Direct Tax Proposal of Budget 2016

1.    People with income less than Rs 5 lakh to get deduction of Rs 5,000, up from Rs 2,000 last year. HRA deduction up from Rs. 24,000 to Rs. 60,000 p.a.

2.    New manufacturing companies incorporated on or after 1.3.2016 to be given an option to be taxed at 25% + surcharge and cess provided they do not claim profit linked or investment linked deductions and do not avail of investment allowance and accelerated depreciation.

3.    Lower the corporate tax rate for the next financial year for relatively small enterprises i.e companies with turnover not exceeding ` 5 crore (in the financial year ending March 2015), to 29% plus surcharge and cess.

4.    100% deduction of profits for 3 out of 5 years for startups setup during April, 2016 to March, 2019. MAT will apply in such cases.

5.    40% of withdrawal at the time of retirement under National Pension Scheme to be tax exempt.

6.    Additional exemption of Rs. 50,000 for housing loans up to Rs. 35 lakh, provided cost of house is not above Rs. 50 lakh.

7.    Tax to be Collected at source at the rate of 1 % on purchase of luxury cars exceeding value of Rs. ten lakh and purchase of goods and services in cash exceeding Rs. two lakh.

8.    Additional tax at the rate of 10% of gross amount of dividend will be payable by the recipients receiving dividend in excess of Rs. 10 lakh per annum.

9.    Surcharge to be raised from 12% to 15% on persons, other than companies, firms and cooperative societies having income above Rs. 1 crore.

10.  Domestic taxpayers can declare undisclosed income or such income represented in the form of any asset by paying tax at 30%, and surcharge at 7.5% and penalty at 7.5%, which is a total of 45% of the undisclosed income. Declarants will have immunity from prosecution.

It is proposed that following cases shall not be eligible for the scheme:

¨ where notices have been issued under section 142(1) or 143(2) or 148 or 153A or 153C, or

¨ where a search or survey has been conducted and the time for issuance of notice under the relevant provisions of the Act has not expired, or

¨ where information is received under an agreement with foreign countries regarding such income,

¨ cases covered under the Black Money Act, 2015, or

¨ persons notified under Special Court Act, 1992, or

¨ cases covered under Indian Penal Code, the Narcotic Drugs and Psychotropic Substances Act, 1985, the Unlawful

11.  Activities (Prevention) Act, 1967, the Prevention of Corruption Act, 1988

12.  New Dispute Resolution Scheme to be introduced. No penalty in respect of cases with disputed tax up to Rs. 10 lakh. Cases with disputed tax exceeding Rs  10 lakh to be subjected to 25% of the minimum of the imposable penalty. Any pending appeal against a penalty order can also 14 be settled by paying 25% of the minimum of the imposable penalty and tax interest on quantum addition.

13.  Penalty rates to be 50% of tax in case of underreporting of income and 200% of tax where there is misreporting of facts.

14.  Disallowance will be limited to 1% of the average monthly value of investments yielding exempt income, but not exceeding the actual expenditure claimed under rule 8D of Section 14A of Income Tax Act.

15.  Mandatory for the assessing officer to grant stay of demand once the assesse pays 15% of the disputed demand, while the appeal is pending before Commissioner of Income-tax (Appeals).

16.  Monetary limit for deciding an appeal by a single member Bench of ITAT enhanced from Rs. 15 lakhs to Rs. 50 lakhs.

17.  For non-residents providing alternative documents to PAN card, higher TDS not to apply.

18.  Securities Transaction tax in case of ‘Options’ is proposed to be increased from .017% to .05%.

19.  Increase in threshold limit for presumptive taxation scheme for persons having income from business from Rs. 1 Crore to Rs. 2 Crore.

20.  New Section 44ADA – Increase in threshold limit for presumptive taxation scheme for persons having income from profession from Rs. 25 Lacs to Rs. 50 Lacs, with 50% as presumptive rate.

21.  Increase in time period for acquisition or construction of self-occupied house property for claiming deduction of interest from 3 years to 5 years.

22.  Exemption of Central Government subsidy or grant or cash assistance, etc. towards corpus of fund established for specific purposes from the definition of Income.

23.  Extension of scope of section 43B to include certain payments made to Railways

24.  Section 28- Taxation of Non-compete fees and exclusivity rights in case of Profession

25.   Clarification regarding the definition of the term ‘unlisted securities’ for the purpose of Section 112 (1) (c) – long-term capital gains arising from the transfer of a capital asset being shares of a company not being a company in which the public are substantially interested, shall be chargeable to tax at the rate of 10 per cent.

26.   Section 50C – in case sale consideration is fixed under agreement executed prior to the date of registration of immovable property – the stamp duty value on the date of the agreement may be taken for the purposes of computing the full value of consideration

27.   New condition for conversion of a company into Limited Liability Partnership (LLP) – the value of the total assets in the books of accounts of the company in any of the three previous years preceding the previous year in which the conversion takes place, should not exceed five crore rupees

28.   Processing under section 143(1) be mandated before assessment under section 143(3)

29.   Time limit for assessment, reassessment and recomputation – the period, for completion of assessment under section 143 or section 144 be changed from existing two years to  twenty-one months from the end of the assessment year in which the income was first assessable;

the period for completion of assessment under section 147 be changed from existing one year to nine months from the end of the financial year in which the notice under section 148 was served

30.   Advance Tax – eligible assessee in respect of eligible business referred to in section 44AD opting for computation of profits or gains of business on presumptive basis, shall be required to pay advance tax of the whole amount in oneinstalment on or before the 15th March

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eMinds Legal is a Corporate Law Firm based in Gurgaon, India specializing in Corporate Legal, Corporate Secretarial and Compliance. The Firm comprises of a team of Corporate Lawyers and Company Secretaries with in-depth subject matter knowledge and participative industry experience of over 15 years.

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