Change in definition of “resident in India”

A major change has been brought in section 6(3). Other than an Indian company, those companies whose control and management, during the year, was wholly situated in India were also considered as a company resident in India. This meaning that even if for a single day if the control and management was not in India or even if a single key management personnel operated (controlled or managed) from out of India, it would mean that the company is not resident in India. This stance has been changed to reflect that now, a company shall be considered as resident in India if its place of effective management, at any time in that year is in India. This meaning that even if for a single day the effective management of the company is in India, the company would be considered resident and subject to corporate tax. Further, place of effective management has been defined to mean a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance made.

Increase in surcharge

• Individuals, HUF, AOP, BOI, Co-operative societies, Local Authorities, partnership firms and every other artificial judicial person: An additional surcharge of 2% is proposed to be levied on persons earning more than Rs 1 crore. Hence the total surcharge on such persons with income exceeding Rs 1 crore shall be 12%.
• Domestic companies:
  • For domestic companies with income of more than Rs 1 crore but less than Rs 10 crore, it has been proposed to increase the surcharge from 5% to 7%.
  • For domestic companies with income higher than Rs 10 crore, it has been proposed to increase the surcharge from 10% to 12%
• Others: In all other cases such as 115JB- MAT, 115O- distribution of dividends, 115QA – buyback of shares, 115R – income distributed by mutual funds to unitholders, 115TA – income distributed by securitisation trusts, etc. the surcharge is proposed to be increased to @12% as against current rate of 10%.

Decrease in rate of taxation for royalty or fees for technical services

The rate of taxation for non-residents receiving income by way of royalty or fees for technical services has been reduced from 25% to 10%.

Deductions under Chapter VI-A

• 80C – It is proposed that investment by parent or legal guardian of girl child under Sukanya Samriddhi Scheme will be eligible for deduction u/s 80C and any payment such as interest and withdrawal from the scheme shall not be liable to tax.
• 80CCC – The limit in respect of contribution to certain Pension funds has been increased from Rs 1,00,000/- to Rs 1,50,000
• 80CCD – The deduction under National Pension Scheme, which has been restricted to 10% of the salary/ gross total income will be increased by upto Rs 50,000 for any sum paid beyond 10% of the salary/ gross total income from 1^st April, 2016
• 80D – From 1^st April, 2016,
  • It is proposed to increase the limit of deduction for health insurance premia from Rs. 15,000 to Rs. 25,000 (in case of senior citizen from Rs. 20,000 to Rs. 30,000).
  • It is also proposed to allow deduction of medical expenditure of similar amount under this section 80D in case of a very senior citizen not eligible to take health insurance.
• 80DD – From 1^st April, 2016,
  • The limit for deduction in respect of maintenance, including medical treatment of a dependant who is a person with disability, has been proposed to be increased from Rs. 50,000 to Rs. 75,000.
  • The limit of deduction in case of severe disability has been proposed to be increased from Rs. 1 lakh to Rs. 1.25 lakh
• 80DDB – From 1^st April, 2016,
  • The Medical Certificate which was earlier required to be taken from a doctor working in a Government hospital only can now be taken from any specialist doctor, whether or not working in a government hospital
  • The limit of deduction in case of very senior citizens for expenditure on account of specified diseases is proposed to be increased from Rs. 60,000 to Rs. 80,000.
• 80G – It is proposed to include the following funds in the list of institutions, contribution to which shall be eligible for 100% deduction:
  • National Fund for Control and Drug Abuse (w.e.f 1^st April, 2016)
  • Swachh Bharat Kosh (w.e.f 1^st April, 2015)
  • Clean Ganga Fund (w.e.f 1^st April, 2015)
• 80JJAA – From 1^st April, 2016,
  • The benefit of this deduction, earlier available to Indian companies on the additional wages to new regular workmen, has now been proposed to be extended to all the assesses having manufacturing units.
  • It is proposed that where the factory is obtained by way of transfer from any other person or as a result of business re-organization, this deduction shall be denied.
  • Also, in order to provide the benefit of this deduction to smaller units as well, it is proposed to extend the benefit to units employing 50 instead of 100 regular workmen.
• 80U – From 1^st April, 2016
  • It is proposed to increase the limit of deduction u/s 80U of the Income-tax Act in case of a person with disability, from Rs. 50,000 to Rs. 75,000.
  • It is also proposed to increase the limit of deduction from Rs. 1 lakh to Rs. 1.25 lakh in case of severe disability.

Domestic Transfer Pricing

The provisions of transfer pricing were made applicable to domestic companies where the value of specified domestic transaction exceeded Rs 5 crore from 1^st April, 2013. From 1^st April, 2016, the threshold limit of Rs 5 crore for applicability of transfer pricing regulations to specified domestic transactions has been increased to Rs 20 crore.

Non-acceptance of cash as advance or otherwise, non-repayment of any sum as advance in cash with regards to an immoveable property

• It is proposed to amend Section 269SS, to provide that, from 1^st June, 2015, no person shall accept any loan or deposit or any sum of money, whether as advance or otherwise, of Rs. 20,000 or more, in cash, with regards to transfer of an immoveable property, whether or not the transfer takes place.
• Similarly it is proposed to amend Section 269T, to provide that, from 1^st June, 2015, no person shall repay any sum of money in nature of advance, of Rs. 20,000 or more, in cash, with regards to transfer of an immoveable property, whether or not the transfer takes place.

Deferment of GAAR

• It is proposed to defer applicability of General Anti Avoidance Rule (GAAR) by 2 years. Accordingly, it is proposed to be applicable for income of the financial year 2017-18 (A.Y. 2018-19) and subsequent years.
• It is also proposed that the investments made upto 31.03.2017 shall not be subjected to GAAR.

Additional Depreciation u/s 32(1)(iia)

There was controversy surrounding Section 32(1)(iia), that whether 50% of the additional depreciation will be allowed in the next year when the asset has been used for 180 days or less in the year of purchase (covered in our magazine ‘Changes, Challenges and Controversies’ dated 12^th September, 2014). This controversy has been addressed to. A clarity has been provided that from 1^st April, 2016, the balance additional depreciation of 10% on eligible Plant & Machinery acquired and used for less than 180 days in a previous year shall be allowed in immediately succeeding financial year.

Special allowances for Andhra Pradesh and Telangana

Where an assessee, sets up an undertaking or enterprise for manufacture or production of any article or thing, on or after the 1st day of April, 2015 in any backward area notified by the Central Government, in the State of Andhra Pradesh or in the State of Telangana, and acquires and installs any new machinery or plant for the purposes of the said undertaking or enterprise during the period beginning from 1st day of April, 2015 to 1st day of April, 2020,

• Additional depreciation of 35% of the actual cost of the new asset is available u/s 32(1)(iia)
• Deduction of 15% of the actual cost of the new asset is available in the assessment year in which such new asset is installed under a newly introduced section 32AD. The Lock-in period for the new asset will be 5 years except in case of transfer in connection with amalgamation, demerger or re-organization of business as referred to in clause 47(xiii), 47(xiiib) and 47(iv).
• The total deduction in the year of investment in a new asset in the backward areas of Andhra Pradesh and Telangana can go upto 80%, if the company is eligible under Section 32AC, and upto 65% otherwise.

Increased compliances u/s 35(2AB) by approved in-house R&D facility

Earlier the company taking benefit of Section 35(2AB), was only required to get its accounts for the approved in-house R&D facility audited.  From 1^st April, 2016, it is proposed to increase the procedural requirement by fulfillment of such conditions as would be prescribed for maintenance and audit of accounts and furnishing of reports

Addition to “Transactions not regarded as transfer” u/s 47

The following transactions have been added to the  category of transactions not regarded as transfer and hence won’t be subject to the capital gain tax:

• any transfer of a capital asset, in a scheme of amalgamation, being a share of a foreign company which derives, directly or indirectly, its value substantially from the share or shares of an Indian company, held by the amalgamating foreign company to the amalgamated foreign company, if—
  • at least 25% of the shareholders of the amalgamating foreign company continue to remain shareholders of the amalgamated foreign company; and
  • such transfer does not attract tax on capital gains in the country in which the amalgamating company is incorporated;”
• any transfer in a demerger, of a capital asset, being a share of a foreign company, which derives, directly or indirectly, its value substantially from the share or shares of an Indian company, held by the demerged foreign company to the resulting foreign company, if,—
  • the shareholders, holding 3/4^th or more in value of the shares of the demerged foreign company, continue to remain shareholders of the resulting foreign company; and
  • such transfer does not attract tax on capital gains in the country in which the demerged foreign company is incorporated
• any transfer by a unit holder of units held by him in the consolidating scheme of a mutual fund,  in consideration of the allotment to him of units in the consolidated scheme of the mutual fund.  However such transfer should only be with regards to the consolidation is of two or more schemes of equity oriented fund or of two or more schemes of a fund other than equity oriented fund. This tax neutrality has been provided to facilitate consolidation of different schemes with similar features in the interest of the investors.