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Budget 2016 – Direct Tax Amendments

The BJP Government presented its 2016 budget on 29th February 2016. Finance minister Mr Arun Jaitley, has given us a balanced budget. The BJP government has also taken steps to improve the industrial production & also make its Make In India a true success. The following are the major changes incorporated by the Budget

1. No Change in Slab rate: The Budget has proposed no change in the slab rate for Individuals & HUF.

2. Decrease in Tax rate for Companies: The Finance Minister has decreased the Corporate Tax from 30% to 29% in case the gross receipts of a domestic company in a Financial year 2014-15 is less than Rs 5 crores. It is also proposed to decrease the corporate tax from 30% to 25% in case a domestic company engaged in manufacture & production of an article or thing. Such company must not claim any deduction u/s 10AA or Chapter VIA.

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3. Amendment in Section 80GG: Under section 80GG an individual can claim deduction from least of the three

1. Rs 2,000 per month

2. 25% of the total income

3. Actual Rent – 10% of the total income

The limit of Rs 2,000 per month is increased to Rs 5,000 per month.

4. Relief u/s 87A: Relief u/s 87A has been amended to increase the limit from Rs 2,000 to Rs 5,000 for Individuals earning income below Rs 5 lakhs.

5. Dividend Taxable: Section 115BBDA has been inserted to tax any dividend received by individual, HUF or Firm above Rs 10 lakhs. The Companies have been kept outside this section. This has put very hardship on Individuals because already the Companies are paying tax on their income & Dividend Distribution tax on Dividend distributed. Hence this will be double tax in the hands of individuals.

6. Section 80EE: Section 80EE has been inserted to provide deduction in respect of Interest on loan taken from financial institution for purchasing residential house property. This is in addition to deduction u/s 24 & deduction u/s 80C. The deduction is subject to following condition

              a. Loan amount should not exceed Rs 35 lakhs

              b. Value of Residential property should not be more than Rs 50 lakhs

              c. The individual should not own any other property.

7. Amendment in Section 24(b): Previously An Individual can claim deduction u/s 24(b) for interest paid on construction of self occupied house property up to the limit of Rs 1,50,000. The Budget has amended the said section & the individual can claim deduction of Rs 2 lakh i.e extra 50,000, subject to the condition that the construction is completed within 5 years.

8. Amendment in unrealized rent received: Unrealized rent or arrears of rent received will be taxed in the year it is received by the individual u/s 25A. An amendment is made to give a deduction of 30% from unrealized rent or arrears of rent.

9. Advance tax installment: An amendment has been made to advance tax installment for assesse other than corporates i.e Individuals, HUF, firms etc.

Earlier Due Date Earlier Rates New Due Dates New Rates
15th June 15% of Advance tax
Before 15th Sep 30% of Advance tax 15th Sep 45% of Advance tax
Before 15th Dec 60% of Advance tax 15th Dec 75% of Advance tax
Before 15th Mar 100% of Advance tax 15th Mar 100% of Advance tax

10. It is proposed to tax non compete fees received by professionals u/s 28 i.e business income

11. Amendment to Section 44AD & 44AB:

Amendment to section 44AD is one of the biggest changes the Budget has brought out.

Section 44AD is the presumptive taxation scheme where in an assesse, if its turnover is less than 1 crore can declare & pay tax @ 8% & he need not maintain books of account. Earlier it deduction salary & interest on capital paid to partners was allowed. Now the amendment has been made to section 44AD to disallow the Interest on capital & salary to partners.

Section 44AB has been amended to increase the threshold limit of Rs 25 lakhs to Rs 50 lakhs for professionals. There is no increase in the limit of Audit for other than professionals which stands as it is at Rs 1 crore.

12. Expenditure on Scientific research:

Section 35(1) (ii) – A Deduction of 175% is available for any sum paid to approved scientific research association. This deduction is reduced to 150% from 01/04/2017 to 31/03/2020 & from 01/04/2020 it will be limited to 100%.

13. Section 35(1) (iii) – A deduction of 125% is available for any sum paid to approved scientific research company. This deduction is reduced to 100%.

14. Section 35(2AA) – A deduction of 200% is available for any sum paid to national laboratory or a university or an IIT. This deduction is reduced to 150% till 31/03/2020 & from 01/04/2020 it will be limited to 100%.

15. Section 35(2AB) – A deduction of 200% is available for any expenditure incurred by a company engaged in biotechnology or in business of manufacture on scientific research on approved inhouse research & facility. This has been reduced to 150% till 31/03/2020 & from 01/04/2020 to 100%

16. Conversion of LLP to Company: No tax is levied in case of conversion of LLP to company if certain conditions are applicable. Budget 2016 has inserted another condition that conversion will be tax free if total assets in the books of account of the company in any of the previous 3 years should not exceed 5 crores.

17. Sovereign Gold Bonds: It is proposed to give benefit of indexation to Capital Sovereign Gold Bonds.

18. Section 50C Amended: Under existing provisions contained in section 50C, in case of transfer of land or building being a capital asset, the value adopted by the stamp duty valuation authority for the purpose of payment of stamp duty shall be taken as full value of consideration for the purposes of computation of capital gains. It is proposed to amend section 50C to provide that where the date of agreement fixing the amount of consideration for the transfer of immovable property Y the date of registration are different. The provision shall apply only in case where the consideration or apart has been paid by way of an account payee cheque or through internet banking (i.e not paid in cash) & such payment is made on or before the date of the agreement for the transfer of such immovable property.

19. Long Term Capital gains arising out of sale of unlisted company in case of non resident will be taxable at rate of 10%.

20. Section 55EE: Section 55EE has been inserted to provide exemption from long term capital gains & within a period of 6 months the sale proceeds are invested in specified funds, as may be notified by government. The exemption is limited to 50 lakhs.

21. Section 54GB: Section 54GB has been inserted to provide exemption from Long term capital gains arising out of transfer of residential house property if the proceeds are invested in purchase of equity shares of startup company. The Individual or HUF claiming exemption must hold more than 50% of the shares of the startup company. The startup company must utilize that contribution to purchase new asset including computer & software. Government has been very proactive in revolutionizing the startups in India. This is very positive step towards that.

22. Section 80-IAC: A new section 80-IAC has been inserted to provide 100% exemption to startup company. The exemption is available for 3 consecutive financial years. To be eligible for exemption the startup must be incorporated after 01/04/2016 & total turnover does not exceed Rs 25 crores & it holds eligible certificate from interministerial board of certification that it is a eligible startup company.

23. Section 80-IBA: A new section 80-IBA has been introduced to provide 100% exemption to asessee who is engaged in developing & building affordable housing projects. The said Housing project must be approved by government.

24. Deduction u/s 10AA not available after 01/04/2020. This deduction is available for any units established in Special Economic Zone (SEZ).

25. Deduction u/s 80IA, 80IAB, 80IB has been done away from 01/04/2017. Hence these will not be available. This is very courageous step of government to stop providing exemptions to Petroleum companies like Reliance industries.

26. Changes in TDS: The Budget has made amendment in threshold limits of TDS. The following are the new limits

Section Nature of payment Exitising limit New limits
192A Payment of accumulated balance due to an employee 30,000 50,000
194BB Winnings from Horse Races 5,000 10,000
194C Payment to contractors Annual limit of Rs 75,000 Annual limit to 1,00,000
194LA Payment of compensation on acquisition of immovable property 2,00,000 2,50,000
194D Insurance commission 20,000 15,000
194G Commission on sale of lottery tickets 1,000 15,000
194H Commission or brokerage 5,000 15,000

Changes in Rates of TDS

Section Nature of payment Old rates New rates
194DA Life insurance policy 2% 1%
194EE NSS Deposit 20% 10%
194G Commission on lottery tickets 10% 5%
194H Commision or brokerage 10% 5%
194LBB Units of investment funds 10% or rates in force
194LBC Investment in a securitization fund 25% or 30%

26. TCS: It is proposed to levy TCS @ 1% from the purchaser of Motor Vehicle of the value exceeding Rs 10 lakh. Also TCS @ 1% is levied on purchase of goods & services in cash exceeding Rs 2 Lakhs.

27. Taxation of charitable Institutions: A new tax is levied on conversion of Charitable insitutions claiming exemption u/s 11 or 12. A society carrying on charitable activity may voluntarily wind up its activities & dissolve or may merge with any other charitable or non charitable institution. In such situation there is no clarity of law as to how the assets of such institution are to be dealt with.

Therefore a Exit tax is levied where such a conversion takes place. This is levied on Accreted income which is the amount of aggregate of total assets as reduced by liablility. The rate of tax is the maximum marginal rate. In case of failure to pay the tax a simple interest of 1% per month is levied.

30. Belated Return: Filing of Belated Return has been amended where in an assesse can file belated return up to end of relevant assessment year or before completion of assessment whichever is earlier. Earlier it was with in 1 year from the end of relevant assessment year.

For example a return of Assessment year 2014-15 a belated return would have been filed within 31/03/2016. Now the belated return has to be filed within 31/03/2015.

It is also proposed that the belated return can be revised. This is a very welcome change.

31. Defective return: Earlier if the return was filed without paying Self assessment tax then the return was defective. The Budget has been amended to provide that such return will be a valid return

32. Filing of return u/s 139(1): It is proposed that a person having Long term capital gains on transfer of equity shares & such income exceeds the exemption limit then such person shall be liable to file return u/s 139(1).

Rahul

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