Budget 2016: Focusing on the Fine Print

Our perusal of the fine print of Budget 2016 has been throwing up some very interesting findings. Over the past few weeks, we have aggregated some of the more significant amendments that have managed to pass under the radar, so to speak, and hence not reported extensively (if at all) in the media. Through this article the same is being shared with our readers.

Sec. 24: The interest payable on capital borrowed for acquiring a housing property was exempt u/s 24 up to some specified limits if its acquisition or construction was completed within 3 years from the end of the year in which the capital was borrowed. Finding that in the current scenario, this requirement has become too tight, the limit of 3 years has been raised to 5 years. However, corresponding amendments have not been inserted for Sec. 54 and Sec. 54F related with exemption of Long Term Capital Gain (LTCG) where the 3 year limit continues to apply. Hopefully, corrective action will be taken by the next Budget.

New Sec. 47(viic) & 48 : In the case of bonds and debentures, the benefit of indexation is not available. However, Indexed Bonds issued by the government attract indexation. On the same lines, Budget 2016 has brought Sovereign Gold Bond issued by the RBI under indexation. However the newly inserted Sec. 47(viic) does not consider these bonds as capital assets at the time of their redemption by an individual!

Sec. 48 : Consequent upon the judgment of various courts related with the definition of ‘securities’ under SCRA, it is  clarified that the LTCG arising from transfer of a share of a private limited company shall be charged to tax @10%. Moreover, the period for getting benefit of LTCG in case of shares of unlisted companies has been reduced from 3 to 2 years.

New Sec. 115BBDA:  Even if normally, dividends are tax-free in the hands of the recipient, an additional tax @10% will be applicable if dividend during the FY received by an individual, HUF or a firm who is resident in India, exceeds Rs. 10 lakh. No deduction in respect of any expenditure or allowance or set off of loss shall be allowed in computing the income by way of dividend. This amendment fortunately does not cover dividend received from Mutual Funds. It has to be realised that the DDT, by itself, has risen to quite a high level of 17.7675% on equities and 29.6125% for debt-based MF schemes. This being so, the new law that triply taxes dividends is most unfair even if it results in only being applicable to High Networth Individuals.

Sec.  211: has been amended  to provide that the number of installments and due dates for payment of advance tax in the case of individuals, HUFs, firms, etc., shall be the same as is applicable to companies. This is most scary!!! It forces such an assessee to pay advance tax four times in place of three times with the first installment of 15% required to be paid on or before 15th June instead of 15th September. The rest of the installments are adjusted taking in view of the first installment. TDS is treated as advance tax paid. Senior citizens are exempt from paying advance tax if they do not have any business or professional income.

Voluntary Disclosure Income Scheme

The FM has offered an Amnesty Scheme without naming it as such. It  provides an  opportunity to persons who have not paid full  taxes in the past up to FY 2015-16 to declare such  undisclosed income and pay  tax @30% of undisclosed income  plus 7.5% ‘Krishi Kalyan cess’ plus 7.5%  penalty aggregating to 45% tax of such undisclosed  income.

No scrutiny and enquiry under the IT Act and Wealth-tax Act shall be undertaken in respect of such declarations and immunity from prosecution under such Acts shall be provided.

Following cases shall not be eligible for the scheme:

  • where notices for assessment, reassessment or  search has been issued;
  • where a search or survey has been conducted and  time for issuance of notice has not expired;
  • where information has been  received by competent  authority under an agreement with foreign  countries in respect of undisclosed asset.

 This then sums up our discussion on some of the nuances of Budget 2016. Also, the authorities do not reserve only the Budget to make any major announcements – these can be made outside the Budget too (case in point – the recent Small Savings rate cut). Whether through the mode of the Budget or otherwise – if there are any amendments or changes to the law that affects your investments or taxes, we assure you that the same would be reported and analyzed as usual through this column. So keep watching this space for such updates!

(The author may be contacted at wonderlandconsultants@yahoo.com)

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