Government clarifies tax exemption on PPF

Seeking negative response on taxing of withdrawal of Employee Providend Fund, PPF etc. the Government today clarified that there will be no tax on withdrawal made under Public Provident Fund (PPF).
It further clarified that only the interest which accrues after 01.04.2016 in Employees Provident Fund will be taxed that also to the extent of 60%. The principal amount will remain to be tax exempt.

Thus, under the current scenario the PPF remains to be tax free at the time of withdrawal as well.

India Union Budget 2016: Rationalisation of advance tax payment schedule under section 211 and charging of interest under section 234C

As per the existing provisions of sub-section (1) of section 211, the advance tax payment schedule for a company is fifteen per cent, forty-five per cent, seventy-five per cent and hundred per cent of tax payable on the current income to be paid by 15th
June, 15th September, 15th December and 15th March respectively. For other assessees, the advance tax payment schedule is thirty per cent, sixty per cent and hundred per cent of tax payable on current income to be paid by 15th September, 15th December
and 15th March respectively.
Based on the recommendations of Expenditure Management Commission clubbed with the fact that most of the advance tax is now paid electronically it is proposed to rationalise schedule for advance tax payment and prescribe the same advance tax
schedule for all assessees other than an eligible assessee in respect of eligible business as referred to in section 44AD. The modification in payment schedule will facilitate forecasting of revenue collections during a financial year with greater accuracy.
It is further proposed that an eligible assessee in respect of eligible business referred to in section 44AD opting for computation of profits or gains of business on presumptive basis, shall be required to pay advance tax of the whole amount in one instalment on or before the 15th March of the financial year.
Consequential amendments are also proposed to be made to section 234C which provides for chargeability of interest for deferment of advance tax to bring it in sync with the amendments proposed in section 211.
It is also proposed that interest under section 234C shall not be chargeable in case of an assessee having income under the head "Profits and gains of business or profession" for the first time, subject to fulfillment of conditions specified therein.
These amendments will take effect from 1st day of June, 2016.

India Union Budget 2016 : Filing of return of Income

Existing provisions of sub-section (1) of section 139 provide that every person referred to therein shall file a return of income on or before the due date. The sixth proviso to the said section provides that every person, being an individual or Hindu undivided
family or an association of person or a body of individual, whether incorporated or not or any artificial juridical person, if his total income or of any other person in respect of which he is assessable under this Act during the previous year, without giving effect
to provisions of section 10A or section 10B or section 10BA or Chapter VI-A, exceeds the maximum amount which is not chargeable to income tax shall be liable to furnish return on or before the due date.
Existing provision of sub-section (4) of section 139 provides that a person who has not furnished a return within the time allowed to him under sub-section (1), or within the time

India Union Budget 2016: Rationalization of conversion of a company into Limited Liability Partnership (LLP)

Existing provisions of clause (xiiib) of Section 47 provides that conversion of a private limited or unlisted public company into Limited Liability Partnership (LLP) shall not be regarded as transfer, if certain conditions are fulfilled, which, inter alia, include a
condition that the company's gross receipts, turnover or total sales in any of the preceding three years did not exceed Rs.60 lakh.
It is proposed to amend the said section so as to provide that, for availing tax-neutral conversion, in addition to the existing conditions, the value of the total assets in the books of accounts of the company in any of the three previous years preceding the
previous year in which the conversion takes place, should not exceed five crore rupees.
These amendments are proposed to be made effective from the 1st day of April, 2017 and shall accordingly apply in relation to assessment year 2017-18 and subsequent years.

India Union Budget 2016 : Rationalization of Section 50C in case sale consideration is fixed under agreement executed prior to the date of registration of immovable property

Under the existing provisions contained in Section 50C, in case of transfer of a capital asset being land or building on both, the value adopted or assessed by the stamp valuation authority for the purpose of payment of stamp duty shall be taken as the full value
of consideration for the purposes of computation of capital gains. The Income Tax Simplification Committee (Easwar Committee) has in its first report, pointed out that this provision does not provide any relief where the seller has entered into an agreement to sell
the property much before the actual date of transfer of the immovable property and the sale consideration is fixed in such agreement, whereas similar provision exists in section

India Union Budget 2016: Enabling of Filing of Form 15G/15H for rental payments

The provision of sub-section 194-I of the Act, inter alia, provides for tax deduction at source (TDS) for payments in the nature of rent beyond a threshold limit. The existing provisions provide threshold of Rs. 1,80,000 per financial year for deduction of tax
under this section. In spite of providing higher threshold for deduction tax under this section, there may be cases where the tax payable on recipient's total income, including rental payments , will be nil. The existing provisions of section 197A of the Income-tax Act, inter alia provide that tax shall not be deducted, if the recipient of certain payments on which tax is deductible furnishes to the payer a self- declaration in prescribed Form.No. 15G/15H declaring that the tax on his estimated total income of the relevant previous year would be nil. In order to reduce compliance burden in such cases, it is proposed to amend the provisions of section 197A for making the recipients of payments referred to in section 194-I also eligible for filing self-declaration in Form no 15G/15H for non-deduction of tax at source in accordance with the provisions of section 197A.
This amendment will take effect from 1st June, 2016.

India Union Budget 2016: Rationalization of tax deduction at Source (TDS) provisions

Under the scheme of deduction of tax at source as provided in the Act, every person responsible for payment of any specified sum to any person is required to deduct tax at source at the prescribed rate and deposit it with the Central Government within
specified time. However, no deduction is required to be made if the payments do not exceed prescribed threshold limit.
In order to rationalise the rates and base for TDS provisions, the existing threshold limit for deduction of tax at source and the rates of deduction of tax at source are proposed to be revised as mentioned in table 3 and table 4 respectively

India Union Budget 2016: Exemption from requirement of furnishing PAN under section 206AA to certain non-resident.

The existing provision of section 206AA, inter alia, provides that any person who is entitled to receive any sum or income or amount on which tax is deductible under Chapter XVIIB of the Act shall furnish his Permanent Account Number to the person responsible for deducting such tax, failing which tax shall be deducted at the rate mentioned in the relevant provisions of the Act or at the rate in force or at the rate of twenty per cent., whichever is higher. The provisions of section 206AA also apply to non-residents with an exception in respect of payment of interest on long-term bonds as referred to in section 194LC.
In order to reduce compliance burden, it is proposed to amend the said section 206AA so as to provide that the provisions of this section shall also not apply to a non-resident, not being a company, or to a foreign company, in respect of any other payment, other than interest on bonds, subject to such conditions as may be prescribed.
This amendment will take effect from 1st June, 2016.

India Union Budget 2016: Increase in threshold limit for presumptive taxation scheme for persons having income from business.

The existing provisions of section 44AD provide for a presumptive taxation scheme for an eligible business. Where in case of an eligible assessee engaged in eligible business having total turnover or gross receipts not exceeding rupees one crore, a sum equal to eight per cent. of the total turnover or gross receipts, or as the case may be, a sum higher than the aforesaid sum shall be deemed to be profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession".
Under the scheme, the assessee will be deemed to have been allowed the deduction under sections 30 to 38 of the Act. Further, the eligible assessee can report income less than the deemed income of eight per cent. of the total turnover or gross receipts not

India Union Budget 2016: Introduction of Presumptive taxation scheme for persons having income from profession

The existing scheme of taxation provides for a simplified presumptive taxation scheme for certain eligible persons engaged in certain eligible business only and not for persons earning professional income. In order to rationalize the presumptive taxation scheme and to reduce the compliance burden of the small tax payers having income from profession and to facilitate the ease of doing business, it is proposed to provide for presumptive taxation regime for professionals.
In this regard, new section 44ADA is proposed to be inserted in the Act to provide for estimating the income of an assessee who is engaged in any profession referred to in sub-section (1) of section 44AA such as legal, medical, engineering or architectural
profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette and whose total

India Union Budget 2016 : Incentives for Promoting Housing for All

With a view to incentivise affordable housing sector as a part of larger objective of 'Housing for All', it is proposed to amend the Income-tax Act so as to provide for hundred per cent deduction of the profits of an assessee developing and building affordable housing projects if the housing project is approved by the competent authority before the 31stMarch, 2019 subject to certain
conditions which inter alia, include:-
(i) The project is completed within a period of three years from the date of approval,
(ii) The project is on a plot of land measuring not less than 1000 sq. metres where the project is within 25 km from the

India Union Budget 2016: Tax incentives for start-ups

With a view to providing an impetus to start-ups and facilitate their growth in the initial phase of their business, it is proposed to provide a deduction of one hundred percent of the profits and gains derived by an eligible start-up from a business involving
innovation development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.
The benefit of hundred percent deduction of the profits derived from such business shall be available to an eligible start-up which is setup before 01.04.2019.
Further, in order to promote the start-up ecosystem in the country, it is envisaged in 'start-up India Action Plan' to establish a Fund of Funds which intends to raise Rs 2500 crores annually for four years to finance the start-ups.

India Union Budget 2016: Tax Collection at Source (TCS) on sale of vehicles; goods or services

The existing provision of section 206C of the Act, inter alia, provides that the seller shall collect tax at source at specified rate from the buyer at the time of sale of specified items such as alcoholic liquor for human consumption, tendu leaves, scrap, mineral
being coal or lignite or iron ore, bullion etc. in cash exceeding two lakh rupees.
 
In order to reduce the quantum of cash transaction in sale of any goods and services and for curbing the flow of unaccounted money in the trading system and to bring high value transactions within the tax net, it is proposed to amend the aforesaid section
to provide that the seller shall collect the tax at the rate of one per cent from the purchaser on sale of motor vehicle of the value exceeding ten lakh rupees and sale in cash of any goods (other than bullion and jewellery), or providing of any services (other
than payments on which tax is deducted at source under Chapter XVII-B) exceeding two lakh rupees.

It is also proposed to provide that the sub-section (1D) relating to TCS in relation to sale of any goods (other than bullion and jewellery) or services shall not apply to certain class of buyers who fulfil such conditions as may be prescribed.
This amendment will take effect from 1st June, 2016.

India Union Budget 2016 Speech Highlights

Though the Finance Minister of India Mr Arun Jaitley started his Budget Speech with negative statement that there is a hint of global fall in growth from 3.4% in 2014 to 3.1% in 2015, still India is holding on and doing well.

The IMF has declared India as a 'bright spot' and India's growth has been extra-ordinary. The GDP growth of India is at around 7.6%. The Forex Reserves has been at its highest point today at 350 billion US Dollars.

The Union Budget 2016 has been declared on 9 pillars as follows:

1. Rural Sector (Employment etc.)
2. Agriculture sector i.e. doubling the income of Farmer in next 5 years
3. Social and Health sector
4. Educational skills development
5. Infrastructure and Investment
6. Financial policies
7. Governance
8. Fiscal Discipline
9. Tax Reforms to reduce compliance burden

The Highlights of Budget Speech are as follows:

• Help to Farmers: 15,000 crore set aside for Farmer loan interest repayment subvention
• 100% Rural electrification Target by 01.05.2018
• Digital Degree Repository to maintain a system to store School Leaving Certificates, College degrees etc. at one single place
• Bringing Entrepreneurship to the doors of the youth
• All small shops can be open 7 days of the week just like Shopping Malls. There was a provision of compulsory one weekly off which is done away with
• Government will contribute 8.33% for new employees towards Employees Provident Fund for initial 3 years. Thus giving a boost to employment
• 100% FDI route for marketing of food products produced and manufactured in India so that the farmers receive correct price to their produce and their products reaches the consumers in time
• Companies will be incorporated in one single day as per Companies Act 2013.
• Instead of increasing the basic tax slab of income tax payers, the tax rebate of Rs.2,000 has been increased to Rs.5,000. This will benefit nearly 2 crore taxpayers.
• Those who pay rent but do not get benefit of the same by way of HRA etc., 80GG deduction has been increased from Rs.24,000 p.a. to Rs.60,000 p.a.
• Presumptive tax (8%) under section 44AD turnover limit has been increased from Rs. 1 crore to Rs. 2 crore. Around 33 lacs taxpayers currently enjoy benefit of the same
• Professionals will also be in be included in the list of business for presumptive tax under section 44AD whose Turnover is less than Rs.50 lacs with the condition that gross profit is shown at 50%
• Section 35CCD applicable taxpayers to have a Sunset clause of 01.04.2020
• New Manufacturing companies incorporated on or after 01.04.2016 have an option to pay corporate tax at 25% + surcharge + cess if they dont take any investment or profit linked benefits
• Those Companies having Turnover less than Rs. 5 crores for year ending March 2015, the Corporate tax will be 29% + Surcharge + cess
• STARTUPS get mention: 100% profit deduction to Startups for 3 out of 5 years which are started between April 2016 till March 2019. Capital Gains will not be taxed. However, MAT will be applicable.
• Tax will be exempt from withdrawal from NPS to the limit of 40%
• Tax Collected at Source (TCS) will be applicable at 1% on Luxury cars priced above Rs. 10 lacs and purchase of Goods and Services above Rs. 2 lacs.
• Housing Sector made affordable: 100 % profit deduction for Housing Scheme where Flats constructed upto 30sq.mt. in metro cities and upto 60sq.mt in non-metro cities.
• These projects need to be approved between June 2016 to March 2019 and needs to have completion within 3 years once approved. MAT will be applicable
• For First timers housing loan payers, additional interest deduction will be available if the Loan approved amount is maximum Rs 35 lacs and House value is maximum Rs. 50 lacs
• Service Tax will be exempt for Housing projects having Flats less than 60 sq.mtrs.
• Dividend Distribution Tax now will not remain uniform. Those earning Dividends more than Rs.10 lacs p.a. will face additional tax at 10% on gross i.e. Individuals and HUF. Surcharge on the Individual income increased from existing 12% to 15% (Taxing the Super Rich)
• General Anti Avoidance Rules (GAAR) will be implemented from 01.04.2017
• New Excise Duty at 12.5% with input credit or 1% without input credit on articles of jewellery (excluding silver, diamond, precious stones)
• Excise Duty on Tobbacco excluding bidis will increase between 10% and 15%
• Infrastructure cess on Cars: 1% on Petrol,LPG, CNG. 2% on Diesel Cars, and 4% on SUVs
• Reducing Litigation: Limited period window made available to Declare undisclosed income. This undisclosed income will be taxed at 30% and surcharge at 7.5%. There will be no scrutiny proceedings and will receive immunity from any proceedings. This window will be available between 01.06.2016 to 30.09.2016
• Currently, 3 lacs cases are pending at Appellate level with total litigative tax amount around Rs. 5.5 lacs crore. A DRS (Dispute Resolution Scheme) is introduced where if the tax and interest amount is paid, penalty will not be applicable. These are the cases where tax litigative amount is less than Rs. 10 lacs
• One Time settlement scheme for those who are victim of retrospective taxation. Settle the tax amount and the interest and penalty will be waived. (For eg. Vodafone case)
• Currently Penalty can be levied between 100% to 300% of tax amount at the discretion of Income Tax offier. This power is taken away and slab wise penalty will be applicable
• 50% penalty in cases of under-reporting and 200% penalty in case of misreporting
• 11 new Benches will be introduced for CBEC i.e. Indirect Tax Department
• The Ministry has agreed and implement to several recommendation received from TARC. 
• TDS mismatch (which is a major pain currently) reforms is dealt separately with Annexure to Budget Speech
• NRI selling flats or home in India, TDS rate is high in current scenario. By providing alternate document, this TDS rate will be reduced
• E-Assessment is already in its pilot stage. This will expanded to 7 cities thus avoiding face to face contact between Income tax officer and taxpayers

Total Budget Revenue loss due to Direct Tax amendments is Rs. 1060 crore whereas Total Budget Revenue gain due to Indirect Tax amendments is Rs. 20,670 crore resulting into Net Gain of Rs.19,610 crores!

“Champions are made from something
they have deep inside of them - a desire, a dream, a vision”. We have a
desire to provide socio-economic security to every Indian, especially the
farmers, the poor and the vulnerable; we have a dream to see a more
prosperous India; and a vision to ‘Transform India’.


CA Niraj Mahajan
nirajdmahajan@gmail.com
Pune, India

* 1 lakh = 1,00,000 (0.1 million)
**1 crore = 1,00,00,000 (10 millions)

Extract from Economic Survey 2015-16 : Bounties for the Well Off

Subsidies for the poor tends to attract policy attention. But a number of policies provide benefits to the well-off. We estimate these benefits for the small savings schemes and the tax/subsidy policies on cooking gas, railways, power, aviation turbine fuel, gold and kerosene, making assumptions about the definition of “well-off” and the nature of neutral policies. We find that together these schemes and policies provide a bounty to the well-off of about Rs 1 lakh crore. We highlight that policies that are based on providing tax incentives will, in India, benefit not the middle class but those at the very top end of the income distribution.
For example, the average income of those in the 20 percent tax bracket places them roughly in the 98.4th percentile of the Indian income distribution, and the corresponding figure for the 30 percent tax bracket is the 99.5th percentile.

Introduction
6.1 The government spends nearly 4.2 percent of GDP1 subsidising various commodities and services. Public discussion of these subsidies focuses on their importance in the economic lives of the poor. This chapter shows that the Indian state’s generosity is not restricted to its poorest citizens. In fact, in many c