All of us wait for the budget for announcement on additional benefits/deductions or whether we would be required to pay more taxes? While budget 2016 has not proposed any changes in the tax slabs, there are proposals for tax reforms and relief for small taxpayers. Here are the key changes that you should know that may impact your tax outflow for 2016-17.
Relief for the small tax payers
Marginal relief has been raised from Rs 2,000 to Rs 5,000 for individuals whose total income does not exceed Rs 5 lakh per annum.
Deduction under section 80GG has been increased from Rs 2,000 to Rs 5,000 per annum for individuals who are staying in a rented accommodation and paying rent and if they are not receiving house rent allowance (HRA).
Additional deduction of Rs 50,000 per annum for interest paid on housing loan during the financial year 2016-17 for the first time home buyers has been proposed. The cost of the house should not exceed Rs 50 lakh and the loan availed for the same should not exceed Rs 35 lakh. This deduction is in addition to the deduction available towards interest paid on self-occupied property of Rs 2 lakh and is available from financial year 2016-17 onwards.
The time period for completion of construction or acquisition of self-occupied house property for availing the deduction for mortgage interest has been proposed to increase to 5 years from the current 3-year limit.
Impact on super rich
Surcharge has been increased from 12% to 15% on persons whose total income is above Rs 1 crore.
Tax at the rate of 10% of gross amount of dividend has been proposed to be payable by the recipients, that is, individuals, HUFs and firms receiving dividend in excess of Rs 10 lakh per annum.
Long-term capital gains window on unlisted securities has been reduced from 3 years to 2 years
Tax-payers can now amend tax returns filed after the due dates (belated returns)
The seller has been made responsible for collecting tax at source at the rate of 1% on purchase of luxury cars exceeding value of Rs 10 lakh and purchase of goods and services in cash exceeding Rs 2 lakh.
A proposal which still requires further clarifications is that the withdrawal made from recognised provident fund/superannuation fund/national pension scheme, on retirement by an employee, to the extent it does not exceed 40% of the accumulated balance shall be exempt from tax. However, the whole amount received by the nominee with respect to national pension scheme, superannuation and recognised provident fund shall not be taxable on death of the tax-payer
With the commitment to remove black money from the economy, government has introduced ‘Income declaration Scheme 2016’ providing one-time opportunity to taxpayers to declare the undisclosed income and be compliant by paying tax at 30% as increased by surcharge of 7.5% and a penalty of 7.5 %, which would sum up to a total of 45% on undisclosed income.
To improve the taxpayer’s experience, the Finance Minister has also announced measures for simplification and use of technology in the assessment procedures.
All the above mentioned proposals announced in the budget has aimed to create a positive impact on the economy by giving relief to small payers and focusing on legislative reform. The proposals for curbing the black money also reinforce the intentions of the government to make India a black money-free economy.
The author is , Tax Partner and Mobility leader – People Advisory Services, EY.
(Shanmuga Prasad, senior professional – People Advisory Services, EY also contributed to the article) (Views expressed are personal)