Post demonisation, there were general expectations of getting relief from burden of tax for small and medium tax payers in annual Union Budget for the pain caused from demonetization. The Finance Minister has not disappointed them.
Tax Rates: Basic exemption limit of Rs 2.50 lakh, Rs 3 lakh and 5 lakh for individual citizens, senior citizens and very senior citizens remains the same, so also all permissible deductions from taxable income.The tax rate for income slab between Rs 2.50 to 5 lakh is reduced from 10 per cent to 5 per cent. With maximum rebate of Rs 2,500 u/s 87A, a resident individual with income upto Rs 3.50 lakh will not be required to pay any tax. All other tax payers with income above Rs 5 lakh will get tax reduction of Rs 12,750. However, those who earn between Rs 50 lakh to 1 crore will be burdened with surcharge of 10 percent. The surcharge of 15 percent for income over Rs 1 crore is maintained.
Government proposes to raise resources by charging additional tax on the rich through surcharges, taxes on dividends, and plugging loopholes in tax law.
Tax Returns: Starting next year, one page return Form is being introduced for individuals with income less than Rs 5 lakh other than business income. Individuals who file tax return for the first time, the income declared will be accepted without any enquiry.
Government wants tax returns to be filed within due date of July 31/ September 30 (tax audit cases) and tax assessments to be completed in timely manner. For this purpose, delayed returns filed before December 31 will not be accepted unless fine in the form of fees of Rs 5,000 is paid and Rs 10,000 for returns filed thereafter. This is irrespective whether full tax paid or refund is due from government as per returns filed. Late filing fees for income below Rs 5 lakh is Rs 1,000. In case there is a mistake in filing tax return, the revised return is required to be filed before March 31 of the relevant assessment year. The time limit for completion of assessments is advanced to 12 months from end of assessment year.
House loan interest: Presently there is no limit for deduction of interest on loan taken for purchase of house property for renting. The loss from house property after claiming standard deduction of 30 percent from rental income can be set off against income from salary and other sources in same year. This results in a loss to the government. Now this setoff of loss is proposed to be restricted to Rs 2 lakh only in same assessment year. However, balance loss will be allowed to be carried forward for setoff against house property income in next 8 assessment years.
Long term capital gains: At present holding period to classify the immovable property (land and building) as long termis 36 months. With wef April 1, 2017 this period is reduced to 24 months. In addition, base year for calculation of Indexation is shifted from April 1, 1981 to April 1, 2001. Fair market value as on April 1, 2001 can be adopted as cost of acquisition if property is acquired prior to April 1, 2001. This will substantially reduce tax liability on long term capital gains.
There is also good news for property owners who give their property for development to builders and real estate developers in exchange for built up area or partly in cash and partly in built up area, as consideration. Under current law, the day possession of the property is given to the developer, the tax liability is attracted in the same year, though he may get possession of built up property in later years. Now the tax liability will be attracted in the previous year in which project completion certificate is issued. In case part of the consideration is paid in cash, the builder is required to deduct at source 10 percent from such payments for which credit will be available to the owner in the year in which this gain is required to be reported to tax authorities.
Tax deducted at source: An individual, henceforth will be liable to deduct tax at source at 10 percent, from property given on rent for residence if the rent exceeds Rs 50,000 per month. For this he will not be required to obtain TAN.
At present tax at source is deducted from commission paid to Insurance agents. Now, in case their total income is below basic exemption limits, they can provide self-declaration Form 15G/15H for not deducting TDS as in case of bank interest.
Cashless economy: Government wants to promote cashless economy. For this purpose, provision is being made in the Act that the transactions above Rs 3 lakh should be made by account payee cheque/draft/ electronic clearing system through the bank. This will be also applicable for bank withdrawals of Rs 3 lakh in cash in a single day or withdrawals from partnership firm or any other cash transactions or deals. In case of violation, penalty equal to amount of cash receipt is attracted. Business expenditure in cash in excess of Rs 10,000 will be disallowed. Depreciation will not be available on capital expenditure made in cash in excess of Rs 10,000. To avail benefit of deduction for donations u/s 80G, payment in excess of Rs 2,000 will required to be made otherwise than in cash.
Presently, small and medium businesses with turnover less than 2 crore, can declare income on presumptive basis at 8 percent of the annual turnover without maintaining books of accounts. To promote digital economy, a provision is made to hold income at 6 percent of the turnover in respect of transactions made in digital mode. This is applicable from assessment year 2017-18 onwards.
The above changes in Income Tax Act will be effective for Assessment year 2018-19 after the Finance Bill is approved by both houses of Parliament and assented by President of India.
