Budget 2016 -2017: Highlights of Changes in Direct & Indirect Taxes

Published On - May 15, 2016

admin Direct Tax, Union Budget

Berries
Budget 2016 – 2017 have been presented on parliament on 29th Feb 2016.
This Union Budget 2016-2017 will be applicable for financial year 2016-17.
So any changes in direct and Indirect taxes made in budget 2016-17 will be applicable for financial year 2016-2017 from 1st April onwards or the date notified therein.
Budget 2016 includes the Finance Bill 2016, which bring changes to direct and indirect taxes.
After the assent of the president it becomes Finance Act, 2016.
The effective date for changes in Direct and Indirect taxes will be as follows:
For Direct Tax changes, the effective date will be 1st April 2016 or the date mentioned against each changes.
Foe Indirect Taxes Changes, the effective date is as per the notification issued by Ministry of Finance.

UNION BUDGET 2016 HIGHLIGHTS OF CHANGES IN DIRECT AND INDIRECT TAXES

Direct Tax include Income tax. Income Tax is changed by relevant finance Act of the year. In Budget 2016, the relevant finance act will be Finance Act 2016. So Finance Act 2016 will bring changes in Income tax Act, 1961.
Changes in Direct Taxes / Amendments in Income tax Act, 1961

  1. Slab rates of income-tax are not changed. It is same as it was in financial year 2015-16.
  2. Surcharge remain same as it was in financial year 2015-16.
  3. Education Cess & SHEC remain same as it was in financial year 2015-16.
  4. In case of domestic company, the rate of Income-tax shall be twenty nine per cent. of the total income if the total turnover or gross receipts of the company in the previous year 2014-15 does not exceed five crore rupees and in all other cases the rate of Incometax shall be thirty per cent. of the total income.
  5. In order to provide relief to newly setup domestic companies engaged solely in the business of manufacture or production of article or thing, it is proposed to amend the Act by way of insertion of new section 115BA, to provide that the income-tax payable in respect of the total income of a domestic company for any previous year relevant to the assessment year beginning on or after the 1st day of April, 2017 shall be computed @ 25% at the option of the company.
  6. Earlier the dividend received was exempt U/s 10(34), now it is taxed @10% if the dividend received exceeds Rs. 10 Lac.
  7. Change in rate of Securities Transaction tax in case where option is not exercised from 0.017 % to 0.05%. This is effective from 1st June 2016.
  8. It is proposed to insert a new Chapter titled “Equalisation Levy” in the Finance Bill, to provide for an equalisation levy of 6 % of the amount of consideration for specified services received or receivable by a non-resident not having permanent establishment (‘PE’) in India, from a resident in India who carries out business or profession, or from a non-resident having permanent establishment in India provided the consideration exceeds Rs. 1 Lac.
  9. TCS: It is proposed to amend the aforesaid section to provide that the seller shall collect the tax at the rate of one per cent from the purchaser on sale of motor vehicle of the value exceeding ten lakh rupees and sale in cash of any goods (other than bullion and jewellery), or providing of any services (other than payments on which tax is deducted at source under Chapter XVII-B) exceeding two lakh rupees. The amendment will take effect from 1st June, 2016.
  10. It is proposed to provide that for the purpose of computing distributed income u/s 115QA, the amount received by the Company in respect of the shares being bought back shall be determined in the prescribed manner. The amendment will take effect from 1st June, 2016.
  11. It is proposed to amend the provisions of the Act and introduce a new Chapter to provide for levy of additional income-tax in case of conversion into, or merger with, any non-charitable form or on transfer of assets of a charitable organisation on its dissolution to a non-charitable institution. These amendments will take effect from 1st June, 2016.
  12. (a) Profit linked, investment linked and area based deductions will be phased out for both corporate and non-corporate tax payers. (b) The provisions having a sunset date will not be modified to advance the sunset date. Similarly the sunset dates provided in the Act will not be extended. (c) In case of tax incentives with no terminal date, a sunset date of 31.3.2017 will be provided either for commencement of the activity or for claim of benefit depending upon the structure of the relevant provisions of the Act. 8 (d) There will be no weighted deduction with effect from 01. 04.2017.
  13. Accelerated depreciation is restricted to 40% for all assets.
  14. In order to facilitate the FMCs ( Foreign Mining Companies) to undertake activity of display of uncut diamond (without any sorting or sale) in the special notified zone, it is proposed to amend section 9 of the Act to provide that in the case of a foreign company engaged in the business of mining of diamonds, no income shall be deemed to accrue or arise in India to it through or from the activities which are confined to display of uncut and unassorted diamonds in a Special Zone notified by the Central Government in the Official Gazette in this behalf.
  15. Extending the benefit of initial additional depreciation under section 32(1)(iia) for power sector engaged in the business of transmission of power.
  16. it is proposed to insert new section 115BBF to provide that where the total income of the eligible assessee income includes any income by way of royalty in respect of a patent developed and registered in India, then such royalty shall be taxable at the rate of ten per cent ( plus applicable surcharge and cess) on the gross amount of royalty. No expenditure or allowance in respect of such royalty income shall be allowed under the Act.
  17. it is proposed to insert a new Section 54EE to provide exemption from capital gains tax if the long term capital gains proceeds are invested by an assessee in units of such specified fund, as may be notified by the Central Government in this behalf, subject to the condition that the amount remains invested for three years failing which the exemption shall be withdrawn. The investment in the units of the specified fund shall be allowed up to Rs. 50 lakh.
  18. it is proposed to amend section 54GB so as to provide that long term capital gains arising on account of transfer of a residential property shall not be charged to tax if such capital gains are invested in subscription of shares of a company which qualifies to be an eligible start-up subject to the condition that the individual or HUF holds more than fifty per cent shares of the company and such company utilises the amount invested in shares to purchase new asset before due date of filing of return by the investor.
  19. it is proposed to incentivise first-home buyers availing home loans, by providing additional deduction in respect of interest on loan taken for residential house property from any financial institution up to Rs. 50,000. This incentive is proposed to be extended to a house property of a value less than fifty lakhs rupees in respect of which a loan of an amount not exceeding thirty five lakh rupees has been sanctioned during the period from the 1st day of April, 2016 to the 31stday of March, 2017. It is also proposed to extend the benefit of deduction till the repayment of loan continues. The deduction under the proposed section is over and above the limit of Rs 2,00,000 provided for a self-occupied property under section 24 of the Act.
  20. it is proposed to provide that the deduction U/s 80JJAA shall be available in respect of cost incurred on any employee whose total emoluments are less than or equal to twenty five thousand rupees per month. It is further proposed to relax the norms for minimum number of days of employment in a financial year from 300 days to 240 days and also the condition of ten per cent increase in number of employees every year is proposed to be done away with so that any increase in the number of employees will be eligible for deduction under the provision. It is also proposed to provide that in the first year of a new business, thirty percent of all emoluments paid or payable to the employees employed during the previous year shall be allowed as deduction.
  21. it is proposed to amend Section 47 of the Income-tax Act, so as to provide that any redemption of Sovereign Gold Bond under the Scheme, by an individual shall not be treated as transfer and therefore shall be exempt from tax on capital gains.
  22. it is proposed to amend section 48 of the Act so as to provide that the capital gains, arising in case of appreciation of rupee between the date of issue and the date of redemption against the foreign currency in which the investment is made shall be exempt from tax on capital gains.
  23. it is proposed to amend Section 47 so as to provide that any transfer by a unit holder of a capital asset, being a unit or units, held by him in the consolidating plan of a mutual fund scheme, made in consideration of the allotment to him of a capital asset, being a unit or units, in the consolidated plan of that scheme of the mutual fund shall not be considered transfer for capital gain tax purposes and thereby shall not be chargeable to tax.
  24. it is proposed to amend section 80GG so as to increase the maximum limit of deduction from existing Rs. 2000 per month to Rs. 5000 per month.
  25. 9 it is proposed to amend Clause (14) of section 2, so as to exclude Deposit Certificates issued under Gold Monetisation Scheme, 2015 notified by the Central Government, from the definition of capital asset and thereby to exempt it from capital gains tax.
  26. it is proposed to amend the Act so as to provide that any shares received by an individual or HUF as a consequence of demerger or amalgamation of a company shall not attract the provisions of clause (vii) of sub-section (2) of section 56.
  27. With the objective to provide relief to resident individuals in the lower income slab, it is proposed to amend section 87A so as to increase the maximum amount of rebate available under this provision from existing Rs.2,000 to Rs.5,000.
  28. it is proposed that second proviso of clause (b) of section 24 be amended to provide that the deduction under the said proviso on account of interest paid on capital borrowed for acquisition or construction of a self-occupied house property shall be available if the acquisition or construction is completed within five years from the end of the financial year in which capital was borrowed.
  29. It is proposed to provide that the amount of rent received in arrears or the amount of unrealised rent realised subsequently by an assessee shall be charged to income-tax in the financial year in which such rent is received or realised, whether the assessee is the owner of the property or not in that financial year. It is also proposed that thirty per cent of the arrears of rent or the unrealised rent realised subsequently by the assessee shall be allowed as deduction.
  30. Exemption from Dividend Distribution Tax (DDT) on distribution made by an SPV to Business Trust.
  31. Modification in conditions of special taxation regime for off shore funds Section 9A.
  32. Enabling provision for implementation of various provisions of the Act in case of a foreign company held to be resident in India.
  33. it is proposed to provide for presumptive taxation regime for professionals.
  34. it is proposed to increase the threshold limit of total gross receipts, specified under section 44AB for getting accounts audited, from twenty five lakh rupees to fifty lakh rupees in the case of persons carrying on profession.
  35. Increase in threshold limit for presumptive taxation scheme for persons having income from business u/s 44AD to Rs. 2 Crore.
  36. Deduction in respect of provision for bad and doubtful debt in the case of Non-Banking Financial companies.
  37. Rationalisation of scope of tax incentive under section 32AC.
  38. Exemption from requirement of furnishing PAN under section 206AA to certain non-resident.
  39. Applicability of Minimum Alternate Tax (MAT) on foreign companies for the period prior to 01.04.2015.
  40. Tax Incentives to International Financial Services Centre.
  41. The Income Declaration Scheme, 2016 is proposed to be brought into effect from 1st June 2016 and will remain open up to the date to be notified by the Central Government in the official gazette. The scheme is proposed to be made applicable in respect of undisclosed income of any financial year upto 2015-16.
  42. In order to reduce the huge backlog of cases and to enable the Government to realise its dues expeditiously, it is proposed to bring the Direct Tax Dispute Resolution Scheme, 2016 in relation to tax arrear and specified tax.
  43. Providing Time limit for disposing applications made by assessee under section 273A, 273AA or 220(2A).
  44. Providing legal framework for automation of various processes and paperless assessment.
  45. Rationalization of tax deduction at source provisions relating to payments by Category-I and Category-II Alternate Investment Funds to its investors.
  46. New Taxation Regime for securitisation trust and its investors.
  47. BEPS action plan – Country-By-Country Report and Master file.
  48. Exemption of Central Government subsidy or grant or cash assistance, etc. towards corpus of fund established for specific purposes from the definition of Income.
  49. Extension of scope of section 43B to include certain payments made to Railways
  50. Clarification regarding set off losses against deemed undisclosed income
  51. Taxation of Non-compete fees and exclusivity rights in case of Profession
  52. Clarification regarding the definition of the term ‘unlisted securities’ for the purpose of Section 112 (1) (c)
  53. Time limit for carry forward and set off of such loss under section 73A of the Income-tax Act
  54. Amortisation of spectrum fee for purchase of spectrum
  55. Rationalization of tax deduction at Source (TDS) provisions. Changes in limit of TDS by budget 2016
    Present Section Heads Existing Threshold Limit (Rs.) Proposed Threshod Limit (Rs.)
    192A Payment of accumulated balance due to an employee 30000 50000
    194BB Winnings from Horse Race 5000 10000
    194C Payments to Contractors Aggreagate annual limit of 75,000 Aggreagate annual limit of 1,00,000
    194LA Payment of Compensation on acquisition of certain Immovable Property 2,00,000 2,50,000
    194D Insurance commission 20000 15000
    194G Commission on sale of lottery tickets 1000 15000
    194H Commission or brokerage 5000 15000

    Changes in rate of TDS by budget 2016

    Section Heads Existing Rate of TDS (%) Proposed Rate of TDS (%)
    194DA Payment in respect of Life Insurance Policy 2% 1%
    194EE Payments in respect of NSS Deposits 2% 1%
    194D Insurance commission Rate in force -10% 5%
    194G Commission on sale of lottery tickets 1% 5%
    194H Commission or brokerage 1% 5%

    The changes will take effect from 1st June 2016.

  56. Enabling of Filing of Form 15G/15H for rental payments
  57. Rationalization of Section 50C in case sale consideration is fixed under agreement executed prior to the date of registration of immovable property.
  58. Rationalization of conversion of a company into Limited Liability Partnership (LLP)
  59. Rationalisation of tax treatment of Recognised Provident Funds, Pension Funds and National Pension Scheme.
  60. Processing under section 143(1) be mandated before assessment
  61. Rationalisation of time limit for assessment, reassessment and recomputation.
  62. Rationalisation of time limit for assessment in search cases.
  63. Rationalisation of advance tax payment schedule under section 211 and charging of interest under section 234C.
  64. Payment of interest on refund.
  65. Rationalisation of the provisions relating to Appellate Tribunal.
  66. Rationalisation of penalty provisions.
  67. Amendment of section 271AAB
  68. Amendment of Section 272A
  69. Provision for bank guarantee under section 281B
  70. Processing under section 143(1) be mandated before assessment
  71. Extension of time limit to Transfer Pricing Officer in certain cases
  72. Assumption of jurisdiction of Assessing Officer
  73. Legislative framework to enable and expand the scope of electronic processing of information
  74. Immunity from penalty and prosecution in certain cases by inserting new section 270AA

CHANGES IN INDIRECT TAXES:-
AMENDMENTS IN THE CUSTOMS ACT, 1962:

  1. Subsection (43) of Section 2 is being amended so as to add a new class of warehouses for enabling storage of specific goods under physical control of the department, as control over the other types of warehouses would be only record based.
  2. Subsection (45) of Section 2 which defines “warehousing station” is being omitted.
  3. Chapter heading of Chapter III is being amended to omit the word “warehousing station”.
  4. Section 9 is being omitted.
  5. Section 25 is being amended so as to omit the requirement of publishing and offering for sale any notification issued, by the Directorate of Publicity and Public Relations of CBEC.
  6. Sections 28, 47, 51 and 156 are being amended so as to: a) increase the period of limitation from one year to two years in cases not involving fraud, suppression of facts, willful mis-statement, etc. b) provide for deferred payment of customs duties for importers and exporters to certain class of importers and exporters.
  7. Section 53 is being amended so as to enable the Board to frame regulations for allowing transit of certain goods and conveyance without payment of duty.
  8. Sections 57 and 58 are being substituted to provide for licensing by the Principal Commissioner or Commissioner, in place of Deputy/Assistant Commissioner, subject to such conditions as may be prescribed.
  9. New section 58A is being inserted to provide for a new class of warehouses which require continued physical control and will be licensed for storing goods, as may be specified.
  10. New section 58B is being inserted so as to regulate the process of cancellation of licences which is a necessary concomitant of licencing.
  11. The existing section 59 governing warehousing bonds submitted by importers availing duty deferred warehousing is being substituted so as to fix the bond amount at thrice the duty involved and to furnish security as prescribed.
  12. The existing section 60 is being substituted to define the date of removal of goods from a customs station and deposit thereof in a warehouse.
  13. The existing section 61 is being substituted to extend the period of warehousing to all goods used by Export Oriented Undertakings, Units under Electronic Hardware Technology Parks, Software Technology Parks, Ship Building Yards and other units manufacturing under bond; empower Principal Commissioners and Commissioners to extend the warehousing period upto one year at a time.
  14. Section 62 relating to physical control over warehoused goods is being omitted since the conditions for licensing different categories of warehouses and exercising control over the same are being provided under sections 57, 58 and 58A.
  15. Section 63 relating to payment of rent and warehouse charges is being omitted in view of the privatization of services, and free market determination of rates, including those by facilities in the public sector.
  16. The existing section 64 relating to owner’s rights to deal with warehoused goods is being substituted so as to rationalize the facilities and rights extended under the section.
  17. Section 65 is being amended to delete the payment of fees to Customs for supervision of manufacturing facilities under Bond; and empower Principal Commissioner or Commissioner of Customs to licence such facilities.
  18. Section 68 is being amended to omit rent and other charges on account of omission of section 63.
  19. Section 69 is being amended to omit rent and other charges on account of omission of section 63.
  20. Section 71 is being amended so as to substitute the word “exportation” with the word “export” to align with definition contained in sub section (18) of section 2.
  21. Section 72 is being amended to delete clause (c) regarding improper removal of samples
  22. Section 73 is being amended to provide for cancellation bond in case of transfer of ownership of the goods, and is thus aligned with sub-section (5) of section 59.
  23. New section 73A is being inserted so as to provide for custody of warehoused goods and responsibilities including the liabilities of warehouse keepers.

AMENDMENTS IN THE CENTRAL EXCISE ACT, 1944:

  1. Section 5A is being amended so as to omit the requirement of publishing and offering for sale any notification issued, by the Directorate of Publicity and Public Relations of CBEC.
  2. Section 11A is being amended so as to increase the period of limitation from one year to two years in cases not involving fraud, suppression of facts, willful mis-statement, etc.
  3. Section 37B is being amended so as to empower the Board for implementation of any other provision of the said Act in addition to the power to issue orders, instructions and directions.
  4. The Third Schedule is being amended so as to: a) make some editorial changes, consequent to 2017 Harmonized System of Nomenclature. b) include therein:

1) All goods falling under heading 3401 and 3402;
2) Aluminium foils of a thickness not exceeding 0.2 mm;
3) Wrist wearable devices (commonly known as ‘smart watches’); and
4) Accessories of motor vehicle and certain other specified goods. Changes at (b) above will come into effect immediately owing to a declaration under the Provisional Collection of Taxes Act, 1931.
AMENDMENTS IN SERVICE TAX
There is no act for service tax, it is governed by Finance Act, 1992. So to change service tax, amendments are made in Finance Act, 1992.

  1. An enabling provision is being made to levy Krishi Kalyan Cess on all taxableservices with effect from 1st June, 2016, to finance and promote initiatives to improve agriculture @0.5%.
  2. Exemption on services provided by,-
    (i) a senior advocate to an advocate or partnership firm of advocates providing legal service; and
    (ii) a person represented on an arbitral tribunal to an arbitral tribunal, is being withdrawn with effect from 1st April, 2016 and Service Tax is being levied under forward charge. Now chargeable @ 14%.
  3. Exemption on construction, erection, commissioning or installation of original works pertaining to monorail or metro, in respect of contracts entered into on or after 1stMarch 2016, is being withdrawn with effect from 1st March, 2016. Now chargeable @5.6%.
  4. Exemption on the services of transport of passengers, with or without accompanied belongings, by ropeway, cable car or aerial tramway is being withdrawn with effect from 1st April, 2016. Now chargeable @14%.
  5. The Negative List entry that covers ‘service of transportation of passengers, with or without accompanied belongings, by a stage carriage’ is being omitted with effect from 1st June, 2016. Service Tax is being levied on transportation of passengers by air conditioned stage carriage with effect from 1st June, 2016, at the same level of abatement as applicable to the transportation of passengers by a contract carriage, that is, 60% without credit of inputs, input services and capital goods. Now chargeable @5.6%.
  6. Some new exemption is also introduced by Finance Bill 2016.
  7. Interest rates on delayed payment of duty/tax across all indirect taxes are being rationalized and made uniform at 15%, except in case of Service Tax collected but not deposited to the exchequer, in which case the rate of interest will be 24% from the date on which the Service Tax payment became due. In case of assessees, whose value of taxable services in the preceding year/years covered by the notice is less than Rs. 60 Lakh, the rate of interest on delayed payment of Service Tax will be 12%. [The above changes will come into effect on the day the Finance Bill receives the assent of the President.]