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Union Budget - An impact on common Indian

CA Neha Bhuwania 
on 15 July 2014

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The Union Budget - India’s embarkment into a new era- Impact on common Indian

The long awaited budget of the new government finally came up last week and must say, given the paucity of time to actually work on this intense budget, the Modi Government has come up with a budget which marks a new era of growth and development India. This piece of work focusses an analysing the key proposed amendments in the Direct Taxes zone. These amendments are not an exhaustive list but the ones which in my opinion, shall have an immediate impact on an ordinary Indian’s life.

Personal Taxation: The personal tax free bar has been raised to Rs. 2.5 Lakhs from Rs. 2 Lakhs and to Rs. 3 Lakhs for senior citizens. Simultaneously, the exemption under Section 80 C has been raised to Rs. 1.5 lakhs from 1 lakh [PPF contribution also increased to Rs.1.5 lakhs]. In line with the same, consequential amendments shall be effective in Section 80 CCE/CCD w.e.f April 1’2015.

Also, with an increase in EPF to Rs. 15,000 savings have been encouraged by the government.

This implies that a tax payer, aged below 60 years, has to pay 0 tax up to an income of 4 Lakhs provided he utilizes his Section 80 C in full by making appropriate savings. For the senior citizens, tax free income can be up to Rs. 4.5 lakhs on same lines.

House Property: It is proposed to increase the tax deduction on account of interest in respect of loan for property covered u/s 23 [Self occupied property] to Rs. 2 lakhs from Rs. 1.5 Lakhs with effect from 1.04.2015. This undoubtedly implies that housing loans will be on an increase in the economy which could be helpful in keeping the interest rates within affordable limits for the taxpayers.

Also, Section 54/54F is proposed to be amended to provide that the “roll over” relief shall be available in case the investment is made in one residential house in India.

Return Verification: Proposal of ICAI has been duly given effect in the budget and there has been a proposal for the verification of income tax returns by specified persons. This shall be effective from October 1’2014.

Concessional Rate of withholding tax on borrowings from oversees by way of long term bond by amendment of Section 194C has been proposed. Specifically beneficial for importers in India who make use of such bonds in order to hedge their currency fluctuation risk and pay off their debts to international clients.

Estimate of asset valuation by Valuation Officer: In line with the recent judgement on Sunil Kumar Agarwal vs. Commissioner of Income Tax- Siliguri and the long lasting debate on valuation of capital assets, for the purpose of assessment/reassessment in all fairness may be directed to a valuation officer with effect from 1.10.2014. This has put an end to the long lasting debate on valuation by AO’s and the suffering of the taxpayers.

Power sector: A 10 year Tax holiday for the power companies which start production & distribution on/before 31.03.2017 is an incentive for industrial development in this sector by the major players. Indirectly, it shall also cater to the power issues faced by common man in almost every city in India.

TDS: TDS on non-exempt payments made under LIC policy to be introduced from 1.10.2014. This would also help to curb the malpractices running to avoid taxation in this area.

Deductors will now be able to file correction statements for TDS by the amendment proposed under Section 200/200A. This is a boon to the tax deductors. Due to the volume of TDS deducted, a mistake was often unavoidable. This shall help them to correct unintentional mistakes.

Taxability of advances received: It is a common practice to transfer some advance in relation to purchase of a capital asset during the course of negotiations. However, if for any reason, the transfer is not effected, the advance/sum of money often is often forfeited and is usually an untaxed income. Therefore, amendment of Section 56 is proposed to bring such income into the taxable boundary under the head Income from Other sources.

Hardship on transfer of capital gains on compulsory acquisition: In case of compulsory acquisition by Court or other authority used to earlier bring a hardship on the tax payer due to taxability in the year of transfer. Now, this hardship has been removed and such income shall be taxable as Capital Gains in the previous year in which the final order of the Court or such other authority arrives.

Amongst, other changes, considering the international transaction burning issue which makes India an unpopular destination for investment, it is proposed to rationalize the definition of International Taxation. Also, some other favourable measures for NRIs have been proposed. Accounting standards if actually converted to IFRS, shall make India stand at par with International Accounting Boards and mandates. Also, considering the indispensable need of medicines/computers in the country, these products have also been proposed to make cheaper which shall be a boon to the country’s development.

The changes indeed look promising and if effectively implemented shall make India closer to the goal of being called a “developed nation” from that of a developing nation!


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