Finance Act 2017

The Finance Act 2017 (the Finance Act) of the Indian Parliament has received the assent of the Hon’ble President on 31 March 2017 to give effect to the financial proposals of the Central Government of India (GoI) for the financial year 2017-2018.

The said Finance Act has introduced some new provisions to the Income Tax Act 1961 (the Act) whilst amending a few existing provisions thereunder, some of which have been briefly mentioned below.


Reduced Income Tax Rates and Rebate

(Assessment year 2018-19)

> 5 percent on Total Income

  • Individual Assessees, with Total Income of more than Rs.2.5 lacs (exemption threshold) up to Rs.5 lacs
  • Resident Individuals (age 60 years or more but less then age of 80 years at any time during the Previous year) with Total Income of more than Rs.3 lacs (exemption threshold) up to Rs.5 lacs

> 25 Percent on Total Income

  • Domestic Company, where its total turnover or gross receipts in the Previous year 2015-16 does not exceed Rs.50 Crores.

> Rebate of Income Tax in case of certain Individuals
– section 87A

Rebate of Rs.2500 (or of an amount equal to 100 percent of the Income Tax, which ever is less) is available to resident Individual Assessees if their Total Income does not exceed Rs.3.5 lacs for Assessment year 2018-19 onwards.


Income Tax Return (ITR) and Refund – Compliance

> Mandatory ‘Aadhaar’ Number for PAN/ITR
– section 139AA (newly inserted provision)

Every person who is eligible to obtain an ‘Aadhaar’ number is required to quote the same (or the Enrolment ID of Aadhaar application form issued, as the case may be) on or after the 1 July 2017, in the application form for allotment of Permanent Account Number (PAN) and in the ITR.

> ITR processing and Scrutiny Notice – section 143(1D)

The provisions of section 143(1D) of the Act (as substituted by section 68 of the Finance Act 2016) which allowed the non-processing of ITR when a relevant ‘scrutiny’ notice under section 143(2) had been issued to the concerned Assessee, have been disabled and do not apply to ITRs furnished for Assessment year 2017-18 onwards.

> Fee for Default in furnishing ITR – section 234F
(new provision applicable for AY2018-19)

Person required to furnish a return of income (ITR) under section 139 of the Act, upon failure to do so within the prescribed time, is liable* to pay —

  • Rs.5000 (if ITR is furnished on or before 31 December of the Assessment year); or
  • Rs.10,000 (in any other case).

*The above stated penalty fees is limited to Rs.1000 if the total income of the concerned person does not exceed Rs.5 lacs.

> Withholding of Refund in certain cases – section 241A
(new provision)

For Assessment year 2017-18 onwards, where a refund of any amount becomes due to the concerned Assessee under section 143(1) of the Act and the concerned Assessing Officer (AO) is of the opinion (where a ‘scrutiny’ notice under section 143(2) has been issued for the relevant ITR) that the grant of the refund is likely to adversely affect the revenue, may for reasons to be recorded in writing and with the previous approval of the Principal Commissioner or Commissioner (as the case may be) withhold the said refund up to the date on which the Assessment is made.


Cash (non-banking) Transactions Restrictions and Prohibitions

> Mode of undertaking transactions – section 269ST
(new provision)

The above said provision prohibits (subject to some exceptions) persons from receiving money, otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account, of an amount of Rs.2 lacs or more

  • In aggregate from a person in a day; or
  • In respect of a single transaction; or
  • In respect of transactions relating to one event or occasion from a person.

> Penalty for Failure (to comply with provisions of section 269ST) – section 271DA
(new provision)

Person who receives any sum in contravention of the provisions of the above mentioned section 269ST is liable to pay by way of penalty a sum equal to the amount of such receipt (no penalty shall be imposed if such person proves that there were good and sufficient reasons for the contravention).

> Expenses or payments not deductible in certain circumstances – section 40A

For Assessment year 2018-19, no deduction for computing income under the head “Profts and Gains from Business or Profession” shall be allowed to an Assessee for any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft or use of electronic clearing system through a bank account, exceeds Rs.10,000.

Capital Gains

‘Specified Agreement’ – Joint Development (Builder) Agreement

With effect from Assessment year 2018-19, where Capital Gain arises to an Assessee (Individual or a Hindu Undivided Family) from the transfer of a capital asset (being land or building or both) under a ‘specified agreement^, such Capital Gain will be chargeable to Income Tax as income of the Previous year in which the ‘certificate of completion’ for the whole or part of the project is issued by the the competent authority.

  • For the purposes of section 48 (Mode of Computation), the stamp duty value on the date of issue of the said certificate, of such Assessee’s share (being land or building or both) in the project, as increased by the consideration received in cash (if any) shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the said capital asset.
  • The above shall not apply where the Assessee transfers such share in the project on or before the date of issue of the said certificate of completion, and the capital gains shall be deemed to be the income of the previous year in which such transfer takes place and the other provisions of the Act shall apply for the purpose of determination of full value of consideration received or accruing as a result of such transfer.

^Specified agreement means a registered agreement in which a person owning land or building or both, agrees to allow another person to develop a real estate project on such land or building or both, in consideration of a share, being land or building or both in such project, whether with or without payment of part of the consideration in cash.

> Definitions – section 2(42A)

For Assessment year 2018-19 onwards, immovable property (being land or building or both) will classify as a ‘long-term capital asset’ if held by the concerned Assessee for not more than 24 months immediately preceding the date of its transfer.

> Transactions not regarded as Transfer – section 47

Any transfer by way of conversion of Preference Shares of a Company into Equity Shares of that Company shall not be regarded as a ‘transfer’ for purpose of Capital Gains.

> Special provision for Full Value of Consideration for Transfer of Share other than quoted share^^ – section 50CA
(new provision with effect from Assessment year 2018-19)

Consideration received or accruing as a result of the transfer by an Assessee of a capital asset, being Share of a Company (other than a quoted share) is less than its fair market value (determined in such manner as may be prescribed), the value so determined will be deemed to be the full value of consideration received or accruing as a result of such transfer.

^^Quoted share” means the share quoted on any recognised stock exchange with regularity from time to time, where the quotation of such share is based on current transaction made in the ordinary course of business.

> Meaning of “adjusted”, “cost of improvement” and “cost of acquisition” – section 55

The ‘base year’ for the purpose of computing the ‘cost of acquisition’ and ‘indexation’ thereunder (where applicable) of a capital asset has been shifted from 1 April 1981 to 1 April 2001 with effect from Assessment year 2018-19.


Income from House Property

> Annual Value how determined – section 23

For Assessment year 2018-19, for the purpose of determining the ‘Annual Value’ of a property, consisting of any building or land appurtenant thereto held as stock-in-trade, and the property or any part thereof is not let during the whole or any part of the Previous year, the said Annual Value shall be taken to be nil for the period up to 1 year from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority.


> Set off of loss from one head against income from another – section 71

Where in respect of any Assessment year, the net result of the computation under the head “Income from house property” is a loss and the concerned Assessee has income assessable under any other head of income, set off of such loss will be limited to Rs.2 lacs, against income under the other head.


Income from Other Sources

Section 56 has been amended for Assessment year 2018-19 onwards, where the following incomes (subject to some stated exceptions) are chargeable to Income Tax under the head “Income from other sources”, where any person receives in any previous year from a person(s) on or after the 1 April 2017

  • Any sum of money without consideration, the aggregate value of which exceeds Rs.50,000, the whole of the aggregate value of such sum;
  • Any immovable property,—
    (A) Without consideration, the stamp duty value of which exceeds Rs.50,000, the stamp duty value of such property;
    (B) For a consideration which is less than the stamp duty value of the property by an amount exceeding Rs.50,000, the stamp duty value of such property as exceeds such consideration.


Non-Profit/Charitable Entities

> Appeals to the Income Tax Appellate Tribunal (ITAT) – section 253

Any Assessee aggrieved by an adverse order against a Fund or Institution established for charitable purposes under section 10(23C)(iv) or a Trust (including any other legal obligation) or Institution wholly for public religious purposes or public religious and charitable purposes under section 10(23C)(v) of the Act, can now also appeal to the Income Tax Appellate Tribunal (ITAT) against such order(s).

> Deduction in respect of donations to certain funds, charitable institutions, etc. – section 80G

No deduction is to to be allowed for Assessment year 2018-19 onwards under the above said section in respect of donation of any sum exceeding Rs.2000 (reduced from Rs.10,000) unless such sum is paid by any mode other than cash.

> Income from Property held for Charitable or Religious purposes – section 11

For claiming exemption or non-inclusion of income for the above stated purposes, with effect from 1 April 2018, any amount credited or paid out of such income to any other Trust or Institution registered under section 12AA, being contribution with a specific direction that they shall form part of the corpus of such entities, shall not be treated as application of income for charitable or religious purposes.

  • Similar denial of benefits apply where any amount credited or paid out of income of any Fund or Trust or Institution or any University or other Educational Institution or any Hospital or other Medical Institution referred to in section 10(23C)(iv) to (via), to any trust or institution registered under section 12AA as voluntary contribution made with a specific direction that they shall form part of the corpus of the trust or institution.

Conditions for Applicability of sections 11 and 12 – section 12A

With effect from 1 April 2018, where a Trust or an Institution has been granted registration under section 12AA or has obtained registration at any time under section 12A (as it stood before its amendment by the Finance (No. 2) Act 1996), and subsequently it has adopted or undertaken modifications of the objects which do not conform to the conditions of registration, the person in receipt of the relevant income is required to make an application for registration of the said Trust or Institution in the prescribed form and manner, within a period of 30 days
from the date of said adoption or modification, to the prescribed authority.


Company Taxation, Startups, Search-Seizure and Survey

> Tax Credit in respect of Income Tax paid on deemed income relating to certain Companies
– section 115JAA

Income Tax (‘Minimum Alternate Tax’ or MAT as computed under section 115JB and other applicable provisions) credit can be carried forward for 15 years instead of 10 years (for Assessment year 2018-19 onwards).

> Startup Income Tax Benefits

> Search-Seizure and Survey Increase in powers to Income Tax authorities by Finance Act 2017


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