income-tax 2004-05

356 Pages·2009·2.16 MB·English

FINANCE (No. 2)
V 4 ACT, 2004
. WITHNOTES

G
. 49 I.T. NOTES
M GENERAL
E
H I.T. NOTES
T 69
A V. G. MEHTA'STM SALARY
’
S
I.T. NOTES
IIIII NNNNNCCCCCOOOOOMMMMM EEEEE-----TTTTTAAAAA XXXXX 98
PROPERTY
IIIII
NNNNN I.T. NOTES
RRRRREEEEEAAAAADDDDDYYYYY RRRRREEEEECCCCCKKKKKOOOOONNNNNEEEEERRRRR 104
CCCCC BUSINESS
& PROFESSION
OOOOO
MMMMM ASSESSMENT YEAR I.T. NOTES
138
EEEEE 22222000000000044444-----0000055555 CAPITAL GAINS
-----
TTTTT QUOTATIONS
170
AAAAA AS ON 1-4-1981
XXXXX
I.T. NOTES

V. G. MEHTA’S RRRRR 178 ORETTHUERRN SSO, UARSCSEESSS,MENT
EEEEE WITH RATES TABLES AND EXAMPLES FOR AND LOSSES
Income-tax Ready Reckoner
AAAAA
I.T. NOTES
CAPITAL GAINS • WEALTH-TAX
1939-40 to 2003-04 DDDDD 195 ASST. OF FIRMS, INT.,
PENALTIES, ETC.
YYYYY GIFT-TAX (cid:129) COMPANIES
Out of print Few copies available R R R R R GIST OF IMPORTANT CIRCULARS ON DIRECT TAXES 206 EXCLUSIONS
FROM TOTAL INCOME
EEEEE LIST OF BONUS SHARES
1939-40 to 1986-87 1993-94 Price: Rs. 160/-
CCCCC DEDUCTIONS
210
1987-88 to 1989-90 1998-99 Price: Rs. 260/- KKKKK FROM GROSS TOTAL
INCOME
OOOOO
1990-91 to 1992-93 1999-2000 Price: Rs. 280/- REBATE OF
NNNNN 237 (DEDUCTIONFROM)
1994-95 to 1997-98 2000-01 Price: Rs. 280/- EEEEE ASSESSMENT YEAR INCOME-TAX
RRRRR 22222000000000055555-----0000066666
I.T. TABLES
2002-03 & 2003-04 2001-02 Price: Rs. 300/-
243 INDIVIDUALS & HUFs.
FOR DEDUCTION OF TAX FROM ‘‘SALARIES’’ 2004-05
22222 I.T. TABLES
AND
00000 250 FIRMS, CO-OP. SOCIETY,
LTD. COMPANIES FOR
00000 COMPUTATION OF ‘‘ADVANCE TAX’’ 2004-05
44444 WEALTH-TAX
DURING THE FINANCIAL YEAR 2004-05
----- 259 RATES, NOTES,
00000 TABLE, EXAMPLE,
FOR 2004-05
55555
QUOTATIONS
276 FOR GOLD & SILVER,
BONUS SHARES LIST,
By GIFT-TAX
(cid:129)
MONTHLY
N. V. MEHTA
278 SALARY TABLES
FOR F.Y. 2004-05
N B.COM., LL.B., F.C.A.
. ADVANCE TAX

V 285 NOTES, INTEREST,
. WITH EXAMPLES

M
I.T. TABLES
E
H PUBLISHERS: 293 I2N0D05IV-0ID6UALS, HUFs., etc.
T WITH EXAMPLES
A SHRI KUBER PUBLISHING HOUSE
Published by Kishore V. Mehta for Shri Kuber Publishing House, Court House, Dhobi Talao, Mumbai-400 002. GIST OF CIRCULARS
Printed by Arun K. Mehta at Vakil & Sons Pvt. Ltd., Hague Building, 2nd Floor, 9 Sprott Road, Ballard Estate, Mumbai-400 001. COURT HOUSE, DHOBI TALAO, MUMBAI 400 002. PHONE: [phone] SEARCH & SEIZURE,
TDS CHART, PRES. FORMS
TWO MINUTES PLEASE:
Before
You proceed to go through this publication, may I draw your kind attention to the following:
This “Income-tax Ready Reckoner” is based on the Direct-tax Laws as amended by the Finance (No. 2)
Act, 2004.
Rates of income-tax, surcharge and additional surcharge:
In the case of individuals, HUFs., AOPs. & BOIs, the exemption limit is Rs. 50,000 for assessment
years 2004-05 & 2005-06 and no changes are made in the rate structure for income-tax and surcharge on
income-tax [Refer page 32 & 36].
In the case of all other categories of assessees other than individuals, HUFs., AOPs. & BOIs, no
changes are made in the rate structure for income-tax and surcharge on income-tax in relation to assessment
years 2004-05 & 2005-06 [Refer pp. 32-33 & 37].
In the case of all categories of assessees including individuals, HUFs, etc., for the assessment year
2005-06, the aggregate of income-tax and surcharge, if any, chargeable at scheduled rates, and also at flat
rates u/s. 111A & 112, is to be increased by an additional surcharge (i.e., Education Cess) calculated @ 2% of
such income-tax and surcharge [Vide section 2(11) of the Finance (No. 2) Act, 2004 on page 6].
The rates at which income tax is required to be deducted at source during the financial year 2004-05
from income by way of interest on securities, winnings from lotteries, etc. are specified in Part II of the First
Schedule to the Finance (No. 2) Act, 2004, subject to certain exceptions [Refer item (ii) on page 38]. The
amount of income-tax deducted/collected during the financial year 2004-05, is to be increased by surcharge
at the rates prescribed on the amount of income-tax so deducted/collected [Refer paras (a), (b), & (c) of item
(ii) on page 38]. The amount of income-tax and surcharge, if any, so deducted/collected shall be further
increased by an additional surcharge (i.e., Education Cess) calculated at the rate of 2% of such income-tax
and surcharge, if any [Vide section 2(11) of the Finance (No. 2) Act, 2004 on page 6].
INCOME-TAX
(i) In relation to assessment year 2005-06:
(1) Family pension received by the family members of armed forces of the Union is exempt, subject to
conditions [Refer Para 2.4 on page 42].
(2) Income under the head “Salaries” cannot be set off against loss under the head “Profits and gains
of business or profession” [Refer Para 4.2 on page 44].
(3) Limit for increase in installed capacity for the purposes of additional depreciation u/s. 32(1)(iia),
reduced from 25% to 10% [Refer Para 5.1 on page 44]. Deduction u/s. 33AC withdrawn and ‘Tonnage tax
scheme’ introduced in the case of shipping companies [Refer Para 5.2 on page 44]. In relation to assessment
year 2004-2005 and subsequent years, interest commission or brokerage or fees for professional/technical
services payable to a resident, or amounts payable to a resident contractor/sub-contractor, on which tax is
deductible at source, will not be allowed as business expenditure, if the tax thereon has not been deducted/paid
[Refer Para 5.4 on page 45]. Income of infrastructure capital company exempt u/s. 10(23G) to be included in
computing book profit for the purpose of section 115JB [Refer Para 2.9 on page 43].
(4) Exemption of capital gains on compensation received on compulsory acquisition of agricultural
land in certain urban areas [Refer Para 6.1 on page 46]. Exemption of long-term capital gains, arising on
transfer of equity shares in a company or units of an equity oriented fund of a Mutual Fund on or after the
date on which the Securities Transaction Tax as provided in the Chapter VII of the Finance (No. 2) Act, 2004
comes into force [Refer Para 6.2 on page 46]. Short-term capital gains arising in respect of the said equity
shares or units on or after the said date, chargeable to income-tax @ flat rate of 10% [Refer Para 6.3 on page
46]. For computing capital gains, deduction not allowable for securities transaction tax paid [Refer Para 6.4
on page 47].
(5) Any sum of money (gift), exceeding Rs. 25,000, received by an individual or a HUF from any
person on or after 1-9-2004, will be the income of the recipient and chargeable to income-tax under the head
“Income from other sources” [Refer Para 1.1 on page 41].
(6) Deduction in respect of: (a) maintenance including medical treatment of a handicapped
dependant who is a person with disability, u/s. 80DD, amended [Refer Para 8.2 on page 47]; (b) specified
undertakings/enterprises u/s. 80-IA/80-IB, amended [Refer Para 8.3/8.4 on page 47/48]; & (c) a person with
disability, u/s. 80U, amended [Refer Para 8.5 on page 339].
(7) Repayment of housing loan taken from employer being authority/board/corporation/body
established under Central/State Act, eligible for rebate u/s. 88 [Refer Para 9.1 on page 339]. A resident
individual, whose total income does not exceed Rs. 1,00,000, entitled u/s. 88D(a) to a deduction from the
amount of income-tax on his total income of an amount equal to 100% of such income-tax & marginal relief
provided u/s. 88D(b) where the total income is between Rs. 1,00,010 & Rs. 1,11,240 [Refer Para 9.2 on page
339]. Rebate will be allowed u/s. 88E for securities transaction tax paid in relation to taxable securities
transactions chargeable as income under the head ‘‘Income from business of profession’’ and not as business
expenditure [Refer Para 9.3 & 5.4 on page 339 & 46].
(8) Time limit u/s. 94(7)(b), in respect of holding of units (and not securities), extended from
3 months to 9 months, after record date of distribution of income. Units acquired within a period of 3
months prior to the record date of bonus units, loss arising on sale of such units (other than bonus units),
within 9 months after the said record date, will be ignored and the amount of such loss will be deemed to be
cost of bonus units [Refer Para 11.1 on page 341].
[Continued on page 342]
V. G. MEHTA'STM
INCOME-TAX READY RECKONER
ASSESSMENT YEAR
22222000000000044444-----0000055555
WITH
RATES TABLES AND EXAMPLES FOR:
(1) CAPITAL GAINS (2) WEALTH-TAX
(3) GIFT-TAX (4) COMPANIES
(5) GIST OF IMPORTANT CIRCULARS ON DIRECT TAXES
(6) LIST OF BONUS SHARES
ALSO
ASSESSMENT YEAR
2005-06
FOR DEDUCTION OF TAX FROM “SALARIES”
&
COMPUTATION OF “ADVANCE TAX”
during the Financial year 2004-05
By
N. V. MEHTA
CHARTERED ACCOUNTANT
PUBLISHERS:
SHRI KUBER PUBLISHING HOUSE
COURT HOUSE, DHOBI TALAO,
MUMBAI 400002.
PRICE: Rs. 380
TEL.: [phone] • FAX: [phone] with
©
(cid:129) E-mail: [email protected] PLASTIC JACKET
INDEX
Page Page
Finance (No. 2) Act, 2004 .. 4 (h) Bonus, commission, bad debts,
Salient features of the Finance (No. 2) travelling expenditure, etc. .. 124
Act, 2004 .. 38 (i) Provisions relating to demerger of
companies .. 127
Short notes on Income-tax Act, 1961: (j) Amounts not deductible .. 129
(k) Special provisions for computing
I. Definitions:
profits from business in certain cases 132
(a) Assessment & assessment year .. 49
(l) Maintenance of books of account .. 135
(b) Previous year & assessee .. 49
(m)Method of accounting .. 136
(c) Resident, non-resident, etc. .. 50
(n) Compulsory audit .. 136
(d) Non-resident Indian residing outside
India .. 53 VI. Capital gains:
Deemed income with examples .. 58 (a) Definitions .. 138
Partial partition of HUF .. 60 (b) Charge of capital gain .. 140
Private discretionary trusts & Oral trusts 61 (c) Transactions not regarded as transfer 142
(d) Mode of computation and deductions 144
II. Charitable and religious trusts: (e) Notification on Cost Inflation Index 145
Extent and conditions for exemptions .. 62 (f) On depreciable assets .. 149
(g) Exemptions .. 152
III. Salaries: (h) Tax on long-term capital gains .. 162
(a) Income assessable under the head (i) List of BSE-500 Index .. 169
“Salaries” .. 69 (j) Equity shares quotations as on
(b) Exempt allowances u/s. 10(14) .. 70 1-4-1981 .. 170
(c) Gratuities received:
(1) by Government employees .. 72 VII. Income from other sources:
(2) under the Payment of Gratuity (a) Dividends .. 178
Act, 1972 .. 73 (b) Winnings from lotteries, races, etc. .. 178
(3) by employees of private sector.. 73 (c) Interest on securities .. 179
(d) Relief u/s. 89 in respect of salary (d) Unexplained cash credits, etc. .. 181
received in arrears, etc. .. 74 (e) Mode of taking loans & deposits .. 182
(e) Voluntary retirement .. 76 (f) Permanent account number .. 182
(f) Approved superannuation fund .. 77
VIII. Returns:
(g) Encashment of earned leave .. 77
(h) Perquisites: (a) Voluntary return .. 184
(1) Rent-free quarters .. 80 (b) Loss return, belated return,
(2) In respect of use of motor car .. 82 revised return and defective return .. 186
(3) In respect of gardener, gas, etc... 84
IX. Kinds of assessment:
(4) Other fringe benefits or
amenities .. 85 (a) Self-assessment .. 188
(5) Tax paid by employer on (b) Acceptance of return .. 188
non-monetary perquisites .. 88 (c) Regular and best judgment assessment 188
(6) Medical expenses .. 89 (d) Time limit for completion of
(i) Exempt perquisites: assessment .. 190
(1) House rent allowance .. 90 (e) Rectification of mistake .. 190
(2) Conveyance and travelling .. 91 X. Miscellaneous:
(3) Leave travel concession .. 92
(a) Set off and carry forward of losses .. 191
(j) Profits in lieu of salary .. 93
(b) Speculation loss .. 193
(k) Salaries of foreign technicians .. 93
(c) Loss under head “Capital gains” .. 193
(l) Deductions from “Salaries” .. 94
(d) Assessment of firms and its partners 195
(m)Deduction of tax @ source from
(e) Interest payable for defaults .. 197
“Salaries” .. 95
(f) Interest receivable .. 200
IV. House property: (g) Interest chart .. 201
(h) Penalty chart .. 203
(a) Annual value .. 98
(i) Waiver of penalty .. 205
(b) Self-occupied property .. 100
(c) Deductions from property income .. 102 Exclusions from total income:
Summary of incomes which are wholly
V. Profits and gains of business or profession:
exempt from income-tax .. 206
(a) Deemed income .. 104
(b) Depreciation .. 106 Deductions from gross total income:
(c) Rates of depreciation for assessment Deductions in details with limits,
year 2003-04 & onwards .. 110 conditions and examples .. 210
(d) Additional depreciation .. 115
(e) Unabsorbed depreciation .. 115 Deductions from income-tax:
(f) Reserves for shipping business .. 119 (a) In respect of L.I.P., etc. u/s. 88 .. 237
(g) Expenditure on scientific research .. 119 (b) Additional rebate u/s. 88B/88C/88D.. 238
INDEX — Contd.
ASSESSMENT YEARS 2004-05 & 2005-06
{ Financial year ending on 31-3-2004.
Accounting periods:
Financial year ending on 31-3-2005.
Page Page
Income-tax & surcharge tables: Advance tax
ASSESSMENT YEAR 2004-05 Main features of payment of advance tax in
respect of assessment year 1997-98 and onwards 285-292
(i) Individuals, HUFs. (specified/non-specified),
AOPs., non-residents, etc.: Income-tax, surcharge & addl. surcharge tables:
Advance tax:
Taxable income: (i) Individuals, HUFs. (specified/non-specified),
(1) BetweenRs. 50,000&Rs. 60,000 243 AOPs., non-residents, etc.:
(2) BetweenRs. 60,000 &Rs. 1,50,000 244-245 Examples for deductions, aggregation
(3) Between Rs. 1,50,000&Rs. 8,50,000 246-247 of agricultural income, etc., etc. for
(4) BetweenRs.8,50,000 &Rs.10,00,000 248-249 assessment years 2004-05 & 2005-06 .. 293-297
Examples for deductions, etc. .. 293-297 Taxable income:
(1) Between Rs. 50,000 & Rs. 60,000 299
(ii) Firms:
(2) Between Rs. 60,000 & Rs. 1,50,000 298,
Examples .. 250 300-301
(3) Between Rs. 1,50,000 & Rs. 8,50,000 302-303
Taxable income:
(4) Between Rs. 8,50,000 & Rs.10,00,000 304-305
Between Rs. 10 & Rs. 10,00,000 .. 251
(iii) Co-operative societies: (ii) Firms:
Deductions, example & table .. 252-253 Taxable income:
Between Rs. 10 & Rs. 10,00,000 .. 306
(iv) Companies:
(1) Table for income-tax & surcharge (iii) Co-operative societies
for assessment year 2004-05 .. 254
Taxable income:
(2) Examples and computation of
income-tax/wealth-tax for domestic Between Rs. 10 & Rs. 4,00,000 .. 253
companies .. 255-257 (iv) Companies:
Table for income-tax, surcharge &
Wealth-tax addl. surcharge for assessment year
(1) Rates of wealth-tax for assessment years 2005-06 .. 307
2001-02 to 2004-05 .. 259
Tax Savings Plan .. 308
(2) Exemptions for assessment years 2001-02 Important Circulars
to 2004-05 .. 260
(1) On Finance Acts, etc. .. 309
(3) Short notes on Wealth-tax Act with
explanatory notes and penalties leviable.. 261-272 (2) On deduction of tax @ source/collection
(4) Wealth-tax table for assessment year of tax @ source .. 309-316
2004-05 .. 273 (3) On Income-tax .. 317-333
(5) Exempted assets explained with example 274-275 (4) On Wealth-tax & Gift-tax .. 334
(6) Example for company .. 257
(7) Market rates of gold and silver from Search and Seizure under Income-tax Act .. 335-338
15-11-1982 to 31-3-2004 .. 276 TDS Chart
(8) List of bonus shares .. 277 Chart for deduction of tax @ source during
financial year 2004-05/Collection of tax @
Gift-tax source .. 343-345
Prescribed Forms
Rate of gift-tax [upto 30-9-98] .. 277
Important Prescribed Forms under the
Income-tax Rules, 1962 .. 346-349
ASSESSMENT YEAR 2005-06
Typical steps
Monthly Salary:
From Rs. 50,000 to Rs. 10,00,000 taxable
For deduction of tax during the financial year 2004-05: income for the assessment years
Deduction of tax @source and example .. 278 2004-05 & 2005-06 .. 350-351
Monthly salary tables: Obligations
From Rs. 4,167 to Rs. 13,400 per month Statutory compliances on various dates
salary .. 279-284 under the Direct Tax Laws .. 352
FINANCE (NO. 2) ACT 4
2004
THE FINANCE (NO. 2) ACT, 2004
AN ACT
to give effect to the financial proposals of the Central Government for the financial year 2004-2005.
BE it enacted by Parliament in the Fifty-fifth Year of the Republic of India as follows:—
CHAPTER I : PRELIMINARY
1. Short title and commencement. (1) This Act may be called the Finance (No. 2) Act, 2004.
(2) Save as otherwise provided in this Act, sections 2 to 65 shall be deemed to have come into force on
the 1st day of April, 2004.
CHAPTER II : RATES OF INCOME-TAX
2. Income-tax. (1) Subject to the provisions of sub-sections (2) and (3), for the assessment year
commencing on the 1st day of April, 2004, income-tax shall be charged at the rates specified in Part I of the First
Schedule and such tax as reduced by the rebate of income-tax calculated under Chapter VIII-A of the Income-tax
Act, 1961 (hereinafter referred to as the Income-tax Act) shall be increased by a surcharge for purposes of the
Union calculated in each case in the manner provided therein.
(2) In the cases to which Paragraph A of Part I of the First Schedule applies, where the assessee has,
in the previous year, any net agricultural income exceeding five thousand rupees, in addition to total income, and
the total income exceeds fifty thousand rupees, then,—
(a) the net agricultural income shall be taken into account, in the manner provided in clause (b)
[that is to say, as if the net agricultural income were comprised in the total income after the first fifty
thousand rupees of the total income but without being liable to tax], only for the purpose of charging
income-tax in respect of the total income; and
(b) the income-tax chargeable shall be calculated as follows:—
(i) the total income and the net agricultural income shall be aggregated and the amount of
income-tax shall be determined in respect of the aggregate income at the rates specified in the
said Paragraph A, as if such aggregate income were the total income;
(ii) the net agricultural income shall be increased by a sum of fifty thousand rupees, and the
amount of income-tax shall be determined in respect of the net agricultural income as so
increased at the rates specified in the said paragraph A, as if the net agricultural income as so
increased were the total income;
(iii) the amount of income-tax determined in accordance with sub-clause (i) shall be reduced
by the amount of income-tax determined in accordance with sub-clause (ii) and the sum so arrived
at shall be the income-tax in respect of the total income:
Provided that the amount of income-tax so arrived at, as reduced by the amount of rebate of income-
tax calculated under Chapter VIII-A, shall be increased by a surcharge for purposes of the Union calculated in
each case in the manner provided in that Paragraph and the sum so arrived at shall be the income-tax in respect
of the total income.
(3) In cases to which the provisions of Chapter XII or Chapter XII-A or section 115JB or sub-section
(1A) of section 161 or section 164 or section 164A or section 167B of the Income-tax Act apply, the tax chargeable
shall be determined as provided in that Chapter or that section, and with reference to the rates imposed by sub-
section (1) or the rates as specified in that Chapter or section, as the case may be:
Provided that the amount of income-tax computed in accordance with the provisions of section 112
shall be increased by a surcharge for purposes of the Union as provided in Paragraph A, B, C, D or E, as the case
may be, of Part I of the First Schedule:
Provided further that in respect of any income chargeable to tax under sections 115A, 115AB, 115AC,
115ACA, 115AD, 115B, 115BB, 115BBA, 115E and 115JB of the Income-tax Act, the amount of income-tax
computed under this sub-section shall be increased by a surcharge for purposes of the Union, calculated,—
(a) in the case of every individual, Hindu undivided family, association of persons and body of
individuals, whether incorporated or not, at the rate of ten per cent. of such income-tax where the
total income exceeds eight hundred and fifty thousand rupees;
(b) in the case of every co-operative society, firm, local authority and company, at the rate of two
and one-half per cent. of such income-tax;
5 FINANCE (NO. 2) ACT
2004
(c) in the case of every artificial juridical person referred to in sub-clause (vii) of clause (31) of
section 2 of the Income-tax Act, at the rate of ten per cent. of such income-tax.
(4) In cases in which tax has to be charged and paid under section 115-O or sub-section (2) of
section 115R of the Income-tax Act, the tax shall be charged and paid at the rate as specified in those sections and
shall be increased by a surcharge for purposes of the Union, calculated at the rate of two and one-half per cent. of
such tax.
(5) In cases in which tax has to be deducted under sections 193, 194, 194A, 194B, 194BB, 194D and
195 of the Income-tax Act, at the rates in force, the deductions shall be made at the rates specified in Part II of the
First Schedule and shall be increased, by a surcharge for purposes of the Union, calculated in each case, in the
manner provided therein.
(6) In cases in which tax has to be deducted under sections 194C, 194E, 194EE, 194F, 194G,
194H, 194-I, 194J, 194LA, 196B, 196C and 196D of the Income-tax Act, the deductions shall be made at
the rates specified in those sections and shall be increased by a surcharge for purposes of the Union,
calculated,—
(a) in the case of every individual, Hindu undivided family, association of persons and body of
individuals, whether incorporated or not, at the rate of ten per cent. of such tax where the income or
the aggregate of such incomes paid or likely to be paid and subject to the deduction exceeds eight
hundred and fifty thousand rupees;
(b) in the case of every co-operative society, firm, local authority and company, at the rate of two
and one-half per cent. of such tax;
(c) in the case of every artificial juridical person referred to in sub-clause (vii) of clause (31) of
section 2 of the Income-tax Act, at the rate of ten per cent. of such tax.
(7) In cases in which tax has to be collected under the proviso to section 194B of the Income-tax Act,
the collection shall be made at the rates specified in Part II of the First Schedule, and shall be increased, by a
surcharge for purposes of the Union, calculated in the manner provided therein.
(8) In cases in which tax has to be collected under section 206C of the Income-tax Act, the collection
shall be made at the rates specified in that section and shall be increased by a surcharge for purposes of the Union,
calculated,—
(a) in the case of every individual, Hindu undivided family, association of persons and body of
individuals, whether incorporated or not, at the rate of ten per cent. of such tax where the amount or
the aggregate of such amounts collected, and subject to the collection, exceeds eight hundred and fifty
thousand rupees;
(b) in the case of every co-operative society, firm, local authority and company, at the rate of two
and one-half per cent. of such tax;
(c) in the case of every artificial juridical person referred to in sub-clause (vii) of clause (31) of
section 2 of the Income-tax Act, at the rate of ten per cent. of such tax.
(9) Subject to the provisions of sub-section (10), in cases in which income-tax has to be charged
under sub-section (4) of section 172 or sub-section (2) of section 174 or section 174A or section 175 or
sub-section (2) of section 176 of the Income-tax Act or deducted from, or paid on, income chargeable
under the head “Salaries” under section 192 of the said Act or in which the “advance tax” payable under
Chapter XVII-C of the said Act has to be computed at the rate or rates in force, such income-tax or, as the case
may be, “advance tax” shall be so charged, deducted or computed at the rate or rates specified in Part III of
the First Schedule and such tax as reduced by the rebate of income-tax calculated under Chapter VIII-A of the
said Act shall be increased by a surcharge for purposes of the Union, calculated in each case in the manner
provided therein:
Provided that in cases to which the provisions of Chapter XII or Chapter XII-A or section 115JB or
sub-section (1A) of section 161 or section 164 or section 164A or section 167B of the Income-tax Act apply,
“advance tax” shall be computed with reference to the rates imposed by this sub-section or the rates as specified in
that Chapter or section, as the case may be:
Provided further that the amount of “advance tax” computed in accordance with the provisions
of section 111A or section 112 of the Income-tax Act shall be increased by a surcharge for purposes
of the Union as provided in Paragraph A, B, C, D or E, as the case may be, of Part III of the First
Schedule:
Provided also that in respect of any income chargeable to tax under sections 115A, 115AB,
115AC, 115ACA, 115AD, 115B, 115BB, 115BBA, 115E and 115JB of the Income-tax Act,
FINANCE (NO. 2) ACT 6
2004
“advance tax” computed under the first proviso shall be increased by a surcharge for purposes of the Union,
calculated,—
(a) in the case of every individual, Hindu undivided family, association of persons and body of
individuals, whether incorporated or not, at the rate of ten per cent. of “advance tax” where the total
income exceeds eight hundred and fifty thousand rupees;
(b) in the case of every co-operative society, firm, local authority and company, at the rate of two
and one-half per cent. of such “advance tax”;
(c) in the case of every artificial juridical person referred to in sub-clause (vii) of clause (31) of
section 2 of the Income-tax Act, at the rate of ten per cent. of such “advance tax”.
(10)In cases to which, Paragraph A of Part III of the First Schedule applies, where the assessee has, in
the previous year or, if by virtue of any provision of the Income-tax Act, income-tax is to be charged in respect of
the income of a period other than the previous year, in such other period, any net agricultural income exceeding
five thousand rupees, in addition to total income and the total income exceeds fifty thousand rupees, then, in
charging income-tax under sub-section (2) of section 174 or section 174A or section 175 or sub-section (2) of
section 176 of the said Act or in computing the “advance tax” payable under Chapter XVII-C of the said Act, at the
rate or rates in force,—
(a) the net agricultural income shall be taken into account, in the manner provided in clause (b)
[that is to say, as if the net agricultural income were comprised in the total income after the first fifty
thousand rupees of the total income but without being liable to tax], only for the purpose of charging
or computing such income-tax or, as the case may be, “advance tax” in respect of the total income; and
(b) such income-tax or, as the case may be, “advance tax” shall be so charged or computed as
follows:—
(i) the total income and the net agricultural income shall be aggregated and the amount of
income-tax or “advance tax” shall be determined in respect of the aggregate income at the rates
specified in the said Paragraph A, as if such aggregate income were the total income;
(ii) the net agricultural income shall be increased by a sum of fifty thousand rupees, and the
amount of income-tax or “advance tax” shall be determined in respect of the net agricultural
income as so increased at the rates specified in the said Paragraph A, as if the net agricultural
income were the total income;
(iii) the amount of income-tax or “advance tax” determined in accordance with sub-clause (i)
shall be reduced by the amount of income-tax or, as the case may be, “advance tax” determined in
accordance with sub-clause (ii) and the sum so arrived at shall be the income-tax or, as the case
may be, “advance tax” in respect of the total income:
Provided that the amount of income-tax or “advance tax” so arrived at, as reduced by the rebate of
income-tax calculated under Chapter VIII-A of the said Act, shall be increased by a surcharge for purposes of the
Union calculated in each case, in the manner provided therein.
(11)The amount of income-tax as specified in sub-sections (4) to (10) and as increased by a surcharge
for purposes of the Union calculated in the manner provided therein, shall be further increased by an additional
surcharge for purposes of the Union, to be called the “Education Cess on income-tax”, so as to fulfil the
commitment of the Government to provide and finance universalised quality basic education, calculated at the
rate of two per cent. of such income-tax and surcharge.
(12)For the purposes of this section and the First Schedule,—
(a) “domestic company” means an Indian company or any other company which, in respect
of its income liable to income-tax under the Income-tax Act for the assessment year commencing
on the 1st day of April, 2004, has made the prescribed arrangements for the declaration and
payment within India of the dividends (including dividends on preference shares) payable out of such
income;
(b) “insurance commission” means any remuneration or reward, whether by way of commission
or otherwise, for soliciting or procuring insurance business (including business relating to the
continuance, renewal or revival of policies of insurance);
(c) “net agricultural income”, in relation to a person, means the total amount of agricultural
income, from whatever source derived, of that person computed in accordance with the rules
contained in Part IV of the First Schedule;
(d) all other words and expressions used in this section and the First Schedule but not defined in
this sub-section and defined in the Income-tax Act shall have the meanings respectively assigned to
them in that Act.
7 FINANCE (NO. 2) ACT
2004
CHAPTER III : DIRECT TAXES
INCOME-TAX
3. Amendment of section 2. In section 2 of the Income-tax Act, in clause (24), after sub-clause (xii), the
following sub-clause shall be inserted with effect from the 1st day of April, 2005, namely:—
‘(xiii) any sum referred to in clause (v) of sub-section (2) of section 56;’.
4. Amendment of section 7. In section 7 of the Income-tax Act, after clause (ii), the following clause shall be
inserted at the end, namely:—
“(iii) the contribution made, by the Central Government in the previous year, to the account of an employee
under a pension scheme referred to in section 80CCD.”.
5. Amendment of section 10. In section 10 of the Income-tax Act,—
(a) in clause (4), in sub-clause (ii), after the proviso, the following proviso shall be inserted with effect from
the 1st day of April, 2006, namely:—
“Provided further that nothing contained in this sub-clause shall apply to any income by way of interest
paid or credited on or after the 1st day of April, 2005 to the Non-Resident (External) Account of such
individual;”;
(b) in clause (6BB), for the words, figures and letters “an agreement entered after the 31st day of March,
1997 but before the 1st day of April, 1999 and approved by the Central Government in this behalf’’, the words,
figures and letters “an agreement entered into after the 31st day of March, 1997 but before the 1st day of April,
1999, or entered into after the 31st day of March, 2005, and approved by the Central Government in this behalf”
shall be substituted with effect from the 1st day of April, 2006;
(c) in clause (15), —
(A) after sub-clause (iiib), the following sub-clause shall be inserted with effect from the 1st day of April,
2005, namely:—
“(iiic) interest payable to the European Investment Bank, on a loan granted by it in pursuance of
the framework-agreement for financial co-operation entered into on the 25th day of November, 1993
by the Central Government with that Bank;”;
(B) in sub-clause (iv), in item (fa), after the words “by a scheduled bank”, the words, figures and letters
“before the 1st day of April, 2005” shall be inserted with effect from the 1st day of April, 2006;
(d) in clause (15A), before the Explanation, the following proviso shall be inserted with effect from the
1st day of April, 2006, namely:—
“Provided that nothing contained in this clause shall apply to any such agreement entered into on or
after the 1st day of April, 2005.”;
(e) after clause (18), the following clause shall be inserted with effect from the 1st day of April, 2005,
namely:—
“(19) family pension received by the widow or children or nominated heirs, as the case may be, of a
member of the armed forces (including para-military forces) of the Union, where the death of such member
has occurred in the course of operational duties, in such circumstances and subject to such conditions, as may
be prescribed;”;
(f) in clause (23FB), with effect from the 1st day of October, 2004,—
(i) in Explanation 1, for clause (c), the following clause shall be substituted, namely:—
‘(c) “venture capital undertaking” means a venture capital undertaking referred to in the Securities
and Exchange Board of India (Venture Capital Funds) Regulations, 1996 made under the Securities
and Exchange Board of India Act, 1992 and notified as such in the Official Gazette by the Board for the
purposes of this clause;’;
(ii) Explanation 2 shall be omitted;
(g) in clause (23G), before the Explanation 1, the following proviso shall be inserted with effect from the 1st
day of April, 2005, namely:—
“Provided that the income, by way of dividends, other than dividends referred to in section 115-O,
interest or long-term capital gains of an infrastructure capital company, shall be taken into account in
computing the book profit and income-tax payable under section 115JB.”;
(h) after clause (36), the following shall be inserted with effect from the 1st day of April, 2005, namely:—
‘(37) in the case of an assessee, being an individual or a Hindu undivided family, any income
chargeable under the head “Capital gains” arising from the transfer of agricultural land, where—
(i) such land is situate in any area referred to in item (a) or item (b) of sub-clause (iii) of clause (14)
of section 2;
(ii) such land, during the period of two years immediately preceding the date of transfer,
was being used for agricultural purposes by such Hindu undivided family or individual or a parent
of his;
FINANCE (NO. 2) ACT 8
2004
(iii) such transfer is by way of compulsory acquisition under any law, or a transfer the consideration
for which is determined or approved by the Central Government or the Reserve Bank of India;
(iv) such income has arisen from the compensation or consideration for such transfer received by
such assessee on or after the 1st day of April, 2004.
Explanation.—For the purposes of this clause, the expression “compensation or consideration”
includes the compensation or consideration enhanced or further enhanced by any court, tribunal or other
authority;
(38) any income arising from the transfer of a long-term capital asset, being an equity share in a
company or a unit of an equity oriented fund where—
(a) the transaction of sale of such equity share or unit is entered into on or after the date on which
Chapter VII of the Finance (No. 2) Act, 2004 comes into force; and
(b) such transaction is chargeable to securities transaction tax under that Chapter.
Explanation.—For the purposes of this clause, “equity oriented fund” means a fund—
(i) where the investible funds are invested by way of equity shares in domestic companies to the
extent of more than fifty per cent. of the total proceeds of such fund; and
(ii) which has been set up under a scheme of a Mutual Fund specified under clause (23D):
Provided that the percentage of equity share holding of the fund shall be computed with reference to
the annual average of the monthly averages of the opening and closing figures.’.
6. Amendment of section 12AA. In section 12AA of the Income-tax Act, after sub-section (2), the following
sub-section shall be inserted at the end, with effect from the 1st day of October, 2004, namely:—
“(3) Where a trust or an institution has been granted registration under clause (b) of sub-section (1) and
subsequently the Commissioner is satisfied that the activities of such trust or institution are not genuine or are not
being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an
order in writing cancelling the registration of such trust or institution:
Provided that no order under this sub-section shall be passed unless such trust or institution has been given
a reasonable opportunity of being heard.”.
7. Amendment of section 17. In section 17 of the Income-tax Act, in clause (1), after sub-clause (vii), the
following sub-clause shall be inserted, namely:—
“(viii) the contribution made by the Central Government in the previous year, to the account of an employee
under a pension scheme referred to in section 80CCD;”.
8. Amendment of section 32. In section 32 of the Income-tax Act, in sub-section (1), in clause (iia), in the first
proviso, in clause (B), for the words “twenty-five per cent.”, the words “ten per cent.” shall be substituted with effect from
the 1st day of April, 2005.
9. Amendment of section 33AC. In section 33AC of the Income-tax Act, in sub-section (1), after the second
proviso, the following proviso shall be inserted with effect from the 1st day of April, 2005, namely:—
“Provided also that no deduction shall be allowed under this section for any assessment year commencing on
or after the 1st day of April, 2005.”.
10. Amendment of section 35AC. In section 35AC of the Income-tax Act, for sub-sections (4) and (5), the
following sub-sections shall be substituted with effect from the 1st day of October, 2004, namely:—
“(4) Where an association or institution is approved by the National Committee under sub-section (1), and
subsequently—
(i) that Committee is satisfied that the project or the scheme is not being carried on in accordance with
all or any of the conditions subject to which approval was granted; or
(ii) such association or institution, to which approval has been granted, has not furnished to the
National Committee, after the end of each financial year, a report in such form and setting forth such
particulars and within such time as may be prescribed,
the National Committee may, at any time, after giving a reasonable opportunity of showing cause against the
proposed withdrawal to the concerned association or institution, withdraw the approval:
Provided that a copy of the order withdrawing the approval shall be forwarded by the National
Committee to the Assessing Officer having jurisdiction over the concerned association or institution.
(5) Where any project or scheme has been notified as an eligible project or scheme under clause (b) of the
Explanation, and subsequently—
(i) the National Committee is satisfied that the project or the scheme is not being carried
on in accordance with all or any of the conditions subject to which such project or scheme was
notified; or
(ii) a report in respect of such eligible project or scheme has not been furnished after the end of each
financial year, in such form and setting forth such particulars and within such time as may be prescribed,