CORPORATE AND PROFESSIONAL UPDATE DATED MARCH 7,2016

CORPORATE AND PROFESSIONAL UPDATE DATED MARCH 7,2016

BRIEF SUMMARY OF THE AMENDMENTS PROPOSED BY THE FINANCE BILL, 2016

(Income Tax & Service Tax)

Part-I: Amendments Proposed in the Income Tax

  • No change in Tax rates or Income slabs.
  • Tax Rebate u/s 87A has been increased from Rs.2,000 to Rs.5,000 for the taxable income Upto Rs.5,00,000. (No Tax up to an Income of Rs.3 Lac)
  • Deduction for Rent paid u/s 80GG increased from existing Rs.24,000 PA to Rs. 60,000 PA.
  • Tax Audit Limit U/s 44AB for the Professionals increased from Rs.25 Lac to Rs.50 Lac
  • Increase in turnover limit under Presumptive Taxation scheme u/s 44AD from Rs.1 Crore to Rs. 2 Crores
  • Extension of Presumptive Taxation to Professionals – 50% of Gross Receipts upto Rs.50 Lac
  • Accelerated depreciation under Income Tax will be limited to maximum of 40%
  • Benefit of deductions for Research would be limited to 150% from 01.04.2017 and 100% from 1.4.2020
  • Benefit of section 10AA to new SEZ units will be available to those units which commence activity before 31.03.2020.
  • The weighted deduction under section 35CCD for skill development will continue up to 01.04.2020
  • New manufacturing companies incorporated on or after 1.3.2016 to have an option to be taxed at 25% + SC + Cess but no profit linked or investment linked deductions and do not avail of investment allowance and accelerated depreciation but subject to MAT.
  • Lower the corporate tax rate for the next financial year for relatively small enterprises, i.e, Companies with turnover not exceeding Rs.5 crore (in the financial year ending March 2015) to 29% + SC + Cess.
  • 100% deduction of profits for 3 out of 5 years for startups setup during April, 2016 to March, 2019, however MAT will apply in such cases.
  • 10% rate of tax on income from worldwide exploitation of patents developed and registered in India by a resident.
  • Non-banking financial companies (NBFCs) shall be eligible for deduction to the extent of 5% of its income in respect of provision for bad and doubtful debts.
  • Long Term Capital Gain Benefit in case of securities of unlisted companies – Holding Period reduced  to 2 years from 3 Years
  • Non Corporate Assessees to pay Advance Tax in 4 installments on 15thJune – 15%, 15th Sep – 45%, 15thDec-75% & 15th Mar-100% (similar to the Corporate)
  • New condition for conversion of a company into Limited Liability Partnership (LLP). The value of the total assets in the books of accounts of the company in any of the three previous years preceding the previous year in which the conversion takes place, should not exceed five crore rupees
  • Processing of  I T Returns u/s 143(1) be mandated before assessment u/s 143(3)
  • Time limit for assessment, reassessment and recomputation – the period, for completion of assessment u/s 143 or 144 be changed from existing two years to twenty one months from the end of the assessment year in which the income was first assessable. Now Assessment by Dec 31stinstead of 31st
  • Determination of residency of foreign company on the basis of Place of Effective Management (POEM) is proposed to be deferred by one year.
  • Commitment to implement General Anti Avoidance Rules (GAAR) from 01.04.2017.
  • 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.
  • In case of superannuation funds and recognized provident funds, including EPF, the same norm of 40% of corpus to be tax free will apply in respect of corpus created out of contributions made on or from 01.04.2016.
  • Limit for contribution of employer in recognized Provident and Superannuation Fund of  1.5 lakh per annum for taking tax benefit.
  • 100% deduction for profits to an undertaking in housing project for flats upto 30 sq. metres in four metro cities and 60 sq. metres in other cities, approved during June 2016 to March 2019 and completed in three years. MAT to apply.
  • Additional interest deduction of Rs.50,000 PA for loans up to Rs.35 Lac sanctioned in 2016-17 for first time home buyers, where house cost does not exceed Rs.50 Lac.
  • Distribution made out of income of SPV to the REITs and INVITs having specified shareholding will not be subjected to Dividend Distribution Tax, in respect of dividend distributed after the specified date.
  • Dividend Receipts in excess of Rs.10 Lac to be taxed @ 10%
  • Individuals with Income above 10 Lac to pay 15% Cess against 12%
  • TCS / TDS @ 1 % on purchase of luxury cars exceeding value of Rs.10 Lac and purchase of goods and services in cash exceeding Rs. 2Lac
  • Securities Transaction tax in case of ‘Options’ is proposed to be increased from 0.017% to 0.05%.
  • Equalization levy of 6% of gross amount for payment made to non- residents exceeding ` 1 Lac a year in case of B2B transactions.
  • Domestic VDS Scheme for undisclosed income @ 45%.
  • New Dispute Resolution Scheme – No penalty in respect of cases with disputed tax up to Rs.10 Lac in other cases 25% of the minimum imposable penalty.
  • No discretion of AO on imposition of Penalty.
  • Penalty rates to be 50% of tax in case of underreporting of income and 200% of tax where there is misreporting of facts.
  • Disallowance will be limited to 1% of the average monthly value of investments yielding exempt income, but not exceeding the actual expenditure claimed under rule 8D of Section 14A of Income Tax Act.
  • Mandatory stay of demand once the assessee pays 15% of the disputed demand, while the appeal is pending before CIT (Appeals).
  • Monetary limit for deciding an appeal by a single member Bench of ITAT enhanced from Rs.15 Lac to Rs.50 Lac.
  • No higher TDS for non-residents if alternative documents to PAN card provided.
  • Expansion of e-assessments Scheme to assessees in 7 mega cities in the coming years.
  • Interest at the rate of 9% PA against normal rate of 6% PA for delay in giving effect to Appellate order beyond ninety days.
  • ‘e-Sahyog’ to be expanded to reduce compliance cost, especially for small taxpayers.

TDS limits increased as below

  •  192A – Payment of accumulated balance due to an employee  from 30,000 to 50,000
  • 194BB – Winnings from Horse Race from Rs. 5,000 to Rs. 10,000
  • 194C – Payments to Contractors – from Aggregate annual limit of 75,000 to Aggregate annual limit of 1,00,000
  • 194LA – Payment of Compensation on acquisition of certain Immovable Property – from 2,00,000 to Rs. 2,50,000
  • 194D – Insurance commission from Rs. 20,000 to 15,000
  • 194G – Commission on sale of lottery tickets from 1,000 to 15,000
  • 194H – Commission or brokerage  from Rs. 5,000 to 15,000

TDS Rates reduced as below

  • 194DA – Payment in respect of Life Insurance Policy – from 2% to 1%
  • 194EE  – Payments in respect of NSS Deposits – from 20% to 10%
  • 194D – Insurance commission – from 10% to 5%
  • 194G – Commission on sale of lottery tickets – from 10% to 5%
  • 194H – Commission or brokerage – form 10% to 5%.

TDS Sections Omitted w.e.f. 01.06.2016 as below

  • 194K Income in respect of UnitS
  • 194L Payment of Compensation on acquisition of Capital Assets

 Part-II: Amendments Proposed in Service Tax Law

Exemption of Service Tax on 

  • Services provided under Deen Dayal Upadhyay Grameen Kaushalya Yojana
  • Services provided by Assessing Bodies empanelled by Ministry of Skill Development & Entrepreneurship.
  • General Insurance Services provided under ‘Niramaya’ Health Insurance Scheme launched by National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disability.
  • Annuity services provided by NPS and Services provided by EPFO to employees.
  • Exemption from service tax on construction of affordable houses up to 60 square metres under any scheme of the Central or State Government including PPP Schemes.
  • Reduce service tax on Single premium Annuity (Insurance) Policies from 3.5% to 1.4% of the premium paid in certain cases.
  • Krishi Kalyan Cess, @ 0.5% on all taxable services, w.e.f. 1 June 2016 – CENVAT credit available. Total ST now 15% as against 14.50 % earlier.
  • Assignment of right to use the spectrum and its transfers has been deducted as a service leviable to service tax and not sale of intangible goods.
  • Additional options to banking companies and financial institutions, including NBFCs, for reversal of input tax credits with respect to non- taxable services.
  • The power to arrest is being restricted only to situations where the tax payer has collected the tax but not deposited it to the credit of central government, and that too above a threshold of Rs.2 crore. The monetary limit for launching prosecution is being increased to Rs. 2 crore of Service Tax evasion.

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