Here are the important amendments by the Finance Bill, 2016 with regard to Income-tax provisions:-

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

The existing provision of Clause (b) of section 24 provides that interest payable on capital borrowed for acquisition or construction of a house property shall be deducted while computing income from house property. The second proviso to the said clause provides that a deduction of an amount of two lakh rupees shall be allowed where a house property referred to in sub-section (2) of section 23 (self-occupied house property) has been acquired or constructed with capital borrowed on or after the 1stday of April, 1999 and such acquisition or construction is completed within three years from the end of the financial year in which capital was borrowed.

In view of the fact that housing projects often take longer time for completion, it is proposed that second proviso of clause (b) of section 24 be amended to provide that the deduction under the said proviso on account of interest paid on capital borrowed for acquisition or construction of a self-occupied house property shall be available if the acquisition or construction is completed within five years from the end of the financial year in which capital was borrowed.

This amendment will take effect from 1st day of April, 2017 and will, accordingly apply in relation to assessment year 2017-2018 and subsequent years.

Presumptive Taxation System for Business and Professional Income

For the first time the limit for Presumptive Taxation of business income has been raised to Rs. 2 crores and 8 percent being the Minimum Presumptive Taxation for the same. Likewise, for the first time presumptive income will be taxed even for professional persons subject to maximum turnover of Rs. 50 lakhs. The presumptive income would be taxed at the rate of 50 per cent. However, persons can declare higher income in both the cases.

Rationalisation of tax treatment of Recognised Provident Funds, Pension Funds and National Pension Scheme

Till now a person doing continuous job for five years and receiving money from recognized Provident Fund if he withdraws the money there is no income-tax thereon. But with regard to the Pension Fund and the payment received under National Pension Scheme, he will fall within the ambit of EET i.e. the amount is taxed as income. Now as per the proposed amendment in the Finance Bill, 2016 rationalisation of tax treatment of recognized Provident Fund as also Pension Funds and finally National Pension scheme there will be combined treatment of rationalisation of tax treatment in respect of the three items.

Under the existing provisions of the Income-tax Act, 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.

However, commutation of Government Pension and superannuation fund is exempt from taxation. The monthly contribution, annual accrued income, advances/ withdrawals for specific purposes and final withdrawal from the Recognised Provident Funds (RPFs) on superannuation are also accorded EEE status i.e. Exempt, Exempt, Exempt.

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.

Under the existing provisions, any payment from an approved superannuation fund made to an employee in lieu of or in commutation of an annuity on his retirement at or after a specified age or on his becoming incapacitated prior to such retirement is exempt from tax.

It is proposed to amend the said provisions so as to provide that any payment in commutation of an annuity purchased out of contributions made on or after the 1stday of April, 2016, which exceeds forty per cent of the annuity, shall be chargeable to tax.

Under the existing provisions of section 80CCD, any payment from National Pension System Trust to an employee on account of closure or his opting out of the pension scheme is chargeable to tax.

It is proposed to provide that any payment from National Pension System Trust to an employee on account of closure or his opting out of the pension scheme referred to in Section 80CCD, to the extent it does not exceed forty percent of the total amount payable to him at the time of closure or his opting out of the scheme, shall be exempt from tax. However, the whole amount received by the nominee, on death of the assessee shall be exempt from tax.

Under section 17, perquisite includes the amount of any contribution exceeding one lakh rupees to an approved superannuation fund by the employer in the hands of the assessee.

Under the Part A of Fourth Schedule to the Income-tax Act contributions made by employer to the credit of an employee participating in a recognised provident fund, which are in excess of twelve percent of the salary of the employee, are liable to tax in the hands of the employee. However, there is no monetary limit for the contribution made by the employer though there is a monetary ceiling for employee’s contribution.

The limit of contribution by the employee eligible under section 80C of the Act has been increased from one lakh rupees to one lakh and fifty thousand rupees vide Finance Act(No.2), 2014. Therefore, in order to bring parity in the monetary limit for contribution by the employer and the employee, it is proposed to amend the said section and said schedule so as to provide the limit of employer’s contribution to one lakh and fifty thousand rupees, without attracting tax.

Further with a view to bring all the pension plans under one umberalla, it is also proposed to amend:-

(i) the said schedule so as to provide exemption to one-time portability from a recognised provident fund to National Pension System;

(ii) clause (13) of section 10 so as to provide that any payment from an approved superannuation fund by way of transfer to the account of the employee under NPS referred to in section 80CCD and notified by the Central Government shall be exempt from tax.

These amendments are proposed to be made effective from the 1st day of April, 2017 and shall accordingly apply in relation to assessment year 2017-18 and subsequent years.

Although the Government had provided for common tax treatment of various pension funds of taxing 40% of the amount but finally at the call of the Hon’ble Prime Minister it has been provided that no provision of amount withdrawn from “Regional Provident Fund” would be subject to Income tax. Out of Pension funds and National Pension Scheme now 40% of the amount received would be tax exempt and balance would be taxable.

New Housing Benefits as per Budget 2016

The following are the important proposed amendments relating to the housing sector. One of the amendments is for the benefit of the small developer whereby the income is completely exempted from income-tax while second benefit is by way of extra interest deduction on new purchase of house property. The following is the summary of these two deductions:-
Housing Benefits

(a) For Developer on minimum 1000 sq. meters plot in metropolitan towns size maximum 30 meters or on plot size 2000 sq. meters in other areas size maximum 60 meters. Project to be completed within a period of three years from the date of approval = Income Tax Deduction 100% of profits. Housing Projects complete by 30-3-2019
(b) On new house purchased by an individual extra interest deduction upto Rs. 50000 provided that value less than Rs. 50 lakhs and present loan benefit continues till the loan amount is repaid. Present loan sanction upto the period 1-4-2016 to 31-3-2017 and maximum loan amount Rs. 35 lakhs. This benefit is over and above Rs. 2 lakhs Interest per year (clause 37 & 43)

The second important deduction with regard to housing sector is deduction under section 80GG which has been hiked to Rs. 5000 per annum.

In respect of rental payment where tax is deducted at source the new provision provides for submission of Form No., 15G and Form No. 15H for rent payment so that due to self declaration TDS is not deducted at source.

TDS at Source Rates

The Rates of TDS on almost all items specially on Interest under various accounts will be cut down by 50% that means it would be 5% TDS on most items.

LLP – Liberal Provisions

Conversing a Private Limited Company to LLP was not liable to Income-tax by way of Capital Gains tax specially if the turnover, assets etc. valued upto Rs. 60 lakhs but now the limit is hiked to Rs. 5 crores, hence very big advantage available to tax payers.

Deduction for Rent

The deduction for Rent Payment which was Rs. 2000 per month as per Section 80GG has now been hiked to Rs. 5000 per month.

Tax Rebate hiked for Individuals to Rs. 5000
As per section 87A, the tax rebate which was upto Rs. 2000 per year will now be hiked upto Rs. 5000.

TDS on Selling Motor Car exceeding Rs. 10 lakhs

TDS will now be applicable on selling Motor Car exceeding the value of Rs. 10 lakhs. Likewise, on sale of goods or services exceeding Rs. 2 lakhs the TDS would be applicable.

Presumptive Tax on Business Income & Professional Income

As per section 44AD the provision of presumptive tax would be applicable by persons doing business. The limit of Turnover has now been increased to Rs. 2 crores and the presumptive rates continues to be @ 8%. For the first time the professional person can have his tax calculated on the presumptive basis with maximum turnover of Rs. 50 lakhs. The rate of presumptive tax for professional tax would be @ 50%.

Subhash Lakhotia | Tax and Investment Consultant