Tax Deducted at Source (TDS) is a means of collecting income tax in India, under the Indian Income Tax Act of 1961. Any payment covered u...
Tax Deducted at Source (TDS) is a means of collecting income tax in India, under the Indian Income Tax Act of 1961. Any payment covered under these provisions shall be paid after deducting prescribed percentage. It has a great importance while conducting tax audits. Assessee is also required to file quarterly return to CBDT. Returns states the TDS deducted & paid to government during the Quarter to which it relates.
Finance Minister has proposed Few changes regarding TDS rates in Budget-2017 and we have summarized the changes related to TDS provisions in Budget-2017.
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- 1.TDS On Rent
- This amendment will take effect from the 1st day of June, 2017.
This amendment will take effect from the 1st day of June, 2017.
Read More details about [TDS on Rent by Individual/HUF]
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- 2 TDS on Call Centers
- This amendment will take effect from the 1st day of June, 2017.
In order to promote ease of doing business, section 194J proposed to be amended
to provide for lower the rate of deduction of tax from 10 % to 2% in case of
payments made or credited to a person engaged only in the business of operation
of call centre.
As per existing provisions, Fee for professional services or Fee for Technical services paid to call centers subject to TDS at the rate of 10% under Section 194J. To reduce the compliance burden and to promote the ease of doing business, such TDS rate has been proposed to be reduced from 10% to 2%.
Simplification of the provisions of tax deduction at source in case Fees for professional or technical services under section 194J
The existing provisions of sub-section (1) of section 194J of the Act, inter-alia provides that a specified person is required to deduct an amount equal to ten per cent. of any sum payable or paid ( whichever is earlier) to a resident by way of fees for professional services or fees for technical services provided such sum paid/payable or aggregate of sum paid/payable exceeds thirty thousand rupees to a person in a financial year.
In order to promote ease of doing business, it is proposed to amend section 194J to reduce the rate of deduction of tax at source to two per cent. from ten per cent. in case of payments received or credited to a payee, being a person engaged only in the business of operation of call center.
This amendment will take effect from the 1st day of June, 2017.
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- 3.Exemption from TDS on insurance commission
- [Section 194D - Applicable from 01-06-2017]
As per current provision, any payment of insurance commission above Rs 15,000 shall be subject to TDS at the rate of 5% under Section 194D. Further, no option is allowed to the agent to avoid the deduction of TDS by submitting the Form 15G/H under section 197A.
Therefore, in order to reduce compliance burden in the case of Individuals and HUFs, it is proposed to amend Section 197A so as to allow the agent to file Form. No. 15G/15H to receive the insurance commission without deduction of tax at source.
The existing provision of sub-section 194D of the Act, inter-alia, provides for tax deduction at source (TDS) at the rate of 5% for payments in the nature of insurance commission beyond a threshold limit of Rs. 15,000 per financial year. Further, the existing provisions of section 197A of the Act , inter-alia provide that tax shall not be deducted, if the recipient of certain payments on which tax is deductible furnishes to the payer a self- declaration in prescribed Form.No.15G/15H declaring that the tax on his estimated total income of the relevant previous year would be nil. Presently, the payment in the nature of income referred to in section 194D is not covered by provisions of section 197A.
In order to reduce compliance burden in the case of Individuals and HUFs, it is proposed to amend section 197A so as to make them eligible for filing self-declaration in Form.No.15G/15H for non-deduction of tax at source in respect insurance commission referred to in section 194D.
This amendment will take effect from 1st June, 2017.
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- 4 Non-deduction of tax on Compensation under RFCTLAAR Act, 2013
- This amendment will take effect from 1st April, 2017.
The existing provision of section 194LA of the Act, inter-alia, provides that any person paying compensation shall deduct tax at source at the rate of ten per cent. on the compensation or enhanced compensation or consideration on account of compulsory acquisition of any immovable property (other than agricultural land) under any law for the time being in force subject to certain conditions specified therein.
The Central Government has enacted a new law namely Right to Fair Compensation and Transparency in Land Acquisition,
Rehabilitation and Resettlement Act, 2013, ('RFCTLARR Act') on 26th September, 2013 which came into force on 1 January, 2014. Section 96 of the RFCTLARR Act inter-alia, provides that income-tax shall not be levied on award or agreement made subject to limitations mentioned in section 46 of the said Act. Therefore, compensation received for compulsory acquisition of land under the RFCTLARR Act (except those made under section 46 of RFTCLARR Act), is exempted from the levy of income-tax.
The Board has issued Circular number 36/2016 dated 25 October, 2016 clarifying that compensation received in respect of any award or agreement which has been exempted from the levy of income-tax vide section 96 of the RFCTLARR Act shall not be taxable under the provisions of the Act, even if there is no specific provision of exemption for such compensation under the Act.
However, the circular addressed only the matter pertaining to taxability of compensation received on compulsory acquisition of land and not tax deduction at source under section 194LA of the Act.
Thus in order to rationalise the provisions of the Act, it is proposed to amend the section 194LA to provide that no deduction shall be made under this section where such payment is made in respect of any award or agreement which has been exempted from levy of income-tax under section 96 (except those made under section 46) of RFCTLARR Act.
This amendment will take effect from 1st April, 2017.
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- 5.Disallowance for Non-deduction of tax from payment to Resident / Non-resident
- This amendment will take effect AY 2018-19
Disallowance for non-deduction of tax from payment to resident
Existing provisions of section 58 of the Act, specify the amounts which are not deductible in computing the income under the head "Income from other sources" which include certain disallowances made in computation of income under the head "Profits and gains of business or profession". These disallowances include disallowances such as disallowance of cash expenditure, disallowance for non-deduction of tax from payment to non-resident, etc.
For computing income under the head "Profits and gains of business or profession", a disallowance is made for non-deduction of tax from payment to resident also. With a view to improve compliance of provision relating to tax deduction at source (TDS),
it is proposed to amend the said section so as to provide that provisions of section 40(a)(ia) shall, so far as they may be, apply in computing income chargeable under the head "income from other sources" as they apply in computing income chargeable under the head "Profit and gains of business or Profession".
Disallowance for non-deduction of tax from payment to Non-resident, etc.
For computing income under the head "Profits and gains of business or profession", a disallowance is made for non-deduction of tax from payment to resident also. With a view to improve compliance of provision relating to tax deduction at source (TDS),
it is proposed to amend the said section so as to provide that provisions of section 40(a)(ia) shall, so far as they may be, apply in computing income chargeable under the head "income from other sources" as they apply in computing income chargeable under the head "Profit and gains of business or Profession".
This amendment will take effect from 1 April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent years.
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- 6.Concession rate on Interest on external commercial borrowings
- AY 17-18 & AY 17-18
A concessional with-holding rate of 5% is being charged on interest earned by foreign
entities in external commercial borrowings or in bonds and Government securities. This
concession is available on borrowings made, under a loan agreement at any time on
or after 1st July, 2012, but before 1st July, 2017; or by way of any long-term bond
including long-term infrastructure bond on or after 1st October, 2014 but before 1st
July, 2017, respectively. The Concessional rate of 5% proposed to be extended in
respect of borrowings made before 1st July, 2020. This benefit is also proposed to be
extended to Rupee Denominated (Masala) Bonds.
Concessional TDS rate under Section 194LC
Section 194LC - Applicable from Assessment Year 2018-19/Applicable Retrospectively from Assessment Year 2016-17]
If borrowings in foreign currency is made under a loan agreement entered into between 01-07-2012 and 01-07-2017 or by way of long-term bonds issued between 01-10-2014 and 01-07-2017, tax is deducted at the rate of 5% in respect of interest payable to non-residents.
It is proposed that the concessional rate of 5% TDS on interest payment under this section will be available in respect of borrowings made before the 01-07-2020.
The benefit of concessional TDS rate is also proposed to be extended to rupee denominated bonds issued outside India before 01-07-2020. This amendment will take effect retrospectively from 01-04-2016.
Extension of eligible period of concessional tax rate under section 194LD
The existing provisions of section 194LD of the Act, provides for lower TDS at the rate of five per cent. in the case of interest payable at any time on or after 1st June, 2013 bue before the 1 July, 2017 to FIIs and QFIs on their investments in Government securities and rupee denominated corporate bonds provided that the rate of interest does not exceed the rate notified by the Central Government in this behalf.
Considering the representations received from stakeholders, it is proposed to amend section 194LD to provide that the concessional rate of five per cent. TDS on interest will now be available on interest payable before the 1July, 2020.
This amendment will take effect from 1 April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent years.
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- 7. Interest on Refund to Deductor
- The amendment will take effect from 1st April, 2017.
The existing section 244A of the Act provides that an assessee is entitled to receive interest on refund arising out of excess payment of advance tax, tax deducted or collected at source, etc.
It is proposed to insert a new sub-section (1B) in the said section to provide that where refund of any amount becomes due to the deductor, such person shall be entitled to receive, in addition to the refund, simple interest on such refund, calculated at the rate of one-half per cent. for every month or part of a month comprised in the period, from the date on which claim for refund is made in the prescribed form or in case of an order passed in appeal, from the date on which the tax is paid, to the date on which refund is granted.
It is also proposed to provide that the interest shall not be allowed for the period for which the delay in the proceedings resulting in the refund is attributable to the deductor.
This amendment will take effect from 1st April, 2017.
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- 8. Empowering Board to issue directions in respect of penalty for failure to deduct or collect tax at source
- The amendment will take effect from 1st April, 2017.
Existing provision of clause (a) of sub-section (2) of section 119 empowers the Board to issue orders setting forth directions or instructions (not being prejudicial to assessees) to be followed by subordinate authorities in the work relating to assessment or collection of revenue or the initiation of proceedings for the imposition of penalties.
In order to reduce the genuine hardship which may be faced by a person responsible for deduction and collection of tax at source due to levy of penalty under section 271C or 271CA, it is proposed to insert reference of sections 271C and 271CA in the said clause, so as to empower the Board to issue directions or instructions in respect of the said sections also.
The amendment will take effect from 1st April, 2017.
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- 9. Definition of ‘person responsible for paying’ for section 195(6)
- [Section 204 - Applicable from Assessment Year 2017-18]
A clarification is proposed to be inserted in Section 204 that for the purpose of furnishing of information under Section 195(6) in Form 15CA or 15CB in respect of payment to a non-resident, ‘person responsible for paying’ shall be the payer himself, or, if the payer is a company, the company itself including the Principal Officer thereof.
[Text of Amendments Proposed-page-2] [Check TDS Rates For FY 2016-17] [Changes in TCS Provisions in Budget-2017] [CHANGES IN BUDGET-2017] [CHANGES IN INCOME TAX SLABS]
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[Text of Amendment Proposed]
‘194-IB. (1) Any person, being an individual or a Hindu undivided family (other than those referred to in the second proviso to section 194-I), responsible for paying to a resident any income by way of rent exceeding fifty thousand rupees for a month or part of a month during the previous year, shall deduct an amount equal to five per cent. of such income as income-tax thereon.
(2) The income-tax referred to in sub-section (1) shall be deducted on such income at the time of credit of rent, for the last month of the previous year or the last month of tenancy, if the property is vacated during the year, as the case may be, to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier.
(3) The provisions of section 203A shall not apply to a person required to deduct tax in accordance with the provisions of this section.
(4) In a case where the tax is required to be deducted as per the provisions of section 206AA, such deduction shall not exceed the amount of rent payable for the last month of the previous year or the last month of the tenancy, as the case may be.
Explanation.—For the purposes of this section, “rent” means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or building or both.’.
Clause 63 of the Bill seeks to insert a new section 194-IB of the Income-tax Act relating to payment of rent by certain individuals or Hindu undivided family.
The proposed new section provides that any person, being an individual or a Hindu undivided family (other than those referred to in second proviso of section 194-I), responsible for paying to a resident any income by way of rent exceeding fifty thousand rupees for a month or part of a month during the previous year, shall deduct an amount equal to five per cent. of such income as income-tax thereon.
It is further proposed to provide that income-tax referred to in sub-section (1) shall be deducted on such income at the time of credit of rent, for the last month of the previous year or the last month of tenancy, if the property is vacated during the year, as the case may be, to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier.
It is also proposed to provide that the provisions of section 203A shall not apply to a person required to deduct tax in accordance with the provisions of this section.
It is also proposed to provide that where the tax is required to be deducted as per the provisions of section 206AA, such deduction shall not exceed the amount of rent payable for the last month of the previous year or the last month of the tenancy, as the case may be.
It is also proposed to define the term "rent" for the purposes of this section to mean any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or building or both.
This amendment will take effect from 1st June, 2017.
64. After section 194-IB of the Income-tax Act as so inserted, the following section shall be inserted,
namely:—
“194-IC. Notwithstanding anything contained in section 194-IA, any person responsible for paying to a resident any sum by way of consideration, not being consideration in kind, under the agreement referred to in sub-section (5A) of section 45, shall at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to ten per cent. of such sum as income-tax thereon.”.
Clause 64 of the Bill seeks to insert a new section 194-IC in the Income-tax Act relating to deductions in respect of payment under specified agreement.
The proposed new section seeks to provide that notwithstanding anything contained in section 194-IA, any person responsible for paying to resident any sum by way of consideration, not being consideration in kind, under the agreement referred to in sub-section (5A) of section 45, shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier,
deduct an amount equal to ten per cent. of such sum as income-tax thereon.
This amendment will take effect from 1st April, 2017.
65. In section 194J of the Income-tax Act, after the third proviso and before the Explanation, the following proviso shall be inserted with effect from the 1st day of June, 2017, namely:—
“Provided also that the provisions of this section shall have effect, as if for the words “ten per cent.”, the words “two per cent.” had been substituted in the case of a payee, engaged only In the business of operation of call centre.”.
Clause 65 of the Bill seeks to amend section 194J of the Income-tax Act which provides for deduction of tax at source on fees for professional or technical services.
The said section provides that a person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of fees for professional or technical services or other services mentioned therein shall deduct an amount equal to ten per cent. of such sum as income-tax on income comprised therein.
It is proposed to insert a proviso in the said section so as to reduce the rate of tax deduction at source to two per cent. from ten per cent. in case of payments received or credited to a payee, who is engaged only in the business of operation of call centre.
This amendment will take effect from 1st June, 2017.
66. In section 194LA of the Income-tax Act, after the proviso and before the Explanation, the following proviso shall be inserted, namely:—
“Provided further that no deduction shall be made under this section where such payment is made in respect of any award or agreement which has been exempted from levy of income-tax under section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013.”.
Clause 66 of the Bill seeks to amend section 194LA of the Income-tax Act relating to payment of compensation on acquisition of certain immovable property.
The said section, inter alia, provides that any person responsible for paying compensation to a resident shall deduct tax at source at the rate of ten per cent. on the compensation or enhanced compensation or consideration on account of compulsory acquisition of any immovable property (other than agricultural land) under any law for the time being in force subject to certain conditions specified therein.
It is proposed to amend the said section so as to insert a new proviso to provide that no deduction of tax at source shall be made under this section, where such payment is made in respect of any award or agreement which has been exempted from the levy of income-tax under section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013.
This amendment will take effect from 1st April, 2017.
67. In section 194LC of the Income-tax Act, in sub-section (2),—
(a) in clause (i), with effect from the 1st day of April, 2018,—
- (A) in sub-clauses (a) and (c), for the figures, letters and words “1st day of July, 2017”, the figures, letters and words “1st day of July, 2020” shall be substituted;
- (B) in the long line, for the word “and”, the word “or” shall be substituted;
(b) after clause (i), the following clause shall be inserted and shall be deemed to have been inserted with effect from the 1st day of April, 2016, namely:—
“(ia) in respect of monies borrowed by it from a source outside India by way of issue of rupee denominated bond before the 1st day of July, 2020, and”.
Clause 67 of the Bill seeks to amend section 194LC of the Income-tax Act relating to income by way of interest from Indian company.
The existing provisions contained in sub-section (2) of the said section, specify the interest eligible for lower withholding tax at the rate of five per cent. It shall be the interest income payable by the specified company on borrowings made by it in foreign currency from sources outside India under a loan agreement or by way of issue of any long-term bonds including long-term infrastructure bonds subject to the approval by the Central Government.
Sub-clauses (a) and (c) of clause (i) of the said sub-section further provides that the borrowing shall be made, under a loan agreement at any time on or after the 1st day of July, 2012, but before the 1st day of July, 2017; and by way of any long-term bond including long-term infrastructure bond on or after the 1st day of October, 2014, but before the 1st day of July, 2017, respectively.
These amendments will take effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-2019 and subsequent years.
It is also proposed to insert a new clause (ia) in sub-section (2) of the said section to extend the benefit of the said section to the rupee denominated bond issued outside India before 1st July, 2020 also.This amendment will take effect retrospectively from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016-2017 and subsequent years.
68. In section 194LD of the Income-tax Act, in sub-section (2), for the figures, letters and words “1st day of July, 2017”, the figures, letters and words “1st day of July, 2020” shall be substituted with effect from the 1st day of April, 2018.
Clause 68 of the Bill seeks to amend section 194LD of the Income-tax Act relating to income by way of interest on certain bonds and Government securities.
Under the existing provisions contained in sub-section (2) of the said section, the interest income eligible for lower withholding tax rate of five per cent. as provided in sub-section (1) has been specified to be the interest payable on or after the 1st day of June, 2013 but before 1st day of July, 2017.
It is proposed to amend the aforesaid sub-section so as to provide concessional rate of five per cent. withholding tax on interest payment in respect of investments in Government securities and rupee denominated corporate bonds to be made available on interest payable before 1st day of July, 2020.
This amendment will take effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-2019 and subsequent years.
69. In section 197A of the Income-tax Act, with effect from the 1st day of June, 2017,—
(a) in sub-section (1A), after the word, figures and letter “section 194A” at both the places where they occur, the words, figures and letter “or section 194D” shall be inserted;
(b) in sub-section (1C), after the word, figures and letter “section 194A” at both the places where they occur, the words, figures and letter “or section 194D” shall be inserted.
Clause 69 of the Bill seeks to amend section 197A of the Income-tax Act relating to no deduction to be made in certain cases.
The existing provisions contained in sub-sections (1A) and (1C) of the aforesaid section provide that no deduction of tax shall be made under the various sections referred to in the said sub-sections (1A) and ( 1C) of section 197A, if the persons referred to in the said sub-sections furnish to the persons responsible for paying any income of the nature referred to in specified sections, a declaration in writing in duplicate in the prescribed form and verified in the prescribed manner to the effect that the tax on his estimated total income of the previous year in which such income is to be included in computing his total income will be nil.
It is proposed to amend the said sub-sections (1A) and (1C) of the said section so as to cover deduction at source under section 194D also.
This amendment will take effect from 1st June, 2017.
70. In section 204 of the Income-tax Act, after clause (iia), the following clause shall be inserted, namely:—
“(iib) in the case of furnishing of information relating to payment to a non-resident, not being a company, or to a foreign company, of any sum, whether or not chargeable under the provisions of this Act, the payer himself, or, if the payer is a company, the company itself including the principal officer thereof;”.
Clause 70 of the Bill seeks to amend section 204 of the Income-tax Act relating to meaning of “person responsible for paying”.
It is proposed to insert a new clause (iib) in the said section so as to provide that in the case of furnishing of information relating to payment to a non-resident, not being a company, or to a foreign company, of any sum, whether or not chargeable under the provisions of this Act, the payer himself, or, if the payer is a company, the company itself including the principal officer thereof shall also be the person responsible for paying, within the meaning of definition under this section.
This amendment will take effect from 1st April, 2017.
Clause 77 of the Bill seeks to amend section 244A of the Income-tax Act relating to interest on refunds. The said section provides that an assessee is entitled to receive interest on refund arising out of excess payment of advance tax, tax deducted or collected at source, etc.
It is proposed to insert a new sub-section (1B) in the said section so as to provide that where refund of any amount becomes due to the deductor, then such person shall be entitled to receive, in addition to the refund, simple interest on such refund, calculated at the rate of one-half per cent.for every month or part of a month comprised in the period, from the date on which claim for refund is made in the prescribed form or for giving effect to an order under section 250 or 254 or 260 or 262 from the date on which the tax is paid up to the date on which refund is granted.
It is also proposed to amend sub-section (2) of the said section to give reference of the deductor in addition to the assessee and to provide that the interest shall not be allowed for the period for which the delay in the proceedings resulting in the refund is attributable to the deductor.
These amendments will take effect from 1st April, 2017.
Clause 30 of the Bill seeks to amend section 58 of the Income-tax Act relating to amounts not deductible.
The provisions of the said section specify the amounts which are not deductible in computing the income from other sources.
It is proposed to amend sub-section (1A) of the said section so as to provide that the provisions of sub-clause (ia) of clause (a) of section 40 shall also apply in computing the income chargeable under the head "Income from other sources" as they apply in computing the income chargeable under the head "Profit and gains of business or profession".
This amendment will take effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-2019 and subsequent years.
Extension of eligible period of concessional tax rate on interest in case of External Commercial Borrowing and Extension of benefit to Rupee Denominated Bonds
Extension of eligible period of concessional tax rate on interest in case of External Commercial Borrowing and Extension of benefit to Rupee Denominated Bonds
The existing provisions of section 194LC of the Act provide that the interest payable to a non-resident by a specified company on borrowings made by it in foreign currency from sources outside India under a loan agreement or by way of issue of any long-term bond including long-term infrastructure bond shall be eligible for concessional TDS of five per cent.
It further provides that the borrowings shall be made, under a loan agreement at any time on or after the 1 July, 2012, but before the 1 st July, 2017; or by way of any long-term bond including long-term infrastructure bond on or after the 1 October, 2014 But before the 1July, 2017, respectively. Representations have been received requesting for extension of concessional rate of TDS under sections 194LC of the Act to boost the economy by way of introduction of foreign capital.
Therefore, it is proposed to amend section 194LC to provide that the concessional rate of five per cent. TDS on interest payment under this section will now be available in respect of borrowings made before the 1April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent years.
Further, consequent upon demand from various stakeholders for granting benefit of lower rate of TDS to rupee denominated bonds, a Press Release dated 29th October, 2015 was issued clarifying that TDS at the rate of 5 per cent would be applicable to these bonds in the same way as it is applicable for off-shore dollar denominated bonds.
In order to give effect to the above, it is further proposed to extend the benefit of section 194LC to rupee denominated bond issued outside India before the 1st July, 2020.
This amendment will take effect retrospectively from 1 April, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent years.
COMMENTS