Proposed amendments in Direct Tax - Budget 2017

The Honb'le Finance Minister Mr. Arun Jaitely has presented Union Budget 2017 on February 1, 2017. A brief summary on proposals made in direct taxes as under:

Amendment in tax rates

1. Surcharge at the rate of 10% shall be levied from AY 2018-19 if income of an individual, HUF, AOP, BOI and AJP exceeds Rs. 50 lakh but less than Rs. 1 crore. Surcharge on income above 1 crore shall be same as 15%.

2. Rate of tax has been decreased from 10% to 5% in case of individuals having income between the slab of Rs. 2,50,001 to 5,00,000. Other slab rates will remain same as of last year.

3. In case of domestic companies tax rate shall be 25% if turnover/gross receipts of previous year 2015-16 does not exceeds Rs. 50 crore.

Amendment in TDS provisions

1. A new section 194IB proposed to be inserted with effect from June 1, 2017. As per said section, individuals or HUF not liable for tax audit u/s 44AB shall deduct TDS at the rate of 5% on amount of rent paid to a resident if such amount of rent paid exceeds Rs. 50,000 per month or part of month. To avoid compliance burden, such deductors shall not need to obtain TAN and they shall be liable to deduct TDS only once in a previous year.

2. Proposed to extend levy of concessional rate of TDS @5% under section 194LC and 194LD upto July 1, 2020.

3. Rate of TDS under section 194J proposed to be reduced from 10% to 2% if payment of professional fee or fee for technical services being made to a person engaged in the business of call centre.

Amendment related to capital gains

1. Period of holding for immovable property proposed to be reduced from three years to two years to qualify as long term capital asset.

2. New section 10(37A) proposed to be inserted with retrospective effect from April 1, 2015 to provide that transfer of capital asset being immovable property in Amaravati under land pooling scheme shall not be chargeable to tax under the Act.

3. It is proposed to change the base year for computation of capital gains from year 1981 (01.04.1981) to 2001 (01.04.2001).

4. Exemption benefit of section 54EC proposed to be extended to the investment in any bonds specified by the Central Government redeemable after three years.

Period for carry forward of MAT and AMT

Term for carrying forward and set off of tax credit of MAT and AMT proposed to be extended from ten years to fifteen years.

Restrictions on cash transactions

1. Cash donations under section 80G proposed to be limited upto Rs. 2,000 instead of earlier limit of Rs. 10,000.

2. Proviso proposed to be inserted in section 43 to disallow the expenditure on acquisition of any asset if such expenditure is made in cash exceeding Rs. 10,000 per day.

3. Limit of cash payment under section 40A(3) proposed to be reduced from Rs. 20,000 to Rs. 10,000 in a single day.

4. Presumptive rate of tax under section 44AD proposed to be reduced from 8% to 6% in respect of turnover received through digital modes however 8% shall remain same for any other mode.

5. New section 269ST proposed to be introduced to restrict receipt of cash exceeding Rs. 3 lakhs from a person in a day in respect of a single transaction or for transactions relating to one event from a person. Such restriction shall not apply in case of Government, banks, post office or cooperative banks.

6. Political parties shall be restricted to accept donations in cash for a value of Rs. 2,000 or more.      

Threshold limit under section 44AA - Maintenance of books of account

Threshold limit for maintenance of books of accounts under section 44AA increased from Rs. 1,20,000 to Rs. 2,50,000 for business and from 10,00,000 to 25,00,000 for profession.

Specified Domestic Transactions

Payments made to specified persons under section 40A(2)(b) are proposed to be excluded from section 92BA (Specified Domestic Transactions).

Advance tax by assessee declaring income u/s 44ADA

Professionals declaring their income under presumptive section 44ADA shall be liable to pay their advance tax liability through one instalment only i.e. by 15th of March instead of four instalments in other cases.

Time limit for completion of assessment

Time limit for completion of the assessment under section 153 of proposed to be reduced from 21 months to 18 months and the same shall be further reduced to 12 months from AY 2019-20 and onwards assessment years.

Restriction on expenditure of interest payable on debt issued by non-resident AE

New section 94B - Proposed to restrict deduction of interest paid by borrower (Indian company or PE of foreign company) to its non-resident associated enterprise (AE) in respect of debt issued by AE upto 30% of earnings before interest, taxes, depreciation and amortisation of borrower or interest paid or payable whichever is less. This provision shall be applicable only if amount of interest is more than Rs. 1 crore.

Amendments related to charitable entities

1. Donation with a specific direction that it shall form part of corpus (i.e. corpus donation) by exempt entities under specified section 12A and 10(23C) to another exempt entity shall not be treated as application of income in the hands of donor trust.

2. Exemption under section 11 & 12 shall not be available to an entity registered under section 12AA if such entity has amended its objects which does not conform to the conditions of registration under section 12AA and has not intimated the same to the Income Tax Authority.

3. Clarity that income tax return by exempt charitable entities shall filed within the set timelines under section 139(4A).

Fee for delay in filing of income tax returns

New section 234F - Fee for delay in filing of income tax return as under:

• Rs. 5,000 if return is filed after due date but before 31st December of assessment year
• Rs. 10,000 if return is filed after 31st December of assessment year

Fee shall not be more than Rs. 1,000 if total income does not exceed Rs. 5 lakh. Such fee shall be payable along with amount of taxes payable by the assessee under section 140A.

This shall be effective from Assessment Year 2018-19 and onwards.

Penalty on professionals for incorrect particulars in report or certificate

New section 271J - Proposed to levy penalty of Rs. 10,000 on professionals (accountant, merchant banker and registered valuer) for furnishing incorrect information in statutory report or certificate in respect of each report or certificate issued by them.

Miscellaneous amendments

1. Rebate under section 87A proposed to be reduced from Rs. 5,000 to Rs. 2,500 and such rebate shall be available only to resident individuals having total income not more than Rs. 3,50,000

2. Definition of any term not defined in DTAA entered under section 90 or 90A of the Act shall be taken from the Income Tax Act if it is defined there or from any explanation issued by the Central Government.

3. Set off of losses under the head of income from house property against any other head of income proposed to be restricted upto an amount of Rs. 2,00,000 and remaining shall be allowed to be carry forward.

4. No taxes on partial withdrawal from National Pension System Trust if such partial withdrawal does not exceed 25% of contributions made by the employee.