Union Budget 2017: Quick Analysis of Proposed Amendments in Tax Laws: (Part-A)

Amendment in Sec. 115BBDA: Taxation of Income by way of Dividend:

  • Under the existing provisions, income by way of dividend in excess of Rs. 10 lakhs is chargeable to tax at the rate of 10% on gross basis in case of a resident individual, HUF or firm.
  • With a view to ensure horizontal equity among all categories of tax payers, It is proposed to amend section 115BBDA so as to provide that the provisions of said section shall be applicable to all resident assessees except domestic company and certain funds, trusts, institutions, etc.
  • This amendment will be effective from F.Y. 2017-18.

Insertion of Sec.194-IB: TDS on Rental Income:

  • Under the existing provisions, TDS is required to be deducted by such Individual or HUF who is liable for tax audit u/sec 44AB for preceding F.Y.
  • Therefore non audited Individuals or HUF are out of scope of Sec.194-I.
  • In order to widen the scope, a new section 194-IB is proposed to be inserted, details of which are as follows:
    • An Individuals or a HUF (other than those covered under 44AB of the Act), responsible for paying to a resident any income by way of rent exceeding Rs.50000 for a month or part of month during the previous year, shall deduct an amount equal to 5% of such income as income-tax thereon.
    • In order to reduce the compliance burden, it is further proposed that the deductor shall not be required to obtain tax deduction account number (TAN) as per section 203A of the Act.
    • It is also proposed that the deductor shall be liable to deduct tax only once in a previous year. Tax shall be deducted on such income at the time of credit of rent for the last month of the previous year or the last month of tenancy (if the property is vacated during the year), to the account of the payee or at the time of payment thereof, whichever is earlier.
    • In case of non availability of PAN of deductee, tax is required to be deducted under existing Sec.206AA, in such case such deduction shall not exceed the amount of rent payable for the last month of the previous year or the last month of the tenancy, as the case may be.
  • This amendment will take effect from 1st June, 2017.

Special Provision for computation of capital gains in case of joint development agreement:

Existing Provision:

  • Under the existing provisions of section 45, capital gain is chargeable to tax in the year in which transfer takes place except in certain cases.
  • The definition of ‘transfer’, inter alia, includes any arrangement or transaction where any rights are handed over in execution of part performance of contract, even though the legal title has not been transferred.
  • In such a scenario, execution of Joint Development Agreement between the owner of immovable property and the developer triggers the capital gains tax liabilityin the hands of the owner in the year in which the possession of immovable property is handed over to the developer for development of a project.

New Provision:

  • With a view to minimise the genuine hardship which the owner of land may face in paying capital gains tax in the year of transfer, it is proposed to insert a new sub-section (5A) in section 45.
  • In case of an assessee being individual or Hindu undivided family, who enters into a specified agreement for development of a project, the capital gains shall be chargeable to income-tax as income of the previous year in which the certificate of completion for the whole or part of the project is issued by the competent authority.
  • The Sale consideration in such case will be the stamp duty value of owner’s share in the project on the date of issuing of said certificate of completion as increased by any monetary consideration received  by the owner.
  • However benefit of this proposed regime shall not apply to an assessee who transfers his share in the project to any other person on or before the date of issue of said certificate of completion. In such a situation, capital gain shall be computed as per provisions of the Act without taking into account this proposed provisions and deemed to be the income of such year of transfer.
  • The cost of acquisition of the share in the project in the hands of the land owner shall be the amount which is deemed as full value of consideration under the said proposed provision. (Amendment in Sec.49 proposed)
  • Further in case any monetary consideration is payable under that joint development agreement, tax at the rate of 10% shall be deductible from such payment. (Proposed Insertion of Sec.194-IC)
  • This amendment will be effective from F.Y. 2017-18.

Shifting of Base Year from 1981 to 2001 for computation of capital gains:

Existing Provision:

  • Under the existing provisions of section 55, for computation of capital gains, an assessee shall be allowed deduction for cost of acquisition of the asset and also cost of improvement, if any.
  • However, for computing capital gains in respect of an asset acquired before 01.04.1981, the assessee has been allowed an option of either to take the fair market value of the asset as on 01.04.1981 or the actual cost of the asset as cost of acquisition.
  • The assessee is also allowed to claim deduction for cost of improvement incurred after 01.04.1981, if any.

New Provision:

  • With a view to minimise the genuine hardship in determining FMV as on 01.04.1981, cost of acquisition of an asset acquired before 01.04.2001 shall be allowed to be taken as fair market value as on 1st April, 2001.
  • cost of improvement shall include only those capital expenses which are incurred after 01.04.2001.
  • This amendment will be effective from F.Y. 2017-18.

Amendment in Sec.2(42A): Period of Holding for qualifying as Long Term Capital Asset in case of Immovable Property:

  • Period of holding has been reduced from the existing 36 months to 24 months in case of immovable property, being land or building or both, to qualify as long term capital asset.
  • This amendment will be effective from F.Y. 2017-18.

(Disclaimer: This write up is based on the understanding and interpretation of author and the same is not intended to be a professional advice.)

[The author is a Chartered Accountant and can also be reached at canitingoyal1994@gmail.com]

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