Union budget 2017

Key Highlights of Union Budget, 2017

(Direct Taxes)

Major Highlights of Economic Survey 2016-2017

• Gross Domestic Product (GDP) growth in 2016-17 to dip to 6.5%~7.1%,

downfrom7.6%in last fiscal.

• Farm sector to grow at 4.1% in the current fiscal, up rom 1.2%in 2015-16.

• Growth rate of industrial sector estimated to moderate to 5.2%in 2016-17

from7.4%last fiscal.

• India’s exports declined by 15.5%in 2015-16, which was reversed during 2016-17,

with exports registering a growth of 0.7 %. During 2016-17, imports declined by

7.4%compared to last year.

• Services sector is projected to grow at 8.8 per cent in 2016- 17, almost the same as in

2015-16.

• Indian markets recorded modest growth of 1.95- 3% (Sensex was up by 1.95% while

NIFTY was higher by 3

%) for the calendar year 2016 as compared to losses registered in 2015.

• CPI inflation stood at 3.4% in Dec’16 aided by the decline in food prices On the other

hand, WPI inflation

increased from -5.1% from August 2015 to 3.4% at the end of December 2016.

• Adverse impact of demonetization on GDP growth estimated to be transitional.

Tax rates for INDIVIDUALS, HUF, AOP/BOI’s for FY: 17-18

Rates for Individuals, HUF, AOP & BOI Rates for resident Individual above the

age of sixty years but less than eighty years

Rates for resident Individual above

the age of eighty years

10% Surcharge on income above Rs.50,00,000

15% Surcharge on income above Rs.1,00,00,000

3% Education Cess in all cases

Total Income

(In Rs.)

Rate

Up to 250000 Nil

250001-500000 5%

500001-1000000 20%

Above 1000000 30%

Total Income

(In Rs.)

Rate

Up to 300000 Nil

300001-500000 5%

500001-1000000 20%

Above 1000000 30%

Total Income

(In Rs.)

Rate

Up to 500000 Nil

500001-1000000 20%

Above 1000000 30%

Tax rates for Firms, Local Authorities & Cooperative Societies FY:17-18

For Firms and Local

Authorities

Tax @30% on Total Income

For Cooperative

Societies

Surcharge @12% of Income tax on income above Rs.1,00,00,000

3% Education Cess in all cases

Total Income

(In Rs.)

Rate

Up to 10000 10%

10001-20000 20%

Above 20000 30%

Tax rates for Domestic and Foreign Companies for FY: 17-18

Domestic Companies Foreign Companies

• Tax rate @ 30% for companies

whose turnover exceeds Rs.50

Crore in PY:15-16.

• Tax rate @25% for companies

whose turnover does not exceed

Rs.50 Crore in PY:15-16.

• 7% Surcharge if total income

exceeds Rs.1 Crore and 12%

Surcharge if total income exceeds

Rs.10 Crore

• Education cess @3% in all cases

• Tax Rate @40%

• 2% Surcharge if total income

exceeds Rs.1 Crore and 5%

Surcharge if total income

exceeds Rs.10 Crore

• Education cess @3% in all

cases

Measures for promoting affordable housing and real estate sector

Nature Existing Provision Proposed

Section 2(42A): Period of

holding for long term

asset.

(Effective date: AY 2018-

19)

Section 2(42A) provides long

term capital asset as the capital

asset held by assesse for more

than 36 months.

In case of immovable property, being land and

building, the period of 36 months has been

reduced to 24 months.

This should be a boost to Real Estate

transactions

Provision of Section 55:

Base year for computation of

capital gain.

(Effective date: AY 2018- 19)

For computing capital gains in

respect of an asset acquired

before 01.04.1981, the assesse

has been allowed an option of

either to take the fair market

value of the asset as on

01.04.1981 or the actual cost of

the asset as cost of

acquisition.

Base year for computation of capital gain is

proposed to be amended as 01.04.2001.

Consequential amendment is also proposed in

section 48 and Cost Inflation Index on 1.4.2001

would be the base year for indexation purposes.

Calculation at the fair market value of 2001

will increase the cost of acquisition and lower

the capital gain.

Section 54EC

(Effective date: AY 2018-

19)

Investment in bond issued by

the National Highways

Authority

of India or by the Rural

Electrification Corporation

Limited is

eligible for exemption under

this section.

Investment in any bond redeemable after three

years

which has been notified by the Central

Government in

this behalf shall also be eligible for exemption.

Govt. hopes to mop up funds for other

infrastructure development projects through this

route



Section 23 :

Determining

the annual value of

house property held as

stock in trade.

(Effective date: AY

2018-19)

If the property is not let

out during the year, the

annual value of any

property shall be deemed

to be the sum for which the

property might reasonably

be expected to let from

year to year.

If the property is not let during the year, annual value of the

property shall be taken as nil for a period of one year from the

end of financial year in which the certificate of completion of

property is received.

This provision is introduced to afford real estate players an

opportunity to liquidate their inventory within a specified time

and not suffer tax on notional Income

Section 80-IBA

to promote Affordable

Housing

(Effective date:

AY 2018-19)

100% deduction in respect

of the profits and gains

derived from developing

and building certain

housing projects subject to

certain conditions.

Conditions are proposed to be relaxed as under:

• Size of residential unit shall be based on “carpet area” not

on “built-up area”

• Project on plot of land measuring at least 1,000 sq. meters

and restriction of size of 30 sq. meters residential unit

applies in Chennai, Delhi, Kolkata and Mumbai.

• For other places, plot of land should measure at least 2,000

sq. meters and restriction ion size of residential unit is 60

sq. meters

• Period of completion of project increased from existing

three years to five years.

More real estate players would be able to avail the tax holiday

benefit and is a step in the direction of Government’s

commitment to make available affordable housing to all.


Special provisions for computation of capital gains in case of Joint

Development Agreement (Effective from April 1, 2018)

New sub-section (5A) in section 45 inserted in the Act.

• Where an individual/ HUF enters into a specified agreement for development of a project, capital

gains shall be chargeable in the year in which the certificate of completion for the whole or part of

the project is issued by the competent authority.

• Full value of consideration shall be the stamp duty value of his share, being land or building or

both, as on the date of certificate of completion as increased by any consideration received in cash.

• However, the above benefit shall not apply to an assesse who transfers his share in the project to

any other person on or before the date of issue of said certificate of completion.

• It is proposed to amend section 49 that cost of acquisition in the hands of the transferee shall be the

amount which is deemed as full value of consideration under the said proposed provision.

This is a welcome amendment for the real estate sector considering that tax had to be paid even

though the transferor did not receive any money on transfer date.

Measures for promoting Economic Growth


Extending the period for

claiming deduction by

START UPS

Effective Date: A.Y.

2018-19

As per section 80-IAC, an

eligible start up is allowed

100% deduction of profits &

gains for 3 consecutive

assessment years out of 5 years

after incorporation.

In order to promote start ups in India, such

eligibility is now allowed for any 3 consecutive

assessment years out of 7 years beginning from the

year in which such start up is incorporated.

Also, condition of no change in 51% shareholding

in case of start-ups relaxed for carry forward of

business losses, subject to promoters continuing to

hold shares.

Rationalization of

Provisions relating to

tax credit for MAT &

AMT


2018-19

Section 115JA provides for

carry forward of tax credit up

to 10 assessment years

immediately succeeding the

assessment year in which tax

credit becomes allowable in

respect of MAT.

Tax credit can now be carried forward to 15

assessment years immediately succeeding the

assessment year in which tax credit becomes

allowable.

Similar amendment is proposed in section 115JD to

allow carry forward of AMT paid under section

115JC up to 15 assessment years in case of non

corporate assesses.

Extension of eligible

period of concessional

tax rate under section

194 LD (Income by way

of Interest on certain

bonds and Government

Securities)

Section 194LD provides for

lower TDS @ 5% in case of

interest payable at any time on

or after 1st June, 2013 but

before the 1st July, 2017to FIIs

and QFIs on their investment

in Government securities.

TDS on interest will now be available on interest

payable before the 1st July, 2020.

Measures for promoting Economic Growth


Extension of eligible

period of concessional

tax rate in case of

External commercial

borrowings and

Extension of benefit to

Rupee denominated

bonds

Retrospectively from

April 1, 2016, for AY

2016-17 and subsequent

years.

Under section 194LC ,TDS is to be

deducted at the concessional rate of

5% on payment of interest to a non

resident by a company on

borrowings made by it in foreign

currency from outside India under a

loan agreement or by way of issue of

long term infrastructure bond before

the 1st July, 2017

Concessional TDS on interest payment will

now be available in respect of borrowings

made before the 1st July, 2020.

Same benefit is extended u/s 194LC to rupee

denominated bonds issued outside India

before the 1st July, 2020.

Increase in Deduction

limit in respect of

Provision for bad and

doubtful debts

As per section 36(1)(viia), a bank

can claim deduction for provision for

bad and doubtful debts. Amount of

deduction -7.5% of the total income.

The present limit has been enhanced to

8.5%.

Promoting digital Economy


Restricting cash donation

Effective Date : AY 2018-19

and onwards

As per section 80G, deduction

is not allowed in respect of

donations made of sum

exceeding Rs.10,000, if paid in

cash.

No deduction is allowed under 80G in respect

of donation of any sum exceeding Rs.2,000

unless such sum is paid any mode other than

cash.

Disallowance of depreciation

under section 32


and onwards

There is no provision to

disallow capital expenditure

incurred in cash.

Section 43 is amended to ignore capital

expenditure in cash exceeding Rs.10,000.

Such expenditure will be ignored for

determining actual cost of asset in turn

resulting in disallowance of depreciation.

Disallowance of capital

expenditure u/s 35 AD on

cash payment


and onwards

Section 35AD provides

investment linked deduction on

the amount of capital

expenditure incurred for a

specified business.

Section 35AD has been amended to disallow

expenditure incurred in cash exceeding

Rs.10,000.

Measures to discourage cash

transaction


and onwards

Section 40A(3) provides that

any expenditure in respect of

which payment made to a

person in a day, otherwise than

by an account payee cheque

drawn on bank or account

payee bank draft, exceeds

Rs.20,000 shall not be allowed

as a deduction

Section 40A(3) is amended to provide any

payment in cash above Rs.10,000 to a person

in a day shall not be allowed as deduction

from the business income.


Measures for promoting

digital payments in case of

small unorganized

businesses

Effective Date: Assessment

Year commencing April 1,

2017

As per section 44AD, a sum

equal to 8% of gross receipt

(in any mode of payment)

declared by the assesse in his

ROI is deemed to be business

income.

8% is reduced to 6% in respect of gross

receipts only if such income is received by

otherwise than by cash during previous year or

before the due date of filing of return.

Restriction on cash

transactions

These amendments will take

effect from 1st April, 2017

New Provision Section 269ST to be inserted in the Act to

provide that no person shall receive an amount

of Rs.300,000 or more in cash,—

(a) in aggregate from a person in a day;;

(b) in respect of a single transaction;;or

(c) in respect of transactions relating to one

event or occasion from a person,

This restriction shall not apply to Government,

any banking company, post office savings bank

or co-operative bank.

Section 271DA inserted to provide for levy of

penalty on a person who receives a sum in

contravention of the provisions of the proposed

section 269ST. The penalty is proposed to be a

sum equal to the amount of such receipt.

This is a good measure and in line with the

governments intent to move to less cash

economy and to reduce generation and

circulation of black money.

Promoting digital Economy

Transparency in electoral funding


Transparency in

electoral funding

Effective Date: AY

2018-19 and onwards.

• Registered Political parties are

exempted from payment of income

tax (Sec.13A) if they have submit a

report to Election Commission of

India furnishing details of

contributions received by them in

excess of Rs.20,000 from any

person.

• Political parties are required to file

return of income u/s 139(4B) of the

Act, if its income exceeds the

maximum amount not chargeable

to tax (without considering

exemption u/s 13A). However,

filing of the return is not a

condition precedent for availing the

exemption.

To avail the benefits u/s 13A, following has been

proposed to discourage the cash transactions and

bring transparency in source of funding to

political parties:

• No cash donations in excess of Rs.2,000

(otherwise than by an account payee cheque

/ electronic clearing system).

• Political party has to furnish return of

income for the previous year on or before

due date u/s 139(4B).

• Also the concept of electrol bonds has been

introduced .Under this scheme, a donor

could purchase bonds from authorized banks

against cheque and digital payments only.

They shall be redeemable only in the

designated account of a registered political

party. These bonds will be redeemable

within the prescribed time limit from

issuance of bond.

Ease of doing business

Clarity relating to Indirect transfer provisions

Section 9 of the Act deals with cases of income which are deemed to accrue or arise in India.

• Sub-section (1) of the said section creates a legal fiction that certain incomes shall be deemed to accrue or

arise in India.

• Clause (i) provides that all income accruing or arising, whether directly or indirectly, through or from any

business connection in India, or through or from any property in India, or through or from any asset or source

of income in India, or through the transfer of a capital asset situated in India shall be deemed to accrue or

arise in India.

• Finance Act, 2012 clarified through insertion of Explanation 5 that an asset or capital asset, being any share

or interest in a company or entity registered or incorporated outside India shall be deemed to be situated in

India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in

India.

• Therefore, in order to address concerns of stakeholders regarding multiple taxation arising out of

above provisions, it is proposed to amend the said section, clarifying that Explanation 5 shall not apply

to any asset or capital asset mentioned therein being investment held by non-resident, directly or

indirectly, in a Foreign Institutional Investor registered as Category-I or Category II Foreign Portfolio

Investor

• Effective retrospectively from AY 2012-13.


Section 44AA

Maintenance of books

of accounts in case of

Individual and HUF

(Effective Date : - 1st

April, 2018)

As per section 44AA, certain persons

carrying on business or profession has to

maintain such books of accounts and

documents, provided that the income and

total sales or turnover or gross receipts

specified in said clauses exceeds Rs.1.2

lacs and Rs.10 lacs, respectively

Monetary limits of income and total

sales or turnover or gross receipts

specified in said clauses for

maintenance of books of accounts

increased from Rs.1.2 lacs to Rs.2.5

lacs and from Rs.10 lacs to Rs.25 lacs,

respectively.

Tax Audit under

section 44AB

The existing provision of section 44AB of

the Act provides that the person carrying

on business is required to get its accounts

audited if the total sales, turnover or gross

receipts exceeds one crore rupees in a

previous year. (Tax Audit)

Tax Audit would not apply in respect of

a person

assessed under 44AD with total sales,

turnover or gross receipts less than Rs.2

crores.

Section :- 194LA

Non-deduction of tax in

case of exempt

compensation under

RFCTLAAR Act, 2013

(Effective Date : 1st

April,

2017)

Any person paying compensation shall

deduct TDS at the rate of 10% on the

compensation or enhanced compensation

or consideration on account of compulsory

acquisition of any immovable property

(other than agricultural land) under any

law for the time being in force subject to

certain conditions specified therein.

No deduction shall be made under this

section where such payment is made in

respect of any award or agreement

which has been exempted from levy of

income-tax under section 96 (except

those made under section 46) of Right

to Fair Compensation and Transparency

in Land Acquisition, Rehabilitation and

Resettlement Act,2013




Simplification of the

provisions of tax

deduction at source in

case Fees for

professional or

technical services

under section 194J

(Effective Date : 1st

June, 2017)

TDS is required to be deducted at the

rate of 10% of any sum

payable or paid (whichever is earlier) to

a resident by way of fees for professional

services or fees for technical services.

In case of payments received or credited

to a payee,

being a person engaged only in the

business of

operation of call center, the rate of TDS

has been

reduced to 2%from10%.

Enabling of Filing of

Form 15G/15H for

commission payments

specified under section

194D

(Effective Date : - 1st

June, 2017)

As per Sec 197A TDS not required to be

deducted, if the recipient of certain

payments on which tax is deductible

furnishes to the payer a self- declaration

in prescribed Form.No.15G/15H

declaring that the tax on his estimated

total income of the relevant previous

year would be Nil.

Insurance commission payment as

referred in section

194D is now being covered within the

ambit of section 197A.

Tax neutral conversion

of preference shares to

equity shares

Effective Date: AY

2018-19 and onwards.

Conversion of preference share to

equity share is regarded as transfer for

the purpose of levy of capital gains tax

In order to provide tax neutrality to the

conversion of preference share of a

company into equity share of that

company, it is proposed to amend section

47 to provide that the conversion of

preference share of a company into its

equity share shall not be regarded as

transfer and consequently no capital gains

tax shall be levied


Amendments to the structure of Authority for Advance Rulings

• Advance Ruling means written opinion or authoritative decision by an Authority

empowered to render it with regard to the tax consequences of a transaction or

proposed transaction or an assessment in regard thereto.

• Such authority is empowered to issue rulings in respect to income-tax matters,

which are binding both on the Income-tax Department and the applicant.

• However, in order to promote ease of doing business, it is decided to merge the

Authority for Advance Ruling (AAR) for income-tax, Central Excise, Customs

duty and Service tax.

Rationalization of section 211 and section 234C relating to advance tax

• Tax on certain dividends received from domestic companies is to be levied under section

115BBDA of the Act with effect from the 1st April, 2017, if such income exceeds ten

lakh rupees. However, in view of the uncertain nature of declaration and receipt of

dividend incomes, an assessee liable to pay advance tax may not be able to correctly

determine such liability within the payment schedule as specified under section 211 and

shall, therefore, incur levy of interest on deferment of advance tax under sec 234C.

• It is hence proposed to provide that that if shortfall in payment of advance tax is on

account of under-estimation or failure in estimation of income of the nature referred

to in section 115BBDA, the interest under section 234C shall not be levied subject to

fulfilment of conditions specified therein.

Reduction of time limits for completion of assessment

Section Existing Proposed

Time

limit for making an

assessment order under

section 143 and 144

21 months from the end of the relevant

AY

For AY 2018-19

18 months

For AY 2019-20 and onwards

12 months

Time limit for making

an order of assessment,

reassessment or re--

computation under

section 147

9 months from the end of the financial

year in which the notice under section

148 was issued for assessment, re

assessment and re-computation under

section 147

12 months from the end of the financial year

in which the notice under section 148 is

served, in respect of notices served on or

after April 1, 2019


an order for fresh

assessment, in

pursuance of order

under section 254, 263

or 264

Fresh assessment order in pursuance of

an order under section 254 or section

263 or section 264, setting aside or

cancelling an assessment, may be made

at any time before the expiry of nine

months from the end of the financial

year in which the order under section

254 is received or order under section

263 or 264 is passed by the authority

referred therein

Fresh assessment order in pursuance of an

order

under section 254 or section 263 or section

264,

setting aside or cancelling an assessment,

may be

made at any time before the expiry of twelve

months from the end of the financial year in

which the order under section 254 is received

or order under section 263 or 264 is passed

by the authority referred therein

Rationalization of the provisions in respect of time limits for completion of search assessment



an assessment order

under section 153A

21 Months from the end of the financial

year in which the last of the

authorizations for search under section

132 or for requisition under section

132A was executed

For FY 2018-19 time limit is to be reduced

from 21 to 18 months

For FY 2019-20 and onwards time limit to be

reduced from 18 to 12 months

Amendment in Section 139(5) (Revised Return)

Existing Provision: Revised return to be filed before the expiry of 1

year from the end of the relevant assessment year or before the

completion of assessment, whichever is earlier.

Proposed :Revised return to be filed before the expiry of the relevant

assessment year or before the completion of assessment, whichever is

earlier.

Anti-Abuse Measures


Exemption of long

term capital gain u/s

10(38)


2018-19

Section 10(38) exempts

income arising from sale of

equity shares or a units of an

equity oriented fund which is

chargeable to Securities

Transaction

Tax (‘STT’)

Exemption only if the acquisition of shares/ units is

also chargeable to STT, except a few exceptions viz.

IPO, FPO, bonus or right issue, acquisition by non--

resident as per FDI policy, to be notified.

Insertion of section

50CA


2018-19

New provision Where consideration for transfer of shares of a

company (other than quoted shares) is less than the

Fair Market Value(FMV), then FMV shall be deemed

to be the full value of consideration.

Widening scope of

Income from Other

Sources

New clause inserted Receipt of the sum of money or property without

consideration or for inadequate consideration in excess

of Rs.50,000, by any person shall be chargeable to tax.

It is proposed to widen the exceptions by including the

receipt by certain trusts or institutions and receipt by

way of certain transfers not regarded as transfer under

section 47. Under the existing provisions, receipt of

any property including shares by individuals/ HUF for

inadequate consideration was taxed in their hands.

Similarly, only receipt of shares of closely held

companies by such companies/ firms for inadequate

consideration was taxed in their hands. Now all types

of assets received by any person for inadequate

consideration is sought to be taxed.

Anti-Abuse Measures

Insertion of section 271J – Penalty on Professionals

Particulars

On whom to apply: A Chartered Accountant/ Merchant Banker/ Registered Valuer

When: Furnishes incorrect information in a report or certificate under

any provisions of the Act or the rules made

thereunder

By whom: The Assessing Officer or the Commissioner (Appeals)

Penalty payable: Rupees 10,000

Penalty when not

imposable:

If the person proves that there was a reasonable cause

Effective date: April 1, 2017

Insertion of section 234F Fee for delayed filing of return

Circumstances Fee Payable

If the return is furnished after the due date but on or before

the 31st December of the assessment year;;

Rs.5,000

In any other case Rs.10,000

If total income does not exceed Rs.500,000 Rs.1,000

ADDITIONAL RESOURCE MOBILISATION

Nature Existing Proposed

194-I – TDS on Rent

( New Section inserted 194-

IB)

(Effective from June 1,

2017)

New Provision • New section 194-IB :- Individual or HUF (other

than those covered under 44AB), responsible for

paying to a resident any income by way of rent

exceeding Rs.50,000 for a month or part of the

month during the previous year, shall deduct TDS

at the rate 5%.

• Tax shall be deducted on such income (total rent

paid to the landlord during the year) at the time of

credit/ payment of rent, for the last month of the

previous year or the last month of tenancy.

•TAN is not required to be obtained and deductor

shall be liable to deduct tax only once in a previous

year.

115BBDA – Tax on

Dividend received from

Domestic Company

(Effective from April 1,

2018)

Dividend in excess of

Rs. 10 lacs is

chargeable to tax at

the rate of 10%.:-

Section Applicable to

resident individual,

HUF or firm.

Provision extended to all resident assesses except

domestic company and certain funds, trusts,

Institution.

Transfer Pricing

Amendment of Section 92BA - Scope of Specified Domestic Transaction reduced

• Existing provisions also cover ‘any expenditure for which payment is to be made to “specified person” under

section 40A(2)(b)’ under the ambit of specified domestic transaction.

• In order to reduce the compliance burden on taxpayers, this coverage will be excluded from the purview of

SDT. Consequential amendments proposed in section 40A(2)(b) accordingly. SDT now applicable only where

one of the parties to SDT is claiming profit-linked deductions.

Effective from April 1, 2017 i.e. applicable from AY 2017-18.

Insertion of Section 92CE– Secondary Adjustment in certain cases

To align the transfer pricing provisions with OECD guidelines and international best practices, concept of

secondary adjustment introduced:

• Assesse required to make secondary adjustment where primary adjustment has been made through any of the

following means: by assesse suo-moto in ROI or by AO and accepted by assesse or determined as per APA/

MAP or made as per safe harbour rules.

• Secondary Adjustment: adjustment in the books of accounts of the assesse and its AE to reflect the actual

allocation of profits consistent with transfer price, thereby removing the imbalance between cash account and

actual profit of the assesse.

• If as a result of primary adjustment, there is an increase in income or reduction in loss, the excess money

available with AE, if not repatriated to India within prescribed time, shall be deemed as advance made by the

assesse to AE and interest on such advance shall be computed as income of the assesse.

• Provisions not to apply in cases where amount of primary adjustment does not exceed Rs.1 crore and

primary adjustment is made for AY commencing on or before April 1, 2016 (FY 2014-15).

Rationalization measures

• Calculation of MAT has now been rationalized with the provisions of Indian

Accounting Standards (Ind- AS).

• Partial withdrawal from National Pension System up to 25% shall now be fully

exempt.

• Reason to believe or suspect recorded by Income tax authorities to conduct

search or making requisition shall not required to be disclosed to any person,

authority or tribunal.

• Loss from House property eligible to be set off against any other income shall

now restricted up to Rs.2,00,000 for any assessment year.

• Deduction u/s 80CCG Abolished: Investment in listed equity shares and listed

equity oriented bond was eligible for deduction

• Income tax survey can now be conducted at any place where an activity for

charitable purpose is carried on

Union budget 2017

Economy & Finance

Transcript of Union budget 2017