Tax reforms proposed in Budget 2016-17

Arun jaitely proposed few tax reliefs and changes in the existing tax structure. It was necessary to transform and impetus the economic growth of India. The other pivotal measures taken in budget 2016-17 can be read here- Vital measures taken in budget 2016-17. Besides the measures to push Agriculture and Social sector schemes, tax proposals change are taken as:-

Relief to Small tax payers:

  • Tax rebate under section 87A has been raised from Rs.2000 to Rs.5000 provided that tax amount to one year does not exceed Rs.5 lakhs.
  • Increase the limit of deduction of rent paid under section 80GG from Rs.24000 per annum to Rs.60000, to provide relief to those who live in rented houses.
  • Presumptive taxation scheme under section 44AD of the Income Tax Act is available for small and medium enterprises, having turnover Rs.1 crore annually. The tax limit has been raised to Rs.2 crore per annum.
  • Extended the presumptive taxation scheme to professionals with gross receipts up to Rs.50 lakh with the presumption of profit being 50% of the gross receipts. 

Relief to Private sectors from taxes:

  •  The accelerated depreciation provided under IT Act will be limited to maximum 40% from 1.4.2017.
  • The benefit of deductions for Research would be limited to 150% from 1.4.2017 and 100% from 1.4.2020.
  • The benefit of section 10AA to new SEZ units will be available to those units which commence activity before 31.3.2020.
  • The weighted deduction under section 35CCD for skill development will continue up to 1.4.2020.
  • The new manufacturing companies which are incorporated on or after 1.3.2016 are proposed to be given an option to be taxed at 25% + surcharge and cess provided they do not claim profit linked or investment linked deductions and do not avail of investment allowance and accelerated depreciation.
  • Proposed to lower the corporate income tax rate for the next financial year of relatively small enterprises i.e companies with turnover not exceeding Rs.5 crore (in the financial year ending March 2015), to 29% plus surcharge and cess.
  • Proposed to assist their propagation through 100% deduction of profits for 3 out of 5 years for startups set up during April 2016 to March 2019. MAT will apply in such cases. Capital gains will not be taxed if invested in regulated/notified Fund of Funds and by individuals in notified startups, in which they hold majority shares.
  • Proposed a special patent regime with 10% rate of tax on income from worldwide exploitation of patents developed and registered in India.
  • Complete pass through of income-tax to securitization trusts including trusts of ARCs. Securitisation trusts required to deduct tax at source.
  • Period for getting benefit of long term capital gain regime in case of unlisted companies is proposed to be reduced from three to two years.
  • Non-banking financial companies shall be eligible for deduction to the extent of 5% of its income in respect of provision for bad and doubtful debts.
  • Determination of residency of foreign company on the basis of Place of Effective Management (POEM) is proposed to be deferred by one year.
  • Commitment to implement General Anti Avoidance Rules (GAAR) from 1.4.2017.
  • Exemption of service tax on services provided under Deen Dayal Upadhyay Grameen
  • Kaushalya Yojana and services provided by Assessing Bodies empanelled by Ministry of Skill Development & Entrepreneurship.
  • Exemption of Service tax on general insurance services provided under ‘Niramaya’ Health Insurance Scheme launched by National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disability.
  • Basic custom and excise duty on refrigerated containers reduced to 5% and 6%.
  • A number of assistive devices, rehabilitation aids and other goods for differently abled (Divyang) persons attract Nil basic customs duty. It was proposed to extend this exemption to Braille paper.
  • Changes in customs and excise duty rates on certain inputs to reduce costs and improve competitiveness of domestic industry in sectors like Information technology hardware, capital goods, defence production, textiles, mineral fuels & mineral oils, chemicals & petrochemicals, paper, paperboard & newsprint, Maintenance repair and overhauling [MRO] of aircrafts and ship repair.

 Measures for Pensioned Society:

  • Proposed to make withdrawal up to 40% of the corpus at the time of retirement tax exempt in the case of National Pension Scheme.
  • Limit for contribution of employer in recognized Provident and Superannuation Fund of Rs.1.5 lakh per annum for taking tax benefit. Exemption from service tax for Annuity services provided by NPS and Services provided by EPFO to employees.
  • Reduce service tax on Single premium Annuity (Insurance) Policies from 3.5% to 1.4% of the premium paid in certain cases.

Promoting Affordable Housing:

  • 100% deduction for profits to an undertaking in housing project for flats upto 30 sq. metres in four metro cities and 60 sq. metres in other cities, approved during June 2016 to March 2019 and completed in three years. MAT to apply.
  • Deduction for additional interest of Rs.50,000 per annum for loans up to Rs.35 lakh sanctioned in 2016-17 for first time home buyers, where house cost does not exceed Rs.50 lakh. 
  • Distribution made out of income of SPV to the REITs and INVITs having specified shareholding will not be subjected to Dividend Distribution Tax, in respect of dividend distributed after the specified date.
  • Exemption from service tax on construction of affordable houses up to 60 square metres under any scheme of the Central or State Government including PPP Schemes.
  • Extend excise duty exemption, presently available to Concrete Mix manufactured at site for use in construction work to Ready Mix Concrete.

Certainity in and rationalization of taxes:

  • Committed to providing a stable and predictable taxation regime and reduce black money.
    Domestic taxpayers can declare undisclosed income or such income represented in the form of any asset by paying tax at 30%, and surcharge at 7.5% and penalty at 7.5%, which is a total of 45% of the undisclosed income. Declarants will have immunity from prosecution.
  • Surcharge levied at 7.5% of undisclosed income will be called Krishi Kalyan surcharge to be used for agriculture and rural economy.
  • New Dispute Resolution Scheme to be introduced. No penalty in respect of cases with disputed tax up to Rs.10 lakh. Cases with disputed tax exceeding Rs.10 lakh to be subjected to 25% of the minimum of the imposable penalty. Any pending appeal against a penalty order can also be settled by paying 25% of the minimum of the imposable penalty and tax interest on quantum addition.
  • High Level Committee chaired by Revenue Secretary to oversee fresh cases where assessing officer applies the retrospective amendment.
  • One-time scheme of Dispute Resolution for ongoing cases under retrospective amendment.
    Penalty rates to be 50% of tax in case of under-reporting of income and 200% of tax where there is misreporting of facts.
  • Disallowance will be limited to 1% of the average monthly value of investments yielding exempt income, but not exceeding the actual expenditure claimed under rule 8D of Section 14A of Income Tax Act.
  • Time limit of one year for disposing petitions of the tax payers seeking waiver of interest and penalty.
  • Mandatory for the assessing officer to grant stay of demand once the assesse pays 15% of the disputed demand, while the appeal is pending before Commissioner of Income-tax (Appeals).
  • Monetary limit for deciding an appeal by a single member Bench of ITAT enhanced from Rs.15 lakhs to Rs.50 lakhs.
  • 11 new benches of Customs, Excise and Service Tax Appellate Tribunal (CESTAT). 
  • 13 cesses, levied by various Ministries in which revenue collection is less than Rs.50 crore in a year to be abolished.
  • For non-residents providing alternative documents to PAN card, higher TDS not to apply.
  • Additional options to banking companies and financial institutions, including NBFCs, for reversal of input tax credits with respect to nontaxable services.
  • Customs Act to provide for deferred payment of customs duties for importers and exporters with proven track record.
  • Customs Single Window Project to be implemented at major ports and airports starting from beginning of next financial year.

Other taxation proposals:

  • Additional tax at the rate of 10% of gross amount of dividend will be payable by the recipients receiving dividend in excess of Rs.10 lakh per annum.
  • Surcharge to be raised from 12% to 15% on persons, other than companies, firms and cooperative societies having income above Rs.1 crore.
  • Tax to be deducted at source at the rate of 1 % on purchase of luxury cars exceeding value of Rs.ten lakh and purchase of goods and services in cash exceeding Rs.two lakh.
  • Securities Transaction tax in case of ‘Options’ is proposed to be increased from .017% to .05%.
  • Equalization levy of 6% of gross amount for payment made to nonresidents exceeding Rs.1 lakh a year in case of B2B transactions.
  • Krishi Kalyan Cess, @ 0.5% on all taxable services, w.e.f. 1 June 2016. Proceeds would be exclusively used for financing initiatives for improvement of agriculture and welfare of farmers. Input tax credit of this cess will be available for payment of this cess.
  • 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. No credit of this cess will be available nor credit of any other tax or duty be utilized for paying this cess.
  • Excise duty of ‘1% without input tax credit or 12.5% with input tax credit’ on articles of jewellery (excluding silver jewellery, other than studded with diamonds and some other precious stones}, with a higher exemption and eligibility limits of Rs.6 crores and Rs.12 crores respectively.
  • Excise on readymade garments with retail price of Rs.1000 or more raised to 2% without input tax credit or 12.5% with input tax credit.
  • Clean Energy Cess’ levied on coal, lignite and peat renamed to ‘Clean Environment Cess’ and rate increased from `200 per tonne to `400 per tonne.
  • Excise duties on various tobacco products other than beedi raised by about 10 to 15%.
  • Assignment of right to use the spectrum and its transfers has been deducted as a service leviable to service tax and not sale of intangible goods.


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