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Rashmin Sanghvi & Associates

Chartered Accountants

220, 2nd Floor, Arun Chambers,
Tardeo Road,
Mumbai - 400 034,
Maharashtra, India.

Tel. Nos.: (+91 22) 2351 1878, 2352 5694.

Fax : (+91 22) 2351 5275.

Email : [email protected]

 
Home Articles Taxation         Share :

Budget 2017Chapter H

H. Other changes:

36. Advance tax related amendments:

36.1 Advance tax instalment for professionals [S. 211]:

36.1.1 Finance Act 2016 introduced presumptive taxation scheme for certain professionals. Under this scheme, if a professional person has a turnover of upto Rs. 50 lakhs, 50% of gross receipts of professionals are presumed to be their income and tax has to be paid on it accordingly. Presumptive tax is already in place for small and medium businesses for past few years.

36.1.2 For payment of advance tax under presumptive tax scheme, persons having business are required to pay the entire advance tax in only one instalment – on or before 15th March of financial year. However, for presumptive tax scheme applicable to professionals, tax was required to be paid in 4 instalments - on 15th July, 15th September, 15th December and 15th March.

36.1.3 To bring parity in treatment, professionals are now required to pay entire advance tax in only one instalment – on or before 15th March of the financial year.

36.1.4 This amendment is applicable from FY 2016-17. Some professionals may not have paid advance tax till now for FY 2016-17. Now with this amendment, interest for short payment of advance tax for first 3 quarters of FY 2016-17 for such professionals will not be charged. However, these professionals are required to pay entire advance tax on or before 15th March 2017 (for FY 2016-17).

36.2 Advance tax on domestic dividends [S. 234C]:

36.2.1 Finance Act 2016 introduced tax on dividends above Rs. 10 lakhs for individuals, HUF and a firm (S. 115BBDA). The dividend has to be considered in computing advance-tax to be paid.

36.2.2 However, one never knows when the company may declare dividend. Normally dividend is declared at the Annual General Meeting which may happen in August. At times interim dividend is also paid which can be in any month. Further, one cannot know how much will be the dividend, or whether it will be declared at all. Therefore, due to uncertainty of dividend declaration, difficulty may arise in determining the advance tax liability in relation to that income. For example, if the company declares dividend in December, there will be a default of advance tax for June and September quarter. This can lead to interest liability on shortfall of advance tax payments.

36.2.3 Finance Bill provides that no interest will be levied in the quarter for shortfall in advance tax, if dividend has not been declared in that quarter. However, advance tax has to be paid in the subsequent quarters.

This provision is applicable from FY 2016-17 itself.

37. Taxation of dividend [S. 115BBDA]:

37.1 Dividend paid by companies is normally exempt from taxation. Finance Act 2016 provided that dividend earned above Rs. 10,00,000 by a resident individual, HUF or a firm is taxable at the rate of 10%. Non-residents and other persons were exempt from this tax.

37.2 Finance Bill 2017 proposes to extend the applicability of this section to all types of resident assessees. However following persons continue to be exempt completely:

i) a domestic company; or

ii) a fund, an institution, a trust, which undertakes activities like education, medical, hospital etc. [S. 10(23C)]; or

iii) a charitable trust or institution registered with tax department [S. 12AA]

38. Deduction of tax at source from rent payments in case of Individuals and HUFs [S.194-I]:

38.1 Individuals and HUFs who are liable to tax audit u/s. 44AB are required to deduct tax at source on rent u/s. 194-I. However assessees who were not liable to tax audit were not required to withhold this tax.

38.2 Finance Act 2017 proposes to widen the scope of deduction of tax at source. Therefore, individuals and HUFs paying rent exceeding Rs. 50,000 for a month or part thereof are required to deduct tax at source @ 5%.

38.3 Such tax shall be required to be deducted at the time of payment of rent for the last month of the previous year or last month of tenancy if property is vacated during the year.

38.4 If the lessor does not have a Permanent Account Number (PAN) then tax shall be withheld @ 20% as per Section 206AA. However, the amount of tax to be withheld shall not exceed the amount of rent payable for the last month of the previous year or the last month of the tenancy.

38.5 Further, for the purposes of deducting tax at source such individuals will not be required to obtain Tax deduction Account Number (TAN).

39. Restriction on set-off of loss from house property [S. 71]:

Presently, Section 24 allowed expenses to be claimed against income from let-out property without any limit. This could result in losses under the head “Income from House Property”. Further, loss under income from house property is allowed to be set off u/s. 71 during the same year against income earned under other heads. Due to high interest costs, there could be significant losses under the head “Income from House Property” which would bring down the total taxable income.

Finance Bill proposes to restrict the set-off of loss incurred from House Property against income under other heads to the extent of Rs. 2 lakhs.

Example 6:

An Indian resident earns income from following sources in FY 2017-18:

Source Amount

Source

 

Amount

Income from Salary

 

50,00,000

Income from House Property

 

(10,00,000)

Income from Other Sources

 

5,00,000

 How much House Property loss can be set-off during the year and how much loss can be carried forward?

Source

 

Amount

 

Amount

Income from Salary

     

50,00,000

Income from House Property

 

(10,00,000)

 

 

Less: Restricted to (S. 71)…

     

(2,00,000)

Income from Other Sources

     

 5,00,000

Gross Total Income

     

53,00,000

The balance house property loss of Rs. 8,00,000 can be carried forward for 8 years as per S. 79.

40. Rates of Income tax:

40.1 Corporate Tax Rates:

In the 2015 Budget speech, the Finance Minister had proposed to bring down corporate tax to 25% in the next 4 years combined with removal of tax exemptions. He had made a beginning last year by lowering the tax rate to 29% for new companies which declare not to avail any deductions or exemptions.

In this year’s Finance Bill, rate of tax in case of domestic companies has been reduced from 30% to 25% provided total turnover or gross receipts of the company do not exceed Rs. 50 crores for FY 2015-16.

A similar provision was introduced in Finance Act, 2016. However, the provision of Finance Act, 2016 was applicable only to domestic companies incorporated on or after 1st March 2016. Furthermore, there are certain conditions like companies should not claim investment linked deductions, set-off any losses, etc. Also once this option is selected it cannot be subsequently withdrawn for any of the years.

After introduction of amendment by this year’s Finance Bill, it seems that companies incorporated on or after 1st March 2016 and having a turnover of less than Rs. 50 Crores would not like to claim this benefit. Since this year’s amendment does not enforce any other condition other than turnover limit, companies fulfilling these conditions would pay tax for AY 2017-18 at 29% or 30% as applicable.

The rate of 29% introduced last year for corporates with turnover/ gross receipts of Rs. 5 crores and less in FY 2014-15 is now replaced by the above provision.

40.2 Tax Rates for Individuals and HUF:

40.2.1 In case of every Individual and HUF rates of tax for Financial Year 2017-18 are proposed as under:

Person

Income Limits

(Rs.)

Tax Rate (excluding education cess and surcharge)

Individual, HUF

0 – 2,50,000

Nil

2,50,001 – 5,00,000

5%

5,00,001 – 10,00,000

20%

10,00,001 & above

30%

There has been a reduction in lowest slab rate from 10% to 5%. Tax payers shall get a maximum benefit of Rs. 12,500 across all levels of income. However, in order to provide the beneficial rate at the lowest slab, it is proposed by the Finance Bill to levy surcharge for certain tax payers. (See para 40.2.2 below)

40.2.2 As stated above in para 40.2.1, a new surcharge shall be levied in case of individuals earning total income over Rs. 50,00,000. The slab for levy of surcharge is as under:

Person

Income Limits (Rs.)

Rate of Surcharge

Individual, HUF

50,00,001 – 1,00,00,000

10%

1,00,00,001 & above as presently applicable

15%

40.2.3 Marginal relief shall be granted in appropriate cases where income exceeds Rs. 50,00,000 or Rs. 1,00,00,000. Therefore, for tax payers earning above Rs. 50,00,000 total tax outgo may increase even after reduction in tax rate by 5% in the first slab.

40.3 Tax Rates for Foreign Companies, AOP/BOI, Firms, etc.:

There is no change in the income tax rates for foreign companies, AOP/BOI, firms, co-operative societies and local authorities.

40.4 Rebate:

Finance Act, 2013 introduced rebate u/s. 87A for individuals whose total income did not exceed Rs. 5,00,000. The rebate amount upto FY 2015-16 was 100% of tax or Rs. 2,000 whichever is lower. With a view to provide relief to small tax payers the limit of Rs. 2,000 was increased to Rs. 5,000/- by Finance Act, 2016.

The tax rates for individuals earning income between Rs. 2,50,000 and Rs. 5,00,000 is proposed to be reduced by 5% as mentioned above. As the tax payable will be reduced, the Finance Bill 2017 proposes to reduce the maximum rebate amount also to Rs. 2,500. The rebate shall now be lower of 100% of tax payable or Rs. 2,500.

40.5 The tax rates for each type of person for FY 2017-18 are given below:

Person

Income limits

(Rs.)

Tax rate 
(basic rate; surcharge; cess)

Resident - Individual, HUF, AOP, BOI, Artificial juridical person

Upto Rs. 50 Lakhs

Maximum rate 30.9%

(30%; 0%; 3%)

50,00,001 – 1,00,00,000

Maximum rate 33.99%

(30%; 10%; 3%)

Above Rs. 1 crore

Maximum rate 35.54%

(30%; 15%; 3%)

Non-resident - Individual, HUF, AOP, BOI, Artificial juridical person

Upto Rs. 50 Lakhs

Maximum rate 30.9%

(30%; 0%; 3%)

50,00,001 – 1,00,00,000

Maximum rate 33.99%

(30%; 10%; 3%)

Above Rs. 1 crore

Maximum rate 35.54%

(30%; 15%; 3%)

Firm and LLP

Upto Rs. 1 crore

30.9%

(30%; 0%; 3%)

Above Rs. 1 crore

34.6%

(30%; 12%; 3%)

Person

Income limits

(Rs.)

Tax rate 
(basic rate; surcharge; cess)

Indian company

(Turnover or gross receipts do not exceed
Rs. 50 crores in
FY 2015-16)

Upto Rs. 1 crore

25.75%

(25%; 0%; 3%)

Above Rs. 1 crore and upto Rs. 10 crores

27.55%

(25%; 7%; 3%)

Above Rs. 10 crores

28.84%

(25%; 12%; 3%)

Indian company

(Turnover or gross receipts exceed Rs. 50 crores in
FY 2015-16)

Upto Rs. 1 crore

30.9%

(30%; 0%; 3%)

Above Rs. 1 crore and upto Rs. 10 crores

33.1%

(30%; 7%; 3%)

Above Rs. 10 crores

34.6%

(30%; 12%; 3%)

Indian company

(Section 115BA)

Upto Rs. 1 Crore

25.75%

(25%; 0%; 3%)

Above Rs. 1 crore and upto Rs. 10 crores

27.55%

(25%; 7%; 3%)

Above Rs. 10 crores

28.84%

(25%; 12%; 3%)

Foreign company

Upto Rs. 1 crore

41.2%

(40%; 0%; 3%)

Above Rs. 1 crore and upto Rs. 10 crores

42.0%

(40%; 2%; 3%)

Above Rs. 10 crores

43.3%

(40%; 5%; 3%)