In order to promote the Start-up India Action Plan with the intention to raise Rs.10,000 crores, in a span of 4 years, in order to finance start-ups through a specified Fund, the department has introduced a new Section on the same lines of Section 54EC. The provisions of the new Section are as follows:-

-Long term capital gains on any assets shall be exempt if proceeds are invested in units of specified Fund

-Investment shall be made within 6 months from date of transfer

-Lock-in period of investment shall be 3 years; however, if the amount is withdrawn before the expiry of 3 years, exemption erstwhile provided shall be revoked.

-Further, even if loan or advance is taken against the security of this investment, it shall be deemed that the said investments are transferred

-Maximum limit of investment shall be Rs.50 lakhs

The provisions are exactly similar to Sec 54EC except that the instrument for investment is different.

Under the existing provisions of Section 115JB, if tax payable under the Income Tax Act is lower than 18.5% of the book profits, then such assessee shall be liable to pay taxes at the rate of 18.5% of the book profits.

There were issues whether the above provisions shall be applicable to Foreign Institutional Investors who do not have Permanent Establishment (PE) in India

The Finance Act, 2015 sought to amend this position, however the same was done only with prospective effect i.e. from A Y 2016-17.

It is proposed that with effect from 01.04.2001, the provisions of MAT shall not apply to a Foreign Company if either of the following conditions is satisfied:

-The foreign company is a resident of a country with which India has a valid DTAA and the foreign company does not have a PE in India pursuant to the said DTAA; or

-The foreign company is a resident of a country with which India does not have a valid DTAA and foreign company is not required to seek registration under any law for the time being in force in relation to companies.

In order to provide a fill-up to the growth of International Financial Services Centre, following proposals are made:-

-Capital gains arising from transaction undertaken in foreign currency on recognised stock exchange located in the International Financial Services Centre (IFSC) shall be exempt from tax even when STT is not paid in respect of such transactions.

-In case of company, located in IFSC and deriving its income solely in convertible foreign exchange, MAT shall be chargeable at the rate of 9% instead of 18.5%

-Dividend Distribution Tax shall not be applicable in respect of profits distributed as dividends by a Company located in IFSC and deriving its income solely in convertible foreign exchange out of its current income on or after 01.04.2017

– Further, no tax shall be levied on receipt of dividends by the shareholders from a Company located in IFSC

The above amendments shall be applicable from 1^st April, 2017 and shall accordingly apply in relation to AY 2017-18 and subsequent years.

-In order to provide further impetus to IFSC, it is proposed that no Securities Transaction Tax (STT) or Commodities Transaction Tax (CTT) shall be levied on taxable securities or commodities transactions entered by any person on a recognised stock exchange located in IFSC wherein the consideration is in foreign currency

The above amendment shall be applicable from 1^stJune,2016

In the above case, the investors invest in an offshore fund that is located outside India.

The fund, in turn, appoints a consultant outside India. Further, consultant, in turn, from its office outside India, appoints a fund manager in India to take care of its Indian Portfolio.

In this case, if the fund is an eligible investment fund, the fund management activity carried out through the eligible fund manager, shall not constitute a business connection in India.

The following core criterias needs to be satisfied for a fund to qualify as an eligible investment fund:

-The fund is not a person resident in India

– Fund is located in the country with whom India has a valid DTAA

– Resident Investor participation in the fund shall not exceed 5% of the Total Fund Amount

– The fund shall have a minimum of 25 members

– A single member’s investment shall not exceed 10% of the total fund value.

It is proposed to expand the criteria to include that a fund shall be regarded as to be Eligible Investment Fund if the fund is established or incorporated or registered outside India in a country or a specified territory notified by the Central Government in this behalf.

It is further proposed that the condition of fund not controlling and managing businesses in India or from India shall be restricted only in context of activities in India and not from India

These amendments will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent assessment years

It is proposed to amend Section 115QA to provide for:

-taxation of distributed income in case of buy back of shares by an unlisted company under any law relating to companies (currently it refers to only Companies Act 1956) and

-providing clarity on the method of determination of consideration received by the company at the time of issue of shares (including cases where shares are allotted for consideration other than cash)

Hence, buyback transactions, where the original allotments were made for consideration other than shares, like sweat equity, merger consideration, etc. would possibly be covered under this proposed rules.

The amendment is effective from 1^st June 2016

Territory of India is not limited to land and sea but it includes air as well. There is a levy of Spectrum fee for auction of air waves. There are uncertainties in tax treatments in relation to payments in respect of Spectrum.

In order to provide clarity and avoid any future litigation and controversy, it is proposed to insert a new Section 35ABA in the Act to provide for tax treatment of spectrum fee.

The proposed new Section 35ABA shall function on same lining as that of Section 35ABB which is in relation to “license to operate telecommunication business”, in respect of:-

-Deduction of capital expenditure

-Taxability at the time of transfer of spectrum

-Taxability of excess amount and ineligible expenses at the time of transfer

– A scheme of amalgamation

These amendments will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent years.

Under the existing provisions of the Income Tax Act, there are provisions in relation to taxation of non-compete fees and exclusivity rights in relation to Business but there are no such provisions in relation to Profession.

Thus, it is proposed to make the following considerations:-

-Non-compete fees received/receivable, recurring in nature, in relation to not carrying out profession shall be taxed as “Profits and Gains of Profession”

-Capital receipts on transfer of rights to carry profession, shall be taxable under the head “Capital Gains” and not as “Profits and Gains of Profession”

-Further, the cost of acquisition and cost of improvement for calculating capital gains on account of transfer of rights to carry profession, shall be taken as ‘nil’

Non-compete fees in case of business shall be taxed as business income and not as capital gains.

These amendments will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent years.

With a view to ensure the prompt payment of dues to Railways for use of the Railway assets, it is proposed to amend Section 43B so as to expand its scope to include payments made to Indian Railways for use of Railway assets.

Thus, payments made to Indian Railways, for use of Railway assets, shall be allowed as deduction only if the same is paid on or before the due date of filing of return.

This amendment will come into effect from assessment year 2017-18 and for subsequent assessment years.

The existing provision of Section 32AC(1A) provides for an investment allowance at the rate of 15% for purchase of new plant and machinery exceeding Rs.25 crores by a company engaged in manufacturing or production of any article provided that acquisition and installation of the said plant and machinery is done in the same previous year.

As the benefit under this Section is available upto 31.03.2017, it is proposed to amend the said Section to eliminate the dual condition of acquisition and installation in the same previous year and it is further proposed that benefit shall be allowed in the year when new plant and machinery is installed in case where the year of installation is other than year of acquisition.

For example, if a company acquires new plant and machinery on 01.03.2016 for Rs.30 crores and the same is installed on 30.04.2016, as per the existing provisions, the deduction of investment allowance at the rate of 15% shall not be allowed as the said plant and machinery are not acquired and installed in the same previous year. However, as per the amendment, the investment allowance of Rs.4.5 crores (15% of 30 crores) shall now be available to the Company for the year ended 31.03.2017.

This amendment was inserted due to the practical difficulty of commissioning plants as the quantum is above Rs.25 crores. Hence the conditions have been liberalised with greater focus on the intention of promoting the Make in India campaign.

This amendment will take effect retrospectively from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and 2017-18.

The existing provisions of Section 36(1) (viia) allows for a deduction of maximum 5% of the Gross Total Income (before claiming deduction under this clause and chapter VI-A) in respect of provision for bad and doubtful debts for a Public Financial Institution, State Financial Corporation and State Industrial Investment Corporations.

It is proposed to extend this benefit to Non-Banking Financial Companies (“NBFCs”) as well.

This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent assessment years