The much awaited and the much talked about Budget 2016 has been revealed by the Finance Minister (FM), Mr. Arun Jaitley. This Budget talks about an India being transformed, and in order to do so, the FM has introduced us to the measures which would be undertaken based on the proposed nine pillars for India. The pillars which he set across includes agriculture, rural sector, social sector, education, skills and job creation, infrastructure investment, financial sector reforms, governance reforms and ease of doing business, fiscal discipline and tax reforms to reduce compliance burden.
The key provisions in direct taxes which have been proposed in this Budget, particularly for the individuals have been listed hereunder:
Tax slabs and 80C limits :The common man had been quite hopeful on the basic rates of taxation to undergo a change along with the 80C deductions limits to be raised but these have remain unchanged. However, for small taxpayers earning annual income not exceeding INR 5 lakhs, the FM has raised the ceiling of tax rebate from INR 2,000 per annum to INR 5,000 per annum. This has resulted in tax savings up to INR 3,090 per annum.
Additionally Taxing the Super Rich: For the super-rich the basic tax rates haven't changed but the rate of surcharge for the super-rich class of individuals (i.e. total income is exceeding INR 1 crore) has been increased from 12 per cent to 15 per cent (which was increased by 2 per cent last year as well). The maximum marginal rate of tax (i.e. for income in excess of INR 1.065 crore) will now stand at 35.535 per cent compared to the erstwhile rate of 34.608 per cent.
Additional interest deduction: As anticipated, in order to boost the real estate sector and in-line with the Government's long term intention to provide housing for all, an additional deduction of up to INR 50,000 per annum for interest on housing loan provided the loan amount does not exceed INR 35 lakhs (sanctioned during FY 2016-17) and the cost of the house does not exceed INR 50 lakhs. Also, the individual should not own any other property on the date of sanction of the loan.
Increase in time period for acquisition or construction of self-occupied house property for claiming deduction of interest - Delays in housing construction projects that adversely impacted the tax deduction claim made by house owners now sought to be relaxed. Enhanced deduction for interest paid on housing loan now proposed to be allowed even if construction is completed after 3 years but before 5 years.
Deduction in respect of rent paid: In case of individuals who does not own a house and is not in receipt of House Rent Allowance from employer, a deduction of up to INR 2,000 per month was allowed in respect of rent paid towards accommodation occupied by them. This limit has been raised to INR 5,000 per month.
High earners of Dividend will now be taxed: Currently, income earned by way of dividends from shares of domestic companies is exempt from tax and dividends are taxed only at the rate of fifteen per cent at the time of distribution of dividend in the hands of company declaring dividends. It is proposed that income earned by way of dividends from shares of domestic companies in excess of
Rs 10 lakhs shall be taxable in the hands of resident individuals, HUFs or a Firm at the rate of 10 percent (plus applicable surcharge and cess).
Employer's contribution to Super-annuation fund: Currently, the amount of any contribution made to an approved Superannuation Fund by the employer in respect of the employee, to the extent it exceeds INR 1 Lakh is taxable as perquisite in the hands of the employee. FM has proposed to enhance this threshold to INR 1.5 Lakhs. Further, the payment from a superannuation fund in lieu of or in commutation of annuity purchased exempt only to the extent of 40% in respect of contributions made on or after 1 April 2016.
Employer's contribution to and withdrawal from a Recognized Provident Fund - The employer's contribution to a recognized Provident fund in excess of INR 150,000 per annum may now be taxable in the hands of the employee. Further, tax exemption on withdrawal of provident fund may now be limited to 40 percent of accumulated balance attributable to contributions made on or after 1 April 2016 by an employee. Salary limits will be separately prescribed for employees excluded from tax on such withdrawal. However, it is likely that the Finance Ministry will issue detailed FAQs on this subject.
Belated Tax Return - The time limit to file a belated individual tax return has been reduced to one year from the end of the relevant financial year. Further, a belated tax return which was not allowed to be revised earlier can now be revised within the prescribed time limits.
For the Aam Aadmi, this Budget was focused on taxation of retiral schemes, reducing compliance burden and litigation and minimizing administrative and procedural difficulties faced by taxpayers.
(The writer is Partner and Head of Global Mobility Services - Tax, KPMG in India)