Published Editorial

Budget 2017 - A tax cut out for taxman

February 2017

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Hindu Business Line


Amarpal Chadha
Tax Partner, EY India

“Transform, Energise and Clean India” – with this overreaching agenda, the Finance Minister pronounced the Union Budget at Lok Sabha today. Let us look at some of the key personal tax proposals announced today:

Change in the tax slab rates
It is proposed to reduce the existing rate of taxation of 10% to 5% for tax payers having a taxable income of INR 5 lakhs or below.  However, there is no change in the existing non-taxable threshold of INR 2.5 lakhs.

The above change would reduce the tax liability of all tax payers below INR 5 lakhs either to zero (with rebate) or 50% of their existing tax liability. There is no change in the tax rate for other slabs. While the tax liability of tax payer with income upto INR 5 lakhs is being reduced to half, all the other categories of tax payers in the subsequent slabs will also get a uniform benefit of INR 12,875 (including education cess).

Further, it is proposed to introduce a surcharge of 10% for taxpayers whose taxable income is between INR 50 lakh to INR 1 crore. However, 15% surcharge on income above INR 1 crore will continue. 

Incentives for promoting investment in immovable property
The Finance Minister proposed to reduce the holding period for immovable property from the existing period of 3 years to 2 years to qualify as long term capital asset. Also, in order to revise the base year for computation of capital gains, it is proposed to consider the cost of acquisition of an asset as of April 01, 2001 if an asset was acquired before April 01, 2001. However, the cost of improvement shall include only those capital expenses which are incurred post April 01, 2001.

Further, it is proposed to amend section 54EC of the Income Tax Act, 1961 (“the Act”), so as to provide that 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. Currently, 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.

Anti-abuse measures
Under the existing provisions of Section 10(38) of the Act, income arising from a transfer of long term capital asset, being equity share of a company or a unit of an equity oriented fund, is exempt from tax if the sale is done post October 1, 2014 and is chargeable to Securities Transaction Tax. It has been noticed that exemption provided under section 10(38) is being misused by certain persons for declaring their unaccounted income as exempted long-term capital gains.

With a view to prevent this abuse, it is proposed to amend section 10(38) to provide that exemption under this section for income arising on transfer of equity shares acquired or on after October 1, 2004 shall be available only if the acquisition of share is also chargeable to Securities Transaction Tax under the Act.

Administrative reforms
In order to allow the tax payer to claim the refund expeditiously, the time period for revising a tax return is proposed to be reduced to 12 months from completion of financial year. Currently, a taxpayer is allowed to file a revised return within 24 months from the end of financial year.

In order to ensure that the tax return is filed within the due date, it is proposed to levy a fee of INR 5,000 if the tax return is filed after the due date but on or before 31st December of the relevant assessment year. Further, a fee of INR 10,000 will be levied in all other cases.  However, if the total income does not exceed INR 5 lakhs, it is proposed that the fee amount shall not exceed INR 1,000.

Rationalisation measures
In view of proposed rationalisation of tax rates for individuals in the income slab of INR 2.5 lakhs to INR 5 lakhs, it is proposed to amend section 87A so as to reduce the maximum amount of rebate available under this section from existing INR 5,000 to INR 2,500. It is also proposed to provide that this rebate shall be available to only resident tax payers whose total income does not exceed INR 3.5 lakhs.

In order to address the existing anomaly of interest deduction in respect of let out property vis-à-vis self-occupied property, it is proposed to restrict set off of loss from house property against income under any other head during the current year up to INR 2 lakhs only. The loss not so set off would be allowed to be carried forward for set off against house property income in subsequent years.

The main theme of the budget is around curbing black money and tax reforms. With this intent, the above proposals introduced by the finance ministry are a step in the right direction.

Sreenivasulu Reddy, Senior Tax Professional at EY contributed to the article

The views expressed in this article are personal to the author