Important Highlights of
Budget 2016 - Direct Tax
1. Relief to small tax payers
(a) Rebate under Sec 87A:
With the objective of providing relief to resident individuals in the lower
income slab i.e. total income not exceeding Rs. 5,00,000, section 87A is
proposed to be amended so as to increase the maximum amount of rebate available
from existing limit of Rs.2,000 to Rs.5,000.
(b) Maximum limit of deduction under
section 80GG increased: The maximum limit of deduction
under section 80GG, in respect of rent paid by individuals who do not get any
house rent allowance from the employer and who do not own any house, proposed
to be increased from Rs. 2,000 p.m to Rs. 5,000 p.m.
(c) Increase in threshold limit for
persons other than companies /LLP having income from business opting
presumptive taxation under Section 44AD: In order to
reduce the compliance burden of the small tax payers and facilitate the ease of
doing business, the threshold limit for availing the benefit of presumptive
taxation scheme proposed to be increased from Rs. 1 crore to Rs. 2 crore, in
respect of eligible businesses. The threshold limit proposed to be increased to
bring relief to large number of assesses in the Micro Small and Medium
Enterprises (MSME) category.
(d) Presumptive taxation scheme
extended to professionals: In order to rationalize the
presumptive taxation scheme and to reduce the compliance burden of the small
tax payers having income from profession and to facilitate the ease of doing
business, the presumptive taxation regime proposed to be extended to
professionals having gross receipts not exceeding Rs. 50 lakhs in the previous
year at a sum equal to 50% of such gross receipts.
(e) Threshold limit increased for tax
audit for persons having professional Income: The threshold
limit for tax audit under section 44AB, for getting accounts audited proposed
to be increased from Rs. 25 lakhs to Rs. 50 lakhs, in case of persons carrying
on profession.
2. Measures to boost growth and
employment generation
(a) Corporate Tax proposals:
(i) The Corporate Tax rate was proposed to be
reduced from 30% to 25% over a period, accompanied by rationalization and
removal of various tax exemptions and incentives. The following are some of the
tax exemptions and incentives which are proposed to be withdrawn in phased
manner:
• The accelerated depreciation under Income-tax
Act will be limited to 40% from 01.04.2017
• The benefits of deductions for Research would be
limited to 150% from 01.04.2017 and 100% from 01.04.2020
• The benefits of Section 10AA to new SEZ units
will be available to those units which commence activity before 31.03.2020.
• Weighted Deduction under section 35CCD for skill
development will continue up to 01.04.2020
(ii) Manufacturing companies incorporated on or
after 1.03.2016 are proposed to be given an option to be taxed at 25% plus
surcharge and cess provided they do not claim profit linked or investment
linked deductions and do not avail of investment allowance and accelerated
depreciation.
(iii) For relatively small enterprises i.e.,
companies with turnover not exceeding Rs 5 crore (in the financial year ending
March 2015), the rate of corporate tax reduced from 30% to 29% plus surcharge
and cess, for the next financial year.
(iv) Tax Incentives to start ups:
With a view to providing an impetus to start-ups and facilitate their growth in
the initial phase of their business, a deduction of 100% of the profits and
gains derived by an eligible start-up from a business involving innovation
development, deployment or commercialization of new products, processes or
services driven by technology or intellectual property proposed to be provided.
Such benefit would be available to an eligible start-up which is setup before
01 .04.2019.
The deduction may, at the option of the assessee,
be claimed by him for any three consecutive assessment years out of five years
beginning from the year in which the eligible start-up is incorporated. MAT
will apply in such cases and Capital Gains will not be taxed if invested in
regulated/notified Fund of Funds by individuals in notified startups, in which
they hold majority shares.
(b) Concessional Tax Regime for income
from patents: In order to encourage indigenous
research & development activities and to make India a global R & D hub,
the Government has decided to put in place a concessional taxation regime for
income from patents is proposed. A concessional rate of 10% proposed for taxing
income from world exploitation of patents developed and registered in India.
(c) Complete Pass through status
securitization trust: In order to encourage more investment
in Asset Reconstruction Companies (ARC), it is proposed to provide complete
pass through of income to securitization trust. Consequently, the income will
be taxed in the hands of investors instead of the trust. However the trust will
be liable to deduct tax at source.
(d) Deferment of POEM:
The determination of residency of foreign company on the basis of place of
effective management (POEM) is proposed to be deferred by one year.
3. Measures for moving towards a
pensioned society
(a) (i)
Recognised provident fund and superannuation fund: In order to bring
greater parity in tax treatment on different types of pension plans, it is
proposed to provide in respect of the contributions made on or after 1st April
2016 by an employee participating in a recognised provident fund and
superannuation fund, upto 40% of the accumulated balance attributable to such
contribution on withdrawal shall be exempt from tax. In effect, the 100%
exemption has been reduced to 40%.
(ii) Annuity Plan:
Any payments in commutation of any annuity purchased out of contributions made on
or after 1st day of April, 2016 which exceeds 40% of the annuity, to be
chargeable to tax.
(iii) National Pension System:
It is also proposed to provide any payment from National Pension System Trust
to an employee on account of closure or his opting out of the pension scheme
referred to in Section 80CCD, to the extent it does not exceed 40% of the total
amount payable to him at the time of closure or his opting out of the scheme,
to be exempt from the tax.
Also annuity fund which goes to the legal heir after
the death of pensioner will not be taxable in all the three cases (i.e., (i),
(ii) & (iii) above).
(iv) Monetary limit for employer
contribution to EPF: Also, a monetary limit for
contribution of employer in recognized provident fund and superannuation fund
of Rs 1.5 lakh per annum for taking tax benefit is proposed.
4. Measures for promoting affordable
housing
(a) 100% deduction of the profits of
an assessee developing and building affordable housing projects:
With a view to incentivise affordable housing sector as a part of larger
objective of ‘Housing for All’, it is proposed that 100% deduction of the
profits would be allowed to an assessee developing and building affordable
housing projects, if the housing project is approved by the competent authority
before the 31st March, 2019 and completed within 3 years of approval.
(b) Additional deduction of interest
to “first home buyers”: In furtherance of the goal of
the Government of providing ‘housing for all, it is proposed to incentivise
first-home buyers availing home loans, by providing additional deduction of Rs.
50,000 in respect of interest on loan taken for residential house property from
any financial institution.
This incentive is proposed to be available to a
house property of a value less than Rs. 50 lakhs in respect of which a loan of
an amount not exceeding Rs. 35 lakh has been sanctioned during the Financial
Year 2016-17. Further, this benefit proposed to be extended till the repayment
of loan continues.
(c) SPV would be exempted from Dividend
Distribution Tax (DDT) on distribution made to Business Trust:
In order to rationalize the taxation regime for business trusts (REITs and
Invits) and their investors, it is proposed to provide a special dispensation
and exemption from levy of dividend distribution tax. Accordingly, the SPV
would not be liable to pay DDT on the income distributed to business trusts.
Such dividend received by the business trust and its investor shall not be
taxable in the hands of trust or investors.
5. Additional resource mobilization
for agriculture, rural economy and clean environment
(a) Gross Dividend would be taxable in
the hands of recipients: The income by way of gross
dividend, to be chargeable to tax in the case of an individual, Hindu undivided
family (HUF) or a firm, who is resident in India @ 10%, if the same is in
excess of Rs. 10 lakh
(b) Rate of surcharge increased from
12% to 15%: The surcharge rate to be raised from
12% to 15% on persons, other than companies, firms and cooperative societies
having income above Rs. 1 crore.
(c) Scope of Tax Collection at Sources
(TCS) expanded to include sale of luxury cars and other goods and services:
In order to reduce the quantum of cash transaction in sale of any goods and
services and for curbing the flow of unaccounted money in the trading system
and to bring high value transactions within the tax net, it is proposed to
provide that the seller shall collect the tax @1% from the purchaser on sale of
motor vehicle of the value exceeding Rs. 10 lakhs and sale in cash of any goods
(other than bullion and jewellery), or providing of any services (other than
payments on which tax is deducted at source under Chapter XVI I-B) exceeding
Rs. 2 lakhs.
(d) Equalisation levy of 6% on the
non-residents from e-commerce transactions: In order to
tap tax on income accruing from e-commerce transactions to non-residents from
India, it is proposed that a person making payment to a non-resident, who does
not have a permanent establishment, exceeding in aggregate Rs. 1 lakh in a
year, as consideration for online advertisement, will withhold tax at 6% of
gross amount paid, as Equalization levy. The levy will only apply to B2B
transactions.
6. Reducing litigation and providing
certainty in taxation
(a) Limited period Compliance Window
to be introduced: For domestic taxpayers to declare
undisclosed income or income represented in the form of any asset and clear up
their past tax transgressions, the Income Declaration Scheme, 2016 proposed to
be introduced as limited period compliance window for taxing such undisclosed
income paying @ 30%, plus surcharge at 7.5% and penalty at 7.5%, which is a
total of 45% of the undisclosed income. There will be no scrutiny or enquiry
regarding income declared in these declarations under the Income-tax Act, 1961
or the Wealth-tax Act, 1957 and the declarants will have immunity from
prosecution.
(b) The Direct Tax Dispute Resolution
Scheme, 2016 : In order to reduce the huge backlog
of cases and to enable the Government to realise its dues expeditiously, the
Direct Tax Dispute Resolution Scheme, 2016 proposed to be introduced in
relation to tax arrear and specified tax. Under this scheme, the declarant
would be required to pay tax at the applicable rate plus interest upto the date
of assessment and no penalty would be leviable for disputed tax upto Rs. 10
lakhs. However, in case of disputed tax exceeding Rs. 10 lakhs, 25% of the
minimum penalty leviable shall also be required to be paid.
(c) One time Dispute Resolution scheme
for cases ongoing under retrospective amendment:
Under the Direct Tax Dispute Resolution Scheme, 2016, person may also make a
declaration in respect of any tax determined in consequence of or is validated
by an amendment made with retrospective effect in the Income-tax Act, 1961 or Wealth-tax
Act, 1957, as the case may be, for a period prior to the date of enactment of
such amendment and a dispute in respect of which is pending as on 29.02.2016,
subject to their agreeing to withdraw any pending case lying in any Court or
Tribunal or any proceeding for arbitration, mediation etc.. Consequently, they
can settle the case by paying only the tax arrears in which case liability of
the interest and penalty shall be waived.
(d) Penalty leviable for concealment
of income rationalised: The entire scheme of penalty
proposed to be modified by providing different categories of misdemeanour with
graded penalty and thereby substantially reducing the discretionary power of
the tax officers. The penalty rates will now be 50% of tax in case of underreporting
of income and 200% of tax where there is misreporting of facts.
7. Simplification and rationalization
of taxation
(a) Exemption from requirement of
furnishing PAN under section 206AA to certain non-resident:
In order to reduce compliance burden, section 206AA proposed to be amended so
as to provide that the provisions of this section shall not apply to a
non-resident, on furnishing of alternative documents, subject to such
conditions as may be prescribed.
(b) Rationalization of tax deduction
at Source (TDS) provisions: In order to rationalise the
rates and base for TDS provisions, the existing threshold limit for deduction
of tax at source and the rates of deduction of tax at source are proposed to be
revised in the case of Winnings from Horse Race, Payments to Contractors,
Insurance commission, Commission on sale of lottery tickets etc. This would
improve cash flow of small tax payers.
8. Use of Technology for creating
accountability
(a) Scope for e-assessment proposed to
be expanded: Expansion in the scope of
e-assessments to all assesses in 7 mega cities in the coming years, reducing
face to face contact with the assesses.
(b) Rate of interest on refunds to be
increased: The rate of interest on the refunds to be
increased from 6% p.a. to 9% p.a., in case there is delay in giving effect to
Appellate order beyond ninety days.
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