Direct Tax
Taxation Reforms are one of the key
reforms to realize the vision of Viksit Bharat.
In the words of the Hon’ble FM, the country aims to ensure that the new
income-tax bill will carry forward the spirit of “Nyaya”. The new bill will be
clear and direct in text with close to half of the present law, in terms of
both chapters and words. It will be simple to understand for taxpayers and tax
administration, leading to tax certainty and reduced litigation.
Under the guidance of Prime Minister Shri
Narendra Modi, the Government has taken steps to understand the needs voiced by
the people. The direct tax proposals include personal income tax reform with
special focus on middle class, TDS/ TCS rationalization, encouragement to
voluntary compliances along with reduction of compliance burden, ease of doing
business and incentivizing employment and investment.
The
provisions of Finance Bill, 2025 (hereafter referred to as ‘the Finance Bill’),
relating to direct taxes seek to amend the Income-tax Act, 1961 (hereafter
referred to as 'the Act'), to continue reforms in direct tax system
through tax reliefs, removing difficulties faced by taxpayers and
rationalisation of various provisions.
With
a view to achieving the above, the various proposals for amendments are organized
under the focused heads:—
(i)
Personal Income Tax reforms with special focus on middle class
(ii)
Rationalization of TDS/TCS for easing difficulties
(iii)
Encouraging voluntary compliance
(iv)
Reducing compliance burden
(v)
Ease of doing business
(vi)
Employment and investment
Following
important amendments have been proposed under Income Tax Laws in the Finance
Bill vide Clauses 2 to 86, which shall, save as otherwise provided in the Finance
Act, 2025, be deemed to have come into force on April 01, 2025 as per Clause 1(2)(a)
of the Finance Bill:
1.
Revision of
Tax Slabs for Personal Income Tax in New Tax Regime u/s 115 BAC
The current tax
rates in New Tax Regime u/s 115 BAC for the FY 2024-25 i.e. AY 2025-26 are as
follows:
|
Total Income (Rs.) |
Rate of Tax |
|
Up
to 3,00,000 |
Nil |
|
From
3,00,001 to 7,00,000 |
5% |
|
From
7,00,001 to 10,00,000 |
10% |
|
From
10,00,001 to 12,00,000 |
15% |
|
From
12,00,001 to 15,00,000 |
20% |
|
Above
15,00,000 |
30% |
With effect from FY 2025-26 i.e. AY 2026-27,
it is proposed that the following rates provided under the proposed clause (iii)
of sub-section (1A) of section 115BAC of the Act shall be the rates applicable:
|
Total Income (Rs.) |
Rate of Tax |
|
Up
to 4,00,000 |
Nil |
|
From
4,00,001 to 8,00,000 |
5% |
|
From
8,00,001 to 12,00,000 |
10% |
|
From
12,00,001 to 16,00,000 |
15% |
|
From
16,00,001 to 20,00,000 |
20% |
|
From
20,00,001 to 24,00,000 |
25% |
|
Above
24 Lakhs |
30% |
As a result of
these changes, Salaried Taxpayers having income from Salary up to Rs. 12.75
Lakhs in the new tax regime shall end up paying nil income tax.
Furthermore, it
is imperative to note that the tax rates provided in the Old Tax Regime have
remain unchanged.
2.
Increase of
Rebate u/s 87A from Rs. 25,000/- to Rs. 60,000/- under the new tax regime
Under the existing
provisions of section 87A of the Act which pertain to the Old Tax Regime, an
assessee, being an individual resident in India, having total income not
exceeding Rs 5 lakh, is provided a rebate of 100 per cent of the amount of
income-tax payable i.e., an individual having income till Rs 5 lakh is not
required to pay any income tax.
Proviso to
section 87A provides the rebate of income-tax in cases of individuals under New
Tax Regime, upto Rs.25,000/- where the total income does not exceed Rs.
7,00,000/- (clause (a) of the said proviso) and marginal relief where the total
income exceeds Rs. 7,00,000/- (clause (b) of the said proviso) to income chargeable
to tax under sub-section (1A) of section 115BAC.
From assessment
year 2026-27 onwards, for an assessee, being an individual resident in India whose
income is chargeable to tax under the sub-section (1A) of section 115BAC, it is
proposed to,–
(i) enhance the
limit of total income for rebate in clause (a) and (b) of first proviso under
section 87A, on which the income-tax is payable as per the rates of income-tax
under sub-section (1A) of section 115BAC, from Rs. 7,00,000/- to Rs.
12,00,000/- and the limit of rebate in clause (a) of first proviso to section
87A from Rs. 25,000/- to Rs. 60,000/-.
(ii) rationalise
the first proviso to section 87A by inserting a new proviso so as to provide
that the deduction under the first proviso, shall not exceed the amount of
income-tax payable as per the rates provided in sub-section (1A) of section
115BAC.
Furthermore, such
rebate of income-tax shall not be available on tax on incomes chargeable at
special rates (for e.g.: capital gains u/s 111A, 112 etc.).
A few
illustrative examples have been provided below for the benefit of amendment in
tax rebate given in the new regime –
EXAMPLE 1:
ASSUMING TOTAL TAXABLE INCOME TO BE RS. 12 LAKHS
|
Current
Tax Slab |
Current
Tax Rate |
Current
Tax Liability |
Proposed
Tax Slab |
Proposed
Tax Rate |
Proposed
Tax Liability |
|
Up to 3 Lakhs |
Nil |
Nil |
Up to 4 Lakhs |
Nil |
Nil |
|
3,00,001 to 7,00,000 |
5% |
20,000 |
4,00,001 to
8,00,000 |
5% |
20,000 |
|
7,00,001 to
10,00,000 |
10% |
30,000 |
8,00,001 to
12,00,000 |
10% |
40,000 |
|
10,00,001 to
12,00,000 |
15% |
30,000 |
12,00,001 to
16,00,000 |
15% |
|
|
12,00,001 to
15,00,000 |
20% |
|
16,00,001 to
20,00,000 |
20% |
|
|
Above 15,00,000 |
30% |
|
20,00,001 to
24,00,000 |
25% |
|
|
|
|
|
Above 24 Lakhs |
30% |
|
|
Total Tax
Liability (A) |
80,000 |
Total Tax
Liability |
60,000 |
||
|
|
|
Less: Rebate
u/s 87A i.e. 60,000 since total taxable income up to Rs. 12 Lakhs |
60,000 |
||
|
|
|
Net Tax
Liability (B) |
0 |
||
|
Therefore total
savings in proposed tax regime vis-à-vis current tax regime amounts to Rs. 80,000
which is the difference between (A) minus (B) i.e. 80,000 – 0 |
|||||
EXAMPLE 2:
ASSUMING TOTAL TAXABLE INCOME TO BE RS. 18 LAKHS
|
Current
Tax Slab |
Current
Tax Rate |
Current
Tax Liability |
Proposed
Tax Slab |
Proposed
Tax Rate |
Proposed
Tax Liability |
|
Up to 3 Lakhs |
Nil |
Nil |
Up to 4 Lakhs |
Nil |
Nil |
|
3,00,001 to
7,00,000 |
5% |
20,000 |
4,00,001 to
8,00,000 |
5% |
20,000 |
|
7,00,001 to
10,00,000 |
10% |
30,000 |
8,00,001 to
12,00,000 |
10% |
40,000 |
|
10,00,001 to
12,00,000 |
15% |
30,000 |
12,00,001 to
16,00,000 |
15% |
60,000 |
|
12,00,001 to
15,00,000 |
20% |
60,000 |
16,00,001 to
20,00,000 |
20% |
40,000 |
|
Above 15,00,000 |
30% |
90,000 |
20,00,001 to
24,00,000 |
25% |
|
|
|
|
|
Above 24 Lakhs |
30% |
|
|
Total Tax
Liability (A) |
2,30,000 |
Total Tax
Liability |
1,60,000 |
||
|
|
|
Less: Rebate
u/s 87A i.e. 60,000 will not be available since total taxable income exceeds
Rs. 12 Lakhs |
Nil |
||
|
|
|
Net Tax
Liability (B) |
1,60,000 |
||
|
Therefore total
savings in proposed tax regime vis-a-vis the current tax regime amounts to
Rs. 70,000 in this case which is the difference between (A) minus (B) i.e. 2,30,000
– 1,60,000 |
|||||
EXAMPLE 3:
ASSUMING TOTAL TAXABLE INCOME TO BE RS. 25 LAKHS
|
Current
Tax Slab |
Current
Tax Rate |
Current
Tax Liability |
Proposed
Tax Slab |
Proposed
Tax Rate |
Proposed
Tax Liability |
|
Up to 3 Lakhs |
Nil |
Nil |
Up to 4 Lakhs |
Nil |
Nil |
|
3,00,001 to
7,00,000 |
5% |
20,000 |
4,00,001 to
8,00,000 |
5% |
20,000 |
|
7,00,001 to
10,00,000 |
10% |
30,000 |
8,00,001 to
12,00,000 |
10% |
40,000 |
|
10,00,001 to
12,00,000 |
15% |
30,000 |
12,00,001 to
16,00,000 |
15% |
60,000 |
|
12,00,001 to
15,00,000 |
20% |
60,000 |
16,00,001 to
20,00,000 |
20% |
80,000 |
|
Above 15,00,000 |
30% |
3,00,000 |
20,00,001 to
24,00,000 |
25% |
1,00,000 |
|
|
|
|
Above 24 Lakhs |
30% |
30,000 |
|
Total Tax
Liability (A) |
4,40,000 |
Total Tax
Liability |
3,30,000 |
||
|
|
|
Less: Rebate
u/s 87A i.e. 60,000 will not be available since total taxable income exceeds
Rs. 12 Lakhs |
Nil |
||
|
|
|
Net Tax
Liability (B) |
3,30,000 |
||
|
Therefore total
savings in proposed tax regime vis-a-vis the current tax regime amounts to
Rs. 1,10,000 in this case which is the difference between (A) minus (B) i.e. 4,40,000
– 3,30,000 |
|||||
Therefore as can
be seen, the proposed amendments also benefit taxpayers in higher tax brackets
to some extent due to positive changes in the slab rates.
These amendments
will take effect from the 1st day of April, 2025.
3.
Rationalisation
of ‘specified violation’ for cancellation of registration of trusts or
institutions
Sub-section (4) of the section 12AB inter
alia provides that where registration or provisional registration of a
trust or an institution has been granted and subsequently, the Principal Commissioner
or Commissioner has noticed occurrence of one or more specified violations
during any previous year, the Principal Commissioner or Commissioner shall,
pass an order in writing, cancelling the registration of such trust or
institution if he is satisfied that one or more specified violations have taken
place.
Explanation to sub-section (4) of the
said section provides that “specified violation” inter-alia means the
cases where the application referred to in clause (ac) of sub-section (1) of
section 12A is not complete or it contains false or incorrect information.
It is noted that even minor default,
where the application referred to in clause (ac) of sub-section (1) of section
12A is not complete, may lead to cancellation of registration of trust or
institution, and such trust or institution becomes liable to tax on accreted
income as per provisions of Chapter XII-EB of the Act.
It is, therefore, proposed to amend
the Explanation to sub-section (4) of section 12AB so as to provide that the
situations where the application for registration of trust or institution is
not complete, shall not be treated as specified violation for the purpose of
the said sub-section.
These amendments will take effect from
the 1st day of April, 2025.
4.
Extension in
period of Registration of smaller trusts or institutions
Section 12AB provides registration of
trust or institution for a period of 5 years or provisional registration (where
activities have not commenced at the time of filing application for
registration) for a period of 3 years. At the expiry of such registration or
provisional registration, or in case of provisional registration, if the
activities of the trust or institution have commenced, the trust or institution
is required to make application for further registration.
It has been noted that applying for
registration after every 5 years, increases the compliance burden for trusts or
institutions, especially for the smaller trusts or institutions.
To reduce the compliance burden for
the smaller trusts or institutions, it is proposed to increase the period of
validity of registration of trust or institution from 5 years to 10 years, in
cases where the trust or institution made an application under sub-clause (i)
to (v) of the clause (ac) of sub-section (1) of section 12A, and the total
income of such trust or institution, without giving effect to the provisions of
sections 11 and 12, does not exceed Rs. 5 crores during each of the two
previous year, preceding to the previous year in which such application is
made.
These amendments
will take effect from the 1st day of April, 2025.
5.
Extension of
timeline for tax benefits to start-ups
The existing provisions of Section
80-IAC of the Act, inter-alia provide for a deduction of an amount equal to
hundred percent of the profits and gains derived from an eligible business by
an eligible start-up for three consecutive assessment years out of ten years,
beginning from the year of incorporation, at the option of the assessee subject
to the condition that ,–
(i) the total turnover of its business
does not exceed one hundred crore rupees,
(ii) it is holding a certificate of
eligible business from the Inter-Ministerial Board of Certification, and
(iii) it is incorporated on or after the 1st
day of April, 2016 but before the 1st day of April, 2025.
It is proposed to amend the above section so
as to extend the benefit for another period of five years, i.e. the benefit
will be available to eligible start-ups incorporated before 01.04.2030.
This amendment will take effect from the 1st
day of April 2025.
6.
Rationalisation
of threshold for Tax Deducted at Source (TDS) and Tax Collected at Source (TCS)
There are various
provisions of Tax Deduction at Source (TDS) as well as Tax Collected at Source
(TCS), with different thresholds and multiple rates. To improve ease of doing
business and better compliance by taxpayers, it is proposed to rationalize
certain rates of TDS & TCS and to increase threshold limit for
applicability of the TDS & TCS provisions.
|
Section of the
Act |
Present TDS
/TCS Threshold (Rs) |
Proposed TDS
/TCS Threshold (Rs) |
|
|
1 |
193 - Interest on securities |
Nil |
Wherever the amount or aggregate of
amounts of income during a Financial Year exceeds Rs. 10,000/-
|
|
2 |
194A - Interest other than Interest on securities |
(i) 50,000/- for senior citizen;
(ii) 40,000/- in case of others
when payer is bank, cooperative
society and post office |
(i) 1,00,000/- for senior citizen
(ii) 50,000/- in case of others
when payer is bank, co-operative
society and post office |
|
(iii) 5,000/- in other cases |
(iii) 10,000/- in other cases |
||
|
3 |
194 – Dividend, for an individual
shareholder |
5,000/- |
10,000/- |
|
4 |
194K - Income in respect of units of
a mutual fund or specified company or undertaking |
5,000/- |
10,000/- |
|
5 |
194B - Winnings from lottery,
crossword puzzle etc. |
Aggregate of amounts exceeding
10,000/- during the financial year |
10,000/- in respect of a single
transaction |
|
6 |
194BB - Winnings from horse race |
||
|
7 |
194D - Insurance commission |
15,000/- |
20,000/- |
|
8 |
194G - Income by way of commission,
prize etc. on lottery tickets |
15,000/- |
20,000/- |
|
9 |
194H - Commission or brokerage |
15,000/- |
20,000/- |
|
10 |
194-I Rent |
2,40,000/- during the financial year |
50,000/- per month or part of a
month |
|
11 |
194J - Fee for professional or
technical services |
30,000/- |
50,000/- |
|
12 |
194LA - Income by way of enhanced
compensation |
2,50,000/- |
5,00,000/- |
|
13 |
206C(1G) – Remittance under LRS and
overseas tour program package |
7,00,000/- |
10,00,000/- |
These amendments
will take effect from the 1st day of April 2025.
7.
Rationalisation
of Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) rates for
easing difficulties
To reduce multiplicity of rates and compliance
burden, it is proposed to bring down certain TDS and TCS rates in certain
sections as below:
|
S. No. |
Section of the Act |
Present TDS/TCS
Rate |
Proposed TDS/TCS
Rate |
|
1 |
Section 194LBC - Income in respect of investment in securitization
trust |
25% if payee is Individual or HUF and 30% otherwise
|
10% |
|
2 |
Sub-section (1) of section 206C
(i) TCS on timber or any other forest produce (not
being tendu leaves) obtained under a
forest lease and
(ii) TCS on timber obtained by any mode other than
under a forest lease
|
2.5% |
2% |
|
3 |
Sub-section (1G) of section 206C – TCS on remittance
under LRS for purpose of education,
financed by loan from financial institution |
0.5% after 7 lakhs |
Nil |
These
amendments will take effect from the 1st day of April 2025.
8.
Rationalisation
of definition of “forest produce” u/s 206C(1)
Sub-section (1) of section 206C of the
Act states that every seller shall collect tax at source from the buyer of
goods of certain specified nature at the rates specified in the sub-section.
Under sub-section (1) of section 206C
of the Act, presently TCS at 2.5 per cent is required to be collected on sale
of goods of the following nature:
(I) Timber obtained under a forest
lease
(II) Timber obtained by any mode other
than under a forest lease
(III) Any other forest produce not
being timber or tendu leaves
To bring clarity regarding the meaning
of “forest produce”, it is proposed that “forest produce” shall have the same
meaning as defined in any State Act for the time being in force, or in the
Indian Forest Act, 1927.
Further, it is proposed that to
address the applicability of TCS on traders of forest produce, only such other
forest produce (not being timber or tendu leaves) which is obtained under
forest lease will be covered under TCS.
The amended rate for collection of TCS
are as under:-
|
S.No. |
Nature of Goods |
Percentage |
|
(1) |
(2) |
(3) |
|
(iii) |
Timber or any other forest produce (not being tendu leaves) obtained under a forest lease |
2% |
|
(iv) |
Timber obtained by any mode other than under a forest lease |
2% |
These amendments will take effect from
the 1st day of April 2025.
9.
Reduction in
Compliance Burden by omission of TCS on sale of specified goods
Sub-section
(1H) of section 206C of the Act, requires any person being a seller who
receives consideration for sale of any goods of the value or aggregate of value
exceeding Rs 50 lakhs in any previous year, to collect tax from the buyer at
the rate of 0.1% of the sale consideration exceeding Rs 50 lakhs, subject to
certain conditions.
Section
194Q of the Act, requires any person being a buyer, to deduct tax at the rate
of 0.1%, on payment made to a resident seller, for the purchase of any goods of
the value or aggregate of value exceeding fifty lakh rupees in any previous
year.
Sub-section
(1H) of section 206C mandates tax collection at source (TCS) by a seller while Section
194Q provides for tax deduction at source (TDS) by a buyer on the same
transaction.
Further,
it is provided in sub-section (1H) of section 206C of the Act that the
provision will not apply, if the buyer is liable to deduct TDS under any other
provision of this Act on the goods purchased from the seller and has deducted
such amount.
To facilitate ease of doing business and
reduce compliance burden on the taxpayers, it is proposed that provisions of
sub-section (1H) of section 206C of the Act will not be applicable from the 1st
day of April, 2025.
These
amendments will take effect from the 1st day of April 2025.
10.
Amendments
proposed in Sections 132 and 132B for time limit of retention of seized books
of accounts or other documents
Section
132 of the Act relates to search and seizure. As per the provisions of
sub-section (8) of section 132 of the Act the last date for taking approval for
retention of seized books of account or other documents is 30 days from the
date of the assessment or reassessment or recomputation order.
In
the course of search assessment proceedings in group cases, the assessment
orders of one assessee may be passed earlier than the assessment orders of
another assessee.
Further,
the segregation of seized books of account or other documents pertaining to
various assesses is also very difficult in case the searched premise is same.
It is also the case that the seized books of account or other documents
pertaining to the completed assessment cases may be required for assessment of
ongoing/pending assessment cases.
Since,
the time limit of taking approval for retention will be different for different
cases, the Assessing Officers are required to have constant vigil on the
floating time-barring dates for taking the approval for retention of the seized
books of account or other documents, the burden of which is avoidable.
Therefore, it is proposed to amend sub-section
(8) of section 132 of the Act to provide that the time limit for taking
approval for retention shall be one month from end of the quarter in which the
assessment or reassessment or recomputation order has been made.
These
amendments will take effect from the 1st day of April, 2025.
11.
Time limit
to impose penalties rationalized
The existing provisions of section 275
of the Act, inter-alia provide for the bar of limitation for imposing
penalties. Section 275 of the Act is having multiple timelines for imposition
of penalties in various cases e.g. where a case is in appeal before the ITAT,
time limit to impose penalty is end of the financial year in which the
connected proceeding has been completed or six months from end of the month in
which the appellate order is received, whichever is later. Similarly, different
time-limits for imposition of penalty have been provided for cases in appeal to
the JCIT(Appeal) or Commissioner (Appeal). This makes it difficult to keep
track of multiple time barring dates for effective and efficient tax
administration.
It proposed to amend section 275 of
the Act to provide that any order imposing a penalty under Chapter XXI shall
not be passed after the expiry of six months from the end of the quarter in
which the connected proceedings are completed, or the order of appeal is
received by the jurisdictional Principal Commissioner or Commissioner, or the
order of revision is passed, or the notice for imposition of penalty is issued,
as the case maybe. Consequential amendment is also proposed in section 246A of
the Act to update reference of the amended section 275 of the Act.
These amendments will take effect from
the 1st day of April, 2025.
12.
Clarification
regarding commencement date and the end date of the period stayed by the Court
Section 144BA,
section 153, section 153B, section 158BE, section 158BFA, section 263, section
264 and Rule 68B of Schedule-II of the Act, inter-alia provide that period
during which the proceedings under respective provisions are stayed by an order
or injunction of any court shall be excluded in computing the time limit for
conclusion of the proceedings.
However, there
was an ambiguity regarding the commencement date and the end date of the period
stayed by an order or injunction of any court which was required to be
excluded.
With a view to
removing any ambiguity, it has been proposed to amend the said provisions of
the Act so as to exclude the period commencing on the date on which stay was
granted by an order or injunction of any court and ending on the date on which
certified copy of the order vacating the stay was received by the
jurisdictional Principal Commissioner or Commissioner (Approving panel in case
of section 144BA of the Act).
This amendment
will take effect from the 1st day of April, 2025.
13.
Removal of
Higher TDS/TCS for non-filers of return of income
Section 206AB of
the Act, requires deduction of tax at higher rate when the deductee specified therein
is a non-filer of income-tax return. Section 206CCA of the Act, requires for
collection of tax at higher rate when the collectee specified therein is a
non-filer of income-tax return. This is subject to other conditions specified
in the two sections.
Representations had
been received from various stakeholders that it is difficult for the deductor/collector,
at the time of deduction/collection, to verify whether returns have been filed
by the deductee/collectee, resulting in application of higher rates of
deduction/collection, blocking of capital and increased compliance burden.
Accordingly, to
address this issue and reduce compliance burden for the deductor/collector, it
is proposed to omit section 206AB of the Act and section 206CCA of the Act.
These amendments
will take effect from the 1st day of April, 2025.
14.
Increase in
the limits on the income of employees for the purpose of calculating
perquisites
The existing
provisions of clause (2) of section 17 provide, inter-alia that ‘perquisite’
includes the value of any benefit or amenity granted or provided free of cost
or at concessional rate by any employer (including a company) to an employee
whose income under the head "Salaries" as a monetary benefit does not
exceed fifty thousand rupees. This upper limit on income was determined by the Finance
Act 2001.
Further, the
proviso to clause (2) of section 17 provides that any expenditure incurred by
the employer for travel outside India on the medical treatment of an employee
or any member of the employee’s family shall not be included in ‘perquisite’,
subject to the condition that the gross total income of such employee does not
exceed two lakh rupees. This upper limit on income was determined by the
Finance Act, 1993.
It is proposed
that the provisions of section 17 may be amended so that the power to prescribe
rules may be obtained to increase the limit on the gross total income of the
employees so that,-
(I) the amenities
and benefits received by such employees would be exempt from being treated as
perquisites.
(II) the
expenditure incurred by the employer for travel outside India on the medical
treatment of such employee or his family member would not be treated as a
perquisite.
These amendments
will take effect from the 1st day of April, 2026 and shall accordingly, apply in
relation to the assessment year 2026-27 and subsequent assessment years.
15.
Deduction
under Section 80CCD for contributions made to NPS Vatsalya
The NPS Vatsalya Scheme, officially
launched on 18 September 2024, enables parents and
guardians to start a National Pension
Scheme (NPS) account for their children. This savings-cumpension scheme is
designed exclusively for minors and will be operated by the guardian for the exclusive
benefit of the minor till they attain majority. When a minor attains 18 years,
the account will continue to be operational, transferred to the child's name
with the accumulated corpus and will be shifted into the NPS-Tier 1 Account -
All Citizen Model or other non-NPS scheme account.
It is proposed to extend the tax
benefits available to the National Pension Scheme (NPS) under Section 80CCD of
the Act to the contributions made to the NPS Vatsalya accounts, as follows:
(I) A deduction to be allowed to the
parent/guardian’s total income, of the amount paid or deposited in the account
of any minor under the NPS to a maximum of Rs 50,000/- overall as mandated
under sub-section (1B) of section 80CCD;
(II) The amount on which deduction has
been allowed under sub-section (1B) of section 80CCD or any amount accrued
thereon, will be charged to tax when such amount is withdrawn, in the case
where deposit was made in the account of a minor; and
(III) The amount on which deduction
has been allowed and is received on closure of the account due to the death of
the minor shall not be deemed to be the income of the parent/guardian;
The NPS Vatsalya Scheme also allows
for partial withdrawal from the minor’s account to
address certain contingency situations
like education, treatment of specified illnesses and disability (of more than
75%) of the minor.
Accordingly, it is also proposed to
insert a clause (12BA) in section 10 of the Act, which provides that any income
received on partial withdrawal made out of the minor’s account, shall not be
included in the total income of the parent/guardian to the extent it does not
exceed 25% of the amount of contributions made by him and in accordance with
the terms and conditions, specified under the Pension Fund Regulatory and
Development Authority Act, 2013 (23 of 2013) and the regulations made
thereunder.
These amendments will take effect from
the 1st day of April, 2026, and shall accordingly, apply in relation to the
assessment year 2026-27 and subsequent assessment years.
16.
Exemption to
withdrawals by individuals from National Savings Scheme for taxation
Sub-section (2) of section 80CCA,
inter-alia provides that where such amount, together with the interest accrued
on such amount standing to the credit of the assessee under the scheme is withdrawn,
it shall be deemed to be the income of the assessee and shall be chargeable to
tax. Since this provision has been sunset from 01.04.1992, the amounts taxable
on withdrawal are those which were deposited in financial year 1991-92 and
earlier, and on which deduction had been claimed. Further, Circular No 532
issued on 17.03.1989 provided that the withdrawal on closure of account due to
death of the depositor was not chargeable to tax in the hands of the legal
heirs.
The Department of Economic Affairs
issued a Notification dated 29.08.2024 providing that no interest would be paid
on the balances in the NSS after 01.10.2024. Representations were received to suitably
amend section 80CCA to provide relief to individuals facing hardship who were
compelled to withdraw as a result of this Notification.
It is therefore proposed to amend
section 80CCA to provide exemption to the withdrawals made by individuals from
these deposits for which deduction was allowed, on or after 29th day of August,
2024. This exemption is provided to the deposits, with the interest accrued
thereon, made before 01.04.1992 as these are the amounts in respect of which a
deduction has been allowed.
This amendment shall be made with
retrospective effect from the 29th day of August, 2024.
17.
Annual Value
of Self-Occupied Property further simplified
Section 23 of the
Act relates to determination of annual value. Sub-section (2) of the said section
provides that where house property is in the occupation of the owner for the
purposes of his residence or owner cannot actually occupy it due to his
employment, business or profession carried on at any other place, in such
cases, the annual value of such house property shall be taken to be nil.
Further,
sub-section (4) of the said section provides that provisions of sub-section (2)
of the Act will be applicable in respect of two house properties only, which
are to be specified by the owner.
With a view to
simplifying the provisions, it is proposed to amend the sub-section (2) so as
to provide that the annual value of the property consisting of a house or any
part thereof shall be taken as nil, if the owner occupies it for his own
residence or cannot actually occupy it due to any reason. The provision of
sub-section (4) of section 23 of the Act which allows this benefit only in
respect of two of such houses shall continue to apply as earlier.
This amendment
will take effect from the 1st day of April, 2025 and shall accordingly apply
for assessment year 2025-26 onwards.
18.
Obligation
to furnish information in respect of Crypto-asset
Vide
Finance Act 2022, taxation of virtual digital assets (VDA) has been
introduced in the Income-tax Act, 1961 (‘the Act’), under section 115BBH of the
Act in which the transfer of VDA is to be taxed at the rate of 30% with no
deduction in respect of expenditure (other than cost of acquisition) to be
allowed.
To
define VDA, Clause (47A) was inserted in section 2 of the Act. Further, to
capture VDA transaction details, section 194S has been inserted in the Act to
provide for deduction of tax on payment for transfer of VDA at the rate of 1%
of transaction value including cases where the transaction occurs in kind or
partly in cash.
It is now proposed to insert section
285BAA in the Act, being the Obligation to furnish
information of crypto-asset, wherein –
(I) Sub-section (1) of section 285BAA
of the Act states any person, being a reporting entity, as may be prescribed,
in respect of crypto asset, shall furnish information in respect of a
transaction in such crypto asset in a statement, for such period, within such
time, in such form and manner and to such income-tax authority, as may be
prescribed;
(II) Sub-section (2) of said section
states that where prescribed income-tax authority considers that the statement
furnished is defective, he may intimate the defect to the person who has
furnished such statement and give him an opportunity of rectifying the defect
within a period of thirty days from the date of such intimation or such further
period as may be allowed, and if the defect is not rectified within the
aforesaid period allowed, the provisions of this Act shall apply as if such
person had furnished inaccurate information in the statement;
(III) Sub-section (3) of said section
states that where a person who is required to furnish a statement has not
furnished the same within the specified time, the prescribed income-tax
authority may serve upon such person a notice requiring him to furnish such
statement within a given time period and he shall furnish the statement within
the time specified in the notice;
(IV) Sub-section (4) of said section
states that if any person, having furnished a statement, or in pursuance of a
notice issued, comes to know or discovers any inaccuracy in the information
provided in the statement, he shall within a given period inform the income-tax
authority, the inaccuracy in such statement and furnish the correct information
in such manner as prescribed;
(V) Sub-section (5) of said section
states that the Central Government may, by rules specify the persons to be
registered with the prescribed income-tax authority, the nature of information
and the manner in which such information shall be maintained by the persons and
the due diligence to be carried out by such persons for the purpose of
identification of any crypto-asset user or owner;
It is also proposed to amend clause
(47A) of section 2 to insert sub-clause (d) which states that the definition of
virtual digital asset also includes any crypto-asset being a digital
representation of value that relies on a cryptographically secured distributed
ledger or a similar technology to validate and secure transactions, whether or
not already included in the definition of virtual digital asset or not.
These amendments will take effect from
the 1st day of April, 2026.
19.
Increase in time
limit available to pass order under Section 115VP for Tonnage Tax Scheme
Sub-section (3)
of the said section requires that the Joint Commissioner on receipt of such application
may call for information or documents from the company as deemed fit and after
satisfying themselves about the eligibility of such company to make an option
for tonnage tax scheme, pass an order in writing, approving the option for
tonnage tax scheme or if not so satisfied, refuse such approval, after
providing reasonable opportunity of being heard.
Sub-section (4)
of the said section requires for order under sub-section (3) of section 115VP
of the Act, whether approving or rejecting the application to exercise option
of tonnage tax scheme, to be passed before the expiry of one month from the end
of the month in which the application was received under sub-section (1) of
said section.
It is seen that
very less time is available under sub-section (4) of section 115VP of the Act
with the Joint Commissioner of Income-tax for verification of information and
documents, including physical inspection of the ships if necessary, providing
an opportunity of being heard and then passing a reasoned order approving or
rejecting the application.
It is hence proposed
to amend sub-section (4) of section 115VP to provide that for application
received under sub-section (1) on or after the 1st day of April, 2025, order
under sub-section (3) shall be passed before the expiry of three months from
the end of the quarter in which such application was received.
This amendment
will take effect from the 1st day of April, 2025.
20.
Exemption
from prosecution for delayed payment of TCS in certain cases
Section 276BB of the Act provides for
prosecution in case of failure to pay the tax collected at source to the credit
of Central Government. The provision of the said section states that if a
person fails to pay to the credit of the Central Government, the tax collected
by him as required under the provisions of section 206C of the Act, he shall be
punishable with rigorous imprisonment for a term which shall not be less than
three months but which may extend to seven years and with fine.
It is proposed to amend section 276BB
of the Act to provide that the prosecution shall not be instituted against a
person covered under the said section, if the payment of the tax collected at
source has been made to the credit of the Central Government at any time on or
before the time prescribed for filing the quarterly statement under proviso to
sub-section (3) of section 206C of the Act in respect of such payment.
This amendment will take effect from
the 1st day of April, 2025.
21.
Extending
the processing period of application seeking immunity from penalty and
prosecution
Section 270AA of the Act provides,
inter-alia procedure of granting immunity by the Assessing Officer from
imposition of penalty or prosecution, subject to fulfillment of certain
conditions as mentioned therein. Sub-section (2) of the said section provides
that an application for granting immunity from imposition of penalty shall be
made within one month from the end of the month in which the order referred to
in clause (a) of sub-section (1) of the said section has been received by the assessee.
Sub-section (4) of the said section provides that Assessing Officer shall pass
an order accepting or rejecting the application, within a period of one month
from the end of the month in which the application requesting immunity is
received.
It is proposed to amend the
sub-section (4) of section 270AA of the Act so as to extend the processing
period to three months from the end of the month in which application for
immunity is received by the Assessing Officer.
This amendment
will take effect from the 1st day of April, 2025
22.
Extending
the time limit to file the updated return
Sub-section (8A) of section 139 of the
Act, relates to furnishing of updated return. As per the present provisions, an
updated return can be filed upto 24 months from the end of the relevant assessment
year. The facility of updated return has promoted voluntary compliance against
payment of additional income-tax of 25% of aggregate of tax and interest
payable for updated return filed upto 12 months from the end of the relevant
assessment year. For updated return filed after expiry of 12 months and upto 24
months from the end of the relevant assessment year, the additional income-tax
of 50% of aggregate of tax and interest is to be paid.
With a view to further nudging
voluntary compliance, it is proposed to amend the said subsection so as to
extend the time-limit to file the updated return from existing 24 months to 48
months from the end of relevant assessment year. Rate of additional income-tax
payable for updated return filed after expiry of 24 months and upto 36 months
from the end of the relevant assessment year shall be 60% of aggregate of tax
and interest payable. The additional income-tax payable for updated return
filed after expiry of 36 months and upto 48 months from the end of the relevant
assessment year shall be 70% of aggregate of tax and interest payable.
It is further proposed to provide that
no updated return shall be furnished by any person where any notice to
show-cause under section 148A of the Act has been issued in his case after
thirty-six months from the end of the relevant assessment year. However, where
subsequently an order is passed under sub-section (3) of section 148A of the
Act determining that it is not a fit case to issue notice under section 148 of
the Act, updated return may be filed upto 48 months from the end of the
relevant assessment year.
These amendments will take effect from
the 1st day of April, 2025.
23.
Scheme of
presumptive taxation extended for non-resident providing services for
electronics manufacturing facility
It is proposed, to insert a new
section 44BBD, which deems twenty-five per cent of the aggregate amount
received/ receivable by, or paid/ payable to, the non-resident, on account of
providing services or technology, as profits and gains of such non-resident
from this business. This will result in an effective tax payable of less than
10% on gross receipts, by a non-resident company.
This amendment will take effect from
the 1st day of April, 2026 and shall accordingly, apply in relation to the
assessment year 2026-27 and subsequent assessment years.
24.
Extension of
benefits of tonnage tax scheme to inland vessels
To promote inland
water transportation in the country and to attract investments in the sector,
it is proposed to extend the benefits of tonnage tax scheme to Inland Vessels
registered under Inland Vessels Act, 2021. Accordingly inland vessels have been
included in the section 115VD for being eligible to be a qualified ship.
Further, inland vessels have been defined in section 115V of the Act in the
same manner as provided in the Inland Vessels Act, 2021. Other corresponding
amendments have been made to extend the tonnage tax scheme to inland vessels.
These amendment
will take effect from the 1st day of April, 2026 and shall, accordingly, apply in
relation to the assessment year 2026-27 and subsequent assessment years.
25.
Clarity in
respect of income on redemption of Unit Linked Insurance Policy (ULIP)
Clause (10D) of section 10 provides
for income-tax exemption on the sum received under a life insurance policy,
including bonus on such policy. There is a condition that the premium payable
for any of the years during the terms of the policy should not exceed ten per
cent of the actual capital sum assured.
It may be pertinent to note that to
restrict the benefit of exemption under clause (10D) of section 10, to small
and genuine cases of life insurance, the Finance Act, 2021, inter alia,
made amendments to clause (10D) of section 10 to provide that the exemption
under this clause shall not apply with respect to any unit linked insurance
policy or policies issued on or after the 01.02.2021, if the amount of premium
or aggregate amount of premium payable during the term of such policy or
policies exceeds Rs. 2,50,000;
It is noted that ULIP is a capital
asset only when the exemption under clause (10D) of section 10 does not apply
on such policies on account of the applicability of the 4th and 5th proviso and
accordingly, taxation as capital gains in case of only such ULIPs. However, in
case of life insurance policy (other than a ULIP), the sum received is
chargeable to income-tax under “Income from other sources” for any such policy
to which exemption under clause (10D) of section 10 does not apply.
Further, any sum received under an
insurance policy as provided in sub-clauses (a) to (d) read with the provisos
to clause (10D) to section 10 are not eligible for exemption under clause (10D)
of section 10. Such sub-clauses are applicable to unit-linked insurance policy
as well.
It is, therefore, proposed to
rationalise the provisions for unit-linked insurance policies, so as to provide
that,–
(I) ULIPs to which exemption under
clause (10D) of section 10 does not apply, is a capital asset [clause (14) of
section 2];
(II) the profit and gains from the
redemption of ULIPs to which exemption under clause (10D) of section 10 does
not apply, shall be charged to tax as capital gains [sub-section (1B) of
section 45]; and
(III) ULIPs to which exemption under
clause (10D) of section 10 does not apply, shall be included in the definition
of equity oriented fund [clause (a) of Explanation to section 112A]
These amendments will take effect from
the 1st day of April, 2026 and shall accordingly, apply in relation to the
assessment year 2026-27 and subsequent assessment years.
26.
Extension of
Sunset dates for several tax concessions pertaining to IFSC
The sunset dates
for commencement of operations of IFSC units for several tax concessions, or relocation
of funds to IFSC, in clause (d) of sub-section (2) of section 80LA, clause
(4D), clause (4F), clause (4H) of section 10 and clause (viiad) of section 47,
is proposed to be extended to 31st day of March, 2030.
These amendments will take effect from
the 1st day of April, 2025.
27.
Rationalisation
of transfer pricing provisions for carrying out multi year arm’s length price
determination
Transfer pricing
provisions enable computation of income arising from an international
transaction or a specified domestic transaction with regard to an arm’s length
price. These provisions are contained in sections 92 to 92F.
Section 92CA
provides the procedure governing reference of an international transaction or a
specified domestic transaction to the Transfer Pricing Officer (TPO), for
computation of their arm’s length price (ALP). Section 92C provides for
computation of arm’s length price in relation to an international transaction
or a specified domestic transaction.
It has been noted
that in reference under section 92CA for computation of arm’s length price, in many
cases, there are similar international transactions or specified transactions
for various years, same facts like enterprises with whom such transaction is
done, proportionate quantum of transaction, location of associated enterprises
etc., and same arm’s length analysis are repeated every year, creating compliance
burden on the assessee as well as administrative burden on the TPOs. In view of
the same, in such situations, it is proposed to carry out TP assessments in a
block.
It is, therefore,
proposed to provide that the ALP determined in relation to an international
transaction or a specified domestic transaction for any previous year shall
apply to the similar transaction for the two consecutive previous years
immediately following such previous year. For the same, it is proposed to make
the following amendments,–
A. Reference to
TPO
(I) the assessee
shall be required to exercise an option or options for the above effect in the
form, manner and within such time period as may be prescribed [new sub-section
(3B) in section 92CA];
(II) the TPO may
by an order within one month from the end of the month in which such option is
exercised, declare that the option is valid subject to the prescribed
conditions [new sub-section (3B) in section 92CA];
(III) if the TPO
declares that the option exercised by the assessee is valid,–
· the ALP determined in relation to an
international transaction or a specified domestic transaction for any previous
year shall apply to the similar international transaction or the specified
domestic transaction for the two consecutive previous years immediately
following such previous year [new sub-section (3B) in section 92CA];
· the TPO shall examine and determine the ALP in
relation to such similar transaction for such consecutive previous years, in
the order referred to in sub-section (3) of section 92CA [new subsection (4A)
in section 92CA];
· on receipt of such order from the TPO, the AO
shall recompute the total income of the assessee for such consecutive previous
years as per the provisions of sub-section (21) of section 155 [new sub-section
(4A) in section 92CA];
· no reference for computation of ALP in
relation to such transaction shall be made [new first proviso to sub-section
(1) of section 92CA];
· if any reference is made in such scenarios,
before or after the above declaration by the TPO, the provisions of sub-section
(1) of section 92CA shall have the effect as if no reference is made for such
transaction [new second proviso to sub-section (1) of section 92CA];
(IV) the
provisions of exercising option mentioned above and consequent proceedings,
shall not apply to any proceedings under Chapter XIV-B [proviso to new
sub-section (3B) in section 92CA];
(V) If any
difficulty arises in giving effect to the provisions of sub-section (3B) and
sub-section (4A) of section 92CA, the Board may, with the previous approval of
the Central Government, issue guidelines for the purpose of removing the
difficulty and every guideline issued by the Board shall be laid before each
House of Parliament, and shall be binding on the income-tax authorities and the
assessee [new sub-section (11) in section 92CA].
B. Recomputation
of income under section 155
A new sub-section
(21) shall be inserted in section 155, so that where the ALP determined for an
international transaction or a specified domestic transaction for any previous
year and the TPO has declared an option exercised by the assessee as valid option
in respect of such transaction for two consecutive previous years immediately
following such previous year, then:-
(I) the AO shall
recompute the total income of the assessee for such consecutive previous years,
by amending the order of assessment or any intimation or deemed intimation
under sub-section (1) of section 143,–
· in conformity with the ALP so determined by
the TPO under sub-section (4A) of section 92CA in respect of such transaction;
· taking into account the directions issued
under sub-section (5) of section 144C, if any, for such previous year;
(II) such
recomputation shall be done within three months from the end of the month in
which the assessment is completed in the case of the assessee for such previous
year;
(III) the first
and second proviso to sub-section (4) of section 92C shall apply to such
recomputation;
(IV) such
recomputation shall be made within three months from the end of the month in
which order of assessment or any intimation or deemed intimation is made, in
case that is not made before the period of three months as mentioned above.
These amendment
will take effect from the 1st day of April, 2026 and shall, accordingly, apply in
relation to the assessment year 2026-27 and subsequent assessment years.
28.
Other
Miscellaneous Changes
It is important
to note some of the few other amendments that have been highlighted by the
Hon’ble FM in her speech –
·
Alternate
Investment Funds (AIFs): Proposal to
provide certainty of taxation to Category I and category II AIFs, which are
undertaking investments in infrastructure and other such sectors, on the gains
from securities.
· Extension of investment date for Sovereign and Pension Funds: Proposal to extend the date of making an investment by five more years, to 31.03.2030, to promote funding from Sovereign Wealth Funds and Pension Funds to the infrastructure sector.
Bimal Jain
FCA, FCS, LLB, B. Com (Hons)
Author of a book on Goods and
Services Tax, titled, “GST Law and Commentary (with Analyses and Procedures)” [9th
Edition]
Email: bimaljain@a2ztaxcorp.com
COMMENTS