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FINANCE ACT 2001

Ministry of Law and Justice


  • Chapter 1
  • Chapter 2
  • Chapter 3
  • Chapter IV
  • Chapter V
  • Chapter VI
  • Schedules
  • Finance Act 2001

Preamble

THE FINANCE ACT, 2001

PREAMBLE

An Act to give effect to the Financial proposal to the Central Government for the Financial year 2001-2002

Be it enacted by Parliament in the Fifty-second Year of the Republic of India as follows:-

Chapter 1

Section 1. Short Title And Commencement.

(1) This Act may be called the Finance Act, 2001.

(2) Save as otherwise provided in this Act, sections 2 to 101 shall be deemed to have come into force on the 1st day of April, 2001.

Chapter 2

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, 2001, 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 (43 of 1961) (hereinafter referred to as the Income-tax Act), shall be increased, -

(a) in the cases to which Paragraphs A, B, C and D of that Part apply, by a surcharge for purposes of the Union; and

(b) in the cases to which Paragraph E of that Part applies, by a surcharge, 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 six hundred 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 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 sections 112 and 113, shall be increased by a surcharge for purposes of the Union or surcharge 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 section 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,-

(a) by a surcharge for purposes of the Union, Calculated, -

(i) in the case of a co-operative society, a firm and a local authority, at the rate of twelve per cent. of such income-tax;

(ii) in the case of a person other than a company, a co-operative society, a firm and a local authority,-

(A) at the rate of twelve per cent. of such income-tax where the total income exceeds sixty thousand rupees but does not exceed 1 lakh fifty thousand rupees; or

(B) at the rate of seventeen per cent. of such income-tax where the total income exceed one lakh fifty thousand rupees; and

(b) by a surcharge calculated at the rate of thirteen per cent. of such income-tax in the case of a domestic company.

(4) In cases in which tax has to be charged and paid under section 115-0 or section 115R or section 115U 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 per cent. of such tax :

Provided that no surcharge shall be payable by a foreign company.

(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 deduction 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, 194K, 194L, 196A, 196B, 196C and 196D of the Income-tax Act, the deduction shall be made at the rates specified in those sections and shall be increased by a surcharge for purposes of the Union, calculated at the rate of two per cent. of such tax :

Provided that no surcharge shall be payable by a foreign company.

(7) In cases in which tax has to be collected under the proviso to section 194B or under section 206C of the Income-tax Act, the collection shall be made at the rates specified in that section or at the rates specified in Part II of the First Schedule, as the case may be, and shall be increased, by a surcharge for purposes of the Union, calculated in each case in the manner provided therein.

(8) Subject to the provisions of sub-section (9), in cases in which income-tax has to be charged under sub-section (4) of section 172 or subsection (2) of section 174 or section 175 or sub-section (2) of section 176, of the Income-tax Act or deducted under section 192 of the said Act from income chargeable under the head "Salaries" or in which the "advance tax" payable under Chapter XVIl-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 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 (lA) 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 subsection or the rates as specified in that Chapter or section, as the case may be:

Provided further that the amount of income-tax computed in accordance with the provisions of sections 112 and 113 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,15AB, 115AC, 115ACA, 115AD, 115B, 115BB, 115BBA, 115E and 115JB of the Income-tax Act, "advance tax" computed under the first proviso shall be increased by a surcharge for purposes of the Union, calculated at the rate of two per cent. of such tax :

Provided that no surcharge shall be payable by a foreign company.

(9) 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 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 1he 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 VIll-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.

(10) 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, 2001, 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 in 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

Section 3. Amendment of section 2

In section 2 of the Income-tax Act,-

(a) after clause (12), the following clause shall be inserted with effect from the 1st day of June, 2001, namely :-

'(12A) "books or books of account" include ledgers, day-books, cash books, account-books and other books, whether kept in the written form or as print-outs of data stored in a floppy, disc, tape or any other form of electro-magnetic data storage device ;' ;

(b) after clause (22A), the following clause shall be inserted with effect from the 1st day of June, 2001, namely :-

'(22AA) "document" includes an electronic record as defined in clause (t) of sub-section (1) of section 2 of the Information Technology Act, 2000 (21 of 2000);';

(c) in clause (24), in sub-clause (ix), the following Explanation shall be Inserted with effect from the 1st day of April, 2002, namely :-

'Explanation.-For the purposes of this sub-clause,-

(i) "lottery" includes winnings, from prizes awarded to any person by draw of lots or by chance or in any other manner whatsoever, under any scheme or arrangement by whatever name called ;

(ii) card game and other game of any sort" includes any game show, an entertainment programme on television or electronic mode, in which people compete to win prizes or any other similar game;';

(d) after clause (28B), the following clause shall be inserted with effect from the 1st day of April, 2002, namely :-

'(28BB) "insurer" means an insurer being an Indian insurance company, as defined under clause (7A) of section 2 of the Insurance Act,1938 (4 of 1938), which has been granted a certificate of registration under section 3 of that Act ;'

Section 4. Amendment of section 9

In section 9 of the Income-tax Act, in subsection (1), in clause (vi), in Explanation 2, with effect from the 1st day of April, 2002,-

(i) after clause (iv), the following clause shall be inserted, namely :-

"(iva) the use or right to use, any industrial, commercial or scientific equipment but not including the amount referred to in section 44BB ;" ;

(ii) in clause (vi), for the words, brackets and figures "sub-clauses (i) to (v)", the words, brackets, figures and letter "sub-clauses (i) to (iv), (iva) and (v)" shall be substituted

Section 5. Amendment of section 10

In section 10 of the Income-tax Act,-

(a) in clause (10C),-

(i) after sub-clause (vii), the following sub-clause shallbe inserted, namely :-

"(viia) any State Government; or" ;

(ii) after sub-clause (viia) as so inserted, thefollowing sub-clause shall be inserted with effect from the lst day of April,2002, namely :-

"(viib) the Central Government; or" ;

(b) in clause (15), with effect from the 1st day of April,2002,-

(i) in sub-clause (iv),-

(A) for item (a), the following item shall be substituted,namely :-

"(a) by Government or alocal authority on moneys borrowed by it before the 1st day of June, 2001 from,or debts owed by it before the 1st day of June, 2001 to, sources outside India;" ;

(B) in item (b), for the words "a loan agreemententered into with any such financial institution", the words, figures andletters "a loan agreement entered into before the 1st day of June, 2001with any such financial institution" shall be substituted ;

(C) in item (c), for the words "moneys borrowed ordebt incurred by it", the words, figures and letters "moneys borrowedor debt incurred by it before the 1st day of June, 2001" shall besubstituted ;

(D) in items (d) and (e), for the words "any moneysborrowed by it from sources outside India", the words, figures and letters"any moneys borrowed by it from sources outside India before the 1st dayof June, 2001" shall be substituted ;

(E) in item (f), for the words "a loan agreementapproved by the Central Government", the words, figures and letters"a loan agreement approved by the Central Government before the 1st day ofJune, 2001" shall be substituted ;

(ii) for Explanation 1A to sub-clause (iv), thefollowing Explanation shall be substituted, namely :-

'Explanation1A.-For the purposes of this sub-clause, theexpression "interest" shall not include interest paid on delayedpayment of loan or on default if it is in excess of two per cent. per annumover the rate of interest payable in terms of such loan.' ;

(c) in clause (23AAB), with effect from the 1st day ofApril, 2002,-

(i) in the opening portion, for the words "under apension scheme", the words "or any other insurer under a pensionscheme" shall be substituted ;

(ii) in sub-clause (ii), after the words "theController of Insurance", the words, brackets and figures "or theInsurance Regulatory and Development Authority established under sub-section(1) of section 3 of the Insurance Regulatory and Development Authority Act,1999 (41 of 1999), as the case may be" shall be inserted ;

(d) after clause (23BBC), the following clause shall be inserted,namely :-

'(23BBD) any income of the Secretariat of the AsianOrganisation of the Supreme Audit Institutions registered as"ASOSAI-SECRETARIAT" under the Societies Registration Act, 1860 (21of 1860), for three previous years relevant to the assessment years beginningon the 1st day of April, 2001 and ending on the 31st day of March, 2004;

(23BBE) any income of the Insurance Regulatory andDevelopment Authority established under sub-section (1) of section 3 of theInsurance Regulatory and Development Authority Act, 1999 (41 of 1999)';

(e) in clause (23C), -

(a) in the third proviso,-

(i) in clause (a), after the words "the objects forwhich it is established", the words, figures and letters "and in acase where more that twenty-five per cent of its income is accumulated on orafter the 1st day of April, 2001, the period of the accumulation of the amountexceeding twenty-five percent of its income shall in no case exceed fiveyears" shall be inserted with effect from the 1st day of April, 2002;

(ii) in clause (b),-

(A) after sub-clause (i), thefollowing sub-clause shall be inserted, namely :-

"(ia) any asset, being equity shares of a publiccompany, held by any university or other educational institution or anyhospital or other medical institution where such assets form part of the corpusof any university or other educational institution or any hospital or othermedical Institution as on the 1st day of June,1998 ;" ;

(B) in sub-clause (iii), afterthe word, brackets and figure "sub clause (i)", the words, brackets,figure and letter "and sub-clause (ia)" shall be inserted ;

(b) after the eighth proviso, the following provisoshall be inserted, namely :-

"Provided also that where the total receipts of thefund or institution referred to in sub-clause (iv) or of any trust orinstitution referred to in sub-clause (v) or of any University or othereducational institution referred to in sub-clause (vi) or of any hospital orother institution referred to in sub-clause (via) exceed one crore rupees in anypreceding year, the fund or trust or institution or university or othereducational institution or hospital or other institution, as the case may be,shall-

(i) publish its accounts in a local newspaper; and

(ii) furnish along with the application prescribed in the firstproviso to this clause, the copy of the local newspaper in which such accountshave been published ;" ;

(f) in clause (23FB),-

(a) the Explanation shall be numbered as Explanation 1 thereof,and in Explanation 1 as so numbered, in clause (b), for sub-clause (i), thefollowing sub-clause shall be substituted, namely :-

"(i) operating under a trust deed registered under theprovisions of the Registration Act, 1908 (16 of 1908), or operating as aventure capital scheme made by the Unit Trust of India established under theUnit Trust of India Act, 1963 (52 of 1963) ;" ;

(b) after Explanation 1 as so numbered, the followingExplanation shall be inserted, namely :-

"Explanation 2.-For the removal of doubts, it ishereby declared that the income of a venture capital company or venture capitalfund shall continue to be exempt if the shares of the venture capitalundertaking, in which the venture capital company or venture capital fund hasmade the initial investment, are subsequently listed in a recognised stockexchange in India ;" ;

(g) in clause (23G), with effect from the 1st day of April,2002,-

(a) after the words "an infrastructure capital fund or aninfrastructure capital company" 1 the words "or a co-operativebank" shall be inserted

(b) for the words, brackets and figures "any enterprisewholly engaged in the business of (i) developing, (ii) maintaining andoperating or (iii) developing, maintaining and operating any infrastructurefacility, the words, brackets, figures and letters "any enterprise orundertaking wholly engaged in the business referred to in sub-section (4) ofsection 80-IA" or housing project referred to in sub-section (10) ofsection 80-IB" shall be substituted;

(c) in Explanation 1,-

(i) clause (c) shall be omitted ;

(ii) after clause (d), the following clauses shall be inserted,namely :-

'(e) "co-operative bank" shall have the meaningassigned to it in clause (dd) of section 2 of the Deposit Insurance and CreditGuarantee Corporation Act, 1961 (47 of 1961) ;

(f) "interest" includes any fee or commissionreceived by a financial institution for giving any guarantee to, or providingcredit rating in respect of, an enterprise which has been approved by theCentral Government for the purposes of this clause.' ;

(h) in clause (33), after sub-clause (iii), the followingproviso shall be inserted and shall be deemed to have been inserted with effectfrom the 1st day of April, 2000, namely :-

"Provided that this clause shall not apply to anyincome arising from transfer of units of the Unit Trust of India or a mutualfund, as a case may be."

Section 6. Amendment of section 10A

In section 10A of the Income-tax Act,

(a) in sub-section (1),-

(i) in the second proviso, for the words "undertaking was first set up", the words "undertaking began to manufacture or produce such articles or things or computer software" shall be substituted ;

(ii) the third proviso shall be omitted with effect from the 1st day of April, 2002 ;

(b) for sub-section (4), the following sub-section shall be substituted, namely :-

"(4) For the purposes of sub-section (1), the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking." ;

(c) after sub-section (9),-

(i) below Explanation 1, the following proviso shall be inserted, namely:-

"Provided that nothing contained in this Explanation shall apply to any change in the shareholding of the company as a result of -

(a) its becoming a company in which the public are substantially interested; or

(b) disinvestment of its equity shares by any venture capital company or venture capital fund."

(ii) in Explanation 2, in clause (iv), for the words "in respect of export", the words "in respect of export by the undertaking" shall be substituted ;

(iii) after Explanation 2, the following Explanation shall be inserted at the end, namely :-

"Explanation 3.-For the removal of doubts, it is hereby declared that the profits and gains derived from on site development of computer software (including services for development of software) outside India shall be deemed to be the profits and gains derived from the export of computer software outside India.".

Section 7. Amendment of section 10B

In section 10B of the Income-tax Act,-

(a) in sub-section (l), the second proviso shall be omitted with effect from the 1st day of April, 2002 ;

(b) for sub-section (4), the following sub-section shall be substituted, namely :-

"(4) For the purposes of sub-section (1), the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking." ;

(c) after sub-section (9),-

(i) below Explanation 1, the following proviso shall be inserted, namely:-

Provided that nothing contained in the Explanation shall apply to any change in the shareholding of the company as a result of-

(a) its becoming a company in which the public are substantially interested; or

(b) disinvestment of its equity shares by any venture capital company or venture capital fund."

(ii) in Explanation 2, in clause (iii), for the words "in respect of export", the words "in respect of export by the undertaking" shall be substituted ;

(iii) after Explanation 2, the following Explanation shall be inserted at the end, namely ;-.

"Explanation 3.-For the removal of doubts, it is hereby declared that the profits and gains derived from on site development of computer software (including services for development of software) outside India shall be deemed to be the profits and gains derived from the export of computer software outside India.".

Section 8. Insertion of new section 10BB

After section 10B of the Income-tax Act, the following section shall be inserted and shall be deemed to have been inserted with effect from the 1st day of April, 1994, namely :-

'10BB. Meaning of computer programmes in certain cases.-The profits and gains derived by an undertaking from the production of computer programmes under section 10B, as it stood prior to its substitution by section 7 of the Finance Act, 2000 (10 of 2000), shall be construed as if for the words "computer programmes", the words "computer programmes or processing or management of electronic data" had been substituted in that section.',

Section 9. Amendment of section 11

In section 11 of the Income-tax Act, in sub-section (2), after the proviso, the following proviso shall be inserted with effect from the 1st day of April, 2002, namely :-

'Provided further that in respect of any income accumulated or set apart on or after the 1st day of April, 2001, the provisions of this sub-section shall have effect as if for the words "ten years" at both the places where they occur, the words "five years" had been substituted.'.

Section 10. Amendment of section 12A

A In section 12A of the Income-tax Act, after clause (b), the following clause shall be inserted with effect from the 1st day of April, 2002, namely :-

"(c) where the total income of the trust or institution as computed under this Act without giving effect to the provisions of sections 11 and 12 exceeds ten lakh rupees in any previous year, the trust or institution-

(i) publishes its accounts in a local newspaper, before the due date for furnishing the return of income under sub-section (4A) of section 139 ; and

(ii) furnishes a copy of such newspaper along with such return.".

Section 11. Insertion of new section 14A

After section 14 of the Income-tax Act, the following section shall be inserted and shall be deemed to have been inserted with effect from the 1st day of April, 1962, namely ;-

"14A. Expenditure incurred in relation to income not includible in total income.-For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act.".