Revised Personal Tax Rates by Budget 2016-17

1. No change in Basic Exemption Limit for Individuals

There has been no change in personal tax rates. The basic exemption limit continues at Rs.2.50lacs. Tax Rebate of Rs. 2000 available to small tax payers under Section 87A has been increased from Rs. 2,000 to Rs. 5,000. This will benefit about around 2 crore marginal tax payers.

2. HNIs in Higher Tax Net

With a view to tax high income tax payers, the surcharge on income-tax is proposed to be increased from 12% to 15% wherein income exceeds Rs. 1 Crore. This will result in maximum marginal rate of 35.535% {(30%+15% surcharge thereon) +3% cess} for financial year 2016-17 as against 34.608% {(30%+12% surcharge thereon) x3% cess} at present.

It is also proposed to tax any income by way of dividend in excess of Rs. 10 lakh in the case of an individual, Hindu undivided family (HUF) or a firm who is resident in India @ 10% on gross basis. However, HNIs can have a sigh of relief that the much talked about long term capital gains tax exemption period for shares sold on the stock exchange continues at 1 year and has not been increased to 3 years.

3. No change in 80C Deduction Limit for Individuals

The limit for deduction under Section 80C of Rs. 1,50,000 remains unchanged. Section 80C provides for tax deduction in respect of investment in eligible savings such as Provident fund, ELSS, life insurance premium, housing loan repayment, 5 year bank deposits, NSC, ULIP to promote growth.

4. Withdrawals from Fresh Contributions to Recognize Provident Funds/ Pension Funds and National Pension Scheme Partially Taxable

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). It is proposed that withdrawal up to 40% of the corpus at the time of retirement shall be tax exempt in the case of National Pension Scheme. In case of superannuation funds and recognized provident funds, including employees provident Fund, 40% of corpus created out of contributions made on or from 1.4.2016 shall be tax exempt upon withdrawal. It may be pointed out that presently withdrawals from recognized Provident Funds are generally exempt from tax altogether whereas withdrawals from NPs are taxable entirely.

5. Focus on Reducing Litigation and Increasing Compliance

The Budget contains The Income Declaration Scheme which will provide a window to the taxpayers who have not paid full taxes in the past to ensure compliance by paying 45% of declared income as tax and penalty. This will result in no further interest or penalty or prosecution. The scheme will be open from June 2016 to September 2016 and will be subject to specified conditions. There is also The Direct Tax Dispute Resolution Scheme 2016 which would permit the taxpayers whose appeals are pending before the first appellate authority to pay the tax and interest up to the date of assessment where disputed tax is up to Rs. 10 lacs. There will be no penalty or prosecution nor interest for the period after assessment. This is a golden opportunity for tax payers who have pending litigation to resolve the same without long drawn litigation, recovery and penalty proceedings and cost of litigation.

6. Additional Deduction of Interest on Housing Loan for first time home buyers

Deduction for additional interest of Rs. 50,000 per annum for loans up to Rs. 35 lakhs sanctioned in 2016-17 for first time home buyers, where the house cost does not exceed Rs. 50 lakhs. In overall context, first home buyer can get maximum deduction of interest on housing loan up to Rs. 250,000 in aggregate comprising of Rs.2 lakhs under Section 24(b) of the IT Act and Rs.50,000 under section 80EE of the IT Act.

7. Increase in time limit of completion of construction of a self-occupied house property

It is proposed that the 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. The earlier time limit was 3 years.

8. 80GG Deduction Limit for Individuals revised from Rs. 24,000 per annum to Rs. 60,000 per annum

The existing provisions of Section 80GG provide for a deduction of any expenditure incurred by an individual in excess of 10% of his total income towards payment of rent in respect of any furnished or unfurnished accommodation occupied by him for the purposes of his own residence if he is not granted house rent allowance by his employer, to the extent such excess expenditure does not exceed Rs. 2000 per month or 25% of his total income for the year, whichever is less, subject to other conditions as prescribed therein. The limit for deduction for rent paid under Section 80GG has been increased from Rs. 2000 per month to Rs. 5000 per month, to provide relief to those who live in rented houses and do not get HRA from the employers.