Although FM Jaitley did not make any changes to the tax slabs in this year’s budget, he had a suitcase full of small changes that will make a significant impact to your tax outgo in 2016-17.
Here is a quick list of 8 major announcements he made in his 1 hour 42 minutes speech that will affect your pocket.
1. INCREASE IN TAX REBATE: Those earning below Rs 5lakhs to save an additional Rs 3,000 in taxes. Tax rebate under Section 87A has been raised from Rs 2,000 to Rs 5,000. Effectively, this means now the basic exemption is of Rs 3 lakh.
2. HOME LOANS: First home buyers to get additional deduction of Rs 50,000. However, this benefit is only for loans up to Rs 35 lakhs where the cost of house is less than Rs 50 lakh.
3. PENSION SCHEMES: Withdrawal from NPS corpus of up to 40% at the time of retirement has been made tax exempt. Similarly, in case of superannuation funds and recognized provident funds, including EPF, the same norm of 40% of corpus to be tax free will apply in respect of corpus created out of contributions made after 1 April 2016. Further, the annuity fund which goes to the legal heir after the death of pensioner will not be taxable in all three cases. The FM has alsoreduced the service tax on Single premium Annuity (Insurance) Policies from 3.5% to 1.4% of the premium paid.
4. SMALL BUSINESS, FREELANCERS AND PROFESSIONALS: The limit of turnover under the presumptive taxation scheme revised from Rs 1 crore to Rs 2 crore for medium or small enterprises. So, anyone with a business of Rs 2 crore can presume that an income of 8% and would not require to maintain books, profit & loss statements or audits. As per Section 44AD of the Income-Tax Act, under the presumptive method, the tax liability is calculated on the basis of a ‘presumed business income’, irrespective of what your actual income may be.
Moreover, Section 44AD now extended to Professionals as well. This frees them from burden of books of accounts and getting audit done. Professionals with gross receipts up to Rs 50 lakh can now avail this benefit by paying tax at 50% of gross receipts.
This is a significant development for small enterprises and professionals such as lawyers and doctors, interior designers etc. “Instead of filing the cumbersome ITR-4, they can file a much simpler 3-pages long ITR 4S.
5. NRIs: As recommended by The Easwar committee, now NRIs who do not have PAN cards would not be subjected to a higher TDS of 20% if they submit Tax Identification Number.
6. TAX DECLARATION WINDOW: A limited period Compliance Window for domestic taxpayers will be created between 1 June to30th September to declare undisclosed income or income. To clear up their past tax transgressions taxpayers will have to pay tax at 30%, and surcharge at 7.5% and penalty at 7.5%, which is a total of 45% of the undisclosed income. They will have to pay up the taxes within two months of declaration. There will be no scrutiny or enquiry regarding income declared in these declarations under the Income Tax Act or the Wealth Tax Act and the declarants will have immunity from prosecution. Immunity from Benami Transaction (Prohibition) Act, 1988 will also be providd. The surcharge levied at 7.5% of undisclosed income will be called Krishi Kalyan surcharge to be used for agriculture and rural economy.
7. CATEGORISED PENALTIES: The penalties will be steeper for tax evaders. FM plans to modify the entire scheme of penalty by providing different categories of misdemeanor with graded penalty and thereby substantially reducing the discretionary power of the tax officers. The penalty rates will now be 50% of tax in case of underreporting of income and 200% of tax where there is misreporting of facts. Currently, the Income-tax Officer has discretion to levy penalty at the rate of 100% to 300% of tax sought to be evaded.
8. CAR, CLOTHES AND CIGARETTES TO COST MORE: The FM has proposed a tax at source at the rate of 1% on purchase of luxury cars exceeding value of Rs. 10 lakh and purchase of goods and services in cash exceeding Rs. 2 lakh. An infrastructure cess of 1% on small petrol, LPG, CNG cars, 2.5% on diesel cars of certain capacity and 4% on other higher engine capacity vehicles and SUVs will also be levied.
The excise duty on branded readymade garments and other items made of textiles with a retail sale price of Rs 1,000 and cigarettes along with other tobacco products (other than beedi) has also been increased.
Source: The Economic Times