Six Things you should know about the Finance Act 2017

The Finance Act 2017 is going to impact up to 40 different laws (including various tax laws) governing the whole country, the finance Act is unprecedented in its scope. Finance Act 2017 demonstrated the phrase “expect the unexpected” from the perspective of personal tax. There was considerable guesswork up until the budget day with respect to reduction in the slab rates and several other sops. However, the Finance Minister came up with a modest, yet an impactful set of schemes for pleasing the common man.

Here are 6 key takeaways from the Finance Act 2017 that you must know:

1. Change in Rate of Slab Rates

In the case of Hindu Undivided Family (HUF) and Individuals, the rate of tax for the first slab (Rs. 2,50,000 to Rs. 5,00,000) has been reduced to 5% (until F.Y. 2016-17, the tax rate was 10% for this slab).

A surcharge at the rate of 10 percent of the tax payable on classes of individuals having income between Rs. 50 lakh to Rs. 1 crore would be levied. The current surcharge of 15 percent of tax on individuals who earn more than Rs. 1 crore would continue.

2. Reduction in Benefit U/s 87A

Currently, Individuals having income below Rs. 5,00,000 are entitled to claim a rebate of Rupees 5,000. However, after the amendment in section 87A, the rebate has been reduced to Rupees 2,500. Also, the rebate under section 87A will be available only if the Total income of the assessee does not exceed Rs. 3,50,000.

3. TDS on Rent paid by Individual

Finance Act 2017 has brought specific amendments for the application of TDS (Tax Deducted at Source) on rent paid by an individual. As of now, TDS was to be deducted only by the specified categories of professionals and businesses. A new section 194-IB has been inserted in the Income Tax Act which requires that an HUF or an individual (except those covered U/s 44AB of the Income Tax Act), shall deduct 5 percent of rent payable or paid, if any sum is paid as rent to a resident exceeding Rs. 50,000 per month or any part of month during the previous year.

4. Change in Capital Gains

Before the amendment, in case of a capital asset acquired before 01.04.1981, the fair market value (FMV) as on 1st April 1981 could be considered as the cost of acquisition for the owner of such asset. However, after the amendment brought in by Finance Act 2017, the cut-off date has been advanced to 1st April 2001 instead of 1st April,1981. If you own a house property since 1980 and you sell it on or before 31st of March, 2017 you have the opportunity to take the FMV as on 1st of April, 1981 whereas if you sell it after 31st of March, 2017 you can take FMV as on 1st April 2001.

Change in Capital asset holding Period: Until now, the gain on sale of any building or land or both was considered as long term, if the capital asset was sold after 36 months from the date of acquisition. However, the Finance Act 2017 has reduced the period of holding to 24 months for the purposes of LTCG (long-term capital gains).

5. Ceiling on Cash Transaction

Section 269 ST has been inserted to restrict cash transactions. As per the amendment, no person can receive an amount of Rupees 2 lakhs or more

(a) In regard to a single transaction; or

 (b) In aggregate from a person in a single day;

(c) In regard to transactions concerning to one occasion or event from a person,

Otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account.

Such restrictions would not be applicable to the government, banking companies, co-operative bank or post office savings bank. The Finance Act has provided for levy of penalty on person who receives an amount of Rs 2 lakh or more. The amount of penalty would be equivalent to the value of such transaction(s).

Kindly note that The Ministry of Finance has issued a Notification dated 5th April, 2017 clarifying that the restriction on cash transaction under section 269ST of the Income-tax Act, 1961 shall not apply to withdrawal of cash from a bank, cooperative bank or a post office savings bank.

6. Digital Payments in Presumptive Taxation

Amendment in Presumptive Taxation scheme:  Section 44AD of the Income Tax Act allows an assessee to presume income at the rate of 8% of total turnover or gross total receipts (if the assessee is engaged in eligible business as per the provisions of the section 44AD). In order to encourage small businessmen towards digital payments, an amendment has been made in the Finance Act 2017 which allows such businesses to be taxed at 6% of the gross total turnover or gross receipts if the amount is received via digital mode. The amount can be received digitally up to due date for filing return of Income under Sec 139(1) of the Income-tax Act.