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Budget 2015 and Direct Taxes with details of Sukanya Samriddhi and Gold Monetisation Scheme

No change in the basic exemption limit and the tax rates of individuals.

Slab of Income

Rate of Income tax

Upto Rs. 250,000

[Basic exemption Limit Remains Same]

Nil

Rs. 250,001 to Rs. 500,000@

10%

RS. 500,001 to Rs. 10,00,000

20%

Rs. 10,00,001 & above

30%

Surcharge if total income exceeds Rs One Crore

12%

   

Advance taxes for the FY 2015-16 and TDS u/s 192 from salary shall be made at the following rates:

Presently individuals are liable to pay wealth tax @1% if the net wealth exceeds Rs. 30 lacs. The actual collections from levy of wealth tax have been a meagre Rs. 1008 crores in 2013-14, and have hardly shown significant growth over the past few years.

However, information relating to the assets covered under the erstwhile Wealth tax will have to be mentioned in the Income tax return to ensure that there is no escapement of income from tax.

To decrease the compliance burden for assesse and administrative burden for revenue

It is proposed to abolish Wealth tax. In lieu of Wealth Tax Additional surcharge @2% is being levied on income exceeding Rs. 1crore.

Tax benefits under section 80C for the girl child under the Sukanya Samriddhi Account Scheme

Pursuant to the Budget announcement in July 2014, a special small savings instrument for the welfare of the girl child has been introduced under the Sukanya Samriddhi Account Rules, 2014. The following tax benefits have been envisaged in the

Sukanya Samriddhi Account scheme:-

(i) The investments made in the Scheme will be eligible for deduction under section 80C of the Act.

(ii) The interest accruing on deposits in such account will be exempt from income tax.

(iii) The withdrawal from the said scheme in accordance with the rules of the said scheme will be exempt from tax.

Accordingly, a new clause (11A) is proposed to be inserted in section 10 of the Act so as to provide that any payment from an account opened in accordance with the Sukanya Samriddhi Account Rules, 2014 shall not be included in the total income of the assessee. As a result, the interest accruing on deposits in, and withdrawals from any account under the scheme would be exempt.

The Scheme has been notified under clause (viii) of sub-section (2) of section 80C vide Notification number 9/2015 S.O.210 (E), F.No. 178/3/2015-ITA-I dated 21.012015.

With a view to allow the deduction under section 80C to the parent or legal guardian of the girl child, amendment of section 80C of the Act is proposed to be made so as to provide that a sum paid or deposited during the year in the Scheme in the name of any girl child of the individual or in the name of any girl child for whom such individual is the legal guardian, would be eligible for deduction under section 80C of the Act.

These amendments will take effect retrospectively from 1st April, 2015 and will, accordingly, apply in relation to assessment year 2015-16 and subsequent assessment years. [Clauses 7 & 15]                                                                                  

Finance minister Arun Jaitley has issued clarity on investments in Sukanya Samriddhi Scheme. The central government had launched the scheme on 20 January. It is an account for a girl child and is a small savings scheme. Though it was already announced that deposits in this account are eligible for deduction under section 80C, now it has been clarified that all payments to the beneficiaries, including interest payment on deposit will also be fully exempt. “In the budget, the finance minister has clarified that the interest payment is also tax exempt. This means the earlier doubt of whether you will have to calculate tax on accrual basis has been put to rest.

Sukanya Samriddhi Account is meant for a minor girl child younger than 10 years. You have to open it in the name of your girl child and you need to be her natural or legal guardian. Remember that you can open only one account in her name. You can open accounts only for two girl children. If you have twin girls in a second birth, and already have a girl child, then you can open a third account. Same is applicable if you have triplets and all three are girls.

When the government launched the product, it had given an age relaxation for a child who turned 10 within a year before the announcement. This means that a girl child who is born between 2 February 2003 and 1 December 2004 can open an account up to 1 December 2015. The maximum amount that you can deposit in a financial year should not exceed Rs.1.5 lakh. The initial deposit is Rs.1, 000 and thereafter any amount in multiples of Rs.100. You can make deposits for 14 years from the date of opening of the account. The minimum deposit amount is Rs.1, 000 in one financial year; failure to deposit this will cost you Rs.50 in penalty. Deposits can be made in lump sum as well. There is no limit on number of deposits either in a month or in a financial year.

Deposits can be made by the guardian or any other person or authority. In the unfortunate event of the child dying, the account will be closed immediately and the balance will be paid to the guardian of the account holder. The account is transferable anywhere in India. Partial withdrawal—50% of the total amount as at the end of previous financial year—is allowed when the account holder turns 18, for financial requirements such as education or marriage. The account will mature after completion of 21 years o from inception i.e. from the date of opening of account. Normal Premature closer will be allowed after completion of 18 years of age of child provided that girl is married.  Withdrawal before the child turns 18 is not allowed. If account is not closed after maturity, balance will continue to earn interest as specified for the scheme from time to time.

The government has declared 9.1% interest rate for this financial year. It will be reset every year based on the yields on government securities as in the case of other small savings like PPF, NSC, SCSS etc. and will be compounded yearly. “The interest rate of 9.1% per annum is attractive and is higher than what the Public Provident Fund gives as of now.  You can open this account in a post office or an authorised bank branch. You will have to submit the child’s birth certificate along with other documents such as your identity and residence proof. You can deposit money in cash, by cheque or through demand draft. Till the girl child turns 10, you will be able to open and operate the account. After that, she can operate it herself. On opening an account, a passbook will be given, which has to be presented to the post office or bank at the time of depositing money in the account or receiving payment of interest. At the time of finally closing the account on maturity, the passbook will be needed.

Amendment in section 80D relating to deduction in respect of health insurance premia

The existing provisions contained in section 80D, inter alia, provide for deduction of

a) upto fifteen thousand rupees to an assessee, being an individual in respect of health insurance premia, paid by any mode, other than cash, to effect or to keep in force an insurance on the health of the assessee or his family or any contribution made to the Central Government Health Scheme or any other notified scheme or any payment made on account of preventive health check up of the assessee or his family; and

b) An additional deduction of fifteen thousand rupees is provided to an individual assessee to effect or to keep in force insurance on the health of the parent or parents of the assessee.

A similar deduction is also available to a Hindu undivided family (HUF) in respect of health insurance premia, paid by any mode, other than cash, to effect or to keep in force insurance on the health of any member of the HUF. The section also presently provides for a deduction of twenty thousand rupees in both the cases if the person insured is a senior citizen of sixty years of age or above.

The quantum of deduction allowed under Section 80D to individuals and HUF in respect of premium paid for health insurance had been fixed vide Finance Act, 2008 at Rs.15000/- and Rs.20,000/- (for senior citizens). In view of continuous rise in the cost of medical expenditure, it is proposed to amend section 80D so as to raise the limit of deduction from fifteen thousand rupees to twenty five thousand rupees. It is further proposed to raise the limit of deduction for senior citizens from twenty thousand rupees to thirty thousand rupees.

Further, very senior citizens are often unable to get health insurance coverage and are therefore unable to take tax benefit under section 80D. Accordingly, as a welfare measure towards very senior citizens, it is also proposed to provide that any payment made on account of medical expenditure in respect of a very senior citizen, if no payment has been made to keep in force an insurance on the health of such person, as does not exceed thirty thousand rupees shall be allowed as deduction under section 80D. the aggregate deduction available to any individual in respect of health insurance premia and the medical expenditure incurred would however be limited to thirty thousand rupees. Similarly aggregate deduction for health insurance premia and medical expenditure incurred in respect of parents would be limited to thirty thousand rupees.

Example:

(i) For Individual and his family Rs. Health insurance premia: 21,000

(ii) For parents’ Health insurance of Mother: 18,000

Medical expenditure on father (very senior citizen)- 15,000

Deduction eligible u/s 80D-  Rs. 21000 + Rs. 30000 = Rs. 51,000

It is also proposed to define a ‘very senior citizen’ to mean an individual resident in India who is of the age of eighty years or more at any time during the relevant previous year.

These amendments will take effect from the 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent assessment years. [Clause 18]

Raising the limit of deduction under section 80DDB

Under the existing provisions of section 80DDB of the Act, an assessee, resident in India is allowed a deduction of a sum not exceeding forty thousand rupees, being the amount actually paid, for the medical treatment of certain chronic and protracted diseases such as Cancer, full blown AIDS, Thalassaemia, and Haemophilia etc. This deduction is allowed up to sixty thousand rupees where the expenditure is in respect of a senior citizen i.e. a person who is of the age of sixty years or more at any time during the relevant previous year.

The above deduction is available to an individual for medical expenditure incurred on himself or a dependant relative. It is also available to a Hindu undivided family (HUF) for such expenditure incurred on its members. Dependant in case of an individual means the spouse, children, parents, brother or sister of an individual and in case of an HUF means a member of the HUF ,wholly or mainly dependant on such individual or HUF for his support and maintenance.

Under the existing provisions of this section, a certificate in the prescribed form, from a neurologist, an oncologist, a urologist, a haematologist, an immunologist or such other specialist working in a Government hospital is required. It has been represented that the requirement of a certificate from a doctor working in a Government hospital causes undue hardship to the persons intending to claim the aforesaid deduction .Government hospitals at many places do not have doctors specialising in the above branches of medicine. For this and other reasons, it may be difficult for the taxpayer to obtain a certificate from a Government hospital.

In view of the above, it is proposed to amend section 80DDB so as to provide that the assessee will be required to obtain a prescription from a specialist doctor for the purpose of availing this deduction.

Further, it is also proposed to amend section 80DDB to provide for a higher limit of deduction of upto eighty thousand rupees, for the expenditure incurred in respect of the medical treatment of a “very senior citizen”. A “very senior citizen” is proposed to be defined as an individual resident in India who is of the age of eighty years or more at any time during the relevant previous year.

These amendments will take effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent assessment years. [Clause 20]

Raising the limit of deduction under section 80DD and 80U for persons with disability and severe disability

The existing provisions of section 80DD, inter alia, provide for a deduction to an individual or HUF, who is a resident in India, who has incurred—

(a) Expenditure for the medical treatment (including nursing), training and rehabilitation of a dependant, being a person with disability as defined under the said section; or

(b) paid any amount to LIC or any other insurer in respect of a scheme for the maintenance of a disabled dependant.

The section presently provides for a deduction of fifty thousand rupees if the dependant is suffering from disability and one lakh rupees if the dependant is suffering from severe disability (as defined under the said section).

The existing provisions of section 80U, inter alia, provide for a deduction to an individual, being a resident, who, at any time during the previous year, is certified by the medical authority to be a person with disability (as defined under the said section).

The said section provides for a deduction of fifty thousand rupees if the person is suffering from disability and one lakh rupees if the person is suffering from severe disability (as defined under the said section).

The limits under section 80DD and section 80U in respect of a person with disability were fixed at fifty thousand rupees by Finance Act, 2003. Further, the limit under section 80DD and section 80U in respect of a person with severe disability was last enhanced from seventy five thousand rupees to one lakh rupees by Finance (No.2) Act, 2009.

In view of the rising cost of medical care and special needs of a disabled person, it is proposed to amend section 80DD and section 80U so as to raise the limit of deduction in respect of a person with disability from fifty thousand rupees to seventy five thousand rupees.

It is further proposed to amend the section so as to raise the limit of deduction in respect of a person with severe disability from one lakh rupees to one hundred and twenty five thousand rupees.

These amendments will take effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent assessment years.  [Clauses 19 & 23]                    

Raising the limit of deduction under 80CCC

Under the existing provisions contained in sub-section (1) of the section 80CCC, an assessee, being an individual is allowed a deduction upto one lakh rupees in the computation of his total income, of an amount paid or deposited by him to effect or keep in force a contract for any annuity plan of Life Insurance Corporation of India or any other insurer for receiving pension from a fund set up under a pension scheme.

In order to promote social security, it is proposed to amend sub-section (1) of the said section so as to raise the limit of deduction under section 80CCC from one lakh rupees to one hundred and fifty thousand rupees, within the overall limit provided in section 80CCE.

This amendment will take effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent assessment years.[Clause 16]

Additional deduction under 80CCD

It is proposed to increase the limit of deduction u/s 80CCD of Income tax act on account of contribution by the employee to National Pension Scheme (NPS) from Rs. 1 lac to Rs. 1.5 lacs. It is also proposed to provide a deduction of upto up to Rs. 50000 over and above the limit of Rs. 1.5 lacs in respect of contributions made to NPS. (7.7-Annexure to budget 2015)

Under the existing provisions contained in sub-section (1) of section 80CCD of the Income-tax Act, 1961 if an individual, employed by the Central Government on or after 1st January, 2004, or being an individual employed by any other employer, or any other assessee being an individual has paid or deposited any amount in a previous year in his account under a notified pension scheme, a deduction of such amount not exceeding ten per cent. of his salary in the case of an employee and ten percent of the gross total income in case of any other individual is allowed. Similarly, the contribution made by the Central Government or any other employer to the said account of the individual under the pension scheme is also allowed as deduction under sub-section (2) of section 80CCD, to the extent it does not exceed ten per cent. of the salary of the individual in the previous year. Sub-section (1A) of section 80CCD provides that the amount of deduction under sub-section (1) shall not exceed one hundred thousand rupees. Till date, under section 80CCD, only the National Pension System (NPS) has been notified by the Ministry of Finance.

With a view to encourage people to contribute towards NPS, it is proposed to omit sub-section (1A). In addition to the enhancement of the limit under section 80CCD(1), it is further proposed to insert a new sub-section (1B) so as to provide for an additional deduction in respect of any amount paid, of upto fifty thousand rupees for contributions made by any individual assessees under the NPS.

Consequential amendments are also proposed in sub-section (3) and sub-section (4) of section 80CCD.

These amendments will take effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent assessment years. [Clause 7]

                      

Removing the anomaly that crept in the previous budget when the finance minister Arun Jaitley increased the deduction limit under section 80C of the income tax Act from Rs.1 lakh to Rs.1.5 lakh but retained the deduction limit of Rs.1 lakh on pension products under sections 80CCC and 80CCD, the budget announcement this year has increased the deduction on pension funds to Rs.1.5 lakh.

“This is more of a rationalization and correction because all other products, including pension plans of mutual fund companies, enjoyed the hike in deduction limit to Rs.1.5 lakh, whereas the deduction limits on these products were retained at Rs.1 lakh.

But this was subject to the overall cap under section 80CCE of Rs.1.50 lakh. So, while as individual products (for NPS and pension plans of life insurers) the tax deduction limit was Rs.1 lakh each, collectively these qualified for tax deduction of up to Rs.1.5 lakh.

The good news doesn’t stop here. For those looking to invest in NPS, they can now enjoy deduction up to Rs.2 lakh. In order to encourage investments into the NPS, the budget has allowed an additional deduction of Rs.50, 000.

This means while you can exhaust your deduction limit of Rs.1.5 lakh by investing in any of the 80C instruments, you can get an additional deduction of Rs.50, 000 through NPS. “So you could both exhaust Rs.1.5 lakh in other 80C instruments and put Rs.50, 000 in the NPS to get a total deduction of Rs.2 lakh or put the entire Rs.2 lakh in the NPS. As per section 80CCD, 10% of your basic salary plus dearness allowance that is contributed to NPS, is eligible for a tax deduction up to Rs.2 lakh. This would be a saving of Rs.61, 800 for someone in the 30.9% tax bracket.

The tax treatment of NPS is still EET (exempt, exempt, tax). This means that while your investment is exempt at the time of contribution and at the time of accumulation, it would be taxable at the time of withdrawal.

Compare it with products such as EPF and PPF, which enjoy the EEE (exempt, exempt, exempt) tax status. The commutable income from pension plans of insurance companies is also tax free on maturity and pension plans by mutual funds are taxed for capital gains.

The budget, however, has not changed the tax treatment of the NPS which has been a long standing demand of the industry.

100% Deduction allowed for donations made by DOMESTIC DONORS to Clean Ganga Fund.

100% Deduction allowed for donations made by any Donor to Swacch Bharat Kosh.

The definition of Time Deposit has been amended to include Recurring Deposit within its purview.

TDS is to be deducted if Interest payment on Time Deposit exceeds Rs 10,000.

Under the existing provisions, in case of payments by Recognised Provident Fund (RPF) to employees on account of pre-mature withdrawal (i.e. 5 years or transfer to new employer), tax is to be deducted by computing year-wise amount of taxable income.

In order to remove difficulties faced in calculation of tax, it has been proposed to fix the rate of withholding tax @10% in case of pre-mature withdrawal, if the amount exceeds Rs. 30000.In the absence of PAN, tax is to be deducted at Marginal rate. The amendment is proposed to be effective from 01 June 2015.

Transport Allowance exemption limit has been doubled from Rs. 800 pm to 1600 pm.

It is proposed to make PAN mandatory for transactions involving an amount exceeding Rs. 1 lac.

Enabling of filing of Form 15G/15H for payment made under life insurance policy

The Finance (No.2) Act, 2014, inserted section 194DA in the Act with effect from 1.10.2014 to provide for deduction of tax at source at the rate of 2% from payments made under life insurance policy, which are chargeable to tax. It has been further provided that no deduction shall be made if the aggregate amount of payment during a financial year is less than Rs. 1, 00,000. In spite of providing high threshold for deduction of tax under this section, there may be cases where the tax payable on recipient’s total income, including the payment made under life insurance, will be nil. The existing provisions of section 197A of the Act inter alia provide that tax shall not be deducted, if the recipient of the certain payment on which tax is deductible furnishes to the payer a self-declaration in prescribed Form No.15G/15H declaring that the tax on his estimated total income of the relevant previous year would be nil. It is, therefore, proposed to amend the provisions of section 197A for making the recipients of payments referred to in section 194DA also eligible for filing self-declaration in Form No.15G/15H for non-deduction of tax at source in accordance with the provisions of section 197A. This amendment will take effect from 1st June, 2015. [Clause 49]                                                                                                                                                                                                        

Cost of financial products, too, will go up marginally due to the increase in effective service tax rate from 12.36% to 14%. The Finance Bill states: “In the new service tax rate the education cess and secondary and higher education cess will be subsumed in the revised rate of service tax. Hence, the effective increase in service tax rate will be from existing rate of 12.36% (inclusive of cesses) to 14%.”

Life insurance service provided by way of Varishtha Pension Yojna to be exempted from payment of service tax.

Gold Monetisation Scheme

“In the long term gold could be monetized as a financial asset," This becomes more logical in view of the decline in the ratio of financial assets to physical assets in the portfolios of Indian Households. The World Gold Council has approached the Reserve Bank of India (RBI) to work with it so that bullion could be used as a financial asset, rather than just a physical asset.

The finance minister announced two proposals in the budget to address India’s heavy gold imports and the resultant detrimental impact on our government’s finances.

The first proposal is to allow for a gold monetisation scheme where in gold deposits will be sought from charitable trusts, temples and other such institutions or individuals who have large holdings of physical gold. These will be lent forward to jewellers and other users of gold who can get access to the metal without having to buy more. The proposed gold monetisation scheme will replace both the present gold deposit and gold metal loan schemes. It will allow depositors to earn interest and jewellers to obtain loans in their metal account. The extant gold deposit scheme offered by banks has been a failure as the minimum quantity for deposits by an individual or temple trusts is as high as 500 grams, which effectively leaves out more than 95% Indians.

Secondly, the finance minister spoke of issuing sovereign gold bonds which will be an alternative to purchasing physical gold. He also proposed to “develop an alternate financial asset, a sovereign gold bond, as an alternative to purchasing metal gold”. The bonds would carry a fixed rate of interest and can be redeemed by the holder in cash in terms of the face value of gold at the time of redemption. Although there is no clarity regarding the platform on which this bond would be floated, the move would create more opportunities to hedge in gold.

The bonds will represent a given quantity of gold per unit of bond and at the time of redemption of such bonds with a likely tenure of 3, 5 or 7 years, the interest earned on such bond and an amount representing physical gold in given quantity will be paid back to the depositors. “Both schemes will free-up imports which is a great thing for us. Import of precious metals like gold, silver and precious stones such as diamond taken together is more than foreign direct investment funds that came into India; hence whatever came in through equity has been spent on precious metals, While the rate of interest and cost of gold loans under the proposed scheme is yet to be known but there will be additional cost, as gold to be monetised will have to be melted first and converted into bars to give as metal loan to jewellers. Currently, imported gold is given as loan and no such cost is incurred.

Finance Minister also suggested refiners to work on developing an Indian cold coin carrying the Ashok Chakra. This will help reduce the demand for coins minted outside India and also help recycle gold available in the country. The scheme, once implemented, will boost domestic gold-refining business, as monetised or deposited gold will be refined and converted into standard bars. Welcoming the move, India’s first and only LBMA-accredited refinery for gold and silver, MMTC-PAMP will be keen to partner with the government to develop the Gold coin.


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Category Income Tax, Other Articles by - Rajesh Kumar Gupta 



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