Monday, February 29, 2016

Union Budget 2016 - Highlights

I     Income Tax

No change in basic rate of tax in respect of income earned in FY 2016-17 (AY 2017-18)

Benefit of deductions for Research & Development would be limited to 150% from 01.4.2017 and 100% from 1.4.2020. From the financial year 2020-21 onwards the deduction shall be restricted to 100%.

Change in TDS rates & Limits effective from 01st April 2016 -

Present Section
Existing (Rs.)
Proposed (Rs.)
Payment of accumulated balance due to an employee in EPF
Payment to contractors
75000 aggregate annual
aggregate annual
Commission on brokerage
Rate- 10%

Corporate tax rate for establishment with turnover less than Rs. 5 crore lowered to 29% plus surcharge plus cess.

Limit for contribution of employer in recognized Provident and Superannuation Fund of 1.5 lakh per annum for taking tax benefit.

Individuals with income upto Rs. 5 lakhs - ceiling of tax rebate under section 87A raised from Rs. 2000 to Rs. 5000 to lessen tax burden.

Surcharge to be raised from 12% to 15% on persons, other than companies, firms and cooperative societies having income above Rs. 1 crore.

Withdrawal up to 40% of the corpus at the time of retirement to be tax exempt in case of National Pension Scheme (NPS).

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 01.4.2016.

Deduction for additional interest - Rs. 50,000 per annum for loans up to Rs. 35 lakh sanctioned in 2016-17 for first time home buyers (House cost does not exceed Rs. 50 lakh).

Deduction of interest payable on capital borrowed for acquisition or construction of self occupied house property shall be allowed if such acquisition or construction is completed within 5 years.

For non -residents providing alternative documents to PAN card, higher TDS not to apply.

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.

The weighted deduction under section 80JJA suffered from a basis anomaly of purpose with the requirement that the new employee must be engaged for at least 300 days. The reduction to 240 days makes it more practical for tax assessees to avail of this well-intentioned deduction.

Presumptive taxation scheme with profit deemed to be 50% to professionals with gross receipts up to Rs. 50 lakh.

Increase the turnover limit under Presumptive taxation scheme under section 44AD of the Income Tax Act from Rs. 1 crore to Rs. 2 crores.

Black Money - 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% - Total 45% of undisclosed income. Declarants will have immunity from prosecution.

TDS @1% on purchase of luxury cars exceeding value of 10 lakh and purchase of goods and services in cash exceeding 2 lakh.

Scope of e-assessment to be expanded to 7 mega cities, to simplify compliance for taxpayers.

Deduction for rent paid under Section 80GG will be raised from Rs. 24,000 to Rs. 60,000 to benefit those living in rented houses.

Tax holiday to start-up’s for 3 to 5 years announced.

Income Tax Disclosure Scheme announced from 1st June to 30th September, 2016. Assessees to pay 45% tax on incomes declared. No scrutiny assessment will be carried out on incomes declared under such schemes.

Govt. will pay interest @9% instead of 6% in case there is a delay in giving effect to decision in appellate cases beyond 90 days.

Tax payer can settle by paying disputed tax and interest up to date of assessment.

No penalty where disputed tax is less than Rs. 10 lakhs.

Capital Gains not taxed where investment made in notified funds or in start ups where they hold majority.

Long Term Capital Gain period for unlisted companies reduced to 2 years from 3 years.

Rationalizing formula for calculation of disallowance of expenditure under Rule 8D.

II Excise Duty

To impose additional Excise Duty on jewellery, excluding silver jewellery.

No change in standard ad valorem rate of Basic Excise Duty.

Revised return can be filed by the end of calendar month in which original return is filed by Central excise assesses.

Chief Commissioner of Central Excise are being instructed to file application for withdrawing prosecution in cases involving duty less than Rs. 5 lacs and pending for more than 15 years.

Duty drawback scheme widened to include more products, countries.

Increased Excise Duty on branded readymade garments.

Increase duty on tobacco products (other than beedi) by 10-15%

III Service Tax

Krishi Kalyan Cess @ 0.5% on all taxable services w.e.f. 1 June 2016. Hence effective service tax rate increased from 14.5% to 15%. Input tax credit of this cess will be available for payment of this cess.

Service tax exempted for housing construction of houses less than 60 sq. m

IV  General

National SC/ST Hub to be set up to support entrepreneurs from the Scheduled Caste and Scheduled Tax categories.


50,000 km of state highways to be taken up for upgradation as national highways.


Flexibility for 7-day working of shops in local markets is another step towards improving ease of doing business.


100% FDI in the marketing of food products produced and manufactured in India.

Infrastructure cess -
-1% on small petrol, LPG, CNG cars,
-2.5% on diesel cars of certain capacity
-4% on other higher engine capacity vehicles and SUVs.
-No credit of this cess will be available nor credit of any other tax or duty be utilized for paying this cess.

Increase in free baggage allowance for international passengers. Filing of baggage only for those carrying dutiable goods.

13 cesses, levied by various Ministries in which revenue collection is less than Rs. 50 crore in a year to be abolished.

Mandatory for the assessing officer to grant stay of demand once the assesse pays 15% of the disputed demand, while the appeal is pending before Commissioner of Income tax (Appeals).

Time limit of one year for disposing petitions of the tax payers seeking waiver of interest and penalty.

Penalty rates to be 50% of tax in case of under reporting of income and 200% of tax where there is misreporting of facts.

New Dispute Resolution Scheme to be introduced -
-No penalty in respect of cases with disputed tax up to Rs. 10 lacs.
-Cases with        disputed tax exceeding Rs. 10 lacs to be subjected to 25% of the minimum of the imposable penalty.
-Any pending appeal against a penalty order can also be settled by paying 25% of the minimum of the imposable penalty and tax interest on quantum addition.

Interest rates on delayed payment of duty/tax across all indirect taxes being rationalized at 15% except in case of service tax collected but not deposited where rate is 24%.

Government will pay contribution of 8.33% for all new employees enrolling in EPFO for the first three years of their employment.

Implementation of General Anti Avoidance Rules (GAAR) from 1 April 2017.

Introduce targeted delivery of subsidies through Aadhaar, social security platform for use of Aadhaar.

Bill to amend Companies Act - enabling environment for start-ups.

First-time home buyers - relief on interest up to Rs. 50,000 paid on housing loans for houses valued up to Rs. 50 lakh.