Mar 022016

Budget Highlights relating to Income Tax

The provisions of Finance Bill, 2016 relating to direct taxes seeks to amend the Income-tax Act, 1961 (‘the Act’) , the Finance (No.2) Act, 2004, Finance Act, 2013 and Finance Act 2015, in order to provide for –

  1. Rates of Income-tax
  2. Widening of Tax Base and Anti-Abuse Measures
  3. Measures to Phase out deductions
  4. Measures to Promote Socio-economic Growth
  5. Relief and Welfare Measures
  6. Ease of doing Business & Dispute Resolution
  7. Rationalisation Measures

 A. Rates of Income-tax

  1. Tax slab rates will remain unchanged
  2. Surcharge is payable @ 12% in case total income exceeding Rs one crore rupees.
  3. The above surcharge is also applicable in case assessee who is liable to pay tax under Alternate Minimum Tax.
  4. For domestic company surcharge shall be 7% (for total income ranges between Rs one crore to 10 crore) or 12% (for total income > Rs 10 crore) as the case may be subject to marginal relief.
  5. For other corporate, surcharge shall be 2% or 5% as the case may be subject to marginal relief.
  6. Rates of education cess (2%) and Secondary and Higher Education Cess (1%) remains unchanged.
  7. Rates of TDS on insurance commission payable to resident non corporate assessee TDS shall be deducted @ 5%.
  8. Income of domestic company having total turnover up to Rs 5 crore shall be taxed @ 29% and other domestic company shall be taxed @ 30%.
  9. Optional taxation @ 25% to newly set up domestic company subject to conditions.
  10. Surcharge is made applicable to domestic company also. (7% or 12%)

 B. Additional Resource Mobilisation

  1. Dividend income > Rs 10 lacs shall be chargeable to tax in the hands of Individual, HUF & firm on Gross Basis in the hands of receiver of income also.
  2. STT on sale of an option in securities where option is not exercise shall be chargeable to tax @ 0.05%.
  3. Equalization levy of 6% on non resident specified service provider if aggregate consideration exceeds Rs 1 lacs.

C. Widening of Tax Base and Anti-Abuse Measures

  1. Seller shall collect TCS @ 1% from the purchaser of motor vehicle of value > Rs. 10 lacs, or other goods except bullion and jewellery and services > Rs 2 lacs.
  2. Provisions of sec 115AQ shall apply to any buy back of unlisted share undertaken by the company in accordance with the provisions of the law relating to the Companies and not necessarily restricted to section 77A of the Companies Act, 1956.
  3. Levy of additional levy in case of conversion of charitable institute into or merger with any non charitable or on transfer of assets of a charitable organisation on its dissolution to a non charitable institution.

 D. Measures to Phase Out Deductions

  1. Following incentives are phased out in prescribed manner:
    1. Sec 10AA- Special provision in respect of newly established units in Special economic zones (SEZ).
    2. 35AC-Expenditure on eligible projects or schemes.
    3. 35CCD-Expenditure on skill development project.
    4. Sec 80IA, 80IAB, 80IB
    5. Accelerated depreciation
    6. Sec 35(1) Sec 35(2AA) & 35(2AB) Deduction of expenditure on scientific research
    7. Sec 35AD & Sec 35CCC other specified incentives

 E. Measures to Promote Socio-economic Growth

  1. Exemption of income accruing or arising to a foreign company on account of storage of crude oil in a facility in India and sale of crude oil there from to any person resident in India
  2. Income of foreign company from display of uncut and unassorted diamond in special zone.
  3. Benefit of initial additional depreciation is extended to assess engaged in transmission of power
  4. Concessional rate of tax (10%) on royalty income of a person resident in India.
  5. Deduction of 100% profit earned by eligible start up before 01-04-2019.
  6. New sec 54EE to provide exemption of from capital gain if LTCG proceeds are invested in specified fund with a cap of Rs 50 lacs.
  7. 100% deduction of the profits of an assessee developing and building affordable housing projects.
  8. Benefit of deduction under section 80EE is increased to Rs 150,00/- for interest paid on loan taken upto Rs 35 lacs by first home buyers.
  9. 30% of salary paid in first year of new business shall be allowed as deduction.

 F. Relief and Welfare Measures

  1. Redemption of Sovereign Gold Bond shall not be regarded as transfer and thus exempted from capital gain.
  2. Indexation benefit is made available to Sovereign Gold Bond also.
  3. Exemption to capital gains arising in case of appreciation of rupee between DOI & DOR against the foreign currency in which investment was made in Rupee Denominated Bond.
  4. Relief under sec 80GG is raised from Rs 2000 per month to Rs 5000 per month.
  5. Exemption of interest and capital gains of investment made in Gold monetization scheme.
  6. Rebate u/s 87A is increased from Rs 2000 to Rs 5000.
  7. Deduction of interest paid on money borrowed of acquisition or construction of self occupied property is made available even if acquisition or construction is completed within 5 years from the end financial year in which capital is borrowed,
  8. Section 25A, 25AA and 25B is omitted.
  9. Unrealized rent or arrear of rent will be taxable in the year of receipt with a uniform deduction of 30%.

 G. Ease of doing Business & Dispute Resolution

  1. Exemption from Dividend Distribution Tax (DDT) on distribution made by an SPV to Business Trust
  2. Special taxation regime for off shore funds Section 9A are modified.
  3. Enabling provisions are made for implementing various provision of the act in case foreign company held to be resident in India.
  4. Gross receipts of professionals to be taxed @ 50% of total gross receipts.
  5. Increase in threshold limit of audit of professional from Rs 25 lacs to Rs 50 lacs.
  6. Increase in threshold of audit in case assessee claims that his profit from trading activity is less than 8% of gross receipts from Rs 1 crore to Rs 2 crore.
  7. Further, for the above trading partners expenditure on account salary remuneration interest etc. paid to partner shall not allowed to be deducted.
  8. Further, above assessee shall pay advance tax before 15 march.
  9. Requirement of furnishing PAN No by non resident is done away.
  10. The income declaration scheme 2016 is introduce to curb black money.

 H. Rationalisation Measures

  1. Grant and assistance etc. from central government for the purpose of corpus of a trust or institution shall not form part of total income.
  2. Payments made to railways for use of its assets are come under the ambit of sec 43B.
  3. Increase in thresh hold limit of TDS under various section.
  4. Forms 15G / 15H are made available for rental incomes also.
  5. Schedule of advance tax payment from now onwards will be same for all assessee except assessee who are covered under 44AD.
  6. Processing of all returns under section 143(1) made compulsory and many more.