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Budget 2016 - An Analysis for Layman as well as Tax Practitioners

CA Tejas Andharia 
on 12 March 2016

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1. Income Tax rates are not changed (except in case of certain types of companies) but surcharge in case of individual, H.U.F., A.O.P., B.O.I. and artificial juridical persons is increased from 12% of income tax to 15% of income tax. [Not to worry situation for most of the tax payers as surcharge is applicable to so called super rich persons only. i.e., when taxable income exceeds Rs. 1 crore.] [Applicable from A. Y. 2017-18]

2. Rebate under section 87A is increased to Rs. 5,000/- from Rs. 2000/-. [This rebate is available to individual resident in India whose taxable income does not exceed five lakh rupees.] [Applicable from A. Y. 2017-18]

3. Under the existing provisions, tax is not deducted at source (TDS) on rent payment where the rent does not exceeds Rs. 1,80,000/- per financial year. To further relax this provision, section 197A is proposed to be amended in this budget. As a result, recipient of rent can now furnish to the payer of rent a self- declaration in prescribed Form. no. 15G/15H declaring that the tax on his estimated total income (which includes this rent income also) of the relevant previous year would be nil. (Thus, one can save itself from TDS even when rent income during the year exceeds Rs. 1,80,000/-).

4. Tax Collection at Source (TCS): In order to reduce the quantum of cash transaction in sale of any goods and services and for curbing the flow of unaccounted money in the trading system and to bring high value transactions within the tax net, it is proposed to amend section 206C, whereby it is proposed that the seller shall collect the tax at the rate of 1% from the purchaser on sale of motor vehicle of the value exceeding Rs. 10 lakh. Further it is also proposed that sale in cash of any goods (other than bullion and jewellery), or providing of any services (other than payments on which tax is deducted at source under Chapter XVII-B) exceeding Rs. 2 lakh except in certain class of buyers who fulfill such conditions as may be prescribed. [Applicable from 01/06/2016]

5. Housing Loan Interest: As per existing provisions, housing loan interest in case of selfoccupied property is available upto Rs 2,00,000 under section 24(b) of the Act where such acquisition or construction of such house property is completed within 3 years from the end of the financial year in which capital was borrowed. This limit of 3 years is extended to 5 years from A.Y. 2017-18. Further, under section 80EE, deduction of up to 1 lakh rupees in respect of interest paid on loan by an individual for acquisition of a residential house property was available for A.Y. 2014-15 and A.Y. 2015-16. In this budget, by substituting existing section 80EE with new provisions, it is proposed to further incentivise first-home buyers (the assessee does not own any residential house property on the date of sanction of loan) availing home loans, by providing additional deduction in respect of interest on loan taken for residential house property from any financial institution up to Rs. 50,000. This incentive is proposed to be extended to a house property of a value less than Rs. 50 lakhs in respect of which a loan of an amount not exceeding Rs. 35 lakh has been sanctioned during the period from the 01/04/2016 to the 31/03/2017. It is also proposed to extend the benefit of deduction till the repayment of loan continues. .] [Applicable from A. Y. 2017-18]

6. Deduction towards House Rent: At present, deduction under section 80GG is available to an individual (who is not in receipt of House Rent Allowance anytime during the year) upto Rs. 2000 per month. In this budget, this upper limit of Rs. 2000 per month is increased to new upper limit of Rs. 5,000 per month. [Applicable from A. Y. 2017-18]

7. Housing Projects: Weighted deduction under section 35AD (1A) was available of 150 per cent of capital expenditure (other than expenditure on land, goodwill and financial assets) for developing and building a housing project under a scheme for affordable housing framed by the Central Government or a State Government, as the case may be, and notified by the  Board in this behalf in accordance with the guidelines as may be prescribed. In this budget, subsection (1A) is omitted w.e.f. A.Y. 2018-19, so from A.Y. 2018-19, such deduction will be limited to 100% instead of 150%.

Further, new section 80-IBA is proposed to be inserted by this budget w.e.f. A.Y. 2017-18 which proposes a deduction of an amount equal to 100%. of the profits and gains derived from the business of developing and building housing projects of specified nature as explained below.

i. The project is approved by the competent authority after the 01/06/2016, but on or before the 31/03/2019, in accordance with such guidelines as may be prescribed;

ii. The project is completed within a period of three years from the date of approval by the competent authority (Following are further conditions).

I.) Where more than one approval are taken, three years shall be counted from the date on which the project was first approved by the competent authority; and

II.) the project shall be deemed to have been completed when a certificate of completion of project as a whole is obtained in writing from the competent authority;

III.) the built-up area of the shops and other commercial establishments included in the housing project does not exceed 3% of the aggregate built-up area;

IV.) the project is on a plot of land measuring not less than 1000 square metres where such project is located within the cities of Chennai, Delhi, Kolkata or Mumbai or within the area of 25 kilometres from the municipal limits of these cities, or 2000 square metres within the jurisdiction of any other municipality or cantonment board;

V.) the residential units comprised in the housing project does not exceed 30 square metres where such project is located within the cities of Chennai, Delhi, Kolkata or Mumbai or within the area of twenty-five kilometres from the municipal limits of these cities, or 60 square metres, where such project is located within the jurisdiction of any other municipality or cantonment board;

VI.) where a residential unit in the housing project is allotted to an individual, no other residential unit in the housing project shall be allotted to the individual or the spouse or the minor children of such individual;

VII.) the project utilizes:

- not less than 90%. of the floor area ratio permissible in respect of the plot of land under the rules to be made by the Central Government or the State Government or the local authority, as the case may be, where the project is located within the cities of Chennai, Delhi, Kolkata or Mumbai or within the area of twenty-five kilometres from the municipal limits of these cities, or

- not less than 80%. of such floor area ratio where such project is located in any area other than the areas referred to in above point; and

VIII.) the assessee maintains separate books of account in respect of the housing project

iii. This section shall not apply to any undertaking which executes the housing project as a works-contract awarded by any person (including the Central Government or the State Government)

iv. Where the housing project is not completed within the period of 3 years specified above and in respect of which a deduction has been claimed and allowed under this section, the total amount of deduction so claimed and allowed in one or more previous years, shall be deemed to be the income of the assessee chargeable under the head “Profits and gains of business or profession” of the previous year in which the period for completion so expires.

v. Where any amount of profits and gains derived from the business of developing and building housing projects under this scheme for any assessment year, deduction to the extent of such profit and gains shall not be allowed under any other provisions of this Act (means no double deduction)

vi. Definitions of terms used above

I.) “built-up area” means the inner measurements of the residential unit at the floor level, including projections and balconies, as increased by the thickness of the walls, but does not include the common areas shared with other residential units, including any open terrace so shared;

II.) “competent authority” means the authority empowered by the Central Government;

III.) “floor area ratio” means the quotient obtained by dividing the total covered area of plinth area on all the floors by the area of the plot of land;

IV.) “housing project” means a project consisting predominantly of dwelling units with such other facilities and amenities as the competent authority may specify subject to the provisions of this section;

V.) “residential unit” means an independent housing unit with separate facilities for living, cooking and sanitary requirements, distinctly separated from other residential units within the building, which is directly accessible from an outer door or through and interior door in a shared hallway and not by walking through the living space of another household.’.

8. Two new tax rates for domestic companies: Where total turnover or the gross receipt in the previous year 2014-15 does not exceed Rs. 5 crore in case of domestic company, income tax shall be payable at the rate of 29% instead of 30% w.e.f. A.Y. 2017-18. Further option is given to pay the tax @ 25% to domestic company w.e.f. A.Y. 2017-18 by insertion of section 115BA subject to following conditions.

i. This rate is subject to the provisions of section 111A and section 112 (Special rate provisions)

ii. the company has been set-up and registered on or after the 01/03/2016;

iii. the company is engaged in the business of manufacturing or production of any article or thing;

iv. the company while computing its total income has not claimed any benefit under section 10AA, benefit of accelerated depreciation, benefit of additional depreciation, investment allowance, expenditure on scientific research and any deduction in respect of certain income under Part-C of Chapter-VI-A other than the provisions of section 80JJAA;

v. No set off of any loss carried forward from any earlier assessment year is done, if such loss is attributable to any of the deductions referred to in preceding point.

Further such carried forward loss shall be deemed to have been already given full  effect to and no further deduction for such loss shall be allowed for any subsequent year.

vi. depreciation under section 32, other than clause (iia) of sub-section (1) of the said section, is determined in the manner as may be prescribed.

vii. the option is furnished in the prescribed manner before the due date of furnishing of income under section 139(1)

9. Tax on dividend to high income earner: New section 115BBDA (One more special rate of tax) in inserted w.e.f. A.Y. 2017-18 whereby it is proposed that where the total income of an assessee, being an individual, Hindu undivided family or a firm, resident in India, includes any income exceeding Rs. 10 lakh, by way of dividends declared, distributed or paid by a domestic company, the income-tax payable shall be the aggregate of (1) the amount of income-tax calculated on the income by way of such dividends, @ 10%; and (2) the amount of income-tax with which the assessee would have been chargeable had the total income of the assessee been reduced by the amount of income by way of such dividends. Further, No deduction in respect of any expenditure or allowance or set off of loss shall be allowed to the assessee under any provision of this Act in computing the income by way of dividends referred to above.

10. No capital gain tax to merger of different plans in Mutual Funds: Currently, capital gains tax is levied on consolidation or merger of multiple plans within a mutual fund (MF) scheme. However, fund houses are of the view that it is not feasible to levy capital gains tax when an investor moves from dividend option to growth option in a scheme. So, clause (xix) is proposed to be inserted in section 47 whereby any transfer by a unit holder of a capital asset, being a unit or units, held by him in the consolidating plan of a mutual fund scheme, made in consideration of the allotment to him of a capital asset, being a unit or units, in the consolidated plan of that scheme of the mutual fund shall not be chargeable to tax.  [Applicable from A.Y. 2017-18]

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