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India Budget Series

RATIONALIZATION OF TAX TREATMENT OF RECOGNISED PROVIDENT FUNDS, PENSION FUNDS AND NATIONAL PENSION SCHEME

Under the existing provisions, tax treatment for National Pension System is EET (Exempt, Exempt and Tax) i.e. periodic contributions are allowed as deductions from income, interest accrued is exempt from tax and lump sum withdrawal are taxable. However, under Recognised Provident Funds and Super Annuation Funds, the treatment is EEE (Exempt, Exempt and Exempt) i.e. withdrawals are also exempt from tax.

It is proposed that any payment from National Pension System on account of closure of pension scheme shall be exempt upto 40% of such amount. However, if the amount is received by the nominee, because of the death of assessee, the entire amount shall be exempt from tax.

In order to bring uniformity in tax treatment of different plans, it was proposed that in respect of contributions made on or after 01.04.2016 by an employee participating in recognised provident fund and super annuation fund, withdrawal upto 40% shall be exempt from tax. Further, the balance 60% shall be exempt from tax only if the withdrawn amount is invested in annuity.

Further, it was proposed to increase the limit of employer’s contribution to an approved super annuation fund from Rs. 1 lakh to Rs. 1.5 lakhs, upto which no tax shall be charged in the hands of employee.

In addition, exemption is proposed to be provided to one-time portability from a recognised provident fund to National Pension System. Additionally, payment from an approved superannuation fund by way of transfer to the account of the employee under NPS and notified by the Central Government shall be exempt from tax.

It shall be noted that the Public Provident Fund (PPF) withdrawals shall continue to be exempt fully.

These amendments are proposed to be made effective from the 1st day of April, 2017 and shall accordingly apply in relation to assessment year 2017-18 and subsequent years.
However, the proposed changes of charging the withdrawal amount upto 60% for recognised provident fund and superannuation fund is subsequently withdrawn owing to political compulsions. Further the decision of imposing monetary limit of 1.5 Lacs has been withheld. Though the intent of the Government to make a pensionable society is certainly laudable the manner in which the implementation happened has forced them to roll back. However the benefit of 40% exemption is now available for withdrawal from National Pension Scheme.

India Budget Series

RATIONALISATION OF THE PROVISIONS RELATING TO APPELLATE TRIBUNAL

In view of rationalisation of provisions relating to Appellate Tribunal, following amendments are proposed:-

-To omit the reference of “Senior Vice President” under existing clause (b) of sub-section (3), sub-section (4A) and sub-section (5) of Section 252

-To omit Section 253 (2A) and Section 253 (3A) in relation to filing of appeal by Assessing Officer for order passed by Dispute Resolution Panel. Consequential amendments shall be made in Section 253 (3A) and Section 253 (4).

The above amendments will take effect from 1st day of June, 2016.

Further, where Department is already in appeal against the directions of Dispute Resolution Panel under sub-section (2A) of the Section 253 (before the amendment of the Finance Act, 2016), no fee shall be payable. This amendment will take effect retrospectively from 1st July, 2012

The below amendments will take effect from 1st day of June, 2016.

Currently, the Appellate Tribunal can rectify any mistake apparent from the record in its order within 4 years from the date of order.

However, it is proposed to amend the time limit to 6 months from the end of the month in which order was passed

The monetary limit of total income, as computed by Assessing Officer, for a single member bench to dispose of any case pertaining to assessee, has been increased from Rs. 15 lakhs to Rs. 50 lakhs.

India Budget Series

RATIONALISATION OF PENALTY PROVISIONS

Penalty for concealment of income is leviable under Section 271 (1) (c). In order to provide more certainty and objectivity, it is proposed that Section 271 shall not apply in relation to any assessment for the assessment year commencing on or after the 1st day of April, 2017 and subsequent assessment years and penalty for concealment of income shall be levied under the newly inserted Section 270A with effect from 1st April, 2017.

The new Section 270A provides for levy of penalty in cases of under reporting and misreporting of income instead of concealment of income. The power to levy penalty under Section 270A vests with the Assessing Officer, Commissioner (Appeals) or the Principal Commissioner or Commissioner.

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The following table provides the calculation of amount of under reported income under different scenarios:-

Particulars

Category

Calculation of Amount of under reported income

Where return is furnished and assessment is made for the first time All assesses Difference between the assessed income and the income determined under Summary Assessment
Where no return is furnished earlier and it is furnished for the first time Company, Firm or Local Authority Assessed Income
Where no return is furnished earlier and it is furnished for the first time Person other than Company, Firm or Local Authority Difference between the assessed income and the maximum amount not chargeable to tax
Where income is not assessed for the first time Any person Difference between the income assessed or determined in such order and the income assessed or determined in the order immediately preceding such order
Deemed total income as per Section 115JB or Section 115JC Any person (I-II) + (III-IV) (Note)
Assessment or reassessment has the effect of reducing loss declared in the return or converting loss into income Any person Difference between the loss claimed and the income or loss, assessed or reassessed
Source of any receipt, deposit or investment is linked to earlier year Any person As per Explanation 2 to Section 271 (1)

Note

I – Total Income assessed as per general provisions

II – Total Income that would have been chargeable considering the total income assessed as per general provisions as reduced by under reported income

III – Total Income assessed as per the provisions contained in Section 115JB or Section 115JC, as the case may be

IV – Total Income that would have been chargeable considering the total income assessed as per provisions contained in Section 115JB or 115JC as reduced by under reported income

However, where the amount of under reported income on any issue is considered both under the provisions contained in Section 115JB or Section 115JC and under general provisions, such amount shall not be reduced from total income assessed while determining the amount under item IV.

It is further proposed that the under-reported income under this Section shall not include the following cases:

– Where the assessee offers an explanation and the income-tax authority is satisfied that the explanation is bonafide and all the material facts have been disclosed

– Where such under-reported income is determined on the basis of an estimate, if the accounts are correct and complete but the method employed is such that the income cannot be properly derived therefrom

– Where the assessee has, on its own, estimated a lower amount of addition or disallowance on the issue and has included such amount in the computation of his income and disclosed all the facts material to the addition or disallowance

– Where the assessee had maintained information and documents as prescribed under Section 92D, declared the relevant international transaction and disclosed all the material facts relating to the transaction

– Where the undisclosed income is on account of a search operation and penalty is leviable thereon.

Following further amendments have been proposed:-

– In case of company, firm or local authority, the tax payable on under reported income shall be calculated as if the under-reported income is the total income, however, in any other case, the tax payable shall be thirty per cent of the under-reported income

– Addition or disallowance of an amount shall not form the basis for imposition of penalty, if such addition or disallowance has formed the basis of imposition of penalty in the case of the person for the same or any other assessment year.

– Consequential amendments shall be made in Sections 119, 253, 271A, 271AA, 271AAB, 273A and 279 to provide reference to newly inserted Section 270A.

The above amendments are proposed to remove the existing ambiguity for levy of penalty on concealment of income and provide required certainty. Removing the discretionary powers of the Assessing Officers would certainly reduce corruption and red-tapism. However, the definition of understatement and misstatement might lead to frivolous litigation.

These amendments will take effect from 1st day of April, 2017 and will, accordingly apply in relation to assessment year 2017-2018 and subsequent years.

India Budget Series

AMENDMENT OF SECTION 271AAB

As per the existing provisions, where search has been initiated, the general clause of penalty ranges from 30% to 90% of the undisclosed income.

It is proposed to amend the rate of penalty to 60% of such undisclosed income.

These amendments will take effect from the 1st day of April, 2017.

India Budget Series

AMENDMENT OF SECTION 272A

It is proposed to amend Section 272A(1) to further levy penalty of Rs. 10,000 for each default or failure to comply with a notice issued under sub-section (1) of Section 142 or sub-section (2) of Section 143 or failure to comply with a direction issued under sub-section (2A) of Section 142, wherein the authority to levy the penalty shall vest with income tax authority issuing such notice or direction.

Consequential amendment shall be made to Section 288 to include the above mentioned amendment.

These amendments will take effect from the 1st day of April, 2017 and will, accordingly, apply in relation to the assessment year 2017 -2018 and subsequent years.

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