There is another big round of much awaited event the Union Budget 2016-17 was announced where stock market is celebrating, aam tax payers are crawling and farmers are happy in some extent. This time, FM is tried to tinker with sensitive long-pending old tax provisions which caused chaos. Every year salaried class tend to have a lot of expectations from the budget but every FM is failed to cheer the middle class and could not meet their expectations. However, overall the budget is growth-oriented and focused on Agriculture and Farmers’ Welfare, Rural sector, Social sector including Health care, Education, Skills and Job creation, Financial sector reforms, Governance and Ease of doing own business, Fiscal discipline and Tax reforms.  Despite all hopes are shattered, there are many slew of measures which will affect on your personal finance, you will need rigorous personal financial planning so that no adverse budget could be hampered your financial decisions and financial commitments. Let’s have look that provisions in broader sense which will affect on your personal finance.

Budget

Enhance of limit of Rebate in income-tax allowable under Section 87A

While the basic exemption income limit Rs 2.50 lakh is left untouched, it is proposed to enhance the maximum amount of rebate available under this provision from existing Rs.2,000 to Rs.5,000. With the objective to provide relief to resident individuals in the lower income slab, whose total taxable income does not exceed Rs 5 lakh  providing a relief to 2 crore tax payers, especially senior citizens who depend solely on their interest income,  retired individuals who get monthly pension and small chunk of low- salaried employees.  Hence, it can be understood that their basic exemption income tax limit of has supposed to increase from Rs 2.50 lakh to Rs 3.00 lakh in this category which is a big relief for them.

Increase in time period for acquisition or construction of self-occupied house property for claiming deduction of interest

With view of the fact that housing projects often take longer time for completion, it is proposed that section 24 be amended to provide that the deduction on account of interest paid on capital borrowed for possession or construction of a self-occupied house property has been increased from 3 years to 5 years from the end of the financial year in which capital was borrowed. This is a major relief for those real estate investors whose time limit of possession or construction of a self-occupied house property of three years has been elapsed. Now they could be able to eligible for claiming deduction of interest for another two years due to delay the projects of builders.

Raise the limit of deduction allowable Rents paid under Section 80GG

In order to provide relief to the individual tax payers, who do not get HRA from their employers or  those who are self-employed, a statuary deduction under rent paid as per section 80GG has been increased from Rs 2,000 per month to Rs 5,000 per month, to the extent of any expenditure incurred by an individual in excess of 10% of his total income towards payment of rent in respect of any furnished or unfurnished accommodation occupied by him for the purposes of his own residence or 25% of his total income for the year, whichever is less.

Incentive for Promoting Housing for All

With a view to incentivise affordable housing sector as a part of larger objective of ‘Housing for All’, the existing provisions of section 80EE provide an additional deduction of up to Rs 1 lakh  in respect of interest paid on loan by an individual for acquisition of first time home buyer availing home loans, which was available for the two assessment years beginning on the 1st day of April 2014 and on the 1st day of April 2015, has been extended for another two assessment years, by providing additional deduction in respect of interest on loan taken for first time buyers of residential house property from any financial institution up to Rs. 50,000. This incentive is extended to a house property of a value less than Rs 50 lakh in respect of which a loan of an amount not exceeding Rs 35 lakh has been sanctioned during the period from the 1st day of April, 2016 to the 31stday of March, 2017. It will be extended the benefit of deduction till the repayment of loan continues. The deduction under this section will be over and above existing limit of Rs 2 lakh provided for a self-occupied property under section 24 of the Act.

Taxation of income by way of Dividend

Under section 115-O, the companies have already been paying DDT (dividend distribution tax) at the rate of 15% at the time of distribution in the hands of company declaring dividends, this creates vertical inequity amongst the tax payers as those who have high dividend income are subjected to tax only at the rate of 15% whereas such income in their hands would have been chargeable to tax at the rate of 30%. With a view to rationalise the tax treatment provided to income by way of dividend earned from stocks only in excess of Rs 10 lakh yearly shall now be chargeable to tax, at the rate of 10%. The taxation of dividend income in excess of Rs 10 lakh shall be on gross basis. This would be double whammy of taxation for those who have already invested very high amount in stocks and they earn big dividends. However, this amendment will have no impact on the dividends received by Mutual Fund unit holders as dividend paid by mutual fund scheme to a unit holder is covered under section 115-R of the Income Tax Act, that’s a relief for mutual fund investors.

Tax Collection at Source (TCS) on sale of vehicles; goods or services

In order to reduce the quantum of cash transaction in sale of any goods and services and for curbing the flow of unaccounted money in the trading system and to bring high value transactions within the tax net, the seller shall, now collect the tax at the rate of 1% from the purchaser on sale of motor vehicle of the value exceeding Rs10 lakh and sale in cash of any goods (other than bullion and jewellery), or providing of any services exceeding Rs 2 lakh.

Change in rate of Securities Transaction tax in case where option is not exercised   

The securities transaction tax on sale of an option in securities where option is not exercised is 0.017 per cent of the option premium. It is proposed to increase the rate from 0.017 per cent to 0.05 per cent.

Exemption of Capital Gains on Sovereign Gold Bond Scheme, 2015

Since the Government of India has introduced the Sovereign Gold Bond Scheme with the aim of reducing the demand for physical gold so as to reduce the outflow of foreign exchange on account of import of gold. The Gold Bond is a mode for substitution of physical gold and also provides security to the individual investor who invests in Gold for meeting their social obligation. Accordingly, with a view to providing parity in tax treatment between physical gold and Sovereign Gold Bond, it is proposed to amend Section 47 of the Income-tax Act, so as to provide that any redemption of Sovereign Gold Bond under the Scheme, by an individual shall not be treated as transfer and therefore shall be exempt from tax on capital gains.

Exemption of income tax on Gold Monetization Scheme, 2015

The Gold Monetization Scheme, 2015 has since been introduced by the Government of India. With a view to extend the same tax benefits to the scheme as were available to the Gold Deposit Scheme, 1999, it is proposed to exempt it from capital gains tax at the time of redemption and interest on Deposit Certificates issued under the Scheme, shall also be exempt from income-tax under this scheme.

Introduction of Presumptive taxation scheme for persons having income from profession

The existing scheme of taxation provides for a simplified presumptive taxation scheme for certain eligible persons engaged in certain eligible business only and not for persons earning professional income. In order to rationalize the presumptive taxation scheme and to reduce the compliance burden of the small tax payers having income from profession and to facilitate the ease of doing own business, it is proposed to provide for presumptive taxation regime for professionals. In this regard, new section 44ADA is proposed to be inserted in the Act to provide for estimating the income who is engaged in any profession such as legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration and whose total gross receipts does not exceed Rs50  lakh  in a previous year, would be chargeable tax at a sum equal to 50% of the total gross receipts, or, as the case may be, a sum higher than the aforesaid sum earned by him. Apart from that, he can also claim the deduction of all expenses relating to business which envisage under section 30 to 38. Moreover, he will not be required to maintain books of account under sub-section (1) of section 44AA and get the accounts audited under section 44AB in respect of such income unless the he claims that the profits and gains from the aforesaid profession are lower than the profits and gains deemed to be his income under sub-section (1) of section 44ADA and his income exceeds the maximum amount which is not chargeable to income-tax.

Increase in threshold limit for presumptive taxation scheme for persons having income from business.

In order to reduce the compliance burden of the small tax payers and facilitate the ease of doing business other than professional, it is proposed to increase the threshold limit of Rs 1 crore specified in the definition of “eligible business” to Rs 2 crore.

Increase in the threshold limit of deduction of tax at source on various payments.

In order to rationalise the rates and base for TDS provisions, the existing threshold limit of tax at source on payment to contractors for deduction of tax at source has been increased from aggregate annual limit of Rs 75,000 to Rs 1 lakh under section 194C. Likewise, aggregate annual limit for commission on sale of lottery tickets and commission or brokerage has also been increased from Rs 1,000 to Rs 15,000 and Rs 5,000 to Rs. 15,000 respectively. But, in case of insurance commission, aggregate annual limit of Rs 20,000 has been reduced to Rs 15,000 for the purpose of deduction of tax at source.

Reduction in rates of deduction of tax at source on various payments

In the reciprocal above increase in threshold limit, the rates of deduction of tax at source on insurance commission, commission on salary of lottery tickets and commission or brokerage has also been reduced from 10% to 5%.

Enabling of Filing of Form 15G/15H for rental payments

Since those who have been receiving their rental income exceed threshold of Rs. 1,80,000 per financial year for deduction of tax at source under section 194-I, there may be cases where the tax payable on recipient’s total income, including rental payments , will be nil. It is, hence proposed for enabling the option of furnishing to the payer a self- declaration in prescribed Form No. 15G/15H for non-deduction of TDS on their relevant payments, even exceed threshold limit and declaring that the tax on his estimated total income of the relevant previous year would be nil.

Restrict the limit of employer contribution in EPF

Since there is no monetary limit for the contribution made by the employer though there is a monetary ceiling for employee’s contribution, in order to bring parity in the monetary limit for contribution by the employer and the employee the limit of contribution by the employee eligible under section 80C of the Act has been increased from Rs 1 lakh to Rs 1.50 lakh.

Tax treatment of Recognised Provident Funds, Pension Funds and National Pension Scheme*

The major contentious issue for this budget is to rationalize of tax treatment for the National Pension System (NPS) referred to in section 80CCD is Exempt, Exempt and Tax (EET) i.e., the monthly/periodic contributions during the pension accumulation phase are allowed as deduction from income for tax purposes; the returns generated on these contributions during the accumulation phase are also exempt from tax; however, the terminal benefits on exit or superannuation, in the form of lump sum withdrawals, are taxable in the hands of the individual subscriber or his nominee in the year of receipt of such amounts.

In order to bring greater parity in tax treatment of different types of pension plans, it is proposed to amend section 10 so as to provide that in respect of the contributions made on or after the 1stday of April, 2016 by an employee participating in a recognised provident fund and superannuation fund , up to 40 % of the accumulated balance attributable to such contributions on withdrawal shall be exempt from tax. It implies 60% of the accumulated corpus  will be taxed if you withdraw it fully. However if you buy an annuity (pension) from the remaining 60% corpus you won’t have to pay the tax. However note that the pension amount which you will get will be normally taxes as the income in your hands. If, the whole amount received by the nominee, on death of the assesse shall be exempt from tax.

*Since this issue has already been debated and much discussed at social media; we should be waiting for exact clarification on this from govt.

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Suresh Kumar Narula

SEBI Investment Advisor, Founder & Principal Financial Planner at Prudent Financial Planners
Suresh K Narula is founder and Principal Financial Planner at Prudent Financial Planners. He has earned the professional CERITIFIED FINANCIAL PLANNER and got registered with SEBI as Investment Advisor. He writes on personal and financial planning articles and got published in Dainik Bhaskar, Business Bhaskar and The Financial Planner's Guild, India. He is also a member of Financial Planner's Guild India ( An association of practicing SEBI registered Investment advisers) to create awareness about Financial Planning in general public, promote professional excellence and ensure high quality practice standards. Suresh received his an M.com from Himachal Pardesh University and an MFC from Punjab University, Chandigarh. He can be reached at info@prudentfp.in
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