86540
Lawyers Network
103860
Users
630
Cities Serving
114
Law Schools Network
59824
FINANCE ACT, 2005
18 of 2005
CHAPTER 1: PRELIMINARY:
Section 1: Short title and commencement:
(1) This Act may be called the Finance Act, 2005.
(2) Save as otherwise provided in this Act, Sections 2 to 64 shall be deemed to have come into force on the 1st day of April, 2005.
CHAPTER 2: RATES OF INCOME TAX:
SECTION 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, 2005, income tax shall be charged at the rates special in Part I of the First Schedule and such tax as reduced by the debate of income tax calculated under Chapter VIII-A of the Income Tax Act, 1961 (43 of 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 115-JB or sub-section (1-A) of Section 161 or Section 164 or Section 164-A or Section 167-B 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 111-A or 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 115-A, 115-AB, 115-AC, 115-ACA, 115-AD, 115-B, 115-BB, 115-BBA, 115-E and 115-JB 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; (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 subsection (2) of Section 115-R 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 ten per cent of such tax.
(5) In cases in which tax has to be deducted under Sections 193, 194, 194-A, 194-B, 194-BB, 194-D and 195 of the Income Tax Act, at the rates in force, the deductions shall be made at the rates specified in Pan 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 194-C, 194-E, 194-EE, 194-F, 194-G, 194-H, 194-1, 194-J, 194-LA, 196-B, 196-C and 196-D 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 ten lakh rupees; (b) in the case of every firm, artificial juridical person referred to in sub-clause (vii) of clause (31) of Section 2 of the Income Tax Act, and domestic company, at the rate of ten per cent of such tax; (c) in the case of every company, other than domestic company, at the rate of two and one-half per cent of such tax.
(7) In cases in which tax has to be collected under the proviso to Section 194-B 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 206-C 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 ten lakh rupees; (b) in the case of every firm, artificial juridical person referred to in sub-clause (vii) of clause (31) of Section 2 of the Income Tax Act, and domestic company, at the rate of ten per cent of such tax; (c) in the case of every company, other than domestic company, at the rate of two and one-half 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 174-A 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 Chapter XII-H or Section 115-JB or sub-section (1-A) of Section 161 or Section 164 or Section 164-A or Section 167-B 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 111-A 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 115-A, 115-AB, 115-AC, 115-ACA, 115-AD, 115-B, 115-BB, 115-BBA, 115-E, I15-JB and 115-WA of the Income Tax Act, "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 ten lakh rupees; (b) in the case of every firm, artificial juridical person referred to in sub-clause (vii) of clause (31) of Section 2 of the Income Tax Act, and domestic company, at the rate of ten per cent of such "advance tax"; (c) in the case of every company, other than domestic company, at the rate of (woand one-half per cent of such "advance tax".
(10) In cases to which, Paragraph A of Part in 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 one lakh rupees, then, in charging income tax under sub-section (2) of Section 174 or Section 174-A 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 one lakh 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 one lakh 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 in the case of every woman, resident in India and below the age of sixty-five years at any time during the previous year, referred to in item (II) of Paragraph A of Part III of the First Schedule, the provisions of this sub-section shall have effect as it tor me words "one lakh rupees", the words "one lakh thirty-five thousand rupees" had been substituted. Provided further that in the case of every individual, being a resident in India, who is of the age of sixty-five years or more at any time during the previous year, referred to in item (III) of Paragraph A of Part III of the First Schedule, the provisions of this sub-section shall have effect as if for the words "one lakh rupees", the words "one lakh eighty-five thousand rupees" had been substituted: Provided also 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 (1) 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, 2005, 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.
CHAPTER 3: DIRECT TAXES INCOME TAX:
SECTION 3: Amendment of Section 2:
In Section 2 of the Income Tax Act, with effect from the 1st day of April, 2006, (a) in clause (7), in sub-clause (a), for the words "assessment of his income", the words "assessment of his income or assessment of fringe benefits" shall be substituted;
(b) after clause (23-A), the following clause shall be inserted, namely: '(23-B) "fringe benefits" means any fringe benefits referred to in Section 115-WB;';
(c) in clause (42 A). in the proviso, after the words, brackets, figures and letter "clause (23 D; of Section 10", the words "or a zero coupon bond" shall be inserted',
(d) in clause (43), after the words "the aforesaid date", the words, figures and tetters "and in relation to the assessment year commencing on the 1st day of April, 2006, and any subsequent assessment year includes the fringe benefit tax payable under Section 115-WA" shall be inserted;
(e) in clause (47), after sub-clause (iv), the following sub-clause shall be inserted, namely: "(iv-d) the maturity or redemption of a zero coupon bond; or";
(f) after clause (47) and the Explanation relating thereto, the following shall be inserted, namely: '(48) "zero coupon bond" means a bond (a) issued by any infrastructure capital company or infrastructure capital fund or public sector company on or after the 1st day of June, 2005; (b) in respect of which no payment and benefit is received or receivable before maturity or redemption from infrastructure capital company or infrastructure capital fund or public sector company; and (c) which the Central Government may, by notification in the Official Gazette, specify in this behalf. Explanation. For the purposes of this clause, the expressions "infrastructure capital company" and "infrastructure capital fund" shall have the same meanings respectively assigned to them in clauses (d) and (b) of Explanation 1 to clause (23-G) of Section 10.'.
SECTION 4: Amendment of Section 10:
In Section 10 of the Income Tax Act, with effect from the 1st day of April, 2006, (a) in clause (4), in sub-clause (i/),-the second proviso shall be omitted;
(b) in clause (6-BB), for the words, figures and letters "entered into after the 31st day of March, 2005", the words, figures and letters "entered into after the 30th day of September, 2005" shall be substituted;
(c) in clause (10-D), in sub-clause (c), in the second proviso, for the words, brackets, figures and letter "Explanation to sub-section (2-A) of Section 88", the words, brackets, figures and letters "Explanation to sub-section (3) of Section 80-C or the Explanation to sub-section (2-A) of Section 88, as the case may be" shall be substituted;
(d) in clause (15), in sub-clause (iv), in item (fa), the words, figures and letters "before the 1st day of April, 2005" shall be omitted;
(e) in clause (15-A), in the proviso, for the words, figures and letters "the 1st day of April, 2005", the words, figures and letters "the 1st day of October, 2005" shall be substituted.
SECTION 5: Amendment of Section 10-A:
In Section 10-A of the Income Tax Act, in subsection (1-A), after clause (ii), the following proviso shall be inserted with effect from the 1st day of April, 2006, namely: "Provided that no deduction under this section shall be allowed to an asscf sec who does not furnish a return of his income on or before the due date specified under subsection (1) of Section 139.".
SECTION 6: Amendment of Section 16:
In Section 16 of the Income Tax Act, clause (i) shall be omitted with effect from the 1st day of April, 2006.
SECTION 7: Amendment of Section 17:
In Section 17 of the Income Tax Act, in clause (2), for sub-clause (vi), the following sub-clause shall be substituted, with effect from the 1st day of April, 2006, namely: "(vi) the value of any other fringe benefit or amenity (excluding the fringe benefits chargeable to tax under Chapter XH-H) as may be prescribed:".
SECTION 8: Amendment of Section 32:
In Section 32 of the Income Tax Act, in subsection (1), (a) for clause (ii-a), the following clause shall be substituted with effect from the 1st day of April, 2006, namely: '(ii-a) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2005, by an assessee engaged in the business of manufacture or production of any article or thing, a further sum equal to twenty per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii): Provided that no deduction shall be allowed in respect of (A) any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person; or (B) any machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a guest-house; or (C) any office appliances or road transport vehicles; or (D) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head "Profits and gains of business or profession" of any one previous year;';
(b) in clause (iii), in the Explanation, in clause (2), for the words "an India company", the words, brackets, letter and figures "an Indian company or in a scheme of amalgamation of a banking company, as referred to in clause (c) of Section 5 of the Banking Regulation Act, 1949 (10 of 1949) with a banking institution as referred to in sub-section (15) of Section 45 of the said Act. sanctioned and brought into force by the Central Government under subsection (7) of Section 45 of that Act, of any asset by the banking company to the banking institution" shall be substituted.
SECTION 9: Amendment of Section 33AC:
In Section 33-AC of the Income Tax Act, in subsection (4), for the words "such sale proceeds", the words, brackets, letter and figure "so much of such sale proceeds which represent the amount credited to the reserve account and utilised for the purposes mentioned in clause (c) of sub-section (3)" shall be substituted and shall be deemed to have been substituted with effect from the 1st day of April, 2004.
SECTION 10: Amendment of Section 35:
In Section 35 of the Income Tax Act, in subsection (2-AB), in clause (5), for the figures, letters and words "31st day of March, 2005", the figures, letters and words "31st day of March, 2007" shall be substituted with effect from the 1st day of April, 2006.
SECTION 11: Amendment of Section 35-DDA:
In Section 35-DDA of the Income Tax Act, in sub-section (1), for the words "at the time of his voluntary retirement", the words "in connection with his voluntary retirement" shall be substituted and shall be deemed to have been substituted with effect from the 1st day of April, 2004.
SECTION 12: Amendment of Section 36:
In Section 36 of the Income Tax Act, in subsection (1), with effect from the 1st day of April, 2006, (a) after clause (iii), the following shall be inserted, namely: '(iii-a) the pro rata amount of discount on a zero coupon bond having regard to the period of life of such bond calculated in the manner as may be prescribed. Explanation. For the purposes of this clause, the expressions (i) "discount" means the difference between the amount received or receivable by the infrastructure capital company or infrastructure capital fund or public sector company issuing the bond and the amount payable by such company or fund or public sector company on maturity or redemption of such bond; (ii) "period of life of the bond" means the period commencing from the date of issue of the bond and ending on the date of the maturity or redemption of such bond; (iii) "infrastructure capital company" and "infrastructure capital fund" shall have the same meanings respectively assigned to them in clauses (a) and (b) of Explanation 1 to clause (23-G) of Section 10;';
(b) after clause (xii), the following shall be inserted, namely: '(xiii) any amount of banking cash transaction tax paid by the assessee during the previous year on the taxable banking transactions entered into by him. Explanation. For the purposes of this clause, the expressions "banking cash transaction tax" and "taxable banking transaction" shall have the same meanings respectively assigned to them under Chapter VII of the Finance Act, 2005.'.
SECTION 13: Amendment of Section 40:
In Section 40 of the Income Tax Act, in clause (a), after sub-clause (ib), the following sub-clause shall be inserted with effect from the 1st day of April, 2006, namely: "(i-c) any sum paid on account of fringe benefit tax under Chapter XII-H;".
SECTION 14: Amendment of Section 43:
In Section 43 of the Income Tax Act, in clause (5), with effect from the 1st day of April, 2006, (A) in the proviso, (i) in clause (c), the word "or" shall be inserted at the end; (ii) after clause (c), as so amended, the following clause shall be inserted, namely: "(d) an eligible transaction in respect of trading in derivatives referred to in clause (aa) of Section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognised stock exchange;";
(B) after the proviso, the following Explanation shall be inserted, namely: 'Explanation. For the purposes of this clause, the expressions (i) "eligible transaction" means any transaction, (A) carried out electronically on screen-based systems through a stock broker or sub-broker or such other intermediary registered under Section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992) in accordance with the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) or the Securities and Exchange Board of India Act, 1992 or the Depositories Act, 1996 (22 of 1996) and the rules, regulations or bye-laws made or directions issued under those Acts or by banks or mutual funds on a recognised stock exchange; and (B) which is supported by a time stamped contract note issued by such stock broker or sub-broker or such other intermediary to every client indicating in the contract note the unique client identity number allotted under any Act referred to in sub- clause (A) and permanent account number allotted under this Act; (ii) "recognised stock exchange" means a recognised stock exchange as referred to in clause (f) of Section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and which fulfils such conditions as may be prescribed and notified by the Central Government for this purpose.'.
SECTION 15: Amendment of Section 47:
In Section 47 of the Income Tax Act, after clause (vi-a), the following clause shall be inserted, namely: '(vi-aa) any transfer, in a scheme of amalgamation of a banking company with a banking institution sanctioned and brought into force by the Central Government under sub-section (7) of Section 45 of the Banking Regulation Act, 1949 (10 of 1949), of a capital asset by the banking company to the banking institution. Explanation. For the purposes of this clause, (i) "banking company" shall have the same meaning assigned to it in clause (c) of Section 5 of the Banking Regulation Act, 1949 (10 of 1949); (ii) "banking institution" shall have the same meaning assigned to it in subsection (15) of Section 45 of the Banking Regulation Act. 1949 (10 of 1949)
SECTION 16: Amendment of Section 49:
In Section 49 of the Income Tax Act, in subsection (1), in clause (iii), in sub-clause (e), after the words, brackets, figures and letter "or clause (vi-a)", the words, brackets, figures and letters "or clause (vi-aa)" shall be inserted.
SECTION 17: Amendment of Section 54-EC:
In Section 54-EC of the Income Tax Act, for subsection (3), the following sub-section shall be substituted with effect from the 1st day of April, 2006, namely: "(3) Where the cost of the long-term specified asset has been taken into account for the purposes of clause (a) or clause (b) of sub-section (1), (a) a deduction from the amount of income tax with reference to such cost shall not be allowed under Section 88 for any assessment year ending before the 1st day of April, 2006;
(b) a deduction from the income with reference to such cost shall not be allowed under Section 80-C for any assessment year beginning on or after the 1st day of April, 2006.".
SECTION 18: Amendment of Section 54ED:
In Section 54-ED of the Income Tax Act, for subsection (3), the-following sub-section shall be substituted with effect from the 1st day of April, 2006, namely: "(3) Where the cost of the specified equity shares has been taken into account for the purposes of clause (a) or clause (b) of sub-section (1), (a) a deduction from the amount of income tax with reference to such cost shall not be allowed under Section 88 for any assessment year ending before the 1st day of April. 2006;
(b) a deduction from the income with reference to such cost shall no: allowed under Section 80-C for any assessment year beginning on or after the 1st day of April, 2006.".
SECTION 19: Insertion of new Section 72-AA:
After Section 72-A of the Income Tax Act, the following section shall be inserted, namely: '72-AA. Provisions relating to carry forward and set-off of accumulated loss and unabsorbed depreciation allowance in scheme of amalgamation of banking company in certain cases. Notwithstanding anything contained in sub-clauses (i) to (iii) of clause (1-B) of Section 2 or Section 72-A, where there has been an amalgamation of a banking company with any other banking institution under a scheme sanctioned and brought into force by the Central Government under sub-section (7) of Section 45 of the Banking Regulation Act, 1949 (10 of 1949), the accumulated loss and the unabsorbed depreciation of such banking company shall be deemed to be the loss or, as the case may be, allowance for depreciation of such banking institution for the previous year in which the scheme of amalgamation was brought into force and other provisions of this Act relating to set-off and carry forward of loss and allowance for depreciation shall apply accordingly. Explanation. For the purposes of this section, (i) "accumulated loss" means so much of the loss of the amalgamating banking company under the head. "Profits and gains of business or profession" (not being a loss sustained in a speculation business) which such amalgamating banking company, would have been entitled to carry forward and set-off under the provisions of Section 72 if the amalgamation had not taken place; (ii) "banking company" shall have the same meaning assigned to it in clause (c) of Section 5 of the Banking Regulation Act, 1949 (10 of 1949); (iii) "banking institution" shall have the same meaning assigned to it in sub-" section (15) of Section 45 of the Banking Regulation Act, 1949 (10 of 1949); (iv) "unabsorbed depreciation" means so much of the allowance for depreciation of the amalgamating banking company which remains to be allowed and which would have been allowed to such banking company if amalgamation had not taken place.
SECTION 20: Amendment of Section 73:
In Section 73 of the Income Tax Act, in subsection (4), for the words "eight assessment years", the words "four assessment years" shall be substituted with effect from the 1st day of April, 2006.
SECTION 21: Insertion of new Section 80-C:
After Section 80-B of the Income Tax Act, the following section shall be inserted with effect from the 1st day of April, 2006, namely: '80-C. Deduction in respect of life insurance premia, deferred annuity, contributions to provident fund, subscription to certain equity shares or debentures, etc. (1) In computing the total income of an assessee, being an individual or a Hindu undivided family, there shall be deducted, in accordance with and subject to the provisions of this section, the whole of the amount paid or deposited in the previous year, being the aggregate of the sums referred to in sub-section (2), as does not exceed one lakh rupees.
(2) The sums referred to in sub-section (1) shall be any sums paid or deposited in the previous year by the assessee (i) to effect or to keep in force an insurance on the life of persons specified in sub-section (4); (ii) to effect or to keep in force a contract for a deferred annuity, not being an annuity plan referred to in clause (xii), on the life of persons specified in sub-section (4): Provided that such contract does not contain a provision for the exercise by the insured of an option to receive a cash payment in lieu of the payment of the annuity: (iii) by way of deduction from the salary payable by or on behalf of the Government to any individual being a sum deducted in accordance with the conditions of" his service, for the purpose of securing to him a deferred annuity or making provision for his spouse or children, in so far as the sum so deducted does not exceed one-fifth of the salary; (iv) as a contribution by an individual to any provident fund to which the Provident Funds Act, 1925 (19 of 1925) applies; (v) as a contribution to any provident fund set up by the Central Government and notified by it in this behalf in the Official Gazette, where such contribution is to an account standing in the name of any person specified in sub-section (4); (vi) as a contribution by an employee to a recognised provident fund; (vii) as a contribution by an employee to an approved superannuation fund; (viii) as subscription to any such security of the Central Government or any such deposit scheme as that Government may. by notification in the Official Gazette, specify in this behalf; (ix) as subscription to any such savings certificate as defined in clause (c) of Section 2 of the Government Savings Certificates Act, 1959 (46 of 1959), as the Central Government may, by notification in the Official Gazette, specify in this behalf; (x) as a contribution, in the name of any person specified in sub-section (4), for participation in the Unit-linked Insurance Plan, 1971 (hereafter in this section referred to as the Unit-linked Insurance Plan) specified in Schedule II of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002); (xi) as a contribution in the name of any person specified in sub-section (4) for participation in any such unit-linked insurance plan of the LIC Mutual Fund notified under clause (23-D) of Section 10, as the Central Government may, by notification in the Official Gazette, specify in this behalf; (xii) to effect or to keep in force a contract for such annuity plan of the Life Insurance Corporation or any other insurer as the Central Government may, by notification in the Official Gazette, specify; (xiii) as subscription to any units of any Mutual Fund notified under clause (23-D) of Section 10 or from the Administrator or the specified company under any plan formulated in accordance with such scheme as the Central Government may, by notification in the Official Gazette, specify in this behalf; (xiv) as a contribution by an individual to any pension fund set up by any Mutual Fund notified under clause (23-D) of Section 10 or by the Administrator or the specified company, as the Central Government may, by notification in the Official Gazette, specify in this behalf; (xv) as subscription to any such deposit scheme of. or as a contribution to any such pension fund set up by, the National Housing Bank established under Section 3 of the National Housing Bank Act, 1987(53 of 1987) (hereafter in this section referred to as the National Housing Bank), as the Central Government may, by notification in the Official Gazette, specify in this behalf; (xvi) as subscription to any such deposit scheme of (a) a public sector company which is engaged in providing long-term finance for construction or purchase of houses in India for residential purposes: or (b) any authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both, as the Central Government may, by notification in the Official Gazette, specify in this behalf; (xvii) as tuition fees (excluding any payment towards any development fees or donation or payment of similar nature), whether at the time of admission or thereafter, (a) to any university, college, school or other educational institution situated within India; (b) for the purpose of full-time education of any of the persons specified in sub-section (4); (xviii) for the purposes of purchase or construction of a residential house property the income from which is chargeable to tax under the head "Income from house property" (or which would, if it had not been used for the assessee's own residence, have been chargeable to tax under that head), where such payments are made towards or by way of (a) any instalment or pan payment of the amount due under any self- financing or other scheme of any development authority, housing board or other authority engaged in the construction and sale of house property on ownership basis; or (b) any instalment or pan payment of the amount due to any company or co-operative society of which the assessee is a shareholder or member towards the cost of the house property allotted to him; or (c) repayment of the amount borrowed by the assessee from (1) the Central Government or any State Government, or (2) any bank, including a co-operative bank, or (3) the Life Insurance Corporation, or (4) the National Housing Bank, or (5) any public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes which is eligible for deduction under clause (viii) of sub-section (1) of Section 36, or (6) any company in which the public are substantially interested or any co-operative society, where such company or co-operative society is engaged in the business of financing the construction of houses, or (7) the assessee's employer where such employer is an authority or a board or a corporation or any other body established or constituted under a Central or State Act, or (8) the assessee's employer where such employer is a public company or a public sector company or a university established by law or a college affiliated to such university or a local authority or a co-operative society; or (d) stamp duty, registration fee and other expenses for the purpose of transfer of such house property to the assessee, but shall not include any payment towards or by way of (A) the admission fee, cost of share and initial deposit which a shareholder of a company or a member of a co-operative society has to pay for becoming such shareholder or member, or (B) the cost of any addition or alteration to, or renovation or repair of, the house property which is carried out after the issue of the completion certificate in respect of the house property by the authority competent to issue such certificate or after the house property or any part thereof has either been occupied by the assessee or any other person on his behalf or been let out; or (C) any expenditure in respect of which deduction is allowable under the provisions of Section 24; (xix) as subscription to equity shares or debentures forming part of any eligible issue of capital approved by the Board on an application made by a public company or as subscription to any eligible issue of capital by any public financial institution in the prescribed form. Explanation. For the purposes of this clause, (i) "eligible issue of capital" means an issue made .by a public company formed and registered in India or a public financial institution and the entire proceeds of the issue are utilised wholly and exclusively for the purposes of any business referred to in sub-section (4) of Section 80-IA; (ii) "public company" shall have the meaning assigned to it in Section 3 of the Companies Act, 1956 (1 of 1956); (iii) "public financial institution" shall have the meaning assigned to it in Section 4-A of the Companies Act, 1956 (1 of 1956); (xx) as subscription to any units of any mutual fund referred to in clause (23-D) of Section 10 and approved by the Board on an application made by such mutual fund in the prescribed form: Provided that this clause shall apply if the amount of subscription to such units is subscribed only in the eligible issue of capital of any company. Explanation. For the purposes of this clause "eligible issue of capital" means an issue referred to in clause (i) of the Explanation to clause (xix) of sub-section (2).
(3) The provisions of sub-section (2) shall apply only to so much of any premium or other payment made on an insurance policy other than a contract for a deferred annuity as is not in excess of twenty per cent of the actual capital sum assured. Explanation. In calculating any such actual capital sum assured, no account shall betaken (i) of the value of any premiums agreed to be returned, or (ii) of any benefit by way of bonus or otherwise over and above the sum actually assured, which is to be or may be received under the policy by any person.
(4) The persons referred to in sub-section (2) shall be the following, namely: (a) for the purposes of clauses (i), (v), (x) and (xi) of that sub-section, (i) in the case of an individual, the individual, the wife or husband and any child of such individual, and (ii) in the case of a Hindu undivided family, any member thereof; (b) for the purposes of clause (if) of that sub-section, in the case of an individual, the individual, the wife or husband and any child of such individual; (c) for the purposes of clause (xvii) of that sub-section, in the case of an individual, any two children of such individual.
(5) Where, in any previous year, an assessee (i) terminates his contract of insurance referred to in clause (i) of subsection (2). by notice to that effect or where the contract ceases to be in force by reason of failure to pay any premium, by not reviving contract of insurance, (a) in case of any single premium policy, within two years after the date of commencement of insurance; or (b) in any other case, before premiums have been paid for two years; or (ii) terminates his participation in any unit-linked insurance plan referred to in clause (x) or clause (xi) of sub-section (2), by notice to that effect or where he ceases to participate by reason of failure to pay any contribution, by not reviving his participation, before contributions in respect of such participation have been paid for five years; or (iii) transfers the house property referred to in clause (xviii) of sub-section (2) before the expiry of five years from the end of the financial year in which possession of such property is obtained by him, or receives back, whether by way of refund or otherwise, any sum specified in that clause, then, (a) no deduction shall be allowed to the assessee under sub-section (1) with reference to any of the sums, referred to in clauses (i), (x), (xi) and (xviii) of sub-section (2), paid in such previous year; and (b) the aggregate amount of the deductions of income so allowed in respect of the previous year or years preceding such previous year, shall be deemed to be the income of the assessee of such previous year and shall be liable to tax in the assessment year relevant to such previous year.
(6) If any equity shares or debentures, with reference to the cost of which a deduction is allowed under sub-section (1). are sold or otherwise transferred by the assessee to any person at any time within a period of three years from the date of their acquisition, the aggregate amount of the deductions of income so allowed in respect of such equity shares or debentures in the previous year or years preceding the previous year in which such sale or transfer has taken place shall be deemed to be the income of the assessee of such previous year and shall be liable to tax in the assessment year relevant to such previous year. Explanation. A person shall be treated as having acquired any shares or debentures on the date on which his name is entered in relation to those shares or debentures in the register of members or of debenture-holders, as the case may be, of the public company;
(7) For the purposes of this section, (a) the insurance, deferred annuity, provident fund and superannuation fund referred to in clauses (i) to (vii); (b) unit-linked insurance plan and annuity plan referred to in clauses (xii) to (xiii-a); (c) pension fund and subscription to deposit scheme referred to in clauses (xiii-c) to (xiv-a); (d) amount borrowed for purchase or construction of a residential house referred to in clause (xv), of sub-section (2) of Section 88 shall be eligible for deduction under the corresponding provisions of this section and the deduction shall be allowed in accordance with the provisions of this section.
(8) In this section, (i) "Administrator" means the Administrator as referred to in clause (a) of Section 2 of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002); (ii) "contribution" to any fund shall not include any sums in repayment of loan; (iii) "insurance" shall include (a) a policy of insurance on the life of an individual or the spouse or the child of such individual or a member of a Hindu undivided family securing the payment of specified sum on the stipulated date of maturity, if such person is alive on such date notwithstanding that the policy of insurance provides only for the return of premiums paid (with or without any interest thereon) in the event of such person dying before the said stipulated date; (b) a policy of insurance effected by an individual or a member of a Hindu undivided family for the benefit of a minor with the object of enabling the minor, after he has attained majority to secure insurance on his own life by adopting the policy and on his being alive on a date (after such adoption) specified in the policy in this behalf; (iv) "Life Insurance Corporation" means the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of 1956); (v) "public company" shall have the same meaning as in Section 3 of the Companies Act, 1956 (1 of 1956); (vi) "security" means a Government security as defined in clause (2) of Section 2 of the Public Debt Act, 1944 (18 of 1944); (vii) "specified company" means a company as referred to in clause (h) of Section 2 of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002); (viii) "transfer" shall be deemed to include also the transactions referred to in clause (f) of Section 269-UA.'.
SECTION 22: Amendment of Section 80-CCC:
In Section 80-CCC of the Income Tax Act, for sub-section (3), the following sub-section shall be substituted with effect from the 1st day of April, 2006, namely: "(3) Where any amount paid or deposited by the assessee has been taken into account for the purposes of this section, (a) a rebate with reference to such amount shall not be allowed under Section 88 for any assessment year ending before the 1st day of April, 2006; (b) a deduction with reference to such amount shall not be allowed under Section 80-C for any assessment year beginning on of after the 1st day of April, 2006.".
SECTION 23: Amendment of Section 80-CCD:
In Section
86540
103860
630
114
59824