Wednesday, March 9, 2016

Impact of Budget on Individual taxpayers

The Finance Minister, Mr. Arun Jaitely on February 29, 2016 presented his 3rd Union Budget in the Parliament. Various changes have been proposed in the income-tax provisions which would impact the taxable income of an individual. The key direct tax proposals made for an Individual are as under:
  1.  Rate of surcharge shall be increased to 15% from 12%, if total income of an individual exceeds Rs. 1 crore.
  2.  Relief under Section 87A is proposed to be raised from Rs. 2,000 to Rs. 5,000 if total income of a resident individual does not exceed Rs. 5, 00,000.
  3. Dividend income is exempt under section 10(34). However, the Finance Bill proposes an additional tax at the rate of 10% on gross amount of dividend income received from domestic company, if it exceeds Rs. 10 lakhs per annum.
  4.  Additional deduction up to Rs. 50,000 is proposed under section 80EE in respect of interest on housing loan to the first time individual buyers of a residential house property.
  5.  Maximum deduction under section 80GG for individuals paying house rent but not receiving HRA shall be increased from Rs 24,000 to Rs. 60,000 per annum.
  6.  Time-limit to acquire or construct house property to claim deduction of interest on housing loan under section 24(b) has been proposed to be increased from 3 years to 5 years.
  7.  A new Section 54EE is proposed to provide exemption up to Rs. 50 lakhs for long-term capital gains invested in units of funds set-up by Government to promote start-ups.
  8. Filing of return is now mandatory, even if entire income is exempt from tax under Section 10(38). However, in such case total income should exceed maximum exemption limit without giving effect to the provisions of Section 10(38).
  9.  Currently, belated return can be filed at any time before the expiry of 1 year from the end of the relevant Assessment Year. Now, it is proposed that belated return cannot be filed after expiry of relevant Assessment Year.

Dividend income no longer a sweet exempt pie!!

Finance Act, 1997 bought about a radical change in the system of taxing distribution of dividends by inserting section 115-O of the Income-tax Act, 1961 ('Act'). The tax on dividend was over and above the taxes paid by the company on its profits. This amendment was often criticized as it amounted to double taxation in the hands of the company and again in the hands of shareholders.
Dividend distribution tax ('DDT') was abolished in the year 2002 and the budget for the financial year 2002-2003 proposed the removal of DDT by bringing back the regime of dividends being taxed in the hands of the shareholders/ recipients.
However, in line with the view that it is easier to collect tax at a single point i.e. from the company rather than individual shareholders, the Finance Act, 2003 re-introduced section 115-O of the Act and taxed the amounts so declared, distributed or paid by way of dividend in the hands of the company. Consequently, deduction under section 80L (available to individuals) was discontinued. Also, dividend liable to DDT under section 115-O of the Act was exempted from tax in the hands of shareholders pursuant to section 10(34) of the Act.
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