2022-05-18 05:12:45

CBDT notifies rule for Computation of minimum investment and exempt income u/s 10(23FE)

Introduction to the notification-

A fresh clause (23FE) u/s 10 of the Income Tax Act was inserted, by the Central Board of Direct Taxes (CBDT) on 6th may 2022, via notification 50/2022, in which new rules were announced for tallying minimum investment and income exemption to an entirely owned subsidiary of the ADIA (Abu Dhabi investment authority), pension funds and SWF (sovereign wealth funds). This immunity is provided in respect of any income of the defined person like interest, dividends, or long-term capital profits deriving from investments. Preceding this, A new rule 2DCA became further notified through CBDT for such assessment.

A few changeovers are introduced for widening the amendment:

A new form 10BBD which mentions the statement of eligible investment received is inserted.
The intimation form- 10BBB has been superseded by the pension fund of investment u/s 10(23FE).
The form 10 BBC- a certificate of accountant in respect of adherence to the provisions is also replaced by the pension fund.

Conditions of the notification:

1. The notification issued conditions that in the case of the previous relevant financial year, the amounts W, X, Y, and Z, shall be computed using the total of eligible investments, that have appeared on the balance sheet as of the 31st day of March of the said financial year.

2. Next, it stated that in the cases where the relevant previous year is the year in which the first investment is made through the alternative investment fund, the said amount should be again calculated using the total of eligible investments, appearing in the balance sheet.

3. Further, it is identified under section 10 of the income tax act, what are the incomes that are exempted from such valuations. If any income is not included in the defined person’s income (listed u/s 10(23FE) income) and after the previous year such person fails to meet any of the mentioned provisions for the estimation of that income which has to be excluded, then the said amount will be taxed as personal income.

4. Another condition laid down under clause 23FE U/S 10 of the act, is essential and may be applicable without which, no case of exemption can be made under clause 23FE of section 10 of the act. Violation of the applicable conditions specified would require withdrawal for all the years in which the exemption was claimed or allowed and the income will be taxable in the same previous year in which it was claimed to be exempt and it is known to be a general rule.

Further two guidelines are also passed in the case of the specified person being an SWF OR PF:

The defined person shall get their books of accounts audited for the previous year and also endow the audit report in an appropriated annexure, prior to the due date which is at least one month.
A component of income and expenditure with respect to investments shall be maintained and be qualified for exemption under clause 23FE of section 10 of the act.

Finally, Some responsibilities have also been delegated to the Principal Director General of Income Tax(systems) or the Director-General of Income Tax (systems) which are:

To withhold the responsibility for upgrading and implementing stake, archival, and recovery policies in association to form 10BBD.
To mention the procedure, format, standards, data structure, and order of generation of electronic verification code (stated in sub-rule(9))
To frame the appropriate formats, standards, and procedures for assuring stake capture and transformation of the data in form no. 10BBD

Conclusion:

CBDT has laid down a basic structure to compute the infrastructure investments of pension funds and sovereign wealth funds, that were eligible for income tax inducements and also the evaluation scheme of tax-exempt incomes cause by investments. The provision of the said clause also states that if in any case, any type of difficulty is originated in relation to the understanding of enactment of the provisions of the clause, then the board, with the approval of the central government, can issue guidelines for the purpose of reviewal and removal of such difficulties. Hence making it flexible at the same time, they have left room for further modifications.

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