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Changes to The Finance Act 2015

The finance bill 2015 was enacted as the finance Act 2015 recently. There have been some minor changes to the provisions since the time the legislation was first proposed in parliament, a summary of the more significant and relevant changes is presented here for your perusal.

Poem becomes a little less stringent

The definition of an Indian company as proposed by the bill has been amended in the act, as per the bill any company whose Place of Effective Management (POEM) at any time during the year is in India, it was to be considered to be resident of India. The act omits the word “at any time” thereby implying that only those companies whose place of effective management is based permanently in India shall be considered tax residents of India.

Definition of income expanded

The definition of ‘income’ has been expanded in the finance act 2015 to include any assistance received by the taxpayer in cash or kind in the form of any subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement from the Central Government or a State Government or any authority or body or agency and which is not reduced from or taken into consideration for determination of the actual cost of capital asset for tax depreciation purposes. This move opens the route for the taxation of direct transfers, if availed by the assessee, as part of their taxable incomes.

MAT applicability clarified

As part of the finance act 2015 that any income accruing or arising to any foreign company by way of capital gains from transactions in securities, interest, royalty or fees for technical services shall be excluded from the ambit of Minimum Alternate Tax (“MAT”). This is in addition to the provisions of the bill which had proposed that incomes from transaction in securities [other than Short Term Capital Gain arising on which Securities Tax Transaction is not chargeable] arising to Foreign Institutional Investors (FII) be excluded from the ambit of MAT

Safe harbor provisions for funds with Indian Fund managers specified

As part of the act the following eligibility criteria have now been relaxed for an investment fund set-up by the Government or the Central Bank of a foreign State or a sovereign fund, or such other fund(s) as may be notified by the Central Government for claiming eligibility under the safe harbor provisions for Indian fund managers :

•    At least 25 investors who are not connected persons

•    No individual investor (including connected person) can hold 10 per cent or more in the fund

•    The aggregate participation interest of 10 or less members along with their connected persons shall be less than 50 per cent of the fund

Bad Debts treatment as per ICDS notified

Where the bad debts have been taken into account by the tax payers on the basis of income computation and disclosure standard (ICDS) without recording the same in the accounts such debts shall be allowed in the year in which they become irrecoverable and it shall be assumed that the taxpayer has written off the bad debt in his books of accounts.

Returns to be filed by residents ( but not ordinary residents)

Individual, being a resident other than not ordinarily resident in India who are otherwise not required to furnish an Indian income-tax return shall now be obliged to do so if at any time during the previous year they :

(a) Hold as a beneficial owner or otherwise, any asset (including any financial interest in any entity) located outside India or has signing authority in any account located outside India; or

(b) He is a beneficiary of any asset (including any financial interest in any entity) located outside India.

Deduction of Interest on capital assets

Deduction of interest paid on capital borrowed for acquisition of an asset for any period beginning from the date on which capital was borrowed till the date on which such asset was first put to use will not be allowed as deduction irrespective of such acquisition being for extension of any existing business or profession.

Additional depreciation benefits extended

The benefit of additional depreciation at the rate of 35 per cent instead of 20 per cent in respect of actual cost of new machinery or plant acquired and installed on or after 1 April 2015 but before 1 April 2020 has been extended to the States of Bihar and West Bengal as well in addition to the state of Andhra Pradesh or Telangana as was proposed in the bill.

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