India: Key Highlights Of The Union Budget For The Year 2016-17

A DIRECT TAXATION:

1 INDIVIDUALS / NON CORPORATE TAXATION

1.1 Tax Slab For The Financial Year 2016- 17

There is no change in the Tax slab for the financial year 2016-17 for individuals (including senior and super senior citizens), Hindu Undivided Family (HUF), co-operative societies, firms and Local Authorities.

1.2 Increase in Surcharge on income over Rs. 1 Crore

Surcharge on income above Rs. 1 Crore increased from existing 12% to 15% on persons, other than companies, firms and cooperative societies.

1.3 Additional Rebate under Section 87A

1.3.1 Additional rebate for Rs. 3,000 has been proposed under section 87A1 of the Income Tax Act, 1961 (hereinafter referred to as the "Act") for the individuals having income upto Rs. 5 lakhs.

1.3.2 This is in addition to existing rebate of Rs. 2,000. Thus, any assessee having income less than Rs. 5 Lakh may now claim a total rebate of Rs. 5,000 under section 87A.

1.4 Increase in the limit of deduction of rent paid under section 80GG

The limit of deduction of rent paid for assessee who lives in rented houses has been increased from existing Rs. 24,000 to Rs. 60,000 per annum under section 80GG2 of the Act.

1.5 Deduction of additional interest on housing loan

1.5.1 An additional deduction of Rs. 50,000 per annum has been proposed on account of interest paid on housing loans sanctioned in the year 2016-17 for the first time buyers.

1.5.2 This is applicable for the loans amounting upto Rs. 35 Lakhs and the value of such house for which loan taken should not be more than Rs. 50 Lakhs.

1.6 Increase of Turnover Limit Under Presumptive Taxation Scheme (PTS)

1.6.1 The limit of turnover under the Presumptive Taxation Scheme (PTS) under section 44AD3 of the Act has been increased from existing Rs. 1 Crore to Rs. 2 Crore.

1.6.2 For the first time, the PTS has been extended to include Professionals having gross receipts upto Rs. 50 Lakhs. However, the deemed amount of profit for such professionals under PTS would be 50% of the gross receipts.

1.7 Changes in the rate of Tax Deduction at Source (TDS)

1.7.1 TDS at rate of 1% has been proposed on purchase of luxury cars costing more that Rs. 10 Lakhs.

1.7.2 TDS at the rate of 1% on purchase of goods and services by cash exceeding Rs. 2 Lakhs has been proposed. 1.7.3 Higher rate of TDS would not apply to non residents not having Permanent Account Number (PAN) in India.

However, some alternate documents to PAN card are required to be provided by such non residents to avoid higher TDS.

1.8 Additional Tax on Dividend

Additional tax at the rate of 10% has been proposed on the persons receiving dividend exceeding Rs. 10 Lakhs per annum.

1.9 Increase in Securities Transactions Tax (STT) rate

Rate of STT on options transactions proposed to be increased from existing 0.017% to 0.5%.

1.10 Exemption of Tax under Sovereign Gold Bond Scheme, 2015

Exemption from capital gain is proposed on any redemption of Sovereign Gold Bond under the Sovereign Gold Bond Scheme, 2015. Further, indexation benefits to long term capital gains arising on transfer of Sovereign Gold Bond is also proposed to be provided.

1.11 Exemption of Tax for Rupee Denominated Bond

Exemption is proposed to be provided to non-resident investors on capital gains arising in case of appreciation of rupee between the date of issue and the date of redemption of Rupee Denominated Bonds against the foreign currency in which the investment is made.

1.12 Change in Schedule of Advance Tax Payment

1.12.1 It is proposed to change the schedule of advance tax payment for the taxpayers other than companies to bring the same in line with that of companies. Accordingly, the new schedule of advance tax payment for individuals, firms, AOP's, BOI's, trusts etc. shall be as under:

1.13 Disclosure of unaccounted money

1.13.1 Income Disclosure Scheme has been introduced for disclosure of unaccounted money by any assessee with an option to pay tax at the rate of 30% plus surcharge at the rate of 7.5% and penalty totaling to 45%.

1.13.2 Under the said scheme amount of tax shall be payable within 2 months from the date of declarations.

1.13.3 The assessee shall have immunity from any prosecution under the said scheme.

2 CORPORATE TAXATION:

2.1 Benefits to New Manufacturing Companies

An option to be taxed at 25% plus surcharge and cess to be given to new manufacturing companies incorporated on or after 01.03.2016 provided such companies do not claim profit linked or investment linked deductions and do not avail of investment allowance and accelerated depreciation.

2.2 Lower Corporate Tax Rate for Small Companies

It has been proposed to lower the corporate tax rate to 29% plus surcharge and cess for relatively small companies having turnover not exceeding Rs. 5 Crores in the financial year ending March 2015. This lower rate would be applicable from the next financial year.

2.3 Deduction to Startups

100% deduction of profits for 3 out of 5 years to be provided to startups who have started their setups during the period April 2016 to March 2019. However, the provisions of Minimum Alternate Tax (MAT) would be applicable to such startups.

2.4 Deductions and Exemptions to undertakings in housing projects

2.4.1 To promote affordable housing it is proposed to provide 100% deductions for profits to undertakings in housing project for flats upto 30 square meters in four metro cities and upto 60 square meters in other cities subject to condition that such housing projects must be approved during the period June 2016 to March 2019 and completed in three years. 2.4.2 The provisions of Minimum Alternate Tax (MAT) would be applicable to such startups. 2.4.3 It is also proposed to provide exemption from service tax on construction of affordable houses upto 60 square meters under any scheme of Central / State Government including PPP Scheme.

2.5 No Dividend Distribution Tax for Real Estate Investment Trusts (REIT) and Infrastructure Investment Trusts (InvIT)

Any amount of dividend distributed by Special Purpose Vehicles (SPVs) to the REITs and InvITs would not be subject to Dividend Distribution Tax (DDT) subject to condition that:

  1. Such SPVs must be 100% owned by REIT and InvIT; and
  2. Such amount of dividend should be paid out of current income and not from accumulated income.

2.6 Deferment of Place of Effective Management ('POEM')

The criteria to determine residential status of a foreign company in India as per Place of Effective Management ('POEM') rule has been proposed to be deferred by one year and accordingly, it is proposed to be implemented in 2017-18.

2.7 To Phase out some deductions and exemptions under the Income Tax:

It is proposed to phase out some deduction and/or exemptions under the Income Tax as under:

  1. Accelerated depreciation as per Section 32 of the Act, restricted to maximum 40% from 01.04.2017.
  2. Weighted deduction on research and development activities as per Section 35 restricted to 150% from 01.04.2017 and 100% from 01.04.2020.
  3. Weighted deduction for specified businesses as per Section 35AD of the Act restricted to 100% only from 2017-18.
  4. Weighted deduction for skill development under section 35CCD of the Act will continue upto 01.04.2020.
  5. Benefits of deductions as per section 10AA of the Act will be available to newly set up special economic zone units commencing activity before 31.03.2020.

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Footnotes

1 Section 87A - Rebate of income-tax in case of certain individuals

2 Deductions in respect of rents paid

3 Special provision for computing profits and gains of business on presumptive basis

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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