The document provides a clause by clause analysis of amendments to India's direct tax laws as part of Budget 2017. Some key points: 1. Section 43 is amended to clarify how depreciation will be calculated if an asset previously used for a business covered under Section 35AD is later used for regular business. 2. Section 43B is amended to allow interest deduction on an actual payment basis for cooperative banks from assessment year 2018-19. 3. Threshold limits for maintenance of books of accounts by individuals and HUFs are increased under Section 44AA. 4. Presumptive income rate under Section 44AD is reduced to 6% for receipts via banking channels vs. 8% otherwise.

1. Volume XVIII Part 4 February 25, 2017 23 Business Advisor
Budget 2017 - Clause by clause analysis
of amendments to direct tax laws (Part 2)
V. K. Subramani
16. Explanation to section 43: Where any capital asset,
in respect of which deduction is claimed under section
35AD, is subsequently used for any other purpose, the
actual cost of the asset to the assessee shall be the actual
cost less the depreciation that would have been allowable
had the asset been used for the purpose of business since
the date of its acquisition. For example, if a plant costing
Rs 50 lakh was used for a business covered by section
35AD and the deduction was allowed, and the plant is
subsequently used for regular business, then Rs 50 lakh less depreciation
that would have been allowed for the asset from the date of acquisition will
be considered as its actual cost for the purpose of depreciation. Further, as
per section 35AD (7B) the amount of deduction originally allowed (including
weighted deduction, if any) less deduction by way of depreciation that would
have been allowable had it been used for regular business would be taxable
as income.
17. Section 43B: Interest expenditure eligible for deduction under section
43B on actual payment basis will apply to cooperative bank also from the
assessment year 2018-19 onwards. However, it will not apply to primary
agricultural credit society or primary cooperative agricultural and rural
development bank. In other words, interest due to them would be deductible
on due basis as before, since section 43B will not apply.
18. Section 43D: In respect of public finance institution or schedule bank
or State financial corporation or State industrial investment corporation,
any interest in respect of bad or doubtful debts would be chargeable to tax
in the year in which it is credited to profit and loss account or it is actually
received by the institution or bank or corporation or company – whichever is
earlier.
The Finance Bill, 2017 proposes to include such benefit to cooperative
banks also. However, it will not apply to primary agricultural credit society
or primary cooperative agricultural and rural development bank. This is
applicable from the assessment year 2018-19 onwards.

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19. Section 44AA: The threshold limit in the case of individual or HUF for
maintenance of books of account has been enhanced. For turnover, the limit
is Rs 25 lakh, and in the case of income, Rs 2,50,000. This is applicable
from the assessment year 2018-19 onwards.
20. Section 44AD: In the case of a person having turnover up to Rs 2 crore,
income can be declared on presumptive basis under section 44AD(1) if the
assessee declares profits and gains at the presumptive rate prescribed
therein.
To give incentive for routing business transactions through banking
channel, the Finance Bill, 2017 proposes to insert a proviso to section
44AD(1) whereby sales, turnover or gross receipt received by account payee
cheque or account payee bank draft or by use of electronic clearing system
through bank account shall be eligible for presumptive income
determination at 6% instead of 8%. Even sale proceeds realised up to the
‗due date‘ specified in 139(1) shall be reckoned for the purpose of computing
the presumptive income.
21. Section 45(5A): To provide relief to individual or HUF entering into joint
development agreement with builders or developers, this section proposes to
defer the taxation of capital gain on transfer of capital asset arising from
land or building or both, under a specified agreement to the year in which
the certificate of completion for the whole or part of the project is issued by
the competent authority. The stamp duty value on the date of issue of
certificate shall be deemed to be the full value of consideration received or
accruing as a result of the transfer of capital asset.
However, if the person (being individual or HUF) entering into JDA transfers
his share in the project on or before the date of issue of the said certificate
of completion, the capital gain shall be deemed to be the income of the
previous year in which the transfer takes place and the benefit of deferment
of taxing the income conferred by section 45(5A) will not apply. Both section
45(5A) (granting postponement of tax liability) and proviso to section 45(5A)
(denial of the benefit of such postponement of such income to tax) will apply
from the assessment year 2018-19 onwards.
22. Section 47: Any transfer of preference shares by way of conversion into
equity shares of the same company shall not be regarded as ‗transfer‘.
Similarly, transfer of rupee-denominated bond of an Indian company issued
outside India, by a non-resident to another non-resident, and where such
transfer is made outside India, shall not be regarded as ‗transfer‘. This is
also applicable from the assessment year 2018-19 onwards.

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23. Section 48: The base year for computing the capital gain is proposed to
be advanced from 01.04.1981 to 01.04.2001.
24. Section 49: Where the preference shares are converted into equity
shares of the same company which is not regarded as transfer under section
47 and subsequently such equity shares are sold/ transferred, the cost of
acquisition of those shares shall be that part of the cost of acquisition in
relation to which the equity share was acquired by the assessee.
25. Section 49: Where the charitable trust was subjected to tax in respect
of accreted income in accordance with the provisions of Chapter XII-EB, the
cost of acquisition of those capital assets upon transfer shall be the fair
market value of the assets which was taken into account for computation of
accreted income.
26. Section 50CA: Where the consideration received by the assessee on
transfer of shares of a company being unquoted shares is less than the fair
market value of such shares determined in the manner prescribed under
the Act, the value so determined shall be deemed to be the full value of
consideration received or accruing as a result of such transfer.
27. Section 54EC: Presently, to avail capital gains exemption the taxpayers
have to subscribe to the bonds of REC or NHAI. The Finance Bill, 2017
proposes to expand the available investments and for that it is given an
open-ended clause by saying ―any other bond notified by the Central
Government in this behalf‖.
28. Section 55: In respect of cost of acquisition of capital asset, the
assessee can adopt either the actual cost or the fair market value of asset as
on 01.04.2001 instead of the previous date of 01.04.1981.
29. Section 56(2)(x): This section is proposed to be inserted to tax any
assessee as against individuals and HUFs who were covered previously.
Any assessee receiving any sum of money without consideration, where the
aggregate value exceeds Rs 50,000, the whole of the aggregate value shall be
chargeable to tax as income.
In the case of immovable property, received without consideration and
where stamp duty value exceeds Rs 50,000, the stamp duty value of the
property shall be chargeable to tax as income.
In the case of immovable property, acquired for a consideration which is less
than the stamp duty value of the property by an amount exceeding Rs

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50,000, the stamp duty value of such property as exceeds the consideration
shall be chargeable to tax as income.
In respect of any property other than immovable property received
without any consideration and the aggregate fair market value of the
property exceeds Rs 50,000, the whole of the aggregate fair market value
shall be chargeable to tax as income.
In respect of any property other than immovable property acquired for
consideration which is less than the aggregate fair market value by an
amount exceeding Rs 50,000, the aggregate fair market value of such
property as exceeds such consideration shall be chargeable to tax as
income.
This is applicable in respect of receipt of money or property or acquisition of
movable or immovable property for inadequate consideration or without
consideration w.e.f. 01.04.2017.
30. Section 58: In respect of income from other sources, section 40(a)(ia)
will apply, which means, in respect of any expenditure where tax deductible
at source under ChapterXVII-B is not deducted, 30% of the expenditure
would be liable for disallowance. However, whether such expenditure would
become allowable upon TDS deduction in the subsequent year by virtue of
the proviso and further proviso has not been stated clearly in the
memorandum explaining the amendment. This amendment is applicable
from the assessment year 2018-19 onwards.
(To be continued)
(V. K. Subramani is Chartered Accountant, Erode.)