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incentives which are proposed to be withdrawn in phased manner: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.
(c) E-sahyog project to be expanded: Income-tax Department (ITD)
will fully expand the pilot initiative of ‘e-Sahyog’ with a view to reduce
compliance cost, especially for small tax payers. The e-Sahyog’ pilot project
is to provide an online mechanism to resolve mismatches in income-tax returns
without requiring taxpayers to attend the Income-tax office.
