highlights of union budget 2016 -17

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I. REAL ESTATE: Income Tax


1Section 24
Deductions from income from house property
At present, deduction of Rs.2.00 lacs, for self occupied property, is allowed if the property is acquired or constructed within 3 years.

It is proposed that the deduction of an amount of two lakh rupees under the said proviso shall be allowed if the acquisition or construction is completed within five years from the end of the financial year in which the capital was borrowed.

This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-2018 and subsequent years.
2Section 25A
Arrears of Rent
It is proposed to provide that the amount of rent received in arrears or the amount of unrealised rent realised subsequently by an assessee shall be charged to income-tax in the financial year in which such rent is received or realised, whether the assessee is the owner of the property or not in that financial year.

It is also proposed that thirty percent of the arrears of rent or the unrealised rent realised subsequently by the assessee shall be allowed as deduction.

This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-2018 and subsequent years.
3Section 50C
Special provision for full value of consideration in certain cases
Sub-section (1) of the aforesaid section provides that in case of transfer of a capital asset being land or building or both, the value adopted or assessed or assessable by the stamp valuation authority for the purpose of payment of stamp duty in respect of such transfer is taken as the full value of consideration for the purpose of computation of capital gains.

It is proposed to amend the said sub-section so as to provide that where the date of the agreement fixing the amount of consideration and the date of registration for the transfer of the capital asset are not the same, the value adopted or assessed or assessable by the stamp valuation authority on the date of agreement may be taken for the purposes of computing full value of consideration for such transfer.

It is further proposed to provide that the said proviso shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been received by way of an account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account, on or before the date of the agreement of transfer.

This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-2018 and subsequent years.
4Section 54EE
Capital gain not to be charged on investment in units of specified fund
It is proposed to insert section 54EE so as to provide exemption from capital gains tax if the capital gains proceeds are invested by an assessee in units of specified fund, as may be notified by the Central Government in this behalf.

This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-2018 and subsequent years.
5Section 54GB
Capital gain on transfer of residential property not to be charged if invested in shares of Start Up
The existing provisions of section 54GB provide that capital gains arising on account of transfer of a residential property shall not be charged to tax if such capital gains is invested in subscription of shares of a company which qualifies to be a small or medium enterprise under the Micro, Small and Medium Enterprises Act, 2006 subject to other conditions specified therein.

It is proposed to amend section 54GB so as to provide that capital gains arising on account of transfer of a residential property shall not be charged to tax if such capital gains is invested in subscription of shares of a company which qualifies to be an eligible start-up subject to other specified conditions.

It is proposed to also amend section 54GB so as to provide that the expression “new asset” includes computers or computer software in case of technology driven start-ups so certified by the Inter-Ministerial Board of Certification notified by the Central Government in the Official Gazette.

This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-2018 and subsequent years.
6Section 80EE
Deduction in respect of interest on loan taken for residential house property
The provisions contained in the existing section provides for deduction upto one lakh rupees in respect of interest payable on loan taken by an assessee being an individual from any financial institution for the purpose of acquisition of a residential property. This benefit was available during the assessment years beginning on the 1st day of April, 2014 and ending on the 31st day of March, 2016.

It is proposed to substitute the said section so as to provide a deduction for those who buy residential house property for the first time, in respect of interest on loan taken from any financial institution upto fifty thousand rupees subject to other conditions specified therein. It is proposed to extend the benefit of deduction till repayment of loan continues.

This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-2018 and subsequent years.
7Section 80GG
Deductions in respect of rents paid
It is proposed to increase the maximum amount of deduction allowable under the said section to five thousand rupees per month from two thousands rupees earlier.

This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-2018 and subsequent years.
8Section 80-IBA
Deductions in respect of profits and gains from housing project
The proposed new section seeks to provide for hundred percent deduction of the profits and gains of an assessee developing and building housing projects, if the project is approved by the competent authority on or before the 31st March, 2019 subject to the conditions specified therein. The assessee is required to complete the said project within three years failing which the entire deduction claimed in previous years shall be deemed as his income.

This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-2018 and subsequent years.

Deduction at Source

In order to rationalize 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.

Table of Increase in threshold limit of deduction of tax at source on various payments mentioned in the relevant sections of the Act

Present
Section
HeadsExisting Threshold Limit (Rs.)Proposed Threshold Limit (Rs.)
192APayment of accumulated balance due to an employee30,00050,000
194BBWinnings from Horse Race5,00010,000
194CPayments to ContractorsAggregate annual limit of 75000Aggregate annual limit of 1,00,000
194LAPayment of Compensation on acquisition of certain
immovable Property
200000250000
194DInsurance commission20,00015,000
194GCommission on sale of lottery tickets1,00015,000
194HCommission or brokerage5,00015,000

Table of Revision in rates of deduction of tax at source on various payments mentioned in the relevant sections of the Act:

Present
Section
HeadsExisting Rate of TDS (%)Proposed Rate of TDS (%)
194DAPayment in respect of Life Insurance Policy2%1%
194EEPayments in respect of NSS Deposits20%10%
194DInsurance commissionRate in force (10%)5%
194GCommission on sale of lottery tickets10%5%
194HCommission or brokerage10%5%

II. REAL ESTATE: Service Tax


  ExistingProposed
Krishi Kalyan CessAn enabling provision is being made to levy Krishi Kalyan Cess on all taxable services with effect from 1st June, 2016, to finance and promote initiatives to improve agriculture. -0.50%
New ExemptionsServices by way of construction etc. in respect of-
(i) housing projects under Housing For All (HFA) (Urban) Mission / Pradhan Mantri Awas Yojana (PMAY);
(ii) low cost houses up to a carpet area of 60 square metres in a housing project under ?Affordable housing in Partnership? component of PMAY,
(iii) low cost houses up to a carpet area of 60 square metres in a housing project under any housing scheme of the State Government, are being exempted from Service Tax with effect from 1st March, 2016.
5.60%Nil
Rationalization of AbatementsThe abatement rate in respect of services by way of construction of residential complex, building, civil structure, or a part thereof, is being rationalized at 70% by merging the two existing rates (70% for high end flats and 75% for low end flats).3.5% / 4.2%4.20%
[The above changes will come into effect from 1st April, 2016.]

III. GENERAL


  • New health protection scheme will provide health cover up to Rs. One lakh per family.
  • Governmental launches ‘National Dialysis Services Programme’ and to have atleast 2000 new subsidized dialysis centre in the country
  • Aadhaar bill to be introduced in this session of the Parliament
  • 25,000 crores to be made available for re-capitalization of Public Sector Banks
  • Government to target 100% electrification of all villages by 1st May 2018.
  • Fiscal deficit to be pegged at 3.5% of GDP
  • Government propose FDI relaxation in insurance and food processing
  • Dedicated Long Term irrigation Fund of Rs.25,000 crores to be set-up under NABARD
  • Digitally Depository to be set-up to allow each individual to have their school leaving and other academic certificates listed at one place.
  • To allocate Rs.55,000 crores for roads and highways. In addition NHAI to raise Rs.15,000 crores through Bonds.
  • Total outlay on infrastructure estimated at Rs.2,20,000 crores
  • 100% FDI to be allowed through FIPB route in marketing of food products produced and manufactured in India
  • General Insurance Companies like GIC owned by the Government will be listed on stock exchanges
  • The Revenue Deficit target @ 2.5% of GDP.

IV. DIRECT TAXES


  • Tax rebate increased from Rs.2,000 to Rs.5,000/- for tax payers, having taxable income below Rs.5,00,000/-
  • No change in Tax rates slab
  • HRA deduction increased from Rs.24000/- to Rs.60000/- per annum for individual living in rented house
  • New manufacturing companies incorporated after 1st March 2016 to be taxed @ 25%, but no exemptions allowed to them.
  • First time home buyers get additional interest deduction of Rs.50,000/- if value of the house is upto Rs.50 lacs and loan upto Rs.35 lacs.
  • Surcharge on Income Tax increased from 12% to 15% incase of individual having taxable income above Rs.1 crore.
  • New start-up to get 100% tax exemption for three years in the band of five years. However, MAT will continue to be applicable.
  • Increase in turnover limit from Rs.1 crore to Rs.2 crores in presumptive taxation scheme. Presumptive taxation scheme extended to all professionals with gross receipts upto Rs.50 lakhs.
  • Corporate tax rate for assessee with turnover of less than Rs.5 crores lowered to 29% + Surcharge + Cess
  • One time scheme for tax dispute resolution relating to tax arrears relating to pending appeals.
  • TDS provisions rationalized
  • Government to pay interest @ 9% instead of 6% incase of delay in giving effect to Appellate orders beyond 90 days.
  • Government launches Income Declaration Scheme to declare undisclosed income and pay tax, interest and penalty totaling to 45% of undisclosed income.

V. INDIRECT TAXES


  • Government to levy infra cess @ 1% on small cars, 2.5% on diesel cars and 4% on SUVs
  • Service Tax exempted on newly constructed house of less than 60 sq. meters
  • Excise duties on tobacco increased by 10-15%
  • 5% Krishi Vikas Cess on all Services to fund rural welfare program
  • Duty drawbacks scheme widen to promote more products and countries
  • To reduce customs duty on refrigerated containers
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