Income Tax provisions in Union Budget 2012-13

A. RATES OF INCOME-TAX

I. Rates of income-tax in respect of income liable to tax for the
assessment year 2012-13.

In respect of income of all categories of assessees liable to tax for the
assessment year 2012-13, the rates of income-tax have been specified in Part I
of the First Schedule to the Bill. These are the same as those laid down in Part
III of the First Schedule to the Finance Act, 2011, for the purposes of
computation of “advance tax”, deduction of tax at source from “Salaries” and
charging of tax payable in certain cases.

(1) Surcharge on income-tax—

Surcharge shall be levied in respect of income liable to tax for the
assessment year 2012-13, in the following cases:— (a) in the case of a domestic
company having total income exceeding one crore rupees, the amount of income-tax
computed shall be increased by a surcharge for the purposes of the Union
calculated at the rate of five per cent. of such income tax.

(b) in the case of a company, other than a domestic company, having total
income exceeding one crore rupees, the amount of income-tax computed shall be
increased by a surcharge for the purposes of the Union calculated at the rate of
two per cent. of such income tax.

However, marginal relief shall be allowed in all these cases to ensure that
the additional amount of income-tax payable, including surcharge, on the excess
of income over one crore rupees is limited to the amount by which the income is
more than one crore rupees.

Also, in the case of every company having total income chargeable to tax
under section 115JB of the Income Tax Act, 1961 (hereinafter referred to as
‘Income-tax Act’) and where such income exceeds one crore rupees, surcharge at
the rates mentioned above shall be levied and marginal relief shall also be
provided.

(2) Education Cess —

For assessment year 2012-13, additional surcharge called the “Education Cess
on income-tax” and “Secondary and Higher Education Cess on income-tax” shall
continue to be levied at the rate of two per cent. and one per cent.,
respectively, on the amount of tax computed, inclusive of surcharge, in all
cases. No marginal relief shall be available in respect of such Cess.

II. Rates for deduction of income-tax at source during the
financial year 2012-13 from certain incomes other than

“Salaries”.

The rates for deduction of income-tax at source during the financial year
2012-13 from certain incomes other than “Salaries” have been specified in Part
II of the First Schedule to the Bill. The rates for all the categories of
persons will remain the same as those specified in Part II of the First Schedule
to the Finance Act, 2011, for the purposes of deduction of income-tax at source
during the financial year 2011-12, except that in case of certain interest
payments made to a non-residents by a specified Indian company engaged in
prescribed business of infrastructure development, the rates for deduction have
been now provided in the proposed new section 194LC.

(1) Surcharge— The amount of tax so deducted, in the case of a
company other than a domestic company, shall be increased by a surcharge at the
rate of two per cent. of such tax, where the income or the aggregate of such
incomes paid or likely to be paid and subject to the deduction exceeds one crore
rupees. No surcharge will be levied on deductions in other cases.

(2) Education Cess— “Education Cess on income-tax” and
“Secondary and Higher Education Cess on income-tax” shall continue to be levied
at the rate of two per cent. and one per cent. respectively, of income tax
including surcharge wherever applicable, in the cases of persons not resident in
India including companies other than domestic company.

III. 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 2012-13.

The rates for deduction of income-tax at source from “Salaries” during the
financial year 2012-13 and also for computation of “advance tax” payable during
the said year in the case of all categories of assessees have been specified in
Part III of the First Schedule to the Bill.

These rates are also applicable for charging income-tax during the financial
year 2012-13 on current incomes in cases where accelerated assessments have to
be made , for instance, provisional assessment of shipping profits arising in
India to nonresidents, assessment of persons leaving India for good during the
financial year, assessment of persons who are likely to transfer property to
avoid tax, assessment of bodies formed for a short duration, etc.

The salient features of the rates specified in the said Part III are
indicated in the following paragraphs—

A. Individual, Hindu undivided family, association of persons, body
of individuals, artificial juridical person

Paragraph A of Part-III of First Schedule to the Bill provides following
rates of income-tax:-

(i) The rates of income-tax in the case of every individual (other than those
mentioned in (ii) and (iii) below) or Hindu undivided family or every
association of persons or body of individuals , whether incorporated or not, or
every artificial juridical person referred to in sub-clause (vii) of clause (31)
of section 2 of the Income-tax Act (not being a case to which any other
Paragraph of Part III applies) are as under :—

Upto Rs. 2,00,000 Nil.

Rs. 2,00,001 to Rs. 5,00,000 10 per cent.

Rs. 5,00,001 to Rs. 10,00,000 20 per cent.

Above Rs. 10,00,000 30 per cent.

(ii) In the case of every individual, being a resident in India, who is of
the age of sixty years or more but less than eighty years at any time during the
previous year,—

Upto Rs. 2,50,000 Nil.

Rs. 2,50,001 to Rs. 5,00,000 10 per cent.

Rs. 5,00,001 to Rs.10,00,000 20 per cent.

Above Rs. 10,00,000 30 per cent.

(iii) in the case of every individual, being a resident in India, who is of
the age of eighty years or more at anytime during the previous year, –

Upto Rs. 5,00,000 Nil.

Rs. 5,00,001 to Rs. 10,00,000 20 per cent.

Above Rs. 10,00,000 30 per cent.

No surcharge shall be levied in the cases of persons covered under
paragraph-A of part-III of the First Schedule.

Compulsory filing of income tax return in relation to assets located
outside India

Under the existing provisions of section 139, every person is required to
furnish a return of income if his income during the previous year relevant to
the assessment year exceeds the maximum amount which is not chargeable to tax.
The return of income has to be furnished in the prescribed form and verified in
the prescribed manner and setting forth such other particulars as may be
prescribed.

It is proposed to amend the provisions of section 139 so that furnishing of
return of income under section 139 may be made mandatory for every resident
having any asset (including financial interest in any entity) located outside
India or signing authority in any account located outside India. Furnishing of
return by such a resident would be mandatory irrespective of the fact whether
the resident taxpayer has taxable income or not.

This amendment will take effect retrospectively from the 1st day of April,
2012 and will accordingly apply to assessment year 2012-13 and subsequent
assessment years.

Share premium in excess of the fair market value to be treated as
income

Section 56(2) provides for the specific category of incomes that shall be
chargeable to income-tax under the head “Income from other sources”.

It is proposed to insert a new clause in section 56(2). The new clause will
apply where a company, not being a company in which the public are substantially
interested, receives, in any previous year, from any person being a resident,
any consideration for issue of shares. In such a case if the consideration
received for issue of shares exceeds the face value of such shares, the
aggregate consideration received for such shares as exceeds the fair market
value of the shares shall be chargeable to income- tax under the head “Income
from other sources. However, this provision shall not apply where the
consideration for issue of shares is received by a venture capital undertaking
from a venture capital company or a venture capital fund.

Further, it is also proposed to provide the company an opportunity to
substantiate its claim regarding the fair market value. Accordingly, it is
proposed that the fair market value of the shares shall be the higher of the
value—

(i) as may be determined in accordance with the method as may be prescribed;
or

(ii) as may be substantiated by the company to the satisfaction of the
Assessing Officer, based on the value of its assets, including intangible
assets, being goodwill, know-how, patents, copyrights, trademarks, licences,
franchises or any other business or commercial rights of similar nature.

This amendment will take effect from 1st April, 2013 and will, accordingly,
apply in relation to the assessment year 2013-14 and subsequent assessment
years.

Exemption for Senior Citizens from payment of advance tax

Under the existing provisions of Income-tax Act, every assessee is required
to pay advance tax if the tax liability for the previous year exceeds ten
thousand rupees. In case of senior citizens who have passive income of the
nature of interest, rent, etc., the requirement of payment of advance tax
results in raising compliance burden.

In order to reduce the compliance burden of such senior citizens, it is
proposed that a resident senior citizen, not having any income chargeable under
the head “Profits and gains of business or profession”, shall not be liable to
pay advance tax and such senior citizen shall be allowed to discharge his tax
liability (other than TDS) by payment of self assessment tax.

This amendment will take effect from the 1st April, 2012. Accordingly, the
aforesaid senior citizen would not be required to pay advance tax for the
financial year 2012-13 and subsequent financial years.

Wealth Tax – Exemption of residential house allotted to employee etc. of a
company

Under the existing provisions of section 2 of the Wealth-tax Act, the
specified assets for the purpose of levy of wealth tax do not include a
residential house allotted by a company to an employee or an officer or a whole
time director if the gross annual salary of such employee or officer, etc. is
less than five lakh rupees.

Considering general increase in salary and inflation since revision of this
limit, it is proposed to increase the existing threshold of gross salary from
five lakh rupees to ten lakh rupees for the purpose of levying wealth-tax on
residential house allotted by a company to an employee or an officer or a whole
time director.

This amendment will take effect from 1st April, 2013 and will, accordingly,
apply in relation to the assessment year 2013-14 and subsequent assessment
years.

Reduction in the rate of Securities Transaction Tax (STT)

Securities Transaction Tax (STT) on transactions in specified securities was
introduced vide Finance (No.2) Act, 2004.

It is proposed to reduce STT in Cash Delivery segment from the existing
0.125% to 0.1%. The proposed new rates along with details of old rates are given
in the following table.

The proposed amendments in the rates of Securities Transaction Tax (STT) will
be effective from the 1st day of July, 2012 and will accordingly apply to any
transaction made on or after that date.

Fee and penalty for delay in furnishing of TDS/TCS Statement and
penalty for incorrect information in TDS/TCS Statement

As per the existing provisions of the Income-tax Act, a deductor is required
to furnish a periodical TDS statement (quarterly) containing the details of
deduction of tax made during the quarter by the prescribed due date. A
substantial number of the deductors are not furnishing their TDS statement
within the prescribed due date. Delay in furnishing of TDS statement results in
delay in granting of credit of TDS to the deductee and consequently results into
delay in issue of refunds to the deductee tax payers or raising of infructuous
demand against the deductee tax payers. Further, in large number of cases, the
deductors are not furnishing correct information like PAN of the deductee,
amount of tax deducted, etc. in the TDS statement. Furnishing of correct
information in respect of tax deduction is critical for processing of return of
income furnished by the deductee because credit for TDS is granted to the
deductee on the basis of information furnished by the deductor.

Under the existing provisions of section 272A, penalty of Rs.100 per day is
levied for delay in furnishing of TDS statement, however, no specific penalty is
specified for furnishing of incorrect information in the TDS statement. The said
provisions of penalty are not proved to be effective in reducing or eliminating
defaults relating to late furnishing of TDS statement.

In order to provide effective deterrence against delay in furnishing of TDS
statement, it is proposed –

(i) to provide for levy of fee of Rs.200 per day for late furnishing of TDS
statement from the due date of furnishing of TDS statement to the date of
furnishing of TDS statement. However, the total amount of fee shall not exceed
the total amount of tax deductible during the period for which the TDS statement
is delayed, and

(ii) to provide that in addition to said fee, a penalty ranging from
Rs.10,000 to Rs.1,00,000 shall also be levied for not furnishing TDS statement
within the prescribed time.

In view of the levy of fee for late furnishing of TDS statement, it is also
proposed to provide that no penalty shall be levied for delay in furnishing of
TDS statement if the TDS statement is furnished within one year of the
prescribed due date after payment of tax deducted along with applicable interest
and fee.

In order to discourage the deductors to furnish incorrect information in TDS
statement, it is proposed to provide that a penalty ranging from Rs.10,000 to
Rs.1,00,000 shall be levied for furnishing incorrect information in the TDS
statement.

Consequential amendment is proposed in section 273B so that no penalty shall
be levied if the deductor proves that there was a reasonable cause for the
failure.

Consequential amendment is also proposed in section 272A to provide that no
penalty under this section shall be levied for late filing of TDS statement in
respect of tax deducted on or after 1st July, 2012.

Amendments on the similar lines for levy of fee and penalty for delay in
furnishing of TCS statement and furnishing of incorrect information in the TCS
statement are also proposed to be made.

These amendments will take effect from 1st July, 2012 and will, accordingly,
apply to the TDS or TCS statement to be furnished in respect of tax deducted or
collected on or after 1st July, 2012.

IV. Intimation after processing of TDS statement

Vide finance (No.2) Act, 2009, section 200A was inserted in the Income-tax
Act to provide for processing of TDS statement. After processing of TDS
statement, an intimation is generated specifying the amount payable or
refundable. The intimation generated after processing of TDS statement is not

(i) subject to rectification under section 154; (ii) appealable under section
246A; and

(iii) deemed as notice of demand under section 156.

In order to reduce the compliance burden of the deductor and also to
rationalise the provisions of processing of TDS statement, it is proposed to
provide that the intimation generated after processing of TDS statement shall be

(i) subject to rectification under section 154; (ii) appealable under section
246A; and

(iii) deemed as notice of demand under section 156. These amendments will
take effect from 1st July, 2012.

V. “Person responsible for paying” in case of payment by Central
Government or Government of a State

Under the existing provisions of section 204 of the Income-tax Act, a “person
responsible for paying” has been defined to include employer, company or its
principal officer or the payer. There is a lack of clarity in the case of
payment made by Central Government or by a State Government as to who is the
person responsible for paying the sum to the payee.

In order to provide clarity to the meaning of “person responsible for paying”
in case of payment by Central Government or a State Government, it is proposed
to provide that in the case of payment by Central Government or a State
Government, the Drawing and Disbursing Officer or any other person (by whatever
name called) responsible for making payment shall be the “person responsible for
paying” within the meaning of section 204.

This amendment will take effect from 1st July, 2012.

VI. Extension of time for passing an order under section 201 in
certain cases

Under the existing provisions section 201 of the Income-tax Act, a person can
be deemed to be an assessee in default, by an order, in respect of
non-deduction/short deduction of tax. Such order can be passed within a period
of four years from end of financial year in a case where no statement as
referred to in section 200 has been filed.

It is proposed to amend provision of section 201, so as to extend the time
limit from four years to six years.

This amendment will take effect retrospectively from 1st April, 2010.

Liability to pay advance tax in case of non-deduction of tax

Under the existing provisions of section 209 of the Income-tax Act, the
amount of advance tax payable is computed by reducing the amount of income-tax
which would be deductible or collectible during the financial year from
income-tax on estimated income. Therefore, in cases where the assessee receives
or pays any amount (on which the tax was deductible or collectible) without
deduction or collection of tax, it has been held by Courts that he is not liable
to pay advance tax to the extent the tax is deductible or collectible from such
amount.

In order to make an assessee liable for payment of advance tax in respect of
income which has been received or paid without deduction or collection of tax,
it is proposed to amend the aforesaid section to provide that where a person has
received any income without deduction or collection of tax, he shall be liable
to pay advance tax in respect of such income.

This amendment will take effect from the 1st April, 2012 and would,
accordingly, apply in relation to advance tax payable for the financial year
2012-13 and subsequent financial years.

Prohibition of cash donations in excess of ten thousand rupees

Section 80G of the Income-tax Act provides for a deduction in respect of
donations to certain funds, charitable institutions, etc. subject to specified
conditions. The deduction is allowed in respect of any donation being a sum of
money. Similarly, section 80GGA of the Income-tax Act provides for a deduction
in respect of certain donations for scientific research or rural development
made to research associations, universities, colleges or other
associations/institutions, subject to specified conditions.

Currently, there is no provision in either of the aforesaid sections
specifying the mode of payment of money. Therefore, it is proposed to amend
sections 80G and 80GGA so as specify therein that any payment exceeding a sum of
ten thousand rupees shall only be allowed as a deduction if such sum is paid by
any mode other than cash.

These amendments will take effect from 1st April, 2013 and will, accordingly,
apply in relation to assessment year 2013-14 and subsequent assessment years.

Eligibility conditions for exempt life insurance policies

Under the existing provisions contained in section 10(10D) of the Income-tax
Act, any sum received under a life insurance policy, including the sum allocated
by way of bonus on such policy, is exempt. For this purpose, it is necessary
that the premium payable for any of the years shall not exceed 20% of the actual
capital sum assured.

It is proposed to reduce the threshold of premium payable to 10% of the
actual capital sum assured from 20% of the actual capital sum assured.
Accordingly, it is proposed to amend section 10(10D) so as to provide that the
exemption for insurance policies issued on or after 1st April, 2012 would only
be available for policies where the premium payable for any of the years during
the term of the policy does not exceed 10% of the actual capital sum assured.

Further, in order to ensure that the life insurance products are not designed
to circumvent the prescribed limits by varying the capital sum assured from year
to year, it is also proposed to provide that the capital sum assured would be
the minimum of the sum assured in any of the years of the policy. Insertion of a
new Explanation 2 has been proposed towards this effect by referring to
the new definition of “actual capital sum assured” under Explanation of
section 80C(3A). This Explanation will apply to insurance policies issued
on or after the 1st April, 2012.

This amendment will take effect from 1st April, 2013 and will, accordingly,
apply in relation to the ssessment year 2013-14 and subsequent assessment years.

[Clause 5]

Eligibility condition for deduction in respect of life insurance
policies

Section 80C of the Income-tax Act provides that in computing the total income
of an assessee, being an individual or an HUF, a deduction of up to one lakh
rupees for life insurance premia, contributions to any provident fund, tuition
fees, subscription to any deposit scheme of a public sector company engaged in
financing, construction or purchase of houses in India for residential purposes,
fixed term deposits of not less than five years with a scheduled bank, etc., is
allowed.

The existing provisions contained in section 80C(3) provide that the
deduction for life insurance premium shall be allowed for only so much of any
premium or other payment made on an insurance policy as is not in excess of 20%
of the actual capital sum assured.

It is proposed to amend the provisions to provide that the deduction for life
insurance premium as regards insurance policies issued on or after 1st April,
2012 shall be allowed for only so much of the premium payable as does not exceed
10% of the actual capital sum assured.

It is further proposed to insert the definition of “actual capital sum
assured” so as to provide that the actual capital sum assured in relation to a
life insurance policy shall be the minimum amount assured under the policy on
happening of the insured event at any time during the term of the policy, not
taking into account— (i) the value of any premiums agreed to be returned, or
(ii) any benefit by way of bonus or otherwise over and above the sum actually
assured, which is to be or may be received under the policy by any person. This
amendment has been proposed to ensure that the life insurance products are not
designed to circumvent the prescribed limits by varying the capital sum assured
from year to year. This definition is also referred to in the proposed
Explanation 2 in section 10(10D).

These amendments will take effect from 1st April, 2013 and will, accordingly,
apply in relation to the assessment year 2013-14 and subsequent assessment
years.