Simplified Laws Guide to Taxation and Legal Concern Basic exemption limit is increased from Rs.2 Lakhs to Rs.2.50 Lakhs
What it means to you? Your annual taxes will be lesser by Rs. 5,150 i.e, monthly take home salary will go up by Rs.400. In case of senior citizens, the basic limit is increased to Rs.3 Lakhs.
Investment deductible u/s 80C of Income Tax Act is increased from Rs.1 Lakh to Rs.1.50 Lakhs
What it means to you? If you invest an additional Rs.50,000 ; depending upon the tax slab, say 20% or 30%; you will save either Rs. 10,300 or Rs. 15,450 per annum
Deduction towards Interest paid on housing loan is increased from Rs.1.50 Lakh to Rs.2 Lakhs
What it means to you? Till now you were allowed to deduct interest paid on housing loan on self- occupied property upto Rs.1.50 Lakhs; now it is enhanced to Rs.2 Lakhs. Depending upon the tax slab, say 20% or 30%; you will save either Rs. 10,300 or Rs. 15,450 per annum
Example: If you have all the three components in your tax computation and your salary is over Rs.10 Lakhs, then the taxes will be lesser by Rs.36,050 per year. Now that three months of this financial year is over, your take home salary will increase by Rs.4,000 per month for the remaining 9 months of this year.
That’s all. No increase in conveyance allowance; medical insurance or reimbursement of medical expenses etc.
Some other aspects; (nothing to do with tax benefits) proposed in the budget are –
Signing the tax returns
From next year onwards (not this year’s return) you needn’t sign Income Tax returns. Once the returns are filed online, that’s it. (Currently, the taxpayer has to sign, post it to CPC, Bangalore)
Investment in Public Provident Fund
The investment limit of Rs.1 lakh in PPF is enhanced to Rs.1.50 Lakh per year. (There is no additional tax benefit; it is included in 80C deduction of Rs.1.50 Lakhs)
Single KYC Norms
Currently Know Your Customer (KYC) process is done each time you obtain demat account, bank account, phone connection etc. I suppose the government is trying to fix this duplication work and may come up with Single KYC norms for all financial services and one demat account for all financial products. (As and when we have more information about this provision, we will update in the coming articles)
Capital Gain exemption u/s 54/54F
Any long term capital gain arising on the transfer of an asset (such as house or site) will be exempt from tax if the assessee has reinvested the amount equal to capital gain in another house property. The Act was not clear about the eligibility criteria of whether the assessee can invest in one house or multiple houses or buy house abroad. Now through this budget, the relevant section is amended as “constructed, one residential house in India”
Capital Gain exemption u/s 54EC
Any long term capital gain shall be exempt if the whole of the capital gain is invested in long term specified assets within six months from the date of sale and such amount shall not exceed Rs.50 Lakhs in a financial year. So, people who had sold the property, say in Jan 2014 used to invest Rs.50 Lakhs before March, 2014 and another Rs.50 Lakhs in April 2014 and thus avail benefit upto Rs.100 Lakhs. In order to plug this loophole in the Act, the new budget proposed to amend this section as “during the financial year in which the original asset or assets are transferred and in the subsequent financial year does not exceed fifty lakh rupees”
Period of holding for capital gain tax purpose
The sale of unlisted security (such as shares of private limited company) and unit of a debt oriented mutual fund shall be considered as short term capital asset if it is held for not more than 36 months (till now it was 12 months)
For companies and employers
Retrospective Amendments – When BJP was in opposition, they were opposing the retrospective amendments in tax laws. So, we were waiting for them to announce in clear words that NO RETRO AMENDMENTS were done. But they cautiously put it as “Sovereign right of the Government to undertake retrospective legislation to be exercised with extreme caution and judiciousness keeping in mind the impact of each such measure on the economy and the overall investment climate”. All retro tax cases to be scrutinized by a high-level committee
Non deduction of tax (TDS) – As per the current provision, if the company fails to deduct tax on its specified expenses; the entire expenditure was disallowed while computing the profits of the company. But now through this budget, it is proposed to disallow 30% of the expense (i.e., instead of 100%)
Disallowance of Salary for non deduction of tax (TDS) – As per the current provisions, if the company fails to deduct tax on salaries, the expenditure was not disallowed while computing the profits of the company. But now through this budget, it is proposed to disallow 30% of the salary if TDS is not done on salaries.
Corporate Social Responsibility (CSR) – as per Companies Act, 2013 certain companies (as per the eligibility criteria) have to spend 2% of their net profits on corporate social responsibility. It is proposed in this budget that any expenditure incurred by an assessee on the activities relating to corporate social responsibility shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession. Hence CSR spending can’t be reduced from the profits for tax purposes.
Service Tax on Online advertisement-
To broaden the tax base in Service Tax, sale of space or time for advertisements in broadcast media, extended to cover such sales on other segments like online and mobile advertising. Sale of space for advertisements in print media however would remain excluded from service tax. Service provided by radio-taxis have been brought under service tax.
Pending Tax demands – You may be aware that the tax demands raised by the authorities, not paid by the taxpayers, but appealed to the higher tribunals or Courts amounts to over Rs.4,00,000 Crores. If this issue is sorted out through some mechanism, the government can unlock both the time of Courts as well as get, if not full, a portion of the tax dues. In this connection, the Government has mentioned one liner statement – “Legislative and administrative changes to sort out pending tax demands of more than Rs. 4 lakh Crore under dispute and litigation”
We will write about the macro economic scenario and other proposals in the coming articles.
