Finance Act 2006 ? Board explains
The Finance Act 2006, came into effect on 18.4.2006 and now the CBDT has explained the intricacies of the budget.
Some important issues
Rationalisation of provisions relating to deduction of health insurance premium paid by the employer:-
Any premium paid by the employer or any reimbursement of premium paid by the employees for health insurance schemes of other insurers, approved by the Insurance Regulatory and Development Authority, shall also be exempt from the purview of perquisites.
Deduction in the computation of income against taxes paid on income earned outside India not allowable
Explanation 1 has been inserted to sub-clause (ii) of clause (a) of section 40 of the Income-tax Act thereby clarifying that any sum paid outside India and eligible for relief of tax under section 90 or deduction from the income-tax payable under section 91 is not allowable, and is deemed to have never been allowable, as a deduction under section 40 of the Income-tax Act. The taxpayers, however, will continue to be eligible for tax credit in respect of income-tax paid in a foreign country in accordance with the provisions of section 90, or as the case may be, section 91.This amendment is clarificatory in nature and is inserted in the Income-tax Act on 1st April, 2006.
Interest not 'actually paid' not eligible for deduction under section 43B
Under the existing provisions in clause (d) of section 43B, any sum payable by the assessee as interest on any loan or borrowing referred to in that clause is allowed as deduction in the computation of income if the sum payable as interest is actually paid by the assessee.
Board has noticed that certain assessees were claiming deduction under section 43B on account of conversion of interest payable on an existing loan into a fresh loan on the ground that such conversion was a constructive discharge of interest liability and, therefore, amounted to actual payment. Claim of deduction against conversion of interest into a fresh loan is a case of misuse of the provisions of section 43B. A new Explanation 3C has, therefore, been inserted to clarify that if any sum payable by the assessee as interest on any loan or borrowing, referred to in clause (d) of section 43B, is converted into a loan or borrowing, the interest so converted, shall not be deemed to be actual payment.
This amendment takes effect retrospectively from 1st April, 1989 i.e. the date from which clause (d) was inserted in section 43B and applies in relation to assessment year 1989-90 and subsequent years.
Benefits of section 80 C to fixed deposits in banks
Section 80C provides for a deduction of rupees one lakh to an individual or a Hindu undivided family, with respect to sums paid or deposited in certain specified schemes. The investments or payments eligible for deduction include life insurance premia, contributions to provident fund or schemes for deferred annuities, purchase of infrastructure bonds, payment of tuition fees, repayment of principal amount of housing loans, etc. Further, in order to minimise distortions, there are no sectoral caps and the assessee is free to choose any one or more of the eligible avenues within the overall ceiling specified.
To provide a level playing field amongst banks and other institutions like insurance companies, mutual funds, etc. a new clause (xxi) in sub-section (2) of section 80C has been inserted so as to provide that investment in a term deposit for a fixed period of not less than 5 years with any scheduled bank, shall be eligible for deduction under the said section.
Rationalisation of provisions of section 80CCC
Section 80CCC provides that an assessee, shall be allowed a deduction (up to rupees ten thousand) from his total income of the amount paid or deposited by him to effect or keep in force a contract for any annuity plan of Life Insurance Corporation of India or any other insurer for receiving pension from the fund referred to in clause (23AAB) of section 10.
Since the deduction available under section 80C and section 80CCC are capped by an overall limit of rupees one lakh, as Said down in section 80CCE, and there are no sectoral caps in section 80 C, the provisions of the two sections have been aligned by amending the provisions of section 80CCC so as to increase the limit of investment from rupees ten thousand to rupees one lakh.
Taxation of anonymous donations received by wholly charitable trusts or institutions including non-profit educational or medical institutions
Income of wholly charitable or religious trusts or institutions as well as partly charitable or religious trusts or institutions is exempt from income-tax under sections 11 and 12, subject to the fulfillment of certain conditions of application of income and investment in specified modes. Similarly, income of any university or other educational institution or any hospital or other medical institution or any fund or institution or any trust or institution is exempt from income-tax subject to the fulfillment of conditions.
With a view to prevent channelisation of unaccounted money to these institutions by way of anonymous donations, a new section 115BBC has been inserted to provide that any income of a wholly charitable trust or institution by way of anonymous donation shall be included in its total income and taxed at the rate of 30 per cent. Anonymous donation made to wholly charitable and religious trusts or institutions, i.e. mixed purpose trusts or institutions shall be taxed only if it is for any university or other educational institution or any hospital or other medical institution run by them. Anonymous donation to wholly religious trusts or institutions will not be taxed.
Powers of the Board to issue directions regarding the power and function of the Income-tax authorities
Section 120 lays down the jurisdiction of the income-tax authorities. The existing provisions contained in sub-section (1) of the section, provide that the income-tax authorities shall exercise all or any of the powers and perform all or any of the functions conferred on or, assigned to, such authorities in accordance with directions issued by the Board for the exercise of such powers and functions by all or any of those authorities.
With a view to clarify the intention of the legislature, an explanation to sub-section (1) of the said section has been inserted so as to clarify that any income-tax authority, being an authority higher in rank, may exercise the powers and perform the functions of the income-tax authority lower in rank, if it is so directed by the Board under the said section. And this amendment will have retrospective effect from 1st April, 1988.
Omission of the one-by-six scheme
Under the existing provision of the proviso to sub-section {1} of section 139, it has been provided that, any person fulfilling any of the six expenditure/asset criteria listed therein, will be required to furnish his return of income, even if his total income did not exceed the maximum amount not chargeable to tax.
The proviso to section 139 has been omitted and no return will be required to be furnished under the proviso.
Prescribing new class of persons for allotment of PAN and suo-motu allotment of PAN
The existing provisions of sub-sections (1) and (1A) of section 139A provide for class of persons who are required to have a Permanent Account Number.
A new sub-section (IB) has been inserted so as to provide that for the purpose of collecting any information which may be useful for or relevant to the purposes of this Act, the Central Government may by way of notification specify any class or classes of persons, and such persons shall within the prescribed lime apply to the Assessing Officer for allotment of a permanent account number.
Under the existing provisions, the Assessing Officer may also allot to any other person by whom tax is payable, a permanent account number. The sub-section has been amended so as to provide that the Assessing Officer may, having regard to the nature of transactions as may be prescribed, also allot a permanent account number to any other person (whether any tax is payable by him or not), in the manner and in accordance with the procedure as may be prescribed.
New Scheme to facilitate submission of returns through Tax Return Preparers
A new section 139B has been inserted in the Income-tax Act so as to provide that for the purpose of enabling any specified class or classes of persons to prepare and furnish returns of income, the Board may, by way of notification, frame a scheme providing that such persons may furnish their returns of income through a Tax Return Preparer authorized to act as such under the scheme.
Tax Return Preparer Scheme, 2006 has been notified in November 2006.
TDS certificates to continue.
As per the procedure introduced by Finance Act, 2004, TDS certificates were not required to be enclosed with IT returns as the AO on a click of a button would know how much TDS was deducted from you. The idea was whoever deducts TDS from you will file a quarterly return with the Income Tax quoting your PAN and even if you don?t know, the AO can tell you how much TDS was deducted from you.
But that?s not the way things work. Not all deductors file quarterly return and the Board?s On-Line Tax Accounting System (OLTAS) is yet to fully stabilize.
So the scheme is in abeyance . Do demand those TDS certificates.
Annual TDS and TCS returns ? done away with
With the system of quarterly statements in place, the requirement of furnishing annual TDS and annual TCS returns has been rendered superfluous. Therefore, the requirement of furnishing of the annual return of tax deducted and collected at source in respect of taxes deducted or collected on or after 1st April, 2005 has been dispensed with.
Penalty for failure to collect tax at source
No penalty is, so far, specified under the income-tax Act for failure to collect tax at source.
A new section 271CA has been inserted to provide for imposition of penalty on any person who is responsible for collecting tax and who has failed to collect tax at source in accordance with the provisions of Chapter XVII-BB of the Act.
Penalty for false quoting of TAN
Under the existing provisions of section 272BB of the Income-tax Act, a person becomes liable for penalty of a sum of ten thousand rupees if he fails to comply with the provisions of section 203A which require him to apply to the Assessing Officer for the allotment of a "tax deduction and collection account number". After allotment of the "tax deduction and collection account number", the deductor or, as the case may be, the collector is required to quote such number in all challans, certificates, returns and in all other documents.
The existing provisions of section 272BB, however, do not provide for a penalty for quoting false "tax deduction and collection account number" on the lines of a penalty specified for quoting or intimating a false "permanent account number" under section 272B.
A new sub-section (1A) has been inserted in section 272BB to provide that if a person who is required to quote his 'tax deduction account number' or 'tax collection account number' or 'tax deduction and collection account number' in the challans or certificates or statements or other documents referred to in sub-section (2) of section 203A, quotes a number which is false and which he either knows or believes to be false or does not believe to be true, such person shall pay by way of penalty a sum of ten thousand rupees.
CBDT CIRCULAR NO. 14/ 2006, Dated : December 28, 2006