Union Budget 2016-17: Will it give a breather to small taxpayers?

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New Delhi | Updated: Feb 08, 2016 10:26 AM

Union Budget 2016-17: Suggestions include raising TDS threshold, halving its rate to 5% and eliminating officer’s discretion with regard to treatment of capital gains on share’ trading.

budget 2016-17Union Budget 2016-17: Suggestions include raising TDS threshold, halving its rate to 5% and eliminating officer’s discretion with regard to treatment of capital gains on share’ trading.

Union Budget 2016-17: With the finance minister Arun Jaitley stating that the government is looking into recommendations of Parthasarthi Shome Committee and Easwar panel report, tax reforms seem to be high on the agenda of the government for the upcoming Budget for 2016-17.

The first draft of Justice RV Easwar-led committee’s report on simplifying the Income-Tax Act, which was made public last week, has made many suggestions to simplify the taxation process for the common taxpayer and some of these recommendations are likely to be taken up for consideration as part of the proposals for the upcoming budget.

The Easwar committee has suggested amendments for raising the threshold for the tax deducted at source (TDS), halving the TDS rate to 5 per cent and eliminating tax officer’s discretion with regard to treatment of capital gains on shares’ trading. “The Justice Easwar committee’s report is not only aimed to simplify tax regime, but also to address issues which are open to interpretation and hence, reduce litigation,” Vikas Vasal, partner and head, tax markets, KPMG said.

We take a look at the top 7 recommendations and their impacts

1. Among the most important recommendations that will have a significant impact for a small taxpayer is the increase in the threshold limits and reduction of the rates of TDS. With nearly 65 per cent of the personal income-tax collection in India being raised through TDS, the committee’s proposals for TDS provisions are aimed to make it more tax friendly. The committee has suggested reduction in TDS rates in case of interest and commission for individuals and Hindu Undivided Families (HUFs) to 5 per cent from 10 per cent at present.

2. The threshold limits for TDS, which have not been changed for years and remain low, are also set for a revamp if the government will accept the recommendations of the committee. The panel has suggested increasing annual limit for TDS liability on payment of bank interest to Rs 15,000 from Rs 10,000 at present. The annual limits for TDS liability for payment of interest on securities and on interest on NSS accounts is proposed to be raised to Rs 15,000 from Rs 2,500 currently, while that for rent income is suggested to be hiked to Rs 2,40,000 from Rs 1,80,000. Winnings from lotteries and horse races will be clubbed under ‘income from winnings’ and are proposed to be taxed under 30 per cent.

3. The committee has proposed a 12 per cent interest on tax refunds made more than six months after the returns are filed, while an interest of 18 per cent should be paid for refunds with delay of over a year. At present, the interest on refunds cannot exceed 6 per cent or half a percent a month.

4. The committee has recommended clearance of refunds within three months from the end of the month in which the order is passed, or else payment of additional interest on delayed refund at 0.5 per cent per annum. The panel’s suggestion to move towards electronic tax processes to minimise human interface will empower the common taxpayer to follow his or her tax processes in a simple and convenient manner, tax experts said. The committee has suggested that processes such as filing of tax returns, rectification of mistakes, appeal, refunds and all communication for notices, questions and documents sought should be done electronically.

5. To help small businesses and sole proprietorships, the committee has recommended changes in the presumptive scheme, wherein turnover threshold for mandatory audit of the books has been proposed to raise from Rs 1 crore to Rs 2 crore for businesses and Rs 25 lakh to Rs 1 crore for professionals. Under the presumptive income scheme, it is proposed that businesses will not be required to maintain a book of accounts. The presumptive tax is levied on presumptive income calculations.

6. The committee has recommended launching a presumptive scheme for professionals, having proposed that 33.3 per cent of their previous year’s receipts will be taken as income on which they will have to pay tax. If their profits are lower, they will have to maintain a book of accounts categorising expenditure separately and pay tax accordingly. For small taxpayers, who are not declaring income as per the presumptive income scheme and find it difficult to maintain accounts, the committee has recommended that a de minimus provision should be made for exempting them from the mandatory requirement of maintaining books of accounts and getting them audited.

7. In a recommendation which is expected to increase retail participation in stock markets, the committee has also proposed that stock trading gains of up to Rs. 5,00,000 should be treated as capital gains and not business income, provided the shares were not held as stock-in-trade. The committee has accordingly recommended taxing the gains at 15 per cent for listed companies, though the gains will be taxed as long-term capital gains if held for more than one year and shown as capital assets.

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