Key Amendments in Taxes by Finance Budget 2017

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Finance Budget 2017 has been announced on February 01, 2017 & after one week we have gathered all the amendments under one article for your ease. These amendments will include all type of taxpayers. Most importantly we have given our Fair opinion on each and every aspect of the amendments. You are requested to have a look on the below mentioned Amendments in Taxes by Finance Budget & Share your views in the comment box.

1. New Slab Rate For Individuals/HUF

New Tax Slab Rate for Income Tax Financial Year 2017-18

Up to 250000                            – Nil

From 250000 to 500000   –    5%

From 500000 to 1000000 –   20%

Above 1000000                  –   30%

If Income is Up to 3.5 Lakhs then rebate of Rs. 2500 will apply u/s 87A

Surcharge @ 10% on Income between 50 Lakhs to 1 Crore is to be levied.

Analysis: The persons earning between 50 lakhs to 1 cr. are the biggest looser. Person earning 99.99 lakhs will pay Rs 2.80 lakh as extra tax. (Credits: Amendments in Taxes by Finance Budget)

2. For Small Companies (Good News)

The corporate tax for MSME companies has been reduced from existing 30 % to 25 %. The concession is available only to companies (whose turnover does not exceed 50 cr. during the F Y 2015-16). The maximum rate will reduce from 34.61% to 28.84% to small companies.

Tax Rate:  25% Where its total turnover or the gross receipt in the F.Y. 2015-16 does not exceeds 50 Crore Rupees.

This is the bold step by the Finance Minister and will positively affect the small companies. (Credits: Amendments in Taxes by Finance Budget)

3. Relief for Domestic Companies from Transfer Pricing Norms

In order to reduce the compliance burden of taxpayers, it is proposed to provide that expenditure in respect of which payment has been made by the assessee to a person referred to in under section 40A(2)(b) are to be excluded from the scope of section 92BA of the Act.

Analysis

Now the domestic transfer pricing provisions will be applicable only if one of the related party is taking benefit of tax relief u/s 80IA or 10AA (Industries situated in backward area and Special Economic Zone). It is big relief to domestic companies. It will certainly reduce litigation of determining arm’s length price. (Credits: Amendments in Taxes by Finance Budget)

3.Excessive power to the income Tax Officers(BAD NEWS)

The Budget has given extensive power to the income tax officers who will certainly lead to tax terrorism and Inspector RAJ. The changes brought by the budget are as under.

• The A.O. can issue a notice up to 10^thassessment years as against earlier period of 6 years.
• The power can be exercised during or before initiation of search u/s 132. The A.O. found evidence of undisclosed income of more than 50 Lakhs.
• It is not necessary now to disclose the reason for initiating search by the A.O.
• Power of provisional attachment has been given to A.O. up to six months
• can refer the valuation officer for estimation of Fair Market Value of the property.
• Power of survey has been extended to the premises of charitable trust also.
• Computer server of the Income Tax Department has become new Income Tax Officer as it can issue notice to assessee without jurisdiction. (Credits: Amendments in Taxes by Finance Budget)

4.Taxation of DIVIDEND u/s 115BBDA (BAD NEWS)

• Now the business houses that have set up private trust, to hold shares and getting huge dividends in the private trust will have to pay tax @10%, if dividend is higher than 10 lakhs.
• Earlier any individual or HUF or Firm getting dividend more than 10 lakhs were chargeable to tax @ 10%
• Now the provision has been extended to all assesses except domestic company and charitable trust and funds. (Credits: Amendments in Taxes by Finance Budget)

5. Relief to BUILDERS (GOOD NEWS)

• The budget has made change in 80IBA which provides 100% deduction in profit from making affordable housing.
• The budget has extended the completion period from 3 to 5 years
• The built up area of 30/60 sq. meter. Has been replaced with carpet area which means the size of flat under affordable housing will be more now.
• The limit of 25 KM from Delhi, Mumbai, Kolkata and Chennai has been done away. Now the affordable housing flat in Gurgoan and Faridabad and having carpet area up to 60 sq meters will qualify. (Credits: Amendments in Taxes by Finance Budget)

6. Relief to Builder/ Building Contractors (GOOD NEWS)

There has been a trend in big cities where land owner enters into contract with builder for developing immovable property. The land owner generally receives flats or built up area in lieu of sale consideration. There have always been disputes between land owner and income tax department regarding the time and amount capital gain tax. The dispute has been clarified in this budget vide, insertion of section 45(5A). Now the capital gain will be levied in the year in which completion of the property is received and the valuation will be done at stamp duty value.

If the land owner receives any amount other than circle rate, it will add to sale consideration. It means if the land owner receives Rs 50 lacs and two flat, which have circle rate of Rs 1.25 crore, then total consideration will be 1.75 crore the builder has to deduct tax @ 10 % on 50 lakhs u/s 194 IC. (Credits: Amendments in Taxes by Finance Budget)

7. Relief to Builder (No notional income on flats held as stock in trade)

There has always been dispute regarding the notional rental income on vacant flats held as stock in trade held by real estate developer.

Now it has been clarified that if the property/flats are not actually rented out than no notional rent will be deemed as income up to one year from the end of financial year in which completion certificate has been received.

In our opinion it is bad law. When the income of builder is taxes under profit and gain from business and profession, it is wrong to tax under income from house property, moreover there is lot of idle inventory with builder due to slow in housing market, and hence it is going to be blow to the builders. (Credits: Amendments in Taxes by Finance Budget)

8. Carry forward and set off losses (GOOD NEWS FOR START UP)

• As per the existing provision loss cannot be carry forward if there is change in the 51% of the shareholding in any year
• This condition has been relaxed for eligible start up and now the company is eligible to carry forward the loss even after change in the shareholding, provided promoter holding is intact
• Earlier the start-ups were eligible for Deduction under Section 80IAC for 3 years out of 5 years up to 100% of their profit. As the start-ups don’t earn much profit in the early years hence the government has extended the period of 3 years out of 7 years to claim the deduction. Hence the start-up can claim the deduction of 100% of profit for 3 consecutive years out of 7 years.(Credits: Amendments in Taxes by Finance Budget)

9. Extension of period of MAT Credit (Good News)

The MAT credit can be now carry forward up to 15 years as against 10 years at present. (Credits: Amendments in Taxes by Finance Budget)

10. Restriction on cash transaction

Now no person can receive cash more than 3 lakhs for any transaction or event or occasion. Otherwise he will be levied equal amount of penalty U/S 269ST. This provision will mainly affect person selling jewellery/Event managers/Party organiser etc. (Credits: Amendments in Taxes by Finance Budget)

11. Relief to Call centres (GOOD NEWS)

At present TDS at rate of 10% is deducted U/S 194J to payment to call centres. Now the rate has been reducing to 2%. (Credits: Amendments in Taxes by Finance Budget)

12. Capital gain tax on Conversion of preference shares to equity shares (GOOD NEWS)

Now the conversion of preference shares to equity shares will be tax neutral and no capital gain tax will be levied. (Credits: Amendments in Taxes by Finance Budget)

13. Issue of refund in case of scrutiny notice (GOOD NEWS)

At present the assessing officer do not release refunds where the scrutiny notice U/S 143(2) has been issued. Now the AO will grant the refund and cannot withhold without the prior permission of Principal Commissioner or commissioner. (Credits: Amendments in Taxes by Finance Budget)

14. Early completion of assessment (GOOD NEWS)

Time of completion of assessment under various provision of income tax has been reduced by 6 months to 2 years. (Credits: Amendments in Taxes by Finance Budget)

15. Change in taxation of listed shares (BAD NEWS)

At present listed shares if sold through stock exchange after paying STT (holding period more than one year) than capital gain on these shares are exempt from tax U/S 10(38). Now the government has made retrospective amendment that if STT was not paid on the equity shares held on or after 1.10.2004 and sold now even on stock exchange will attract LTCG. Though this provision is brought by keeping in mind the profit made by sale of penny stock companies but even then government has promised not to bring retrospective amendment. Hence it’s a bad precedent. (Credits: Amendments in Taxes by Finance Budget)

16. Expanding tax base

The budget has proposed to insert a new section 194 –IB. Until now individual and HUF were not liable to deduct TDS, if they are not covered under tax audit. From 01/04/2017, Individual /HUF paying rent exceeding Rs 50000 per month or part thereof shall be required to deduct tax @5%.

This provision will affect individual person, who are receiving heavy rent from individual for properties given on rent other than for business purpose. This will help the dep’t for tracking such transaction. (Credits: Amendments in Taxes by Finance Budget)

17. Discouraging Cash Payment

The budget has reduced the limit for payment by cash from earlier limit of 20K to Rs. 10K. Now the capital expenditures have also been covered under the new provisions.

IF amount paid in cash for capital expenditure, no depreciation on cash portion will be allowed.  (Credits: Amendments in Taxes by Finance Budget)

18. Increase in limit of Tax Audit u/s 44AB

• The turnover limit of tax audit is increased from 1cr. To 2 cr.
• If the payments are received other than cash, presumptive rate of profit is reduced from 8% to 6%
• Presumptive scheme of taxation is applicable up to turnover of Rs. 2 Cr. (Credits: Amendments in Taxes by Finance Budget)

19. Change in holding period for immovable properties / change in base year (Good News)

• The budget has reduced the holding period for IP from 36 months to 24 month and also change in base year from 1/04/1981 to 1/04/2001.
• This is welcome move. Changing the base year will not only reduce capital gain liability but also reduce litigation as finding fair market value as on 01/04/1981 was a tedious job and leads to litigation. Moreover by reducing the holding period, it will help in reinvestment as the LTCG deduction is available on reinvestment u/s 54 TO 54 G. The scope investment U/S 54 EC has also been expanded. Until now bonds issued by NHAI and REPCL qualifies for investment, now the benefit is extended to any bond redeemable after three years and notified by the Govt. (Credits: Amendments in Taxes by Finance Budget)

20. Extension in period of lower withholding tax (Good News)

The companies, who have made external commercial borrowing from non-resident are required to withhold tax @5% U/S 194 LC. The period has been extended until 01/07/2020. Similar relaxation has also been extended to interest payable 194 LD. (Credits: Amendments in Taxes by Finance Budget)

21. Restriction on cash donation (good move)

Cash donation limit to charitable trust has been reduced from Rs 10,000 to 2,000.

Cash donation to be received by political parties has also been reduced from Rs. 10,000 to Rs. 2000. (Credits: Amendments in Taxes by Finance Budget)

22. Increase in threshold limit for maintenance of book (relief to small tax payer)

 The threshold limit of maintenance of books of account u/s 44 AA has been increased. Turnover criteria from 10 lakhs to 25 lakhs and profit from 1.20 lakhs to 2.5 lakhs. (Credits: Amendments in Taxes by Finance Budget)

23. The amount of set off u/s 71 on house property has been restricted to Rs 2 lakh.

Final comments: 

The most positive point in this budget is reducing tax rate to MSME and most negative point is blatant power to income tax officers. The finance minister should not forget that “power corrupts and absolute power corrupts absolutely “.

 The industry is back bone of economy and they want assisting officer and not assessing officer.

That’s all for Amendments in Taxes by Finance Budget. Keep Sharing.