Budget 2016 Proposals relating to Income tax. Table of Contents

Transcription

1 Budget 2016 Proposals relating to Income tax CA T G Suresh tgs@sandbca.com Table of Contents 1 Personal Taxation: NO CHANGE IN THE TAX RATES INCREASE IN SURCHARGE FROM 12 % TO 15 % TAXATION OF DIVIDENDS IN THE HANDS OF SHAREHOLDERS INCREASE IN THE TIME LIMIT FOR COMPLETING THE PROPERTY FOR GETTING A HIGHER DEDUCTION IN RESPECT OF INTEREST ON CAPITAL BORROWED OF SELF-OCCUPIED PROPERTY MERGER OF 25 A,AA AND B IN TO A SINGLE SECTION SEC 80 EE BACK FOR LOAN SANCTIONED BETWEEN 1ST APRIL 2016 TO 31ST MARCH INCREASE IN THE LIMIT OF SEC 80 GG CONTRIBUTION TO SUPER ANNUATION FUND EMPLOYERS CONTRIBUTION IN EXCESS OF RS.1,50,000 IS PROPOSED TO BE TAXED IN THE HANDS OF EMPLOYEES. 5 2 Presumptive taxation and other Business Income Proposals CHANGES IN THE EXISTING PRESUMPTIVE INCOME SEC 44 AD PRESUMPTIVE SCHEME EXTENDED TO PROFESSIONALS SEC 44 ADA OTHER BUSINESS INCOME PROPOSALS 6 3 Advance Tax, TDS, Asst. appeals and Penalty INSTALLMENTS OF ADVANCE TAX INCREASED TO 4 TO ALL ADVANCE TAX IS PAYABLE ON PRESUMPTIVE INCOME ALSO TDS FORM 15 G AND 15 H TCS EXTENDED TO CASH PURCHASES OF GOODS AND SERVICES / MOTOR VECHICLES SEC 206 AA NOT TO APPLY IN CERTAIN CASES ASSESSMENT TIME LIMIT FOR COMPLETION OF ASSESSMENTS REDUCED RETURN SHOULD BE PROCESSED BEFORE COMPLETING SCRUTINY ASST SEC 10 (38) EXCLUDED FOR SEC 139 (1) REFUNDS PENALTY 9 4 Other Proposals BUY-BACK TAX PATENT BOX ADDITIONAL CONDITION FOR TAX NEUTRAL CONVERSION FROM COMPANY TO LLP: AMORTISATION OF SPECTRUM FEE FOR PURCHASE OF SPECTRUM NEW DISPUTE RESOLUTION SCHEME INCOME DECLARATION SCHEME OPTION TO PAY 25% BY DOMESTIC COMPANIES : 11 5 International Taxation EQUALISATION LEVY COUNTRY BY COUNTRY REPORTING 12 1

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3 1 Personal Taxation: 1.1 No change in the tax rates No Change in the tax rates is proposed in the Budget. However, relief is provided to Individuals having total Income not exceeding Rs.5,00,000 by way of Increase in rebate u/s 87 A. It is proposed to amend section 87A so as to increase the maximum amount of rebate available under this provision from existing 2,000 to.5,000. The impact of the increase is Individual having total income up to 3,00,000 need not have to pay any tax. The impact of increase in rebate u/s 87 A in Appendix 1 Tax slab can be increased to 5 Lacs. Short fall could have been compensated by a suitable tweaking of rates. Imposing of surcharge should be done away with. 1.2 Increase In surcharge from 12 % to 15 % However Ind/HUF/AOP/BOI, will have to pay 15 % if the total income exceeds 100 Lacs. (The effective rate of tax %). 1.3 Taxation of dividends in the hands of Shareholders If an individual /HUF/ Firm resident in India receives a dividend of Rs.10 Lacs or more, then he is required to pay tax at the rate of 10 % on Gross basis (Excluding surcharge and Education cess). The impact of the same is given in Appendix 2 Same reason given earlier, for increasing the rate of tax to % from %. Same reason to Tax additional amount is unfair. Total tax collected comes close to 56 % which is very very high. 1.4 Increase in the time limit for completing the property for getting a higher deduction in respect of Interest on capital borrowed of self-occupied property At present deduction up to.2,00,000 is available if the construction of the property is completed within 3 years from the end of the financial year in which loan was taken. It is proposed to increase the time limit to 5 years from AY The impact of the above provision is as under: 3

4 Date of Loan Date of completion Max Interest Allowable 1/4/12 31/3/2016 2,00,000 1/4/11 31/3/ ,000 1/4/11 1/4/2016 2,00,000 Memorandum explaining the provisions In view of the fact that housing projects often take longer time for completion, it is proposed that second proviso of clause (b) of section 24 be amended to provide that the deduction under the said proviso on account of interest paid on capital borrowed for acquisition or construction of a self-occupied house property shall be available if the acquisition or construction is completed within five years from the end of the financial year in which capital was borrowed The condition of completion itself should be removed. 1.5 Merger of 25 A,AA and B in to a single section Existing provisions of sections 25A, 25AA and 25B relate to special provisions on taxation of unrealised rent allowed as deduction when realised subsequently, unrealised rent received subsequently and arrears of rent received respectively. Sec 25 A specifically provides that standard deduction is not available whereas 25 B specifically allows 30 % standard deduction. However, Sec 25 B is silent on the same. It is proposed to merge all the sections in to a single section 25 A and provide for 30 % standard deduction. Very good amendment to reduce litigation 1.6 Sec 80 EE back for loan sanctioned between 1st April 2016 to 31st March 2017 Additional deduction of Rs.50,000 in respect of interest paid on loan by an individual for acquisition of a residential house property. This deduction will be available till the repayment of loan continues. Conditions to be satisfied: 1. Loan should be sanctioned during 1 st day of April 2016 to 31 st March The assesee should not own any house on the date of sanction of loan. 3. Loan should be taken from any financial institution 4

5 4. The cost of the property is less than fifty lakhs rupees 5. The loan should not exceeds Rs.35,00, The deduction claimed will not be eligible under any other Section. 7. The proposed section is over and above the limit of Rs 2,00,000 provided for a self-occupied property under section 24 of the Act. Additional 50,000 could have been given in 24 b itself instead of creating another section with host of conditions. 1.7 Increase in the limit of Sec 80 GG Limit for deduction u/s 80 GG increased to Rs.5,000/month from the present limit of Rs.2,000/month Very good amendment. Conditions in the section can be reduced / eliminated to make it work on the ground. 1.8 Contribution to super Annuation fund At present employers contribution to superannuation fund will be taxable in excess of Rs.1,00,000 It is proposed to increase this limit to Rs.1,50,000 from AY Welcome amendment but very limited use 1.9 Employers contribution in excess of Rs.1,50,000 is proposed to be taxed in the hands of employees. Employee s contribution in excess of 40 % taxable. (Clarification from Rev. Sec. that it will be applicable only for Interest) Govt. has decided to roll back this proposal Good amendment but unfortunately withdrawn. 5

6 2 Presumptive taxation and other Business Income Proposals 2.1 Changes in the existing Presumptive Income sec 44 AD Limit for applicability of the Section increased to 2 Crores from the Present limit of 1 Crores. ( Corresponding amendment not made in Sec 44 AB) No deduction u/s 40 b in respect of Interest and remuneration to partners Advance tax provisions will apply for presumptive income also. However, entire advance tax is payable only on last installment. (i.e. 15 th March) If presumptive income is not offered in one year, then 44 AD cannot be opted for the next 5 years 2.2 Presumptive scheme extended to Professionals Sec 44 ADA Applicable to resident assesee who is engaged in a profession referred to in sub-section (1) of section 44AA and whose total gross receipts do not exceed Rs.50 Lacs in a previous year, 50 % of the total gross receipts of the assessee in the previous year on account of such profession or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the assessee, shall be deemed to be the profits and gains of such profession chargeable to tax under the head Profits and gains of business or profession. Notwithstanding anything contained in the foregoing provisions of this section, an assessee who claims that his profits and gains from the profession are lower than the profits and gains specified in sub-section (1) and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to keep and maintain such books of account and other documents as required under sub-section (1) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB. Interest and remuneration to partners will not be allowed as deduction Interest and remuneration should be restored Advance tax provisions should not be made applicable For profession Max should be 30 % only. 2.3 Other Business Income proposals Non-compete fee received by profession also will be subject to tax u/s 28 va Good will of a profession also will be taxable under Capital gains (55(2)(a) Sec 43 B extended to amount paid to Railways for using their assets Tax Audit limit increased to 50 Lacs for profession No amendment made in 44 AB for business even though limit for 44 AD increased to 200 Lacs Weighted deduction u/s 35 (1)(ii), 2AA, 2AB restricted to 150 % from AY to AY 20-21) and there after to 100 % ( i.e from AY 21 22) 35(1)(iia) and 35(1(iii) restricted to 100 % from AY CCC / CCD restricted to 100 % from AY Sec 10 AA Not available for IU commencing from 1 st April

7 3 Advance Tax, TDS, Asst. appeals and Penalty 3.1 Installments of Advance tax increased to 4 to all At present, Non corporates are liable to pay advance tax in 3 Instalments i.e 15/9,15/12 and 15/3. It is proposed to increase the installments to non-corporates also in the same manner like companies. From AY 17 18, Non corporates to pay advance in 4 installments i.e 15/6, 15/9,15/12 and 15/3. (15/45/75/100) For Ind/HUF, present scheme of 3 Installments can be continued Limit for applicability should be increased to at least 25, Advance tax is payable on presumptive income also At present no advance is payable on presumptive income u/s 44 AD. It is proposed to bring presumptive income also under advance tax. However, the advance is tax payable only in one installment i.e. 15 th March 3.3 TDS Increase in threshold limit and Revision of rate Section Dealing with Present Proposed 192 A PF 30,000 50, BB Horse Race 5,000 10, C Contractor 75,000 (Agg) 1,00,000 (Agg) 194 LA Compensation 2,00,000 2,50, D Insurance commission 20,000 15, G Commission (Lottery ticket) 1,000 15, H Commission 5,000 15,000 Section Dealing with Present Proposed 194 DA Payt. Of LI policy 2 % 1 % 194 EE NSS Deposit 20% 10 % 194 D Commission (Insurance) 10 % 5 % 194 H Commission 10 %5,000 5% 5 % can be made across sections except 192/195/194 B. 3.4 Form 15 G and 15 H can be given for 194 I also Very good amendment 7

8 3.5 TCS extended to Cash purchases of goods and services / Motor Vechicles 1 % on purchase of Motor Vehicle of the value exceeding Rs.10,00,000 and for any amount of consideration received in case for sale of goods ( other than Jewellery and Bullion) or provision of any service Can be increased to Rs.15,00,000 for MV. 3.6 Sec 206 AA not to apply in certain cases Higher withholding rate of 20% (for not furnishing PAN) not to apply to non-residents earning interest on long term bonds and other notified payments Any other document other than PAN is also acceptable Very good amendment 3.7 Assessment Belated Returns Time limit for belated to return to be reduced by 1 year. Belated returns can also be revised. Very good amendment 3.8 Time limit for completion of Assessments reduced Sec Dealing with Existing Proposed 153(1) 143(3)/ Months 21 Months 153(2) Months 9 Months 153(2A) Fresh asst 12 Months 3 Months * 153(3) No Time Limit - 12 Months** * 3 Months from the end of the month in which order is received or passed as the case may be. However, it is not possible for the AO to give effect to such order beyond his control, the PC /C on receipt of such reasons in writing from the AO, if satisfied, may allow additional time of 6 Months to give effect to the said order. However, for cases pending as on 1 st June 2016, the time limit for passing such order is proposed to be extended to 31 st March ** Assts. Pending on 1 st June 2016, 12months or 31 st March 2017 whichever is less. Very good amendment 3.9 Return should be processed before completing scrutiny Asst. 8

9 3.10 Form 16, 16 A, 26 AS, Tax Audit reports can be used for making additions u/s 143 (1), loss return filed after due date etc., 30 days intimation should be given in electronic mode / paper mode. If no response is received intimation can be passed. Should be rolled back 3.11 Sec 10 (38) excluded for Sec 139 (1) 3.12 Mandatory stay if assessee pays 15% of disputed demand pending appeal 3.13 Application for stay of tax demand to be disposed off within 12 months 3.14 Appeals 3.15 Refunds Very good amendment The post of vice president has been abolished. Dept. cannot appeal against DRP order Time limit for rectification by ITAT reduced to 6 months from end of the month in which order was passed. Monetary limit for single bench increased to 50 Lacs Refund arising on account of TDS / Advance tax will be paid only from the date of furnishing of return of Income (For late filing of Return of Income). If return of income is filed in time from 1 st April Refund arising on account of Self Asst. tax will be paid only from the date of furnishing of return of Income or date of payment of self asst. tax paid whichever is later. ( in both the above cases rate of Interest will continue to be.5% per month) If the refund arises on account of Appeal effect not given : Interest will ( 90 days from the date of receipt of order to date of grant of refund) 3.16 Penalty Penalty to be levied in case of under-reporting and misreporting of income (w.e.f. 1 April 2017) Under-reported income: 50% of tax payable Misreporting of income: 200% of tax payable Misreported income defined to cover: Failure to report any international transaction 9

10 Misrepresentation or suppression of facts Unsubstantiated claim of expenditure AO empowered to grant immunity from penalty / prosecution not arising out of misreporting if applicable taxes and interest are paid Under Reporting Assessed Income is Greater than 143 (1) Assessed income > Basic exemption limit, where No ROI is furnished Amount assessed u/s 147 > amount assessed before 147 Book Profit u/s 115 JB or Adj. Total income u/s 115 JC > Total Income u/s 143(1) Book Profit u/s 115 JB or Adj. Total income u/s 115 JC > Basic exemption limit, where No ROI is furnished Reduction of loss or conversion of loss in to income No penalty or prosecution if tax and Interest is paid and no appeal / revision u/s 264 can be made. Will increase the litigation. 4 Other Proposals 4.1 Buy-back tax Extended to all buy-backs (not restricted to buy-backs under section 77A) 4.2 Patent box Applies to patent developed and registered in India. Royalties to be 10% on gross basis 4.3 Additional condition for tax neutral conversion from company to LLP: Total value of assets in any 3 previous years preceding the year of conversion not to exceed Rs 5 cr 4.4 Amortisation of spectrum fee for purchase of spectrum Deduction to be allowed in equal instalments over the period of spectrum licence 4.5 New Dispute Resolution Scheme Scheme available for appeals pending before CIT(A) & disputes arising out of retrospective amendments Not applicable to Search cases, Foreign undisclosed income, etc. Tax payable by declarant Disputed amount Amount payable Tax Dispute up to Rs.10,00,000 Tax and Interest up to Asst. Tax Dispute Exceeding Rs.10,00,000 Tax and Interest up to Asst. and 25 % penalty Penalty appeals 25 % of penalty 10

11 Retrospective amendments Tax amount ( No Interest and penalty) Post declaration, all pending appeals shall be withdrawn; immunity from all proceedings under the IT Act 4.6 Income declaration scheme Effective from 1 June 2016 covers undisclosed income (subject to specified exclusions) pertaining to any financial year up to FY Limited period immunity; 45% (including cess and penalty) FMV of investment in assets deemed to be undisclosed income FMV Rules to be notified Exemption from wealth tax; No scrutiny / enquiry under Income-tax Act, Wealth-tax Act; Immunity from prosecution and immunity from the Benami Transactions (Prohibition) Act, 1988 (subject to transfer to tax payer) Very few takers will be there 4.7 Option to pay 25% by Domestic companies : Condition(s) To be set up after 1st March 2016 To be engaged in the manufacture or production of any article or thing No incentives to be claimed (except in relation to hiring of new employees) Set-off of brought forward losses not permissible Very few takers will be there 5 International Taxation 5.1 Equalisation levy 6% on consideration received by a non-resident not having a PE in India Obligation on resident payers/ non-resident payers having a PE in India to deduct and deposit such levy. Failure to comply would result in disallowance of tax deduction for the payer Applicable on specified services (online advertisements and provision of digital advertising space) 11

12 No further taxation in the hands of the non-resident recipient 5.2 Country by Country Reporting CbC reporting and master file requirements w.e.f 1 April 2017 in line with Action 13 of the BEPS Plan CbC reporting only if consolidated revenues of the group (based on consolidated financial statements) exceed Euro 750 mn CbC reporting shall be furnished on or before the due date for filing of return of income Penalties provided for delay in reporting / in inaccurate reporting PARTICULARS 300, , ,000 PRESENT Tax 5,000 15,000 25, A 2,000 2,000 2,000 AFTER 87A 3,000 13,000 23,000 AFTER CESS 3,090 13,390 23,690 PROPOSED 12

13 Tax 5,000 15,000 25, A 5,000 5,000 5,000 AFTER 87A - 10,000 20,000 AFTER CESS - 10,300 20,600 IMPACT 3,090 3,090 3,090 S.NO PARTICULARS LACS DIVIDEND DISTRIUBUTED 2 EFFECTIVE RATE OF TAX % EFFE RATE OF TAX % 4 PRE TAX PROFIT TAX PAYABLE DDT 20.36% 7 DDT (COMPANY) TAX SH ( EFF RATE) 11.85% 9 TAX BY SH TOTAL TAX EFF TAX % 55.67% o AY Lacs 4 Lacs ( 44 ADA NA) o AY Lacs 25 Lacs ( 44 AA / AB will apply ) o AY Lacs 2.5 Lacs ( 44 AA and AB NA) AY Lacs 8 % 4 Lacs ( 44 AD can be opted for AY 17 18) AY Lacs 8 % 12 Lacs ( 44 AD can be opted for AY 17 18) AY lacs 6% 12 Lacs ( 44 AD NA AY to 23-24) PARTICULARS GROSS RECEIPTS 13

14 GRTS 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 Income 500,000 1,000,000 1,500,000 2,000,000 2,500,000 Tax IND 20, , , , ,000 INCL CESS 20, , , , ,250 EFF.RATE 2.06% 6.44% 9.44% 10.94% 11.85% FIRM 154, , , , ,500 EFF.RATE 15.45% 15.45% 15.45% 15.45% 15.45% GROSS RECEIPTS GRTS 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 Income 400, ,000 1,200,000 1,600,000 2,000,000 Tax IND 10,000 85, , , ,000 INCL CESS 10,300 87, , , ,750 EFF.RATE 1.03% 4.38% 6.35% 7.85% 8.76% FIRM 123, , , , ,000 EFF.RATE 12.36% 12.36% 12.36% 12.36% 12.36% GROSS RECEIPTS 14

15 GRTS 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 Income 300, , ,000 1,200,000 1,500,000 Tax IND - 45,000 85, , ,000 INCL CESS - 46,350 87, , ,250 EFF.RATE 0.00% 2.32% 2.92% 4.76% 5.67% FIRM 92, , , , ,500 EFF.RATE 9.27% 9.27% 9.27% 9.27% 9.27% Particulars INCOME GRTS 5,000,000 10,000,000 15,000,000 20,000,000 Income 400, ,000 1,200,000 1,600,000 Tax IND 10,000 85, , ,000 INCL CESS 10,300 87, , ,150 EFF.RATE 0.21% 0.88% 1.27% 1.57% PROPOSED 15

16 FIRM 123, , , ,400 EFF RATE 2.47% 2.47% 2.47% 2.47% EXISTING 40 b 330, , ,000 1,050,000 Taxable Income 70, , , ,000 Tax payable 21,420 70, , ,300 EFF.RATE 0.43% 0.70% 0.80% 0.84% ADDL TAX 102, , , ,100 ADDL 2.04% 1.77% 1.68% 1.63% TAXABILITY IN THE HANDS OF PARTNER NOT CONSIDERED IN ARRIVING AT ADDITONAL TAX 16