Budget 2017: GAAR alert! Your salary and reimbursements may be under greater income tax scrutiny soon

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Updated: Jan 30, 2017 11:01 PM

Budget 2017: GAAR, or General Anti-Avoidance Rule, will kick in from April 1, 2017 and it may very well mean that your company will have to restructure your salary!

Budget 2017 tax, Budget 2017 GAAR, General Anti-Avoidance Rule, Union Budget 2017Finance Minister Arun Jaitley may announce further clarifications on the ambit of GAAR in Budget 2017. (Reuters file photo)

Budget 2017: GAAR, or General Anti-Avoidance Rule, will kick in from April 1, 2017 and it may very well mean that your company will have to restructure your salary! Finance Minister Arun Jaitley may announce further clarifications on the ambit of GAAR in Budget 2017, but for now the way it has been proposed, its implementation may bring various components of your salary, such as reimbursements, under the taxman’s radar.

Talking about this in detail, Ravi Shingari, Partner, Tax at KPMG India tells FE Online that aspects of your salary, such as a company-leased car, may also come under GAAR. “GAAR, the way it will be introduced, says that if step or transaction has been taken with the main purpose of ‘tax avoidance’, then GAAR will trigger in. When GAAR triggers in then the Income Tax officer has the power to recharacterise the transaction and charge income tax on it. If we apply this, then it doesn’t really restrict the application to corporates. It applies to every taxpayer,” he says in an exclusive chat with FE Online.

“This means that if an individual taxpayer, whether salaried or non-salaried, is doing some tax planning which doesn’t have enough substance behind it, then that is in the radar of getting questioned under GAAR. We haven’t seen the detailed guidelines under what circumstances GAAR will apply. So, that probably will throw some light. But, for example, a lot of corporates have this provision for the salaried, where there is a scheme of giving the company-leased car. The lease amount is reduced from the salary and there is a tax saving of some percentage on that lease amount. There is a possibility that the way GAAR is today, the company leased car arrangements could be challenged under GAAR,” he explains.

Meanwhile, individual taxpayers are looking forward to a lot incentives from FM Jaitley in Budget 2017, given that it comes within months of demonetisation. According to Shingari, Finance Minister Arun Jaitley needs to give more disposable income in the hands of the individual taxpayers. “The basic or most realistic expectation would be that today you don’t have to pay tax for an annual income up to Rs 2.5 lakh – that at least can be increased to Rs 3 lakh,” he says. Shingari also believes that the tax slabs need to be revised, especially if one were to compare it to the neighbouring countries.

“The peak rate above which you start paying 30% tax is Rs 10 lakh which is really really low and if you compare that to the countries around India, especially in the ASPAC region, or you look at Singapore and Malaysia – both these countries have an upper limit of Rs 1.5 crore. After that the peak rate starts applying, and the peak rate is even lower than 30%,” Shingari says. “So, if our neighbours working in the similar economic set up can do it, I think it is probably time now that we also change that Rs 10 lakh to at least Rs 20 lakh. That again will increase the disposable income in the hands of the individuals,” he adds.

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