HIGHLIGHTS – UNION BUDGET 2015-16

The Union budget 2015-16 presented on 28^th February, 2015 encompasses the fact that Government of the day is focused on consolidating the growth factors with achievable plan of actions. We have tried to bring out certain critical changes that this budget proposes, and that may impact the business decisions or individuals tax planning.

Following are few key takeaways from the Union Budget 2015-16 divided into,

1) Impact on Individuals,

2) Impact on Corporates,

1. A) Taxation, and
2. B) Key Policy announcements. 

 

 

1) IMPACT ON INDIVIDUALS: 

1. No change in rate of personal income tax. However, a surcharge of 12% (earlier 10%) has been imposed to offset the drop in tax revenues on account of abolition of Wealth Tax. This surcharge continues to remain applicable to individuals having taxable income in excess of Rupees 1 Crore.
2. Exemption to individual tax payers to continue to facilitate savings:

 

1. Additional tax saving benefit of Rupees 0.70 lacs provided to individuals, thus taking total benefit to Rupees 4.44 lacs.

Deduction Heads	Proposed Status	Change from Existing Status
Deduction u/s 80C	1,50,000	NIL
Deduction u/s 80CCD	50,000	+50,000
Deduction on account of interest on house property loan (Self Occupied Property)	2,00,000	NIL
Deduction u/s 80D on health insurance premium	25,000	+10,000
Exemption of Transport Allowance	19,200	+9,600
TOTAL	4,44,200	+69,600

• .

 

1. Tax exemption to Sukanya Samriddhi Scheme: Deposit in Sukanya Samriddhi Scheme is already eligible for deduction under Section 80C.  All payments to the beneficiaries including interest payment on deposit will also be fully exempt.

 

• Transport Allowance exemption is being increased from Rs.800 to Rs.1,600 per month.

 

1. Deduction under section 80DD and section 80U so as to meet the medical cost of a person with specified disability has been raised from existing Rupees 50,000/- to 70,000/-. It is further proposed to amend the section, so as to raise the limit of deduction in respect of a person with severe disability from Rupees 1 lac to Rupees 1.25 lacs.

 

1. The limit of deduction under 80CCC raised: Deduction u/s 80CCC, for the amount paid or deposited to effect or keep in force a contract for any annuity plan of Life Insurance Corporation of India or any other insurer, has been raised  from existing Rupees 1 lac to Rupees 1.50 lacs. Overall limit of Rupees 1.50 lacs provided under section 80CCE shall remain the same.

 

17. Additional deduction of Rupees 50,000 under 80CCD (National Pension Scheme) from AY 2016-17. Under the existing provisions of section 80CCD, if any person being an employee of Central Government or any other employer, or any other individual deposit  any sum to his account under NPS , a deduction of 10% of salary in case of employee or 10% gross total income in other case shall be allowed. However, total deduction under this section cannot exceed Rupees 1 lac. With a view to encourage people to contribute towards NPS, it is proposed to omit limit of Rupees 1 lac and to have an additional deduction in respect of any amount paid, up to Rupees 50,000 for contributions made by any individual assessee under the NPS.

 

• No TDS under sec 194DA on payment under life insurance policy, if 15G/15H is provided

As per section 194DA, TDS at the rate of 2% shall be deducted from the payments made under life insurance policy, which are chargeable to tax. It is proposed to amend that recipient should furnish form 15G/15H for non-deduction of tax at source. This amendment will take effect from 1st June, 2015.

1. Rates of income tax are re-iterated as below for AY 2016-17 ( FY 2015-16)

Individuals, Hindu Undivided Families, or Association of Persons or Body of Individuals, whether incorporated or not, or every artificial person etc.

 

	TAX RATES
CATEGORY	Nil	10%	20%	30%
Senior Citizen*	Upto Rs. 3,00,000	From Rs. 3,00,001 to Rs. 5,00,000	From Rs. 5,00,001 to Rs. 10,00,000	Above Rs.10,00,000
Very Senior Citizen**	Upto Rs. 5,00,000	N.A	From Rs. 5,00,001 to Rs. 10,00,000	Above Rs.10,00,000
Others	Up to Rs. 2,50,000	From Rs. 2,50,001 to Rs. 5,00,000	From Rs. 5,00,001 to Rs. 10,00,000	Above Rs.10,00,000

 

* Individual, being a resident in India, who is of the age of sixty years or more but less than eighty years

** Individual, being a resident in India, who is of the age of eighty years or more

 

1. The ‘very senior citizens’ who are unable to get health insurance coverage and are unable to take tax benefit under Section 80D, it is proposed to provide that a deduction of Rupees 30,000 by way of either premium amount of health insurance or medical expenditure. Even in case of an individual, who has dependent parents (including very senior citizen), in such a case, the individual can aggregate the deduction under section 80D upto Rupees 55,000 (Rupees 25,000 for himself and family and Rs. 30,000 for senior/ very senior citizen parents).
2. The education cess of 3% would continue to be payable on the amount of tax in all the above cases.
3. Although Wealth Tax Act has proposed to be abolished from FY 2015-2016 onwards but an additional surcharge of 2% will be levied on taxable income of over Rupee One Crore. Disclosures pertaining to assets will be reported in the Income Tax Return
4. There is a proposal to amend Sections 269SS and 269T to prohibit acceptance or payment of an advance of Rupees 20,000 or more in cash for purchase of immovable property.
5. Quoting of PAN is being made mandatory for any purchase or sale exceeding Rupees One lac.

 

2) IMPACT ON CORPORATES:

1. TAXATION:
2. It is proposed to reduce corporate tax from 30% to 25% over the next four years, starting from the next financial year.
3. Surcharge @ 7% shall be levied in case of a domestic company, if the total income exceeds Rupees 1 Crore but does not exceed Rupees 10 Crore. The surcharge @ 12% shall be levied if the total income of the domestic company exceeds Rupees 10 Crores. In case of companies other than domestic companies, the existing surcharge of 2% shall continue to be levied if the total income exceeds Rupees 1 Crore but does not exceed Rupee 10 Crore. The surcharge @ 5% shall continue to be levied if the total income of the company exceeds Rupees 10 Crores.
4. To facilitate technology inflow, rate of Withholding Tax on royalty and fees for technical services has been reduced from 25% to 10%. This may encourage young technocrats for new start-ups.
5. General Anti Avoidance Rule (GAAR) to be deferred by two years and will apply to investments made on or after 01^st April, 2017 and will have no retrospective effect.
6. 100% deduction will be allowed for contributions made to Swachh Bharat Kosh and Clean Ganga Fund, but this will not be covered under CSR activities (this deduction will also be available to Individual Tax Payers).
7. Government proposes to increase Service Tax rate to 14% all inclusive. The effective date is yet to be notified.
8. An additional levy of 2% as Swachh Bharat Cess on services is also proposed, which shall be notified by the Central Government at a later date.
9. Online Central Excise and Service Tax registration to be done in two working days.
10. Assessees to be allowed to sign using their digital signature and maintain records electronically.
11. GST is expected to play transformational role in collection of tax revenue, as government reaffirms its implementation from 01st April, 2016.
12. Effective 01st April 2015, services provided by way of supply of manpower and security services amended to attract full reverse charge as against current partial reverse charge on 75%
13. Effective 01st April 2015, a uniform abatement rate of 70% shall apply in case of transport of goods and passenger by rail, transport of goods by road and transport of goods by vessel
14. To reduce the hassles for small businesses and to avoid higher compliance cost with respect to domestic transfer pricing, it is proposed to increase the threshold limit from Rupees 5 Crores to Rupees 20 Crores.
15. There is no change in the Dividend Distribution Tax (DDT) rate.  The tax rate applicable remains at 17.304% (tax @ 15% + surcharge @ 12% + education cess @ 3%)

 

1. KEY POLICY ANNOUNCEMENTS
2. Government has already launched e-biz portal (https://www.ebiz.gov.in/) which integrates 14 regulatory permissions at one source. The government now proposes a draft legislation to use the above information for an entrepreneur to start his business as per the pre-existing regulatory mechanism before any formal permission are granted. This will provide relaxation to entrepreneur from filing multiple applications and waiting for respective permissions to come.
3. An Auditor who is not eligible to be appointed as an auditor of a company as per the provisions of Section 141(3)of the Companies Act, 2013, shall not be eligible for carrying out any audit or furnishing of any report /certificate in respect of that Company. The government has sought parity in defining the role of an ‘Accountant’ as per Section 288(2) of the Income Tax Act, 1961 on the lines of definition of ‘Chartered Accountant’ under Section 2(17) of the Companies Act, 2013.
4. To bring parity in regulations of NBFC with other financial institutions in matters relating to recovery, it is proposed that NBFCs registered with RBI and having asset size of Rupees 500 Crore or above, will be considered to be notified as ‘Financial Institution’ in terms of the SARFAESI Act, 2002.
5. Introduction of measures to curb ‘Black Money’:
6. Concealment of assets/ evasion of income in relation to a foreign asset will come under the ambit of offence as defined under Prevention of  Money Laundering Act, 2002
7. Evasion of tax in relation to foreign assets to have rigorous imprisonment upto 10 years, with a penalty rate of 300% of tax sought to be evaded and no provision to the offender, for compounding or approach to Settlement Commission

• Mandatory filing of return in respect of foreign assets even in case of NIL income

1. Non-filing of return/ filing of return with inadequate disclosure shall invite rigorous imprisonment upto 7 years
2. Investigation into cases of undisclosed foreign assets has been given highest priority, and a bill for a comprehensive new law to deal with black money parked abroad is proposed to be introduced in the current session of Parliament.
3. Benami Transactions (Prohibition) Bill is likely to be tabled to curb domestic black money.
4. The Govt proposes to give two options to employees for either contribution towards Employees Provident Fund (EPF) or New Pension Scheme (NPS), where as employers continue to contribute their share towards EPF.

The above option is open to employees below certain threshold of monthly income without affecting or reducing the employer’s contribution.

Similarly, Government intends to give option to employees, of choosing contribution to either Employee State Insurance (ESI) or IRDA recognized health Insurance Products.

1. The budget proposes to amend the provisions of Section 6 to provide that a company shall be said to be resident in India, in any previous year, if:
   1. It is an Indian Company, or
   2. Its place of ‘effective’ management, at any time in that year, is in India.

‘Place of Effective Management’ (POEM), which is an internationally accepted principle, would mean a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance made. It is likely to curb the tax ambiguity involved with cases of shell companies outside India but being controlled and managed from India.