Budget is already a few days old and the common man is still curious to know what impact this budget will have on his daily life. Some of the important focus areas in this budget were affordable housing, relief to small taxpayers, simplification of taxes, and creating a pension society. The FM also proposed promotion of tax compliance by simplification of procedures and penalize the non-compliant. With that in mind, he has proposed one time settlement scheme for those who want to come forward and comply by paying 45% tax on undisclosed income.
The key takeaways for the common man to watch out for are:
- Increased deduction on rent: The deduction of rent under section 80GG was previously capped at Rs. 2,000 per month i.e. 24,000 p.a. which has now been increased to Rs. 5,000 per month i.e. 60,000 p.a., and this is a huge relief to those who do not receive HRA as a component of their salary.
- Rebate hikes up by 150%: Individuals whose total income is below Rs 5,00,000 will now receive a rebate of Rs. 5,000 as against the earlier rebate of Rs 2,000
- Rise in the rate of surcharge: The super-rich will now pay an additional surcharge @15% instead of 12% on income above Rs 1 crore p.a.
- Dividend beyond a certain threshold to be taxed: Additional tax at the rate of 10% of gross amount of dividend will be payable by the recipients receiving dividend in excess of Rs. 10 lakh per annum
- Promoting affordable housing: First time home buyers have a reason to rejoice since they will now receive an additional deduction of Rs. 50,000 in the first year of claiming deduction of interest paid on housing loans up to Rs 35,00,000 where the house price does not exceed Rs. 50,00,000.
- A helping hand towards the pensioned society: Withdrawal up to 40% of the corpus at the time of retirement to be tax exempt in the case of National Pension Scheme (NPS). Annuity fund which goes to legal heir will not be taxable.
- Increase in the turnover limit for presumptive taxation: Presumptive taxation is a presumptive way of calculating income. Currently, the individual taxpayers (and HUFs and firms) having annual turnover of up to Rs. 1 crore can report their taxable income at 8% of their annual turnover. This eases their tax compliances significantly as they are not required to maintain detailed records. Further this also helps in reducing litigation. It is proposed to increase the threshold of annual turnover to Rs. 2 crores. With this, many more taxpayers can follow the simplified presumptive taxation regime. Additionally, it is proposed to extend the presumptive taxation even to professionals having annual revenue/turnover of up to Rs. 50 lakh. This would simplify tax compliance process for a number of self-employed professionals.
- Clean the environment: Excise duties on various tobacco products other than beedi have been raised by about 10 to 15% which will result in an increase in prices by 8-9%. Luxury tax at the rate of 1% on purchase of luxury cars exceeding value of Rs. ten lakh.
- To provide a stable taxation regime: Domestic taxpayers can declare undisclosed income or such income represented in the form of any asset by paying tax at 30%, and surcharge at 7.5% and penalty at 7.5%, which is a total of 45% of the undisclosed income. Declarants will have immunity from prosecution.
- To simplify the taxes: 13 cesses, levied by various Ministries in which revenue collection is less than Rs. 50 crore in a year to be abolished. For non-residents providing alternative documents to PAN card, higher TDS not to apply.
- A move towards digital India: Expansion in the scope of e-assessments to all assessees in 7 mega cities in the coming years. Interest at the rate of 9% p.a. against normal rate of 6% p.a. for delay in giving effect to Appellate order beyond ninety days. ‘E-Sahyog’ to be expanded to reduce compliance cost, especially for small taxpayers as a big relief.
In order to increase the tax to GDP ratio this budget has been an encouraging one with less focus on increasing concessions. However there has been a focus on raising more money from indirect taxes than direct.
There haven’t been any changes in tax slabs or increase in any deductions or exemption limits and this is a step towards widening the tax base by bringing more people under the tax net. A heavy penalty of 50% of tax in case of underreporting of income and 200% of tax where there is misreporting of facts is also a tough stance to curb tax evasion. A window until 30th September has been proposed to declare undisclosed income.
An additional cess of 0.5% named Krishi Kalyan cess and another 0.5% infrastructure cess on all taxable services will make dining out, paying your insurance premiums, bills etc costly.
These were the key changes impacting the common man in the Budget of 2016. It remains to be seen how many of these will ultimately be passed in the parliament and made applicable in the form of Finance Act 2016.