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.

Click here to Know More at http://bit.ly/taxmannbudgetanalysis & https://www.aaykar.com

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.

Click here to Know More at http://bit.ly/dividendincome

FinMin issues clarifications on excise duty imposed on jewellery

In the Union Budget 2016, basic excise duty of 1% is being imposed on Articles of jewellery (excluding silver jewellery). This will have major impact on individuals as well as Goldsmiths. The excise duty is levied with effect from March 1, 2016. Now, Ministry of Finance issues clarifications to remove doubts and uncertainty on such levy. The Key clarifications are given here under:

1) Articles of silver jewellery are exempt from excise duty.

2) Job workers (manufacturing jewellery for principal manufacturers) are not required to take excise registration and pay excise duty.

3) SSI exemption limit of Rs 6 crore is available to manufacturers of jewellery along with higher eligibility limit of Rs. 12 crore.

Judicial Rulings that prompted amendments by the Finance Bill 2016

The Hon’ble Finance Minister, Arun Jaitley had presented the Union Budget 2016, on 29 February 2016. The Finance Bill, 2016 had proposed certain changes consisting of substantive and procedural changes to reduce the litigation and to bring clarity in the Income-tax Act. There were many judicial rulings that spurred amendments by the Finance Bill, 2016.

Click here to view list of such judicial rulings

Market value of property as on 1/4/1981 can be taken as its cost even if only possession was acquired before 1/4/1981

Facts:

a) Govt. of Tamil Nadu assigned property to the assessee with subject to certain conditions.

b) Assessee acquired possession of the property much before 1st April 1981 by paying entire consideration thereof but due the various conditions imposed by the Tamil Nadu Government, sale deed in favour of assessee was executed in April 1994.

c) Later on in year 2003, assessee sold the property and claimed capital gain loss by taking fair market value (FMV) of property as on 1st April 1981 as its cost of acquisition.

d) CIT took the view that assessee couldn’t take FMV of property as on 1st April 1981 as its cost of acquisition for computation of capital gain as he became the legal owner of the property in 1994 when the sale deed was executed. Accordingly, CIT directed AO to compute capital gain by taking date of acquisition of property as 19.4.1994.

e) Aggrieved by the order of CIT, assessee filed the instant appeal before the tribunal.

Buy-back of shares under scheme of arrangement can't be said to be a colourable device to evade tax: HC

In law, petitioner is entitled to buy back its own shares by means of a scheme under section 391 read with sections 100 – 104 of the Companies Act, 1956 [corresponding to Sections 230 to 232 of Companies Act, 2013], scheme cannot be said to be a colourable device to evade income tax, it is a legally permissible procedure which petitioner is entitled to follow to buy back its shares

Facts:

a) The Petitioner filed plea seeking sanction of the Scheme of Arrangement with its Equity Shareholders in accordance with the provisions of Section 391 read with Sections 100 to 103 of the Companies Act,1956 [corresponding to Sections 230 to 232 of Companies Act, 2013]. 

b) As per the Scheme, the Petitioner-Company proposed to buy-back Equity Shares of the Company representing 30% of the issued, subscribed and paid up share capital. There was no compulsory purchase. An option, was given to the equity shareholders under the Scheme

c) Regional Director's objected to the saying that scheme was a colorable device intended to evade buy-back distribution tax (BBT) liability under the Income Tax Act, 

d) According to the Regional Director, if a buyback of shares is effected under Section 77A/Section 68, then the distributed income of the company as defined in Section 115QA of the Income Tax Act would be charged to tax, and it is for this reason that the company is not following the procedure prescribed under Section 77A/Section 68 and has opted for the procedure under Section 391 which would not attract such a tax under Section 115QA of the Income Tax Act.

There were enormous expectations from the Finance Minister

There were enormous expectations from the Finance Minister as this is their 3rd budget. Announcements regarding GST were expected, however there was no commitment of a date for GST introduction in the Finance Minister’s speech apart from a mention that focus would be to introduce it at the earliest. Introduction of 12 new benches of the CESTAT should help in reducing the congestion currently existing in the litigation system.

However, levy of new Krishi Kalyan Cess of 0.50% on all services, though creditable, is a setback as it would increase the cost of services. This cess would have an impact on all aspects of the economy, since all taxable services will attract this cess. Further, levying and reporting service tax would be more complex as service tax and Krishi Kalyan cess would be creditable but Swachh Bharat cess would not be. Overall, it’s a budget with some reform but it leaves us with an expectation that more could have been done

Click here to Know More http://bit.ly/taxmannbudgetanalysis

The Budget has taken a step forward in rationalizing the tax regime

The Budget has taken a step forward in rationalizing the tax regime through sunset provisions for certain exemptions and deductions. It will also give a boost to manufacturing and to SMEs through the reduction in tax rates. Startups will be encouraged by the 3-year tax holiday and capital gains exemption for investors. The special patent regime is an innovative idea and will encourage indigenous research and development. The rules for place of effective management have been deferred by one year in response to representations by stakeholders.

This will give time to companies to make adjustments to align with the rules. The proposals such as stay of demand, easing of TDS requirements, the alternative facility for non-residents who do not have PAN, the procedure for e-assessment and time limits for passing effect orders will facilitate a taxpayer-friendly environment and in turn the objective of ease of doing business.

Click here to Know More http://bit.ly/taxmannbudgetanalysis

EPF tax is introduced to encourage employees to go for pension products: Govt.

Facts:

In order to bring parity in tax treatment of different types of pension plans, the Finance Bill, 2016 proposed to amend Section 10 to provide that 40% of total corpus withdrawn at the time of retirement under recognized provident funds and NPS would be exempt. However, there seems to be lack of understanding about such proposed changes. Thus, the Govt. has released following clarifications:

i) The purpose of this reform of making the change in tax regime is to encourage more number of private sector employees to go for pension security after retirement instead of withdrawing the entire money from the Provident Fund Account.

It is welcome that Duty drawback schemes will be widened, to give impetus to sagging exports

#UnionBudget2016

It is welcome that Duty drawback schemes will be widened, to give impetus to sagging exports. But emphasis shall also be on fine tuning the existing schemes and promote transparency. Budget outlay of more than 2 lakh crore in infrastructure sector, would fuel economic activity and kicky start the economy. The budget outlays for infrastructure sector would help the cement and steel industry to improve their performance. Service tax on spectrum fees will increase the cost of providing telecom services, and will hit telecom companies and the quality of service.

Click here to Know More:  http://bit.ly/taxmannbudgetanalysis