In regard to the original Bill presented in the Lok Sabha on 29th February, 2016, many changes have been made therein. After incorporating such amendments, the Lok Sabha has passed the Finance Bill on 5th May, 2016. Key amendments made in the Finance Act 2016:

1. Unlisted shares held for 24 months or less would be treated as short-term capital asset

Proposed: With effect from 01.04.2015, unlisted share is treated as short-term capital asset if it is held for not more than 36 months immediately preceding the date of its transfer.

 

Passed: Inserted a new clause to provide that the period of 36 months would be substituted with period of 24 months in case of unlisted shares. In other words, unlisted shares of company would be treated as short-term capital asset if it is held for a period of 24 months or less immediately preceding the date of its transfer.

 

2. Processing of returns before scrutiny assessment

Proposed: Mandatory processing of returns under Section 143(1) even when the scrutiny assessment notice is issued to the assessee. This amendment was proposed so that the assessee need not to wait for the refunds, if any, due to him till the scrutiny assessment was completed.

 

Passed: The Bill provides that the processing of return is not necessary before the expiry of one year from the end of the financial year in which return is furnished, where a notice is issued for scrutiny assessment under Section 143(2).

 

 

3. Benefit of 25 percent tax rates on certain domestic companies

Proposed: Insertion of new section 115BA to provide benefit of concessional tax rate of 25% to certain domestic companies engaged in the business of manufacturing or production of any article or thing, provided such company has been set-up and registered on or after March 1, 2016.

 

Passed: Benefit of concessional tax rate shall also be available to the companies engaged in research in relation to or distribution of article or thing manufactured or produced by it. Once this option has been exercised by the company for any previous year, it cannot subsequently withdraw the same or for any other previous year.

 

4. LLPs can be ‘Eligible start-ups’

Proposed: A new section 80-IAC to provide 100 percent deduction for 3 consecutive assessment years to an ‘eligible Start-up’ engaged in an eligible business. Such deduction may, at the option of assessee, be claimed for any three consecutive AYs out of the five years beginning from the year in which eligible startup is incorporated. The ‘eligible start-up’ is proposed to be defined to mean a ‘company’ engaged in an eligible business.

 

Passed: Extended the definition of ‘eligible start-up’ to include ‘limited liability partnership’ also.

 

5. Levy of additional tax on dividend

Proposed: An additional tax of 10% if amount of dividend received by a taxpayer exceeds Rs. 10 Lakhs.

 

Passed: Dividend whether paid or declared or distributed by one or more domestic companies, the aggregate of dividend shall be considered for the limit of Rs.10 lakhs but Tax shall be payable only on the amount of dividend exceeding Rs 10 lakhs.

 

6. Relief to specific Non-Residents from the tax deduction under section of 194LBB

Proposed: To amend the section 194LBB to provide that tax shall be deducted at the rate of 10% where payee is resident. Where the payee is non-resident or foreign company, tax shall be deducted at the rates in force.

 

Passed: Lok Sabha inserted a proviso that where payee is a non-resident, no tax shall be deducted in respect of any income which is not chargeable to tax.

 

7. Recognized Provident Fund

Proposed: Employer’s contributions shall not be chargeable to tax to the extent of 12% of employee’s salary or Rs.1,50,000, whichever is less.

Any withdrawal from the accumulated balance in the provident fund account, which is attributable to employee’s contribution made on or after April 1, 2016, shall not be chargeable to tax up to 40 % of such accumulated balance.

 

Passed: Withdraws such amendment

 

8. Withdrawal from superannuation fund account

Proposed: any payment in lieu of or in commutation of an annuity purchased out of contributions made on or after April 1, 2016, where it exceeds 40% of annuity, shall be chargeable to tax.

 

Passed: Withdraws such an amendment.

 

9. Immunity from penalty and prosecution in certain cases

Proposed: To insert section 270AA to provide immunity to the assessee from penalties under section 270A and prosecution under section 276C if the assessee pays the tax and interest within the time prescribed by the notice, provided assessee does not file an appeal against the order.

 

Passed: The Finance Bill, 2016 as passed by the Lok Sabha also includes immunity from prosecution under Section 276CC in the new Section 270AA.

 

10. Cost of acquisition of asset declared under Income Declaration Scheme, 2016

Proposed: Where the income chargeable to tax is declared in the form of investment in any asset, the fair market value of such asset as on the date of commencement of this scheme shall be deemed to be the undisclosed income.

 

Passed:  The cost of acquisition of such asset shall be deemed to be the fair market value taken into account for purposes of Income Declaration Scheme, 2016.

 

11. Under reporting of income shall be punishable as willful attempt to evade tax

Proposed: Insertion of a new Section 270A to levy penalty in case of under reporting and misreporting of income by assessee. Section 276C provides for rigorous imprisonment of minimum 3 months to 7 years in case an assessee has made wilful attempt to evade tax.

 

Passed: Section 276C amended to provide that under reporting of income as per section 270A shall be punishable with rigorous imprisonment under section 276C.

 

12. Employer’s annual contribution deemed as income received by employee

Proposed: an amendment to the Fourth Schedule of the Income-tax Act to provide that lower of the following shall be deemed as income of the employee:

• Annual contribution made by employer in excess of 12% of salary to the recognized provident fund account of the employees; or
• 1,50,000

 

Passed: Any contribution by employer in excess of 12% of salary to the recognized provident fund account of the employees shall be deemed as income of employee. The ceiling limit of Rs. 1.50 lacs has been removed from the approved Finance Bill.

 

13. Tax on income from patent developed and registered in India

Proposed: Insertion of new section 115BBF to tax royalty income in respect of a patent developed and registered in India at the rate of 10%.

 

Passed: Inserted two new sub-sections in Section 115BBF to provide as follows:

1. Assessee may exercise the option for taxation of income from patents in accordance with the provisions of section 115BBF, in prescribed manner on or before the due date of furnishing of return of income under section 139(1) of the relevant previous year
2. If assessee opts for taxation of income from patents as per section 115BBF in any previous year and fails to offer tax on income from patents as per section 115BBF in any of the 5 succeeding assessment years then he shall not be eligible to claim benefit of said section for 5 assessment years subsequent to the assessment year in which such income has not been offered to tax as per section 115BBF.

 

The Finance Bill, 2016 also provided that for the purpose of section 115BBF, patent shall be developed and registered in India. The word ‘developed’ had been described in the Explanations to mean the expenditure incurred by the assessee for any invention in respect of which patent is granted under the Patents Act, 1970.

 

The Finance Bill, 2016 as passed by the Lok Sabha specifically provides that the meaning of “developed” shall mean at least 75 percent of the expenditure incurred in India by the eligible assessee for any invention in respect of which patent is granted under the Patents Act, 1970.

 

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