Continuing with our series on Budget 2017, the following are some of its provisions that haven’t been widely reported in the media as such, however nonetheless are significant so far as the common taxpayer is concerned.
LTCG Exemption only if STT paid
Under the existing provisions of the Sec. 10(38), the LTCG on equity share of a company or a unit of an equity oriented fund, is exempt from tax if STT has been paid on the transaction of sale undertaken on or after 1.10.14 and is chargeable to STT.
The exemption provided u/s 10(38) is being misused by certain persons for declaring their unaccounted income as exempt LTCG by entering into sham transactions. To address this abuse, Sec. 10(38) has been amended to provide that exemption under this Section for income arising on transfer of equity share acquired or on after 1.10.04 shall be available only if the STT had been paid at the time of acquisition. However, to protect the exemption for genuine cases where the STT could not have been paid like acquisition of share in IPO, FPO, bonus or right issue by a listed company, acquisition by non-resident in accordance with FDI policy etc., suitable notifications to exempt these will be issued soon.
Presumptive Income
Sec. 44AD offers any Residential individual, HUF or a partnership firm (not LLP) to presume 8% of his total turnover or gross receipts (not exceeding ` 2 crore in a FY) as income. In order to promote digital transactions and to encourage small unorganized business to accept digital payments, Sec. 44AD has been amended to reduce the existing rate of deemed total income of 8% to 6% only where such total turnover or gross receipts are received through banking channels. The existing rate of deemed profit of 8% shall continue to apply in respect of total turnover or gross receipts received in any other mode. Thankfully, this benefit is available even for the revenue generated during the entire FY16-17 also.
Exclusion of Certain Person from audit of accounts
FA16 had raised the threshold limit for applicability of presumptive taxation u/s 44AD from `1 crore to `2 crore. Unfortunately, corresponding amendment was not made in Sec. 44AB. Corrective action has been taken by amending Sec. 44AB. Now an eligible person opting for presumptive taxation scheme as specified in Sec. 44AD(1) shall not be required to get his accounts audited if the total turnover or gross receipts from business of the relevant previous year does not exceed `2 crore. This amendment is applicable retrospectively from FY 16-17.
Threshold for Maintenance of Books of Accounts
Any person carrying on profession of legal, medical, engineering, architecture, accountancy, technical consultancy or interior decoration or any other notified profession has to maintain books of accounts. Sec. 44AA casts an obligation on an individual or HUF carrying on business or profession, other than these professions, to maintain books of accounts and documents provided that the income and total sales, turnover or gross receipts, exceeds `1.2 lakh and `10 lakh respectively. In order to reduce the compliance burden, these limits have been raised to ` 2.5 lakh and `25 lakh respectively.
Advance Tax in Single Installment for Professionals
An assessee engaged in an eligible business referred to in section 44AD is allowed to pay advance tax in a single installment on or before the 15th of March every year. Similar benefit was not given to professionals opting for presumptive taxation scheme under Section 44ADA. Now, the facility of paying advance tax in a single installment is extended to such assessees who declare profits and gains in accordance with presumptive taxation regime provided u/s 44ADA. Consequential amendment are carried out in Sec. 234C(1) to provide no interest under this section shall be levied, if the advance tax is paid by such eligible professionals on or before the 15th March of the relevant previous year.
Amendments with respect to National Pension System (NPS)
Exemption on Partial Withdrawal from NPS
The existing provisions of Sec. 10(12A) provides that payment from NPS trust to an employee on closure of his account or opting out shall be exempt up to 40% of total amount payable to him. In order to provide further relief to an employee subscriber of NPS, Sec. 10 has been amended to provide exemption to partial withdrawal not exceeding 25% of the contribution made by an employee in accordance with the terms and conditions specified under Pension Fund Regulatory and Development Authority Act, 2013 and regulations made there under.
For instance suppose you’re your corpus at the end of its tenure would be `2 lakh, consisting of your contribution of ` 1 lakh and a matching contribution of your employer. You can withdraw `25,000 which is 25% of your contribution during its tenure and `70,000 which is 40%of the balance `75,000 at the end of its term. The total works out at ` 95,000. On the other hand, if you do not withdraw any amount during its tenure, you will be allowed to withdraw only `80,000. All this is tax-free. The rest of the amount you can buy an annuity which is taxable in your hands.
Deduction on NPS for self-employed individual
The deduction u/s 80CCD (1) cannot exceed 10% of salary in case of an employee and 10% of gross total income in case of other individuals. However, u/s 80CCD (2) further deduction to an employee in respect of contribution made by his employer is allowed up to 10% of salary of the employee. Thus, in case of an employee, the deduction allowed u/s 80CCD adds up to 20% of salary whereas in case of other individuals, the total deduction is limited to 10% of gross total income. In order to provide parity between an individual who is an employee and an individual who is self-employed, Sec. 80CCD has been amended to increase the upper limit of 10% of gross total income to 20% in case of individual other than employee.
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