Impact Of Budget On Individuals

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 houseproperty.

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 ofthe relevant Assessment Year. Now, it is proposed that belated return cannot be filed after expiry of relevant Assessment Year. 10) The period for completion of assessment under Section 143 (Scrutiny Assessments) or Section 144 be changed from existing 24 months to 21 months from the end of the assessment year in which the income was first assessable. Changes in TDS Provisions w.e.f 1st June 2016 1. Section 192(A) –Payment of an Accumulated Balance Due to an Employee from EPF. No Tax is required to be deducted in case amount does not increase Rs 50000. (Increased from 30000) 2. Section 194BB – Wining from Horse Race, Tax to be deducted at Source in case amount Increase Rs 10000. (Increased from Rs 5000) 3. Section 194C – Payments to Contractors-Tax in required to be deducted in case where aggregate of the amount paid or credited during the financial year exceeds Rs100,000( Increased from Rs 75000) 4. Section 194D -- Insurance Commissions. Here the Limit of Tax deduction has been reduced from Rs 20000 to RS 15000. Means Payment of any commission on Insurance will attract TDS in case Amount Exceeds Rs 15000. 5. Section 194DA – Payments In Respect of Life Insurance Policy- Payment of any sum under Life insurance policy including Bonus other than the amount not included in the total income under clause (10D0 of Section 10, Rate of TDS has been reduced to 1% from 2% 6. Section 194EE – Payments in Respect of Deposits under NSS. Rate of TDS has been reduced to 10% from 20%. 7. Section 194G – Commission on Sale of Lotteries- Limit has been increased from Rs 1000 to Rs 15000(Means No TDS on Payments up to Rs 15000). And Rate of TDS has also been reduced to 5% from 10%. 8. Section 194H – Payment of Commission and Brokerage- Rate of TDS has been reduced to 5% from 10% and under proviso – (Limit has been increased from Rs 5000 to Rs 15000(Means No TDS on Payments up to Rs 15000). 9. Section 194 K and 194 L omitted w.e.f 1st June 2016. 10. Section 194LA –Payment of Compensation on acquisition of Certain Immovable Property – Previously no TDS was required to be deducted in case amount Does not exceeds Rs 200,000. This limit has been increased to Rs 250,000. 11. Section 194LBB – Income In respect of Units of Investment Fund- Rate of TDS has been Changed from 10 % to following 1. At the Rate of 10% - In case of Resident payee 2. At the Rate in Force- In case on Non-Resident Payee(not Being a Company ) or a foreign company 12. Insertion of New Section 194LBC- 1. Where any income is payable to an investor, being a resident, in respect of an investment in a securitisation trust specified in clause (d) of the Explanation occurring after section 115TCA, the person responsible for making the payment shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon, at the rate of— (i) 25%, if the payee is an individual or a Hindu undivided family; (ii) 30%, if the payee is any other person. 2. Where any income is payable to an investor, being a non-resident (not being a company) or a foreign company, in respect of an investment in a securitisation trust specified in clause (d) of the Explanation occurring after section 115TCA, the person responsible for making the payment shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon , at the rates in force. Explanation.—For the purposes of this section,— (a) “Investor” shall have the meaning assigned to it in clause (a) of the Explanation occurring after section 115TCA; (b) Where any income as aforesaid is credited to any account, whether called “suspense account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be the credit of such income to the account of the payee, and the provisions of this section shall apply accordingly.’. RBI maintained the accommodative stance of monetary policy in its credit policy review on 2 February 2016. However, it left all key rates unchanged in the credit policy review. The repo rate remains at 6.75% while the reverse repo rate is 5.75%.   Since its last policy-rate cut, some room for monetary easing has opened up as global growth weakened leading to a sharp decline in crude oil and commodity prices which supported lower inflation. But the RBI also wants to tame consumer price inflation (CPI) to 5% by March 2017 – or a clear percentage point lower than its March 2016 target. This will be a tough ask if the Seventh Pay Commission recommendations are implemented and the monsoon remains inadequate. A non-inflationary Budget will also be a factor in future rate cut decisions. Our view: We expect the RBI to slice the repo rate by 25 basis points after the Budget. The RBI policy stance remains accommodative, but before wielding the knife, it will wait for clarity on both fiscal policy and inflation. For fiscal 2017, we expect CPI to stay soft at 5% Av -- unchanged from fiscal 2016 if India is blessed with a normal monsoon. While the upward push to inflation from a low-base effect has played out, food price movement will be the key monitorable in the coming months. Given the excess capacity in industry, weak demand and soft commodity and oil prices, the impending Seventh Pay Commission payouts are unlikely to swing inflation away from the RBI’s glide path. Policy transmission is an area of concern and lately tighter liquidity conditions have hindered further decline in market-driven interest rates. The 10-year benchmark government security yield remains elevated reflecting hardly any impact of monetary easing. The yield at around 7.7% average in January 2016, remains unchanged from a year ago. Downward rigidity in bank base rates is the other big worry. We believe fiscal 2017 should see faster rate cut transmission as average borrowing cost of banks comes down and they begin to fix their lending rates based on marginal cost of funds. Non-inflationary fiscal policy will be a key trigger for rate cut. The Budget for fiscal 2017, to be revealed on February 29, will have to continue to support fiscal consolidation by controlling spending while keeping focus on structural reforms that boost growth in the medium term. These could include, among other things, policies that push agriculture production (and therefore lower food inflation) and those that improve ease of doing businesses and help attract foreign capital, in addition to encouraging domestic businesses to invest. Policies that push supply in services sectors such as education and health, where the inflation is high and stubborn, will also create grounds for a rate cut. Divergent monetary policies across the world could trigger capital volatility. But a low current account deficit and improving macroeconomic conditions are likely to attract higher inflows relative to last year.  Best regards,--  Contributed By CA. Mahendar Kumar Jain