Gist of main amendments in Direct Taxes for F.Y. 2015-16 or A.Y. 2016-17 – Budget 2015
Keeping various aspects in mind, vial amendments are made in the Direct Tax phase of the economy. We will herewith consider the amendments made to the direct taxes by bifurcating them in various areas. So the amendments in direct taxes through Budget 2015 are as given below:
Rates of Taxes
- Tax Rates in case of persons as well as companies are kept unchanged so the rates of the previous year itself will be applicable to the Assessment Year 2016 – 17 for the income earned in the previous year 2015 – 16.
- Surcharge @ 12% will be levied on Income Tax in case where the amount of income exceeds Rs. 1 Crore in case of Individuals, Hindu Undivided Family, Association of Persons, Body of Individuals, Artificial Juridical Persons, Firms, Co-operative Societies as well as Local Authorities.
- Domestic Companies will be liable to pay surcharge @ 7% of the Income Tax in case where the income of the company is between Rs. 1 Crore to Rs. 10 Crores. In case where the income of the company exceeds Rs. 10 Crores, the applicable surcharge will be @12% of the Income Tax.
- Companies other than Domestic Companies will continue to pay surcharge @2% in case of Total income ranging from Rs. 1 Crore to 10 Crores while @5% where the total income exceeds Rs. 10 Crores.
- On payment of Dividends and buyback of Shares by the companies and in case of distribution of income by mutual funds and securitisation trusts, increased rate of surcharge @ 12% will be payable which was 10% previously.
- Taxpayers will be required to pay Education Cess as well as Secondary and Higher Education Cess @ 2% and 1% respectively on income tax. The same rates were in force in the previous year and will be carried to the Financial Year 2015 – 16.
Steps taken to restrain Black Money
- Provisions to section 269SS and 269T of the Income-tax Act are proposed to be amended in a manner that the acceptance as well as repayment of advance in relation to any transaction in immovable property should not exceed Rs. 20,000 in case where the transaction is made in cash. This will help in reducing creation as well as movement of black money in the property market. Penal provision is also proposed which will attract a penalty of the equal amount paid in cash in case of immovable property where the transaction is exceeding Rs. 20,000.
- Another amendment is made in relation to customs i.e. when fake documents are made and presented in the transaction of business relating to customs, the same will be treated as offence under PMLA. This is a measure taken for controlling money laundering in trade practices.
As a measure for Job Creation through revival of growth and investment and promotion of domestic ‘manufacturing’ and ‘Make in India’
- It is proposed that applicability of General Anti Avoidance Rule (GAAR) will be deferred by two years. It means that it will be probably made applicable from the Financial Year 2017 – 18 i.e. Assessment Year 2018 – 19. It is also provided that GAAR will not be applicable to investments made till 31.03.2017. The above amendment was made on representations received from various stakeholders.
- Pass through status will be provided to all the sub – categories of category – I and category – II of Alternative Investment Funds (AIFs) which are framed and governed under regulations of Securities and Exchange Board of India (SEBI). This will provide rationalization in tax method applicable to AIFs.
- Modification in Permanent Establishment (PE) Norms is proposed so that reallocation can be facilitated with regards fund manager of offshore funds in India.
- An additional Investment Allowance @ 15% and depreciation @ 15% in case where a new manufacturing unit is set up in notified areas of Andhra Pradesh and Telangana during the period from 01.0.2015 to 31.03.2020. This amendment was provided to bring the provisions of section 94 of the Andhra Pradesh Reorganisation Act, 2014, in line with the provisions of Income Tax Act.
- Sponsors of Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (INViTs) will be provided with the treatment similar to the one provided to him while offloading shareholding of special purpose vehicle (SPV) at the stage of direct listing in case where they offload the units of REITs and INviTs. Additionally, the taxability of rental income arising from the real estate assets held by the REIT will be passed on in the hands of the unit holders of the REIT. The said move will bring transparency in the taxation of such rental income.
- The period of applicability of reduced tax @ 5% in respect of income of foreign investors (FIIs and QFIs) with respect to corporate bonds and government securities is to be extended from 31.05.2015 to 30.06.2017. This would be an amendment to section 194LD of the Income Tax Act which is related to TDS deduction.
- TDS rate on royalty and fees for technical services, which was @ 25% previously, will be reduced to 10%. This will help in preventing the problems faced by small companies and will facilitate easy inflow of technology in the country.
- Amendment has been made to section 80JJAA of the Income Tax Act thereby reducing the eligibility threshold limit to 50 workmen as compared to 100. This will boost employment in the country as manufacturing units producing goods and paying wages to new regular workmen will gain more tax benefit. The step will generate more and more employment opportunities in the country and will motivate labour intensive organizations.
- Manufacturing Unit or Unit engaged in generation and distribution of power will be eligible to claim additional depreciation @ 20% on new plant and machinery, provided that such plant and machinery is installed before 30th September of the previous year. Else additional depreciation of 20% will be allowed in parts as 10% in the previous year and another 10% in the subsequent previous year. There will be a marginal loss if the plant and machinery is purchased after 30th September of the previous year as the WDV of the plant and machinery will reduce in the subsequent year.
As a Measure to Minimize Government and Maximize Governance to provide ease in carrying out business
- The amendment with regards Section 9 of the Income Tax Act was made in the year 2012. It was amended as a result of lots of queries raised as to clarification to the section by various stakeholders. Finance Act, 2012 has clarified that if an asset, being a share of, or interest, in a company or an entity derives its value, directly or indirectly, substantially from an asset situated in India, the gain arising from transfer of such share or interest shall be taxable in India. This was a clarification regarding the taxability while the terms used in the section were not defined or clarified properly. It again gave rise to questions related to clarification regarding terms used in the amended section. To provide proper solution to the queries raised, a special expert committee was framed. The experts have looked deeply into the matter and have gone through genuine queries received from the stakeholders. The Expert committee have given its recommendations and it is provided in the bill herewith to amend the provisions of the Income Tax Act in the manner provided below:
- The provision regarding taxation on indirect transfer of Indian asset has been clarified herewith. It is proposed that in case of assets located in India, the share or interest shall be deemed to derive its value substantially from the assets located in India, if on the specified date, the value of such assets represents at least fifty per cent of the fair market value of all the assets owned by the company or entity. The said amendment will apply on indirect transfer of Indian Asset if and only if the value of Indian assets exceeds Rs. 10 Crores. Also in the case of taxation on gains that arise from indirect transfer of Indian assets will be computed as per the principle of proportionality.
- It is proposed that the Indian entity will be supposed to communicate information regarding the offshore transactions carried out by such entity, which may have the direct or indirect effect on the ownership structure or the control of the said Indian entity. It was also provided that in case where the Indian entity fails to communicate such information, it will be a case of non – compliance and penalty will be imposed on such entity. This move will bestow the responsibility of providing details to the Finance Department as compared to the cases where the department had to find out the loopholes took place in past in absence of such provisions.
- In the cases where a foreign company holds Indian assets and the share or interest of such foreign entity, along with his associated enterprises is transferred by the transferor not holding the right of control or management nor the voting power or share capital or interest exceeding five percent of the total voting power or total share capital in such foreign company or entity then such transfer will not be within the ambit of indirect transfer provisions. This amendment can be considered as one of the very important move taken to boost the macro economy.
- Exemption will be provided in case of transfer of share of a foreign company provided that such shares are deriving its value, directly or indirectly, substantially from the shares of an Indian company, under a scheme of amalgamation or demerger.
- Transfer pricing regulations will now be applicable on specified domestic transactions exceeding Rs. 20 crores as compared to previous limit of Rs. 5 Crores. Thus section 92BA of the Income Tax Act will be amended with this regards.
- Yoga will be included as a specific category of activity in the definition under section 2(15) of the Income Tax Act i.e. of a ‘Charitable Purpose’. It will be a very boosting measure to promote public health. It is also proposed in the bill that the charitable organizations who is in business of facilitating the activity of yoga should be made available with a relief provided that the receipt from such activity should not be more than 20% of the total receipts. The charitable organization is expected to be a genuine one.
- The income of Core Settlement Guarantee Fund which is established by Clearing Corporations as per mandate of SEBI will be treated as an exempt income.
- The bill proposed an increase in the monetary limit of the case to be heard by a Single Member Bench of the ITAT from Rs. 5 Lacs to Rs. 15 Lacs under section 255 of the Income Tax Act.
- The bill has provided that amendment should be made with regards transfer of units of a scheme of a Mutual Fund under the process of consolidation of schemes of Mutual Funds as per SEBI Regulations, 1996 which should be helpful in providing tax neutrality.
- Provisions of the Income Tax Act will be so amended that there can be elimination of repetitive appeals by the revenue in the same assessee’s case on the same question of law year after year thereby saving the time used in carrying out repetitive proceedings.
- Grant of relief in respect of taxes paid in foreign jurisdictions will be governed by rules prescribed by the Board in this regards. The bill empowers the Board to frame such rules.
- Wealth Tax is proposed to be abolished from assessment year 2016 – 17. This will result in noth positive and negative effect of reduction in compliance burden on tax payers as well as reduction in revenues. Reduction in revenues will be compensated through an increase of 2% in the rate of surcharge payable by the super rich taxpayers whether corporate or non – corporate.
- The bill proposed that in case where an assessee makes application to Settlement Commission with respect to assessment year for which the case has been re – opened by the assessing officer, an application can also be made for other assessment year for which the proceedings could be re-opened subject to the condition that the assessee must have filed the income tax return for such assessment year. This will help in rationalizing the dispute resolution mechanism thereby being helpful to tax payers to solve queries related to various assessment years at one go.
As a measure of improvement in the quality of life and public health through Swachh Bharat Initiative
- It is proposed that 100% deduction under section 80G is available with respect to contribution made to Swachh Bharat Kosh by residents and non residents as well as Clean Ganga Fund by the residents. The CSR contributions made in accordance with section 135 of the Companies Act, 2013 will not be considered for the above deduction.
Benefits made available to middle class taxpayers
Many new amendments are made that can boost the economic stability of the middle class taxpayers. The amendments will also help in raising savings, upbringing girl child, promoting health care etc. We can say that there will be various indirect benefits through amendments in direct taxes to the middle class taxpayers. Let us go through the same:
- Investment made under the newly introduced scheme of Sukanya Samriddhi Account will be eligible for deduction under section 80C.
- The existing limits of Rs. 15,000 and Rs. 20,000 available under section 80D of the Income Tax Act with respect to mediclaim paid by individuals and senior citizens are raised to Rs. 25,000 and Rs. 30,000 respectively. An additional benefit is provided that similar amount exemption will be available to very senior citizen who can not take health insurance.
- Super Senior Citizens were allowed deduction of Rs. 60,000 under section 80DDB of the Income Tax Act in respect of expenditure on account of specified diseases. Now they will enjoy a limit of Rs. 80,000 on the same.
- Exemption under section 80DD of the Income Tax Act was available with regards maintenance, including medical treatment of a dependent who is a person with disability and severe disability with a limit of Rs. 50,000 and Rs. 1,00,000 respectively. The same are increased to Rs. 75,000 and Rs. 1,25,000 respectively.
- Limit Under section 8oU of the Income Tax Act is proposed to be increased from Rs. 50,000 to Rs. 75,000 in case of person with disability and from Rs. 1,00,000 to Rs. 1,25,000 in case of person with severe disability.
- Exemption limit under section 80CCC of the Income Tax Act is proposed to be increased form Rs. 1,00,000 to Rs. 1,50,000 in case of contribution made in a pension fund of LIC or IRDA approved insurer.
- 1,50,000 will be available as deduction under section 80CCD in place of Rs. 1,00,000 on contribution being made by the employee to National Pension Scheme (NPS). Extended exemption of Rs. 50,000 over and above the limit of Rs. 1,50,000 is proposed in case of contribution made to NPS.
- Section 197A will be amended to facilitate filing of self declaration by the recipients of taxable maturity income of life insurance with regards non – deduction of tax thereon.
- TDS was introduced on immovable property transactions. An Individual buying the property from a resident was required to deduct tax. The same also applies where the property has been brought from a non – resident. The budget provides relaxation to individuals and HUFs from obtaining TAN while deducting tax in case of purchasing immovable property from a non – resident.
- By widening the scope of Section 80G of the Income Tax Act it has been proposed that 100% deduction will be allowed with respect to donation made to National Fund for Control of Drug Abuse (NFCDA).
- A summary of deductions as provided in para 99 of the bill is as follows:
|Under Section 80C||Rs. 1,50,000|
|Under Section 80CCD||Rs. 50,000|
|In case of Interest paid on self occupied house property||Rs. 2,00,000|
|Under Section 80D||Rs. 25,000|
|Transportation Allowance||Rs. 19,200|
|Total Deduction||Rs. 4,44,200|
Maximizing benefits to the Economy as a whole by introducing stand alone proposals
- The interest paid by a Permanent Establishment (PE) or by a branch of foreign bank situated in India to their Head Office (HO) as well as other overseas branches should be brought within the ambit of source rule of taxation which will result in treating the Permanent Establishment or a branch of foreign bank as a taxable entity with regards computation of tax and levy of TDS.
- CBDT will be provided with a power to prescribe the rules for computation of period of stay in India in order to determine the residential status of an India Seafarer, whether working on an Indian or Foreign Ship. This will result in bringing uniformity in computation of the same.
- In case where the cash of assessee is seized in search operation, such cash can be adjusted towards the tax liability of assessee on receiving settlement application.
- Section 195 is to be amended so that a clear view can be observed by the CBDT with regards foreign remittances made by the assessee which were claimed to be not chargeable to tax. Such amendment will provide powers to CBDT to seek for required information. This step is taken to ensure proper tax deduction on payments made to non-residents.