Union Budget 2016-17: Tax Reforms – I
It lists out initiatives proposed in the Budget 2016-17 that are related to small tax payers, growth, employment generation and Make in India initiative.
The Union Finance Minister Arun Jaitley on 29 February 2016 presented the Annual Financial Statement or the Union Budget for 2016-17 in the Lok Sabha. In his budget speech the minister listed nine pillars on which the Government will focus on in order to transform India into a developed nation.
The nine pillars are - Agriculture and farmers' welfare, rural sector, social sector including healthcare, education, skills and job creation, infrastructure and investment, financial sector reforms, governance and ease of doing business, fiscal discipline, tax reforms to reduce compliance burden.
In the tax reforms segment, the following new initiatives were proposed in the Budget 2016-17. Broadly, the provisions are related to small tax payers, growth, employment generation and Make in India initiative.
Relief to small tax payers
• In order to lessen tax burden on individuals with income not exceeding 5 lakhs rupees per annum, the ceiling of tax rebate under section 87A was proposed to raise from 2000 to 5000 rupees. There are 2 crore tax payers in this category that will get a relief of 3000 rupees in their tax liability.
• The limit of deduction in respect of rent paid under section 80GG from was increased to 60000 per annum. At present, the people who do not have any house of their own and also do not get any house rent allowance from any employer get a deduction of 24000 rupees per annum from their income to compensate them for the rent they pay.
Measures to boost Employment and Growth
• The turnover limit under Presumptive taxation scheme under section 44AD of the Income Tax Act, 1961 will be increased to 2 crore rupees to bring big relief to a large number of assessees in the MSME category. At present, the turnover limit is 1 crore rupees and 33 lakh small business people are benefitting from it.
• The presumptive taxation scheme will be extended to professionals with gross receipts up to 50 lakh rupees with the presumption of profit being 50 percent of the gross receipts.
• The following 4 proposals were made in relation to phasing out deduction under Income Tax
1) The accelerated depreciation provided under IT Act will be limited to maximum 40 percent from 1 April 2017.
2) The benefit of deductions for research would be limited to 150 percent from 1 April 2017 and 100 percent from 1 April 2020.
3) The benefit of section 10AA to new SEZ units will be available to those units which commence activity before 31 March 2020.
4) The weighted deduction under section 35CCD for skill development will continue up to 1 April 2020.
• Following 2 changes were proposed in corporate income-tax rates
1) The new manufacturing companies which are incorporated on or after 1 March 2016 are proposed to be given an option to be taxed at 25 percent plus surcharge and cess provided they do not claim profit linked or investment linked deductions and do not avail of investment allowance and accelerated depreciation.
2) Lower the corporate tax rate for the next financial year for relatively small enterprises that is companies with turnover not exceeding 5 crore rupees (in the financial year ending March 2015), to 29 percent plus surcharge and cess.
• Start-ups: 100 percent deduction of profits for 3 out of 5 years will be allowed to startups which are setup between April 2016 and March, 2019. However, Minimum Alternate Tax (MAT) will apply in such cases. And, capital gains will not be taxed if invested in regulated/notified Fund of Funds and by individuals in notified startups, in which they hold majority shares.
• 10 percent rate of tax on income from worldwide exploitation of patents developed and registered in India by a resident.
• Period for getting benefit of long term capital gain regime in case of unlisted companies is proposed to be reduced from 3 to 2 years.
• Complete pass through of income-tax to securitization trusts including trusts of Asset Reconstruction Companies (ARCs) will be allowed. This measure was announced to get more investment in ARCs which play a very important role in resolution of bad debts.
• Non-banking financial companies (NBFCs) will be eligible for deduction the extent of 5 percent of its income in respect of provision for bad and doubtful debts.
• The determination of residency of foreign company on the basis of Place of Effective Management (POEM) was proposed to be deferred by one year.
• The Government expressed its commitment to implement General Anti Avoidance Rules (GAAR) from 1 April 2017. It was introduced for the first in the 2012-13 Budget and since then its implementation got delayed due to opposition from business firms.
• Service tax on services provided under the Deen Dayal Upadhyay Grameen Kaushalya Yojana, universal rural electrification scheme, and services provided by Assessing Bodies empanelled by Ministry of Skill Development & Entrepreneurship will be exempted.
• Exemption of service tax on general insurance services provided under Niramaya Health Insurance Scheme launched by National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disability was proposed.
• In order to meet the Government’s commitment to Base Erosion and Profit Shifting (BEPS) initiative of OECD and G-20, the Finance Bill, 2016 included provision for requirement of country by country reporting for companies with consolidated revenue of more than 750 million euros.
MAKE IN INDIA
Changes in customs and excise duty rates were announced in order to reduce costs and improve competitiveness of domestic industry. Few of the beneficial sectors are -
• Information technology hardware
• Capital goods
• Defence production
• Textiles, mineral fuels & mineral oils
• Chemicals & petrochemicals
• Paper, paperboard & newsprint
• Maintenance repair and overhauling [MRO] of aircrafts and ship repair
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