There were indeed a lot of expectations from today’s budget and many even called it a “Make or Break Budget” for the government. In his speech, the FM clearly laid out the agenda of “Transform, Energise, Clean India”. A lot of expected but nevertheless surprising statistics on numbers of tax returns filed, income disclosed vis-à-vis cars bought and foreign travel undertaken were mentioned. All of this did bring to light the fact that India is a largely non-tax compliant society and thus the Government is trying to bring more people within the tax-net. Given that the present burden of taxation is mainly on honest tax payers and salaried employees, a large number of proposals announced were in view of the commitment of making our tax rates more reasonable, our tax administration more fair and to expand the tax base in the country.
There were a lot of measures announced for the economy as a whole and some of the key budget income tax proposals for individuals are set out below:
1. Tax Rates
The changes in tax rates and tax slabs for individuals below 60 years of age are:
There is thus a relief or maximum tax benefit of Rs 12,500 ( exclusive of applicable surcharge and education cess) for all tax payers with an income above Rs 5 Lacs (on account of this reduced rate only). For taxpayers whose income is between Rs 2.50 lacs to Rs 3.50 lacs a rebate of Rs 2,500 will be available as against the earlier rebate of Rs 5,000 for the tax payers with an income upto Rs 5 lacs. What this effectively means is that resident individuals with an income of Rs 3 lakhs will have a Nil tax burden and in fact if one avails the Rs 1.50 lacs deduction under section 80C then there is no tax for income upto Rs 4.50 lacs.
No changes in basic exemption limit of Rs 3 lacs for senior citizens (60 years to less than 80 years) and Rs 5 Lacs for super senior citizens (80 years and above). To compensate for the revenue loss of approx. Rs 15,500 crores on account of the change in the rates, a surcharge of 10% for individuals with an income exceeding Rs 50 Lacs and less than Rs 1 crore has been introduced. The surcharge of 15% for income exceeding Rs 1 crore continues and the overall cess of 3% continues.
2. Simplified tax return form:
In keeping with the promise of simplification, a one pager tax return form will be introduced and this will apply to individuals with a total income not exceeding Rs 5 lacs (other than business income). Also, such filers will not be subject to a scrutiny by the income tax department, for the first year, unless there is some information with the income tax department that necessitates this.
3. Set off of loss from house property
In order to address the anomaly of interest deduction in respect of self-occupied vis-à-vis let out property, it is proposed to restrict the set off of loss from house property during the current year to Rs 2 lacs. This is a move which may impact many individuals seeking to invest in house property as the current regime allows a full set off of mortgage interest if the property is let out or deemed to be let out. The restriction of Rs 2 lacs only applied to self occupied property in the existing law.
As per the budget, whilst the loss in excess of Rs 2 lacs can be carried forward, one may or may not be able to utilise it, as the deduction carried forward is only allowed against House Property income in the subsequent years (8 in total).
4. Tax return filing
Tax returns can now be revised within 12 months of the end of the fiscal year instead of 24 months in the current regime.
Failure to furnish a tax return within the specified due date shall attract a fee ranging between Rs 1,000 to Rs 10,000 depending upon the time the return is filed and taxable income.
5. Long term capital gains
It is proposed that income arising on sale of equity shares listed on Indian stock exchanges would be tax free only when they were acquired after 1 October 2004 and the acquisition was subject to securities transaction tax (there are some exceptions to this).
Taxpayers who had purchased assets prior to 1st April 1981, were allowed to replace the cost of acquisition with the fair market value as on 1st April 1981. It has now been proposed to revise the base year to 1st April 2001. Hence taxpayers can now take fair market value as on 1st April 2001 as the cost of acquisition. Similarly, the indexed cost of acquisition would also be determined with the base year being 1st April 2001 instead of 1st April 1981.
6. Other changes
It is also proposed that partial withdrawal (as per the rules governing National Pension System) not exceeding 25% of the contributions made by an employee shall not be taxable.
Individual taxpayers would be required to deduct taxes at a rate of 5% on housing rentals paid to a resident landlord, if the monthly rent exceeds Rs 50,000. It is proposed that the tax could be deducted at the time of credit of rent for the last month of the tax year or last month of tenancy, as applicable. There are however certain relaxations with respect to other withholding tax compliances that any other deductor is required to do.
Given the high expectations and limited fiscal space, meeting the plethora of expectations would have been a really daunting task. The FM has focussed on some key areas and has tried to add sweeteners whilst balancing the tax collection targets. As they say “You win some, you lose some”.
(Authored by Surabhi Marwah, Tax Partner, EY. The writer is Partner, Tax & Regulatory Services at Ernst & Young LLP. Views expressed are personal).