Budget 2016: Analysis of Direct Tax Proposals

CA Vidhan Surana & CA Sunil Maloo

1. Corporate Tax rate proposals:

• New manufacturing companies incorporated on or after 1.3.2016 to be given an option to be taxed at 25% + surcharge and cess provided they do not claim profit linked or investment linked deductions and do not avail of investment allowance and accelerated depreciation.
• Lower the corporate tax rate for the next financial year for relatively small enterprises i.e companies with turnover not exceeding ` 5 crore (in the financial year ending March 2015), to 29% plus surcharge and cess.

2. Tax proposals of other concerns:

• Surcharge to be raised from 12% to 15% on persons, other than companies, firms and cooperative societies having income above ` 1 crore.

3. Taxation on dividend income

• Applicability: Individual, HUF & Firm (resident)
• Dividend income >` 10 lacs only
• Taxability – only on the incremental amount in excess of ` 10,00,000/-
• Example – total dividend ` 15,00,000 – then taxable only ` 5,00,000/-
• Rate of tax: 10 % on dividend income exceeding ` 10 lacs only

4. Amendment in rule 8D for section 14A

• Disallowance will be limited to 1% of the average monthly value of investments yielding exempt income, but not exceeding the actual expenditure claimed under rule 8D of Section 14A of Income Tax Act.

5. Stay of demand

• Mandatory for the assessing officer to grant stay of demand once the assesse pays 15% of the disputed demand, while the appeal is pending before Commissioner of Income-tax (Appeals).

6. Widened base of TCS

• Sale of motor vehicle >` 10 lacs – TCS @ 1%
• Sale in cash of goods (other than gold / bullion) >` 2lacs – TCS @ 1%

i. No TCS if TDS is deducted by payer on purchase of goods

• W.e.f. from 01/06/2016

7. Buy back of shares

• Scope of buyback increased

1. apply to any buy back of unlisted shares of company in accordance with the ‘Provisions of the law relating to the Companies’ instead of ‘section 77A of the Companies Act, 1956’

• Rules to determine amount to be prescribed later
• w.e.f. 01/06/2016

8. Cessation or conversion of charitable trust to non-charitable trust – ‘Exit tax’

• New chapter XII-EB inserted
• Tax @ MMR on accreted income
• Accreted income = total assets – total liabilities (as on specified date)
• To be paid within 14 days from prescribed date
• Non-payment: simple interest @ 1% per month or part thereof
• w.e.f. 01/06/2016

9. Phasing out of deductions and exemptions

• Applicable from AY 17-18 – Table 1

Sr. No.	Section	Existing	Proposed
1	10AA (SEZ)	No sunset clause	Sunset w.e.f. 01/04/2020
2	35AC		No deduction from PY 2017-18
3	35CCD	Weighted deduction 150%	Deduction @ 100% from PY 2020-21
4	80IA, 80IAB, 80IB(9)	100 % profit linked deduction	No deduction on activity commenced from PY 2017-18

• Applicable from AY 18-19 – Table 2

Sr. No.	Section	Existing	Proposed
1	32 r.w. Rule 5	Accelerated depreciation on specified assets	Highest rate of depreciation restricted to 40% Applicable to all assets (w.e.f. PY 2017-18)
2	35(1)(i)	Weighted deduction @ 175%	150% (PY 2017-18 to 2019-20) 100 % (PY 2020-21 onwards)
3	35(1)(iia)	Weighted deduction @ 125%	100% (PY 2017-18 onwards)
4	35(1)(iii)	Weighted deduction @ 125%	100% (PY 2017-18 onwards)
5	35(2AA)	Weighted deduction @ 200%	150% (PY 2017-18 to 2019-20) 100 % (PY 2020-21 onwards)
6	35(2AB)	Weighted deduction @ 200%	150% (PY 2017-18 to 2019-20) 100 % (PY 2020-21 onwards)
7	35AD	Weighted deduction @ 150% (specified business)	100% (PY 2017-18 onwards)
8	35CCC	Weighted deduction @ 150% (notified agriculture extension provision)	100% (PY 2017-18 onwards)

* AY – Assessment year | PY – Previous year

Download Full Analysis in PDF Format