for the purpose of planning, development or improvement of cities, towns and villages is exempt from payment of income tax.

13.2 Through Finance Act, 2002 clause (20A) of section 10 has been deleted so as to withdraw exemption available to the abovementioned bodies. The income of Housing Boards of the States and of Development Authorities would, therefore, also become taxable.

13.3 Under section 80G, donation made to housing authorities, etc. referred to in clause (20A) of section 10 is eligible for 50 percent deduction from total income in the hands of the donors. Since clause (20A) of section 10 has been deleted, donation to the housing authorities etc. would not be eligible for deduction in the hands of the donors and this may result in drying up of donations. To continue the incentive to donation made to housing authorities etc., section 80G has-been amended so as to provide that 50 percent of the sum paid by an assessee to an authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both, shall be deducted from the total income of such assessee.

13.4 These amendments will take effect from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-2004 and subsequent assessment years.

[Sections 4(m) & 30]

14. Power to withdraw approval or rescind notification issued in the cases of scientific research association, news agency, notified trust or institution, educational and medical institution, etc.

14.1 Through the Finance Act, 2002, clauses (21), (22B), (23A), (23B) and (23C) of section 10 have been amended, by inserting a proviso in respective clauses, so as to provide explicit powers to the Central Government and the prescribed authority to rescind the notification or withdraw the approval, if the Central Government or the prescribed authority is satisfied that all or any of the specified conditions have been contravened. A copy of such order, rescinding the notification or withdrawing the approval shall be sent to such association, institution etc., and also to the Assessing Officer.

14.2 These amendments will take effect from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-2004 and subsequent assessment years.

[Sections 4(n), 4(o), 4(q), 4(r) & 4(s)]

15. Withdrawal of exemption to certain Sports Bodies

15.1 Under the existing provisions contained in clause (23) of section 10, income of a notified association or institution established in India and having as its object the control, supervision, regulation or encouragement of the games of cricket, hockey, football, tennis or other notified sports, is exempt from income-tax.

15.2 Through Finance Act, 2002, clause (23) of section 10 has been omitted so as to withdraw the tax exemption available to the above-mentioned bodies.

15.3 Under section 80G, donation made to sports associations and institutions notified under clause (23) of section 10, is eligible for 50 percent deduction from total income in the hands of the donor subject to fulfilment of certain conditions. In addition, sums donated to Indian Olympic Association or to associations or institutions notified under that clause, for development of sports and games in the country and for their sponsorship, is eligible for 100 percent deduction from total income in the hands of the donor provided the amount received is applied for purposes of development of infrastructure or for sponsoring of games and sports. Even after the omission of clause (23) of section 10, if a sports body is registered as a charitable Organisation under section 12AA, the donor will be entitled to deduction under section 80G @ 50 percent in respect of the donation made to such sports body. However, donations for the purposes of development of infrastructure for sports and games and for their sponsorship would not be eligible for 100 percent deduction after omission of clause (23) of section 10. In order to continue this benefit, section 80G has been amended to provide that any sum paid by a corporate assessee as donations to the Indian Olympic Association or to any other association or institution established in India as the Central Government may, having regard to the prescribed guidelines, by notification in the Official Gazette, specify in this behalf for

(i) the development of infrastructure for sports and games; or

(ii) the sponsorship of sports and games; in India shall be deducted from the total income of that corporate assessee. The guidelines in this regard will be prescribed by the Central Government.

15.4 These amendments will take effect from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-2004 and subsequent assessment years.

[Sections 4(p) & 30]

16. Modified conditions for accumulation of income of any fund, trust or institution, university or other educational institution and hospital or other medical institution and restriction on payment or credit out of such accumulation

16.1 The existing provisions contained in sub-clauses (iv) or (v) or (vi) or (via) of clause (23C) of section 10, inter alia, permit accumulation of twenty-five percent of the income for an unlimited period, without any conditions.

16.2 Through Finance Act, 2002, clause (23C) of section 10 has been amended to provide that where more than fifteen percent of the income is accumulated on or after the 1st day of April 2002, the period of the accumulation of the amount exceeding fifteen percent of its income shall, in no case exceed five years. Thus, only fifteen percent of the income can now be accumulated for an unlimited period and without any condition.

16.3 Through Finance Act, 2002, a proviso has also been inserted in clause (23C) of section 10 so as to provide that where the fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clauses (iv) or (v) or (vi) or (via) does not apply its income during the year of receipt and accumulates it, any payment or credit out of such accumulation to any trust or institution registered under section 12AA or to any fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clauses (iv) or (v) or (vi) or (via) shall not be treated as application of income to the objects for which such entity is established.

16.4 These amendments will take effect from 1st April, 2003 and win, accordingly, apply in relation to the assessment year 2003-2004 and subsequent assessment years.

[Section 4(s)]

17. Exemption of the income of the Credit Guarantee Fund Trust for Small Industries

17.1 Through Finance Act, 2002, a new clause (23EB) has been introduced in section 10 of the Income-tax Act so as to exempt the income of the Credit Guarantee Fund Trust for Small Industries being a trust created by the Government of India and the Small Industries Development Bank of India established under sub-section (1) of section 3 of the Small Industries Development Bank of India Act, 1989 for a period of five previous years relevant to the assessment years beginning on 1st day of April, 2002 and ending on the 31st day of March, 2007.

17.2 This amendment takes effect retrospectively from 1st April, 2002 and applies in relation to the assessment years 2002-2003, 2003-2004, 2004-2005, 2005-2006 and 2006-2007.

[Section 4(v)]

18. Withdrawal of exemption to the Authorities for Marketing of Commodities

18.1 Under the existing provisions contained in clause (29) of section 10, in the case of an authority constituted under law, for marketing of commodities, any income derived from the letting of godown or warehouses for storage, processing or facilitating the marketing of commodities, is exempt from payment of income-tax.

18.2 Through Finance Act, 2002, clause (29) of section 10 has been omitted to withdraw the exemption provided to these marketing authorities. The income of Central Warehousing Corporation and the State Warehousing Corporations which was hitherto exempt under clause (29), will therefore, become taxable.

18.3 This amendment will take effect from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-2004 and subsequent assessment years.

[Section 4(y)]

19. Amendment in the provisions relating to deduction under section 10A to units in Free Trade Zones, Special Economic Zones, etc. and under section 10B to 100 percent export-oriented units

19.1 Under the existing provisions of section 10A, a deduction is given of 100 percent of profit and gains from export earnings of new undertakings established in Free Trade Zones, Software Technology Parks, Electronic Hardware Technology Parks or Special Economic Zones (SEZs), which are engaged in manufacture or production of articles or things or computer software.

19.2 Section 10B provides for a similar deduction in respect of export earnings of 100 percent export-oriented units engaged in manufacture or production of articles or things or computer software.

19.3 Such deduction is available for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as the case may be. For computing the deduction, the profits derived from export of articles or things or computer software are worked out by taking the amount, which bears to the net profits of the business, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee.

19.4 In view of the need for resource mobilization in the short run, the Finance Act, 2002 seeks to restrict the 100 percent deduction under sections 10A and 10B, for one assessment year, i.e., 2003-2004 to 90 percent of such profits and gains as are derived by an undertaking from the export of articles or things or computer software.

19.5 Under the existing provisions of section 10A, the deduction is available for a maximum period of ten consecutive assessment years starting from the year of commencement of production. After the assessment year commencing on or after 1st April, 2010, no deduction shall be available irrespective of the year of commencement of production. However, in respect of undertakings commencing operation in the notified Special Economic Zones (SEZs) on or after 1st April, 2002, the Finance Act, 2002 intends to provide a separate tax holiday for a total period of seven assessment years, comprising of a deduction of 100 percent of export profits for five years followed by deduction of 50 percent of export profits for subsequent two years. The proposal shall have the effect of extending the deduction under section 10A beyond the assessment year 2010-2011, in respect of undertakings operating from the notified Special Economic Zones (SEZs).

19.6 Sub-section (9) of section 10A and sub-section (9) of section 10B provide that no deduction under those sections shall be available where during any previous year the ownership or the beneficial interest in the undertaking is transferred by any means.

19.7 The above provision was introduced by the Finance Act, 2000 to prevent trading in incentives by shell (such) companies formed only for that purpose. However, the above provision was not intended to bring within its purview cases of genuine business reorganization while maintaining the major portion of ownership or beneficial interest with the same persons who were the owners of the business before such reorganization.

19.8 Exceptions were made by the Finance Act, 2001 in the case of private limited companies becoming companies in which public are substantially interested as also disinvestment of equity shares by venture capital companies or funds. It was also clarified that cases of change in shareholding pattern in the case of public limited companies will also not affect the deduction.

19.9 The Finance Act, 2002 has introduced sub-section (9A) to provide that in case of genuine reorganization of business whereby a proprietary concern or a partnership is succeeded by a company, the prohibition of sub-section (9) will not apply if the beneficial ownership of not less than 51 percent continues to be held by the original promoters. Since, undertakings can be owned by body corporate also, it is clarified that this will hold good even if the proprietor happens to be a body corporate.

19.10 This is however, subject to the condition that, the aggregate of the shareholding in the company of the partners of the firm, or of the sole proprietor in case of a proprietorship concern, is not less than fifty-one percent of the total voting power in the company and their shareholding continues to be as such for the period for which the deduction under this section is being claimed by the company in respect of the undertaking.

19.11 The amendment is proposed to be effective from 1st April, 2003 and shall be effective from assessment year 2003-2004 and subsequent years.

[Sections 5 & 6]

20. Modified conditions for accumulation of income of the charitable or religious trusts

20.1 Under the existing provisions contained in clauses (a) and (b) of subsection (1) of section 11, twenty-five percent of the income of a trust can be accumulated for an indefinite period, without any condition.

20.2 Through Finance Act, 2002, sub-sections (1) and (2) of section 11 have been amended so as to provide that only fifteen percent of the income of a trust as against the existing limit of 25 percent, can be accumulated for an indefinite period, without any condition.

20.3 These amendments will take effect from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-2004 and subsequent assessment years.

[Section 7]

21. Restriction on the application of accumulated income of the charitable or religious trusts

21.1 Through Finance Act, 2002, an Explanation has been inserted below subsection (2) of section 11 so as to provide that any amount paid or credited out of income from property held under trust referred to in clause (a) or clause (b) of sub-section (1), read with the Explanation to that sub-section, which is not applied, but is accumulated or set apart, to any trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, either during the period of accumulation or thereafter, shall not be treated as application of income for charitable or religious purposes. Thus, payment to other trusts and institutions out of income from property held under trust in the year of receipt will continue to be treated as application of income. However, any such payment out of the accumulated income shall not be treated as application of income and will be taxed accordingly.

21.2 Through Finance Act, 2002, a new clause (d) has also been inserted in sub-section (3) of section 11 so as to provide that if any income referred to in sub-section (2) of the said section, is paid or credited to any trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or (v) or (vi) or (via) of clause (23C) of section 10, such payment or credit shall be deemed to be the income of the person making such payment or credit, of the previous year in which such payment or credit is made.

21.3 A proviso in sub-section (3A) has also been inserted so as to provide that the Assessing Officer shall not allow application of accumulated income by way of payment or credit made for the purposes referred to in clause (d) of sub-section (3) of section 11. This takes away the discretion of the Assessing Officer provided in sub-section (3A) to allow the trusts to apply the accumulated income for payment or credit to other charitable or religious trusts and institutions.

21.4 These amendments will take effect from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-2004 and subsequent years.

[Section 7]

22. Condition of publication of accounts by religious and charitable trusts in a local newspaper has been dispensed with

22.1 Under the existing provision contained in clause (c) of section 12A, the exemption under sections 11 and 12 is not available to a trust or institution, having total income exceeding one crore rupees (before giving effect to the provisions of sections 11 and 12), unless such trust or institution publishes its accounts in a local newspaper, before the due date of furnishing the return of income and also furnishes a copy of such newspaper along with the return of income.

22.2 Under the existing provisions contained in the ninth proviso of clause (23C) of section 10, income of trust or fund or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clauses (iv), (v), (vi). (via) of the said clause, whose gross receipts exceed one crore rupees, is not exempt, unless the said trust or fund or institution or university or other educational institution or hospital or other institution, publishes its accounts in a local newspaper and furnishes a copy of such newspaper, along with the form of application for exemption or continuance thereof.

22.3 Since the trusts or institutions registered under section 12AA are already filing their returns, and the entities exempt under sub-clauses (iv), (v), (vi) and (via) are now also required to file their return of income, the requirement of publishing accounts in a local newspaper and furnishing a copy of such newspaper along with the return of income or along with the form of application for exemption or continuance thereof, as the case may be, has been dispensed with by omitting clause (c) of section 12A and ninth proviso to clause (23C) of section 10 through Finance Act, 2002.

22.4 These amendments take effect retrospectively from 1st April, 2002 and apply in relation to the assessment year 2002-2003 and subsequent years.

[Sections 4(s) & 9]

23. Amendment of section 14A

23.1 Through the Finance Act, 2001, a new section namely 14A was inserted in the Income-tax Act retrospectively with effect from 1st April, 1962 to clarify the intention of the legislature that no deduction shall be allowed in respect of any expenditure incurred by an assessee in relation to income which does not form part of the total income under the Income-tax Act. The intention of inserting the new section retrospectively was to set the existing controversy on this issue at rest and not to unsettle the cases by raising the issue afresh.

23.2 Through Finance Act, 2002, a proviso to section 14A has been inserted so as to clarify that the Assessing Officer shall not reassess the cases under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001.

23.3 This amendment takes effect retrospectively from 11th May, 2001, that is, the date on which the Finance Bill, 2001 received the assent of the President of India.

[Section 10]

24. Perquisites not to be taxed in the case of low-paid salaried employees

24.1 As per the existing provisions of section 17, perquisites (representing the value of any benefit or amenity granted or provided free of cost or at concessional rate) are not included in the salary income in case of employees whose income under the head "Salaries", exclusive of the value of all benefits or amenities not provided by way of monetary payment, does not exceed rupees fifty thousand.

24.2 The Finance Act, 2002 provides an option to the employer to pay tax on non-monetary perquisites on behalf of the employee, which would be operative from assessment year 2003-2004. In the transitional year, i.e., for the assessment year 2002-2003, when no such option is available, the above limit of rupees fifty thousand has been enhanced to rupees one lakh.

24.3 This amendment shall be effective from 1st April, 2002 and will, accordingly, apply in relation to the assessment year 2002-2003 only.

[Section 11]

25. Modification of provisions relating to income from house property

25.1 Under the existing provisions contained in section 24 of the Income-tax Act, interest payable on capital borrowed on or after 1st April, 1999, for acquiring or constructing one self-occupied house is deductible up to one lakh fifty thousand rupees where such acquisition or construction is completed before 1st April, 2003.

25.2 To sustain the pace of investment in the housing sector, the Finance Act, 2002 has amended the section to allow this deduction even where the acquisition or construction is completed on or after 1st April, 2003, so long as the acquisition or construction is completed within three years from the end of the financial year in which the capital was borrowed.

25.3 The Finance Act, 2002 has also inserted a proviso after the second proviso and the Explanation under section 24 with a view to prevent the unintended benefit of deduction of interest paid on amounts not actually used in acquiring or constructing the house. It stipulates that no such deduction shall be allowed in respect of such interest unless the person extending the loan certifies that such interest was payable in respect of the amount advanced for acquisition or construction of the house, or as refinance of the principal amount outstanding under an earlier loan taken for such acquisition or construction.

25.4 These amendments will take effect from 1st April, 2003, and will accordingly apply in relation to the assessment year 2003-2004 and subsequent years.

[Section 12]

26. New provisions for taxing the receipts in the nature of non-compete fees and exclusivity rights

26.1 For the purpose of giving certainty to taxation of receipts in the nature of non-compete fees and fees for exclusivity rights, the Finance Act, 2002 has included within the scope of "profit and gains of business or profession" any sum received or receivable in cash or in kind under an agreement for not carrying out activity in relation to any business; or not to share any know-how, patent, copyright, trademark, licence, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision for services. However, the provisions clarify that receipts for transfer of right to manufacture, produce or process any article or thing or right to carry on any business, which are chargeable to tax under the head "Capital gains", would not be taxable as profits and gains of business or profession.

26.2 With a view to facilitate the implementation of the Montreal Protocol for the phasing out of the business of manufacture of Chloro-Fluoro Carbons (CFC) and Hydro Chloro-Fluoro Carbons (HCFC), the provision lays down that any sum received as compensation from the multilateral fund of the Montreal Protocol under the United Nations Environment Programme, in accordance with the terms of agreement entered into with the Government of India, will not be taxable as profits arid gains of any business or profession.

26.3 This amendment shall be effective from 1st April, 2002 and will, accordingly, apply in relation. to the assessment year 2002-2003 only.

[Sections 3 & 13]

27. Additional depreciation on new machinery and plant

27.1 Under the existing provisions contained in sub-section (1) of section 32 of the Income-tax Act, deduction is allowed in respect of depreciation on assets owned wholly or partly by the assessee and used for the purposes of the business or profession at the rates prescribed under the Income-tax Rules, 1962.

27.2 Clause (iia) has been inserted in sub-section (1) of section 32 to allow a deduction of a further sum equal to fifteen percent of the actual cost of such machinery or plant acquired and installed after 31st day of March, 2002(i) in the case of a new industrial undertaking, in the previous year in which it begins to manufacture or produce any article or thing: or (ii) in the case of an industrial undertaking existing before 1st April, 2002, in the previous year in which it achieves substantial expansion by way of increase in the installed capacity by not less than twenty-five percent.

27.3 Such further sum shall be deductible from the written down value of the asset. The deduction shall be allowed only if the assessee furnishes the details of plant and machinery and the increase in installed capacity of production in the prescribed form along with the return of income and a report from an accountant certifying that the deduction has been correctly claimed in accordance with the provisions of the clause. No deduction will be admissible in respect of machinery or plant installed in any office premises or any residential accommodation, including any accommodation in the nature of guest house or in respect of any office appliances or road transport vehicles. Further, no deduction will be admissible in respect of any machinery or plant, the whole of the actual cost of which is allowed as deduction, either by way of depreciation or otherwise in any one previous year, "Installed capacity" has been defined to mean the capacity of production as existing on the 31st March, 2002.

27.4 The Income-tax Rules, 1962 have been suitably amended. The substituted rule 5A provides that the report from the accountant as required under section 32(1)(iia) shall be in Form No. 3AA. The earlier Form No. 3AA relating to Audit Report under section 32AB has been renumbered as Form No. 3AAA.

27.5 The amendment will take effect from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-2004 and subsequent years.

[Section 14]

28. Fiscal incentives for modernisation and fleet expansion of the shipping business

28.1 Under the existing provisions of section 33AC of the Income-tax Act, a Government company or a public company formed and registered in India with the main object of carrying on the business of operation of ships is allowed a deduction of an amount not exceeding hundred percent of the profits derived from the business of operation of ships and carried to a reserve account, subject to certain conditions. The first proviso to sub-section (1) of the said section, however, provides that where the aggregate of the amounts carried to such reserve account from time to time exceeds twice the amount of the paid-up share capital (excluding the amounts capitalised from the reserve) of the assessee, no allowance shall be made in respect of such excess.

28.2 In order to help the shipping industry modernise and expand its fleet, the Act has expanded the scope of the reserve to provide that only in case the aggregate of the amounts carried to the reserve account exceeds twice the aggregate of the amounts of the paid-up share capital, the general reserves and amount credited to the share premium account of the assessee, no allowance shall be made in respect of such excess.

28.3 The amendment will take effect from the 1st April, 2003, and will, accordingly, apply in relation to the assessment year 2003-2004 and subsequent years.

[Section 15]

29. Amounts/donations received to be taxed as income in cases of withdrawal of approval to associations /institutions or withdrawal of notification in respect of eligible projects or schemes

29.1 Under the existing provisions of section 35AC, a deduction of the amount of expenditure incurred during the previous year by way of payment of any sum to a public sector company or a local authority or to an association or institution approved by the National Committee for carrying out any eligible project or scheme is allowed. Eligible project or scheme means a project or a scheme for promoting the social and economic welfare of, or upliftment of, the public as the Central Government may, by notification in the Official Gazette, specify in this behalf on the recommendations of the National Committee. Subsection (4) of the said section provides that where- National Committee is satisfied that the project or scheme is not being carried on in accordance with all or any of the conditions subject to which approval was granted, it may withdraw the approval earlier granted to the association or institution. Subsection (5) also provides for withdrawal of the notification where the project or scheme is not being carried out in accordance with all or any of the conditions on the basis of which such project or scheme was notified.

29.2 The Act has amended section 35AC, by inserting a new sub-section (6), to provide that in cases where the National Committee withdraws the approval granted by it to an association or institution on the ground that the project or scheme is not being carried out in accordance with all or any of the conditions subject to which the approval was granted or the notification through which a project or scheme was notified is withdrawn, the entire amount of contribution or donation received by the company or authority or association or institution, as the case may be, or the deduction claimed by a company in respect of any expenditure incurred directly on the eligible project or scheme, the notification for which is withdrawn by the National Committee, shall be deemed to be the income of the company or authority or association or institution, as the case may be, of the year in which such approval or notification is withdrawn. Such income will be taxed at the maximum marginal rate as if such income was not exempt under any provision of the Income-tax Act. This will be notwithstanding the exemption, if any, otherwise available to such company or authority or association or institution under any provision of the Income-tax Act.

29.3 The amendment will take effect from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-2004 and subsequent years.

[Section 16]

30. Expenditure by way of payment to associations and institutions for carrying out programmes of conservation of natural resources

30.1 Under the existing provisions of section 35CCB, 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 or of afforestation to be used for such programmes or to such fund for afforestation, as may be notified by the Central Government, are allowed as deduction in the computation of taxable profits. The deduction under this provision is not allowed unless the association or institution, and also the programme of conservation of natural resources or afforestation for which sums are paid, have been approved by the prescribed authority.

30.2 Under the existing provisions of section 80GGA, 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 approved programmes of conservation of natural resources or of afforestation, qualify for deduction in computation of taxable income of an assessee not carrying on business or profession. Similar deduction is also available in case the sums are paid to a fund notified by the Central Government for the purposes of afforestation.

30.3 The Act has amended the said sections to provide that no deduction under section 35CCB and under section 80GGA shall be allowed in cases where sums are paid after 31st March, 2002. However, rule 11K of the Income-tax Rules, 1962 relating to guidelines for recommending projects or schemes for the purpose of section 35AC has been amended to include, within the list, programmes of conservation of natural resources and of afforestation with effect from 1st April, 2002.

30.4 The amendment will take effect from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-2004 and subsequent years.

[Sections 17 & 31]

31. Balance instalments of expenditure incurred under voluntary retirement scheme to be allowed to the resulting entity

31.1 Under the existing provisions of sub-section (1) of section 35DDA of the Income-tax Act, where an assessee incurs any expenditure in any previous year by way of payment of any sum to an employee at the time of his voluntary retirement under any scheme of voluntary retirement, one-fifth of the amount so paid is deducted in computing the profits and gains of the business for that previous year and the balance amount is allowed to be deducted in equal instalments for each of the four immediately succeeding previous years.

31.2 The Act has amended the said section so as to provide that where the undertaking of an Indian company entitled to deduction for amortised of voluntary retirement expenses is transferred before the expiry of the period specified to another Indian company in a scheme of amalgamation or demerger, the deduction shall continue to be available to the amalgamated company or the resulting company as if the amalgamation or demerger had not taken place.

31.3 Similarly, in case of re-organisation of certain forms of business, whereby a firm or a proprietary concern is succeeded by a company, the deduction shall continue to be available to the successor company.

31.4 In the year of transfer, however, no deduction shall be available to the amalgamating company, the demerged company or to the firm or proprietary concern.

31.5 The amendment will take effect retrospectively from 1st April, 2001 and will, accordingly, apply in relation to the assessment year 2001-2002 and subsequent years.

[Section 18]

32. Fiscal incentive for provisioning in respect of bad and doubtful debts in the case of banks and financial institutions

32.1 Under the existing provisions of sub-clause (a) of clause (viia) of subsection (1) of section 36, a scheduled bank (not being a bank incorporated by or under the laws of a foreign country) or a non-scheduled bank is allowed a deduction in respect of any provision for bad and doubtful debts to the extent of five percent of the total income (computed before making any deduction under the said clause and Chapter VI-A) and an amount not exceeding ten percent of the aggregate average advances made by the rural branches of such banks.

32.2 In order to provide fiscal incentive to scheduled and non-scheduled banks, the Act has amended the said sub-clause to increase the present limit of deduction of five percent of the total income to seven and one-half percent of the total income.

32.3 The first proviso to section 36(1)(viia)(a) gives an option to a scheduled bank or a non-scheduled bank to claim deduction in respect of any provision made by the bank to the extent of five percent of the amount of any assets classified by the Reserve Bank of India as doubtful assets or loss assets shown in the books of account of the bank on the last day of the previous year. This option is available for five consecutive assessment years commencing on or after 1st April, 2000 and ending before 1st April, 2005.

32.4 Further, under sub-clause (c) of clause (viia) of sub-section (1) of section 36, a deduction to the extent of five percent of the total income (computed before making any deduction under this clause and Chapter VI-A) is allowed to a public financial institution, a State financial corporation and a State industrial investment corporation in respect of any provision for bad and doubtful debts made by such institutions or corporations.

32.5 The Act has increased the limit of five percent given under the proviso to sub-clause (a) to ten percent and also extended this facility to a public financial institution, State financial corporation or State industrial investment corporation. The optional deduction shall be available for a period of two consecutive assessment years commencing on or after 1st April, 2003 and ending before 1st April, 2005.

32.6 These amendments will take effect from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-2004 and subsequent years.

[Section 19]

33. Rationalization of interest paid to partner

33.1 Under the existing provisions of sub-clause (iv) of clause (b) of section 40, payment of interest by a firm to any partner which is authorised by, and is in accordance with the terms of the partnership deed, is allowed as a deduction subject to the maximum rate of eighteen percent simple interest per annum.

33.2 With a view to rationalise the provisions, the Act has amended the said sub-clause so as to reduce the above maximum rate of interest from eighteen percent to twelve percent.

33.3 The amendment will take effect from 1st June, 2002.

[Section 20]

34. Addition or deduction to the actual cost of a capital asset on account of change in the rate of exchange to be allowed on actual discharge of the liability

34.1 Under the existing provisions contained in section 43A, where an assessee has acquired any capital asset from a country outside India for the purposes of his business or profession on deferred payment terms or against a foreign loan and due to change in the rate of exchange at any time after the acquisition of the asset, there is increase or reduction in the rupee liability towards meeting the instalments of the cost of the asset or of the foreign loan, as the case may be, falling due for payment after the date of change of rate of exchange, the amount of such increase or reduction will be allowed to be adjusted in the original actual cost of the asset for the purpose of calculating the allowance on account of depreciation in computing the profits.

34.2 Similar adjustment in the original actual cost is allowed to be made in respect of capital assets acquired by the assessee and used in scientific research related to the business carried on by him or patent rights or copyrights acquired from abroad or of any capital asset acquired by a company for the purpose of promoting family planning amongst its employees. Further, in computing the capital gains arising to the assessee on the sale or transfer of a capital asset acquired by him from abroad on deferred payment terms or against a foreign loan, the additional rupee liability incurred by him in repaying the instalments of the cost or the foreign loan, as the case may be, after the date of devaluation of the rupee, is to be added to the original actual cost of the asset. The section also secures that where there is a decrease in the rupee liability of the assessee in respect of assets acquired by him from abroad, due to change in the rate of exchange of the rupee, the original actual cost of the asset will have to be correspondingly reduced.

34.3 With a view to rationalize the provisions of the said section, the Act has substituted the existing section 43A to provide that where a capital asset has been acquired from a foreign country, the adjustments to the actual cost of the asset on account of change in the rate of exchange shall be allowed to be made only on the basis of rupee liability at the time of actual payment by the assessee towards the cost of the asset or repayment of the foreign loan or interest irrespective of the method of accounting adopted by the assessee.

34.4 It has also been provided that if any adjustment to the actual cost or expenditure or cost of acquisition has been allowed in consequence of change in the rate of exchange in any assessment year before the 1st April, 2003, the adjustment to that extent shah not be made again at the time of actual payment.

34.5 The amendment will take effect from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-2004 and subsequent years.

[Section 21]

35. Presumptive income for truck owners revised for inflation-adjustment

35.1 Under the existing provisions of section 44AE of the Income-tax Act, 1961, a presumptive scheme of taxation is available to assessees engaged in business of plying, hiring or leasing goods carriages. The scheme applies to an assessee, who owns not more than ten goods carriages. Under this scheme, which is optional for the assessee, a fixed amount of income per vehicle is presumed to accrue to the owner of the vehicle and charged to tax at applicable tax rates for the year. Under the existing provisions, income under this section is presumed to be Rs. 2,000 per month, per vehicle for owners of heavy goods vehicles, and Rs. 1,800 per month, per vehicle for the owners of light goods vehicles. An assessee opting for this scheme is exempted from maintaining books of account and other details to substantiate the income.

35.2 With a view to rationalize the presumptive rates on account of inflation, the Finance Act, 2002 has enhanced the amounts of income to Rs. 3,500 per vehicle, per month for the owners of heavy goods vehicle and to Rs. 3,150 per vehicle, per month for the owners of light goods vehicle.

35.3 This amendment will take effect from the 1st day of April, 2003 and will, accordingly, apply in relation to the assessment year 2003-2004 and subsequent years

[Section 22]

36. Exemption of capital gains on lending of securities through the RBI

36.1 Under the existing provision contained in clause (xv) of section 47 of the Income-tax Act, any transfer in a scheme for lending of any securities under an agreement or, arrangement, which the assessee has entered into with the borrower of such securities and which is subject to the guidelines issued by the Securities and Exchange Board of India, shall not be regarded as transfer for the purpose of charging capital gains to tax.

36.2 With a view to ensure guaranteed settlement of transactions in money, Government securities and forex markets, the RBI has established the Clearing Corporation of India Limited (CCIL). Since the settlement process may involve lending of securities, the Finance Act, 2002 has extended the benefit of exemption from capital gains tax also to any transfer in a scheme for lending of any securities under an agreement or arrangement, which is subject to the guidelines issued by the Reserve Bank of India.

36.3 This amendment will take effect from 1st April, 2003, and will accordingly apply in relation to assessment year 2003-2004 and subsequent years.

[Section 23]

37. Computation of capital gains in real estate transactions

37.1 The Finance Act, 2002 has inserted a new section 50C in the Income-tax Act to make a special provision for determining the full value of consideration in cases of transfer of immovable property.

37.2 It provides that where the consideration declared to be received or accruing as a result of the transfer of land or building or both, is less than the value adopted or assessed by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall be deemed to be the full value of the consideration, and capital gains shall be computed accordingly under section 48 of the Income-tax Act.

37.3 It is further provided that where the assessee claims that the value adopted or assessed for stamp duty purposes exceeds the fair market value of the property as on the date of transfer, and he has not disputed the value so adopted or assessed in any appeal or revision or reference before any authority or Court, the Assessing Officer may refer the valuation of the relevant asset to a Valuation Officer in accordance with section 55A of the Income-tax Act. If the fair market value determined by the Valuation Officer is less than the value adopted for stamp duty purposes, the Assessing Officer may take such fair market value to be the full value of consideration. However, if the fair market value determined by the Valuation Officer is more than the value adopted or assessed for stamp duty purposes, the Assessing Officer shall not adopt such fair market value and shall take the full value of consideration to be the value adopted or assessed for stamp duty purposes.

37.4 This amendment will take effect from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-2004 and subsequent years.

[Section 24]

38. Exemption under section 54EC in case of investment in bonds issued by Small Industries Development Bank of India (SIDBI) and the National Housing Bank

38.1 Under the existing provisions of section 54EC of the Income-tax Act, the capital gain arising from the transfer of a long-term capital asset is not charged to tax if such capital gain is invested in any bond redeemable after three years, issued on or after 1st April, 2000 by the National Bank for Agriculture and Rural Development or the National Highway Authority of India, or on or after the 1st day of April, 2001 by the Rural Electrification Corporation Limited. 38.2 The Finance Act, 2002 has extended the benefit provided under section 54EC to cases where long-term capital gains are invested in bonds redeemable after three years issued on or after the 1st day of April, 2002 by the Small Industries Development Bank of India (SIDBI) or by the National Housing Bank (NHB). 38.3 These amendments will take effect from 1st April, 2003 and, will accordingly apply in relation to the assessment year 2003-2004 and subsequent years.

[Section 25]

39. Amendment of section 55 of the Income-tax Act, 1961

39.1 Under section 45, any capital receipts arising out of transfer of any business or commercial rights is taxable under the head "Capital gains". The amount of "Capital gains" is computed according to section 48 of the Income tax Act, 1961. For this purpose, 'cost of acquisition' and 'cost of improvement' are defined under section 55. At present, in case of receipts for transfer of right to manufacture, produce or process any article or thing the 'cost of acquisition' and 'cost of improvement' are taken as 'nil' under section 55.

39.2 The Finance Act, 2002, has amended section 55 so as to provide that the 'cost of acquisition' and 'cost of improvement' for working out "Capital gains" on capital receipts arising out of transfer of right to carry on any business would also be taken as 'nil'.

[Section 26]

40. Modifications of provisions relating to set off of long-term capital loss

40.1 The existing provision contained in section 70 of the Income-tax Act provides that where the net result for any assessment year in respect of any source falling under any head of income is a loss, the assessee shall be entitled to have the amount of such loss set off against his income from any other source under the same head. Further, section 74 of the Income-tax Act provides that a loss under the head "Capital gains" can be carried forward and set off against capital gains in the following eight assessment years.

40.2 Since long-term capital gains are subject to lower incidence of tax, the Finance Act, 2002 has rectified the anomaly by amending the said sections to provide that while losses from transfer of short-term capital assets can be set off against any capital gains, whether short-term or long-term, losses arising from transfer of long-term capital assets, will be allowed to be set off only against long-term capital gains. It is further provided that a long-term capital loss shall be carried forward separately for eight years to be set off only against long-term capital gains. However, a short-term capital loss, may be carried forward and set off against any income under the head "Capital gains".

40.3 The existing provisions of sub-section (3) of section 74 are transitory provisions with regard to carry forward of capital losses relating to assessment year 1987-88 and earlier years. Since these provisions have become redundant, the Finance Act, 2002 has omitted this sub-section.

40.4 These amendments will take effect from 1st April 2003, and win accordingly apply in relation to assessment year 2003-2004 and subsequent years.

[Sections 27 & 29]

41. Incentive for amalgamation in telecom sector

41.1 Under the existing provision contained in section 72A of the Income-tax Act, the benefit of carry forward and set off of accumulated losses and unabsorbed depreciation is allowed in cases of demerger or amalgamation of a company owning an industrial undertaking or a ship. Industrial undertaking is defined to mean any undertaking which is engaged in the manufacture or processing of goods or computer software, the business of generation or distribution of electricity or any other form of power, mining or the construction of ships, aircrafts and railway systems.

41.2 With a view to encourage rapid consolidation and growth in an important infrastructural area, the Finance Act, 2002 has amended the section to extend the benefit under this section to an industrial undertaking engaged in the business of providing telecommunication services, whether basic or cellular, including radio paging, domestic satellite service, network of trunking, broadband network and internet services.

41.3 This amendment will take effect from 1st April 2003 and will accordingly apply in relation to assessment year 2003-2004 and subsequent years.

[Section 27]

42. Extension of date of utilisation for donations received for Gujarat earthquake relief

42.1 As per the existing provisions of section 80G of the Income-tax Act, 1961, an assessee is allowed a deduction from his total income in respect of donations made to specified charitable funds and institutions. The amount of deduction is 100 per cent of donation, in respect of donations to certain funds of national importance, while deduction on account of donation to other approved funds/institutions is available at 50 per cent.

42.2 In view of the enormity of the earthquake in Gujarat, donations to trusts, funds and institutions received up to 30th September, 2001, to be utilized for relief of victims of the earthquake were allowed 100 per cent deduction, by the Taxation Laws (Amendment) Act, 2001. Such donations were to be utilized for relief of earthquake victims in Gujarat, by 31st March, 2002. The unutilized amount was to be transferred to the Prime Minister's National Relief Fund by 31st March, 2002, failing which, the amount of donations to the extent unutilized or not transferred to the Prime Minister's National Relief Fund were to be taxed in the hands of such funds, institutions, or trusts, in terms of provisions of clause (23C) of section 10 or section 12 of the Income-tax Act, 1961. Further, such trusts, funds and institutions, had to maintain separate accounts in respect of such funds and had to render the same to the prescribed authority by 30th June, 2002.

42.3 With a view to allow adequate time for the completion of the relief work required due to wide-scale extent of the damage, the Finance Act, 2002, extends the time-limit for utilization of eligible donations and transfer of unutilized funds to the Prime Minister's National Relief Fund from 31st March, 2002 to 31st March, 2003. The date of submission of separate accounts to the prescribed authority has been extended to 30th June, 2003.

42.4 Further, in order to ensure fiscal discipline, amendment has been made in clause (23C) of section 10 and section 12, so as to provide that if no accounts are submitted to the prescribed authority within the prescribed time-limit, the amount of donations received by the trusts, funds or institutions for relief of earthquake victims, would be treated as the income of such trusts, funds or institutions and charged to tax accordingly. 42.5 The proposed amendment shall be effective retrospectively from 3rd February, 2001.

[Sections 4, 8, 30]

43. Enhancement of rate of deduction on foreign exchange earnings of hotels or tour operators

43.1 Under the existing provisions of section 80HHD, a deduction is available to the business of a hotel tour operator or travel agent, in respect of earnings in convertible foreign exchange from service provided to foreign tourists. The total amount of deduction, for the assessment year 2003-2004 is computed by taking the aggregate of 20 per cent of the profits derived from services provided to foreign tourists and a further amount equal to 20 per cent of the profits, as are transferred to a reserve account to be utilised in the prescribed manner for development of tourism related infrastructure within five years. For the assessment year 2004-05, the total amount of deduction is equal to 10 per cent of eligible profits and a further 10 per cent of profits, as are transferred to the reserve account.

43.2 In view of the slowdown in the tourism sector subsequent to the recent global events, as a measure to provide fiscal support to this sector, the Finance Act, 2002 enhances the rate of deduction in the following manner:

(i) For the assessment year 2003-2004, 25 per cent of profits, from services to foreign tourist, and further 25 per cent of the profits, as are transferred to the reserve, thereby raising the overall deduction from 40 per cent to 50 percent.

(ii) For the assessment year 2004-2005, 15 per cent of profits from services to foreign tourist, and further 15 percent of the profits as are transferred to the reserve, thereby raising the overall deduction from 20 per cent to 30 per cent.

43.3 This amendment will take effect from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-2004 and subsequent years.

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http://www.incometaxindia.gov.in/circulars/2002/circular2002-8.asp