With lots of positive expectations, Budget 2017 was eyed by whole nation to bring positive tax reforms. The expectations of salaried class about raising exemption limits and that of business class about drop in tax rates.
The Finance Minister, in his last agenda of Budget 2017 regarding Taxation, came up with several tax reforms, changes and proposals.
Following amendments of Budget 2017 were announced by Honourable Finance Minister, Mr. Arun Jaitley:
1.Go Digital and Lower Limits for Cash Transactions allowed:
- Budget has reduced the allowable limit of transacting in cash with a single person for a particular transaction or with a particular person in a day. The earlier limit was of Rs. 20,000/- which is reduced to Rs.10,000/- with intent of supporting the Digital India Initiative.
- The budget has restricted to receive in cash sum aggregating not more than Rs. 3 Lakhs for a particular transaction / event. Also it restricted to receive in cash amount more than Rs. 3 lakhs from one person in a day.
- The small tax payers having turnover below Rs. 2 Crores are required to pay tax with a minimum presumptive profit @ 8%, else the accounts are required to be audited. To boost payments via banking channels, the deemed profit on transactions through banking channels will be 6% instead of 8%.
2. Small Benefits to individual Tax Payers
- The most awaited amendment and expectations of tax payers was “Lifting/ increasing exemption Limit”. Instead of increasing the limit, the tax rate for first slab i.e. from Rs. 2. 5 Lakhs to Rs. 5 Lakhs was reduced from 10% to 5%. Along with above the rebate was also reduced from Rs. 5,000 to Rs. 2,500 for persons earning below Rs. 3.5 Lakhs.
- To summarize, there will be no tax for income up to Rs. 3 Lakhs.
- The persons having income of Rs. 3.5 Lakhs or above are benefited with a tax saving of Rs. 12,500/-.
- For persons having income between Rs 3 Lakhs to Rs. 3.5 Lakhs, there will be saving in tax liability by 50%.
3.Earn High Pay High :
To partly compensate the revenue loss from reducing rate of tax to individual for first slab, budget levied surcharge of 10% was announced for persons earning between Rs. 50 Lakhs to Rs.1 Crore. The surcharge @ 15% on income above Rs. 1 crore for individuals is maintained as same in previous budget.
4.Boost to Small Turnover Corporate :
The Finance Minister came up with its Budget 2015 promise to reduce the corporate tax rate over the period of 5 years. Consequently it reduced the corporate tax rate from 30% to 25% for companies with less than Rs. 50 crore turnovers in the Financial Year 2015-16.
5.No Indirect Transfer Capital Gain to FPI :
The Foreign Portfolio Investors are exempted from Capital Gain Tax on Indirect Transfer of asset outside India which derives its value from any assets located in India. The provisions are retrospectively applied from Finance Act 2012 since its enactment, consequent to Vodafone Case of indirect transfer.
6.Reduced Scope of Domestic Transfer Pricing (DTP) :
As transactions between two related parties were subject to tax within India, generally there is no revenue loss. The scope is reduced of DTP by not subjecting related parties transactions between two residents to Transfer Pricing Regulations.
7.Change in Index Base for Long Term Capital Gain :
To give benefit to assessee and reflect the real value of capital asset, the index base is changed from 1981 to 2001. This will reflect correct index cost in calculating Capital Gain Tax.
8.Long Term Capital Gain Period for Immovable Properties:
Period to determine that Immovable Property (being land or building) is short term or long term is reduced from 3 years to 2 years. Thus now immovable properties sold after 2 years will attract 20% instead of 30% along with available indexation benefits and other exemption benefits.
Apart from above highlighted issues, the other changes were announced to be attached in annexure to the budget speech.
The annexure came up with following amendments
9.Secondary Adjustments in Transfer Pricing
As per transfer pricing regulations, primary adjustment of adding income to computation is to be done as per Arms Length Pricing Methods. Now along with primary adjustments of adding income to computation, the provisions of secondary adjustments are proposed in budget. It means assessee is now require to either repatriate the amount of primary adjustment from its foreign associate entity or else treat the amount as loan advanced to its foreign entity and compute interest thereon.
The provisions of secondary adjustments are applicable only if primary adjustments amount is Rs. 1 Crore or above.
10. Restricting allowability of Interest cost on advances from Non-Resident Associates:
The provisions have been inserted whereby the claim of interest expenses on advances from its non-resident foreign associates has to be restricted to 30% of its Earnings before Interest, Depreciation and Taxes (E.B.I.D.T.A.). The excess of 30% of interest cost disallowed can be carried forward for 8 years that can be set-off against the Income from Business and Profession subject to 30% limits in respective years.
Banks & Insurance companies are exempted from above proposed provision.
11. The budget has proposed to rationalize the provisions of M.A.T in accordance with IND AS.
12.Earlier, rent paid by Individual / HUF, who were not subject to tax audit were not required for to deduct TDS on rent paid. However as per proposed provisions, persons paying rent of more than 50,000 per month need to deduct TDS @10% even though they are not subject to tax audit.
13. Carry forward and Set-off of House Property Losses:
Earlier there was no limit on set-off of House Property Losses against any other head of income / profits. However, budget has proposed to restrict the set-off of house property losses to Rs. 2 Lakhs against other head income. The balance can be carried forward for set-off against house property income in future years.
14. MAT credit allowed was earlier allowed to carry forward for 10 years. Now it is proposed to allow the carry forward for 15 years.
15. Tax neutrality is provided for converting Preference Shares to Equity Shares unlike, previous years which attracted Capital Gain Tax.
16.The notional income on unsold realty stock only if held for more than one year is to be added in total income as proposed in budget.
17. A provision is inserted to levy a mandatory fee on filing delayed income tax return of Rs. 5,000/- if return is filed after due date but before 31st December of the assessment year. In case of others, fee of Rs. 10,000/- will be levied. However in case of total income not exceeding Rs. 5 Lakhs , late filing fee will be restricted to Rs. 1000/-
By Rinkit Uchat
(Partner at Dayal and Lohia)
Image source: Dreamtimes.com
