Budget 2016 takeaways for individual taxpayers
Here is a quick list of major announcements made that will affect our pocket.
1. INCREASE IN TAX REBATE: Those earning below Rs 5lakhs to save an additional Rs 3,000 in taxes. Tax rebate under Section 87A has been raised from Rs 2,000 to Rs 5,000. Effectively, this means now the basic exemption is of Rs 3 lakh.
2. HOME LOANS: First home buyers to get additional deduction of Rs 50,000. However, this benefit is only for loans up to Rs 35 lakhs where the cost of house is less than Rs 50 lakh.
3. PENSION SCHEMES: Withdrawal from NPS corpus of up to 40% at the time of retirement has been made tax exempt. Similarly, in case of superannuation funds and recognized provident funds, including EPF, the same norm of 40% of corpus to be tax free will apply in respect of corpus created out of contributions made after 1 April 2016, that means 60% of withdrawal from EPF built via employee contributions after 1st April 2016 made taxable. Till now withdrawal of EPF corpus after 5 years of continuous service was fully tax exempt. The new provisions indicates that if the EPF is not used for buying an annuity then 60% of that portion of the corpus which is built from the employee contributions made w.e.f 1.4.2016 would be taxable.
Further, the annuity fund which goes to the legal heir after the death of pensioner will not be taxable in all three cases. The FM has reduced the service tax on Single premium Annuity (Insurance) Policies from 3.5% to 1.4% of the premium paid.
4. SMALL BUSINESS, FREELANCERS AND PROFESSIONALS: The limit of turnover under the presumptive taxation scheme revised from Rs 1 crore to Rs 2 crore for medium or small enterprises. So, anyone with a business of Rs 2 crore can presume that an income of 8% and would not require to maintain books, profit & loss statements or audits. As per Section 44AD of the Income-Tax Act, under the presumptive method, the tax liability is calculated on the basis of a ‘presumed business income’, irrespective of what your actual income may be.
Moreover, Section 44AD now extended to Professionals as well. This frees them from burden of books of accounts and getting audit done. Professionals with gross receipts up to Rs 50 lakh can now avail this benefit by paying tax at 50% of gross receipts.
This is a significant development for small enterprises and professionals such as lawyers and doctors, interior designers etc. “Instead of filing the cumbersome ITR-4, they can file a much simpler 3-pages long ITR 4S.
5. NRIs: As recommended by The Easwar committee, now NRIs who do not have PAN cards would not be subjected to a higher TDS of 20% if they submit Tax Identification Number.
6. TAX DECLARATION WINDOW: A limited period Compliance Window for domestic taxpayers will be created between 1 June to30th September to declare undisclosed income or income. To clear up their past tax transgressions taxpayers will have to pay tax at 30%, and surcharge at 7.5% and penalty at 7.5%, which is a total of 45% of the undisclosed income. They will have to pay up the taxes within two months of declaration. There will be no scrutiny or enquiry regarding income declared in these declarations under the Income Tax Act or the Wealth Tax Act and the declarants will have immunity from prosecution. Immunity from Benami Transaction (Prohibition) Act, 1988 will also be provided. The surcharge levied at 7.5% of undisclosed income will be called Krishi Kalyan surcharge to be used for agriculture and rural economy.
7. CATEGORISED PENALTIES: The penalties will be steeper for tax evaders. FM plans to modify the entire scheme of penalty by providing different categories of misdemeanor 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 under reporting of income and 200% of tax where there is misreporting of facts. Currently, the Income-tax Officer has discretion to levy penalty at the rate of 100% to 300% of tax sought to be evaded.
8. CAR, CLOTHS AND CIGARETTES TO COST MORE: The FM has proposed a tax at source at the rate of 1% on purchase of luxury cars exceeding value of Rs. 10 lakh and purchase of goods and services in cash exceeding Rs. 2 lakh. An infrastructure cess of 1% on small petrol, LPG, CNG cars, 2.5% on diesel cars of certain capacity and 4% on other higher engine capacity vehicles and SUVs will also be levied.
The excise duty on branded readymade garments and other items made of textiles with a retail sale price of Rs 1,000 and cigarettes along with other tobacco products (other than beedi) has also been increased.
Here’s the list of what’s cheaper & what’s dearer
ü Paper rolled beedis and gutaka
ü All services like bill payments, eating out, air travel
ü Ready made garments and branded apparel of more than Rs 1,000
ü Gold and Silver; jewelery articles excluding silver
ü Water including mineral water, aerated water containing added sugar or sweetening matter
ü Goods and services above Rs 2 lakh in cash
ü Aluminum foil
ü Air Travel
ü Plastic bags and sacks
ü Ropeway, cable car rides
ü Imported imitation jewellery
ü Industrial solar water heater
ü Legal services
ü Lottery tickets
ü Traveling by hiring stage carriage
ü Hiring of packers & movers
ü E-reading devices
ü Instruments for VoIP (Voice over Internet Protocol)
ü Imported Golf Cars
ü Gold bars
ü Solar lamp
ü Router, broadband modems and set top boxes, Digital video recorder and CCTV cameras
ü Hybrid electric vehicles
ü Sterilised dialyser
ü Low cost houses with less than 60 sq mt carpet area
ü Hiring of folk artists for performance
ü Refrigerated containers
ü Pension plans
ü Microwave ovens
ü Sanitary pads
Union Budget 2016-17 highlights
1. Corporate tax reduced to 29% for small business having turnover less than 5 crores
2. Reduction in corporate tax – New manufacturing companies after March 1, 2016 have to pay tax at 25%
3. Presumptive taxation scheme introduced for all professionals with receipts up to Rs. 50 lakhs.
4. FM increases the turnover limit of presumptive taxation Scheme to 2 crores
5. Deduction under Section 80GG for individuals paying rent but not receiving HRA proposed to be increased from Rs. 24,000 to Rs. 60,000.
6. Relief under Section 87A proposed to be increased from Rs. 2,000 to Rs. 5,000
7. Registration of Companies should be given in one day – Companies Act proposed to be amended
8. RBI Act to be amended for providing framework for Monetary Policy Code: FM
9. SEBI Act proposed to be amended to provide more numbers of Securities Appellate Tribunal
10. Amendments in SAFRAESI Act to tackle problem of stressed assets in ARCs
11. FM proposes various amendments to SARFAESI Act
12. Deduction under Section 80JJAA proposed to be extended to all assessee who are subject to tax audit
13. A comprehensive code to provide bankruptcy resolution mechanism will be presented: FM proposes
14. Rs. 1,700 crores allocated for Skill India Mission under Pradhan Mantri Kaushal Vikas Yojna
15. 100% FDI to be allowed in marketing of food products manufactured and produced in India
16. Stand up India scheme to promote SC & ST entrepreneur: FM
17. National SC/ST hub will be created to provide professional support to SC/ST entrepreneurs
18. Certain Dialysis equipment are proposed to be exempted from Basic Custom Duty, Excise Duty and CVD
19. Govt. will launch new health protection scheme to provide health cover of Rs. 1 Lakh
20. Health Insurance of Rs. 1,00,000 with top up of Rs. 30,000 proposed for senior citizen
21. Rs. 38000 crore proposed to be spent on MANREGA in FY 16-17
22. Provision of Rs. 15,000 crores is proposed to reduce burden of farmers loan: FM
23. We need tax reforms to reduce tax compliances: FM
24. Govt. to focus on passing of GST and Bankruptcy laws: FM Arun Jaitley
25. FM: Nominal premium and highest ever compensation in case of crop loss under PM ‘Fasal Bima Yojana’
26. Farm, rural sector, infra, social sector to have more Government expenditure, says FM
27. Govt. will start initiative to provide free gas connection to BPL families: FM
28. FM Arun Jaitley: We have bridged the trust deficit created by the previous government
29. Forex reserves at highest level and fiscal deficit has declined: Arun Jaitley
30. Growth of GDP accelerated, CPI inflation come down: FM
About Author : Pradeep Bajoria is a Chartered Accountant and Masters of Business Administration, he is also IFRS certified and holds diploma in commodities market. He can be reached at Pradeep.firstname.lastname@example.org