JANUARY 24, 2018

By Sumit Aggarwal

1. Section 44AD-Special provision for computing profits and gains of business on presumptive basis

The deeming provision is currently applicable to any business except the business of plying, hiring or leasing goods carriages referred to in section 44AE and whose total turnover or gross receipts in the previous year does not exceed an amount of two crore rupees.

The person involved in trading of shares or derivatives should be specifically excluded from the provisions of section 44AD as business of trading in shares or derivatives cannot be presumed to be earning certain standard profit margin in business because of the peculiarities of the stock market.

2. Section 36-Other Deductions

Due date specified under explanation to clause (va) of sub-section (1) of section 36 for deposit of employee's contribution to relevant fund should be linked to due date for furnishing of return of income to avoid infructuous litigation.

3. Section 37 & 80G - Expenditure on Corporate Social Responsibility

Section 37 does not allow expenditure on corporate social responsibility as business expenditure but if the amount is donated to entities registered under section 80G, the deduction is allowable which is an anomaly and Section 80G needs to be amended to exclude donations made under terms of corporate social responsibility.

4. Section 80 CCD-Deduction in respect of contribution to pension scheme of Central Government

Section 10(12A) & 10(12B) refers to amount of exemption of withdrawal / partial withdrawal from National Pension Scheme by an employee. The clauses does not refer to an individual but employee only and needs to be amended to include person other than an employee also in the exemption.

In case of contribution to NPS Tier 2 Account, no deduction is available under section 80CCD as amount is freely withdrawable but there is no clarity on how the taxable income is to be arrived on amount withdrawn from Tier 2 account, whether units allotted can be treated as capital asset & consequently whether indexation benefit is available or not is to be clearly spelt out.

Finance Act, 2017 had tried to provide parity in the sense that in case of an employee the deduction allowed under section 80CCD adds up to 20% of salary whereas in case of other individuals, the total deduction under section 80CCD was limited to 10% of gross total income which was increased to 20% of total income but with no real benefit due to limit on deduction applicable under section 80CCE which can be understood with below small example.

Mr. A, an employee with gross salary of 15 lakh (assuming all basic salary) with employer's contribution of 1.5 lakh and own contribution of 1.5 lakh will be able to get deduction of 3 lakh under 80CCD while in case of Mr B, a self employed person with total income of 16.50 Lakh contributes 3.30 lakh to NPS (20% of total income),Mr. B will get benefit of only 1.5 lakh due to limit of deduction under section 80CCE.

5. Section 145A-Method of accounting in certain cases

The section provides that value of inventory shall include any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee notwithstanding any right arising as a consequence to such payment i.e. assessee is required to report inventory by inclusive method even though he is maintaining records on exclusive method.

Valuing inventory on inclusive method does not serve any purpose and provision should be omitted to promote ease of doing business.

6. Section 145C- Method of accounting

Certain provisions of ICDS had been held ultra vires by the Delhi High Court. In view of the same, suitable amendments to be made in the Act itself to incorporate the provisions of ICDS which override binding judicial precedents or provisions of the Act.

7. Section 153-Time limit for completion of assessment, reassessment and re-computation

The section does not currently provide for exclusion of period beginning from the date on which the Assessing Officer makes a reference to the Valuation Officer under sub-section (2) of section 50C and ending with the date on which the report of the Valuation Officer is received by the Assessing Officer.

The sections needs to be amended to exclude the said period.

8. Section 194DA-Payment in respect of life insurance policy.

The section provides deduction of TDS @ 1% of amount received under life insurance policy other than amount which is exempt under section 10(10D).

Clarity should be provided whether TDS is deductible on amount received under pension plans (section 80CCC) as these are neither life insurance policy nor any receipt therefrom is exempt under section 10(10D).

9. Section 194LC- Income by way of interest from Indian company

Section 19LC provides deduction of TDS at concessional rate of 5% in respect of money borrowed in foreign currency subject to fulfillment of certain conditions. The benefit should be extended to rupee loan raised under track III of ECB guidelines.

10. Section 234A-Interest for defaults in furnishing return of income & Section 234B-Interest for defaults in payment of advance tax

Interest under both sections are levied on amount arrived after allowing deduction of TDS deducted, relief u/s 90/90A, deduction u/s 91, tax credit allowed u/s 115JA / 115JD.

The section does not allow deduction of relief u/s 89(1) while computing interest u/s 234A / 234B due to which there arise liability of advance tax & consequently levy of interest even though no tax is payable after claim of relief u/s 89(1) and hence both the section should be amended to provide deduction for relief u/s 89(1).

11. Section 234C-Interest for deferment of advance tax

CPC is currently levying interest for non-payment of advance tax due before a company/LLP/firm is incorporated / formed during the year due to absence of express provisions which is highly illogical which needs to be clarified.

12. Treatment of taxable receipts from ULIP / ULPP

The treatment on receipts at time of surrender or otherwise of Unit Linked Insurance Policies which are not exempt u/s 10(10D) should be explicitly spelt out. As per circular 7/2003 dated 05.09.2013, the insurance policies with high premium and minimum risk covers are similar to deposits or bonds and the income accruing on such policies (not including the premium paid by the assessee) shall become taxable. The circular is silent on how to arrive at taxable income, whether units allotted under the policy can be considered as a capital asset and consequently, whether indexation benefit is available or not.

Similarly, in case of pension plans where no deduction is claimed under section 80CCC or otherwise under any other section, how the taxable income is to be arrived and whether units allotted under the Unit Linked Pension Policy can be considered as a capital asset and consequently whether indexation benefit is available or not needs to be clarified.

13. Section 285-Submission of statement by a non-resident having liaison office

As per section 285, Liaison office has to submit form 49C within 60 days from the end of the year including therein details of date of submission of Annual Activity Certificate but RBI permits submission of Annual Activity Statement within 6 months from the end of the year.

The inconsistencies in the dates should be removed by suitably amending the due date of filing of form 49C.

14. Rule 26 of Income Tax Rules, 1962

The "telegraphic transfer buying rate", in relation to a foreign currency is defined to meant the rate or rates of exchange adopted by the State Bank of India. The rate of exchange of SBI is not publically available and telegraphic transfer buying rate should be linked to rates which are publically available like rates as per RBI website.

15. Time bound Release of notification of rules / forms

A new section needs to be inserted mandating government to notify rules / forms in a time bound manner. For example, section 203A was amended by Finance Act, 2015 to provide that to provide that the requirement of obtaining and quoting of TAN under section 203A of the Act shall not apply to the notified deductors or collectors. One of the example given in the memorandum of Finance Bill 2015 was transaction of acquisition of immovable property from non-resident by an individual or HUF on which tax is deductible under section 195 of the Act but till date no person has been notified nor any rule / procedure / form has been notified by which resident individual can deposit TDS deducted of non resident on purchase of immovable property without obtaining TAN.