Union Budget 2016 was presented by the Finance Minister, Sh. Arun Jaitley today in Parliament. While there were high expectations from FM to increase the tax exemption limit and to incentivize savings by linking them to tax deductions, the Budget speech would have disappointed the #CommonMan by not providing the tax reliefs so expected.
Here’s a sneak peak into how budget affects #CommonMan:
- No Change in Tax Rates or Exemption Limits – FM did not opt for a change in tax rates or the exemption limits and accordingly, for an assessee below the age of 60 years, taxable income upto Rs. 2,50,000 only remains exempt.
- Relief to Small Tax Payers – For taxpayers having an annual taxable income of less than Rs. 5,00,000, a tax rebate of Rs 5,000 has been proposed to be allowed in the tax payable, which was Rs. 2,000 earlier. Hence, there are marginal tax savings of upto Rs. 3,000 for the small taxpayers due to this change.
- Buy Your First House, Save Tax – Finance Minister has given some reason to cheer to the first time home buyers by introducing an additional deduction of Rs 50,000 towards interest for home loan sanctioned during 2016-17 up to Rs 35 lakh for a house costing not more than Rs 50 lakh.
- Increase in Deduction towards Rent Paid – For the employees who have a separate HRA component in their payslips, this change does not affect their tax outgo. However, for the employees who don’t receive HRA, a deduction was allowed towards rent paid subject to the ceiling of Rs. 2,000 per month. This limit has been raised to Rs 60,000 to give little relief to employees living in rented houses.
- Partial Tax Exemption to New Pension Scheme (NPS) – Until last year, NPS did not find much favor with the taxpayer’s fraternity in view of the fact that the withdrawals/ annuity purchased from corpus was taxed at the time of receipt. Accordingly, to encourage NPS and to bring parity among different retirement products, it has been proposed to make exempt withdrawal up to 40% of the corpus at the time of retirement.
- Taxing the Withdrawal from Provident Fund – Deviating from EEE (Exempt-Exempt-Exempt) policy in respect of the Provident Fund regime, Budget 2016 now proposes to tax 60% of the accumulated corpus created through contributions on or after 1st April, 2016. However, in view of the divergent interpretations and fears of double taxations, Finance Ministry has already clarified to issue detailed FAQs in due course of time.
- A New Cess for your Services – A new cess, Krishi Kalyan cess, at 0.50% on all services, shall be levied, thereby effectively taking the Service Tax Rate to 15.0%. An increase in service tax rate implies increase in monthly consumption and entertainment bills and is bound to hit each household. This will be effective from 1st June, 2016.
- Higher Taxes on Branded Clothes – Govt. has levied excise duty on branded readymade garments and made up articles of textiles with a retail sale price of Rs 1,000 and above 2% without input tax credit or 12.5% with input tax credit. Accordingly, expect some price increase, next time you enter a showroom to buy your favourite brand of clothing.
- Higher Excise on Aviation Fuel – Excise on Aviation Turbine Fuel (ATF) has been increased from 8% to 14%. Since fuel costs form major part of the total cost of airlines, the regular air fares are expected to increase by 2-3%.
- Relief to Small Business Units and Professionals from Audit Requirements – FM has proposed that business persons with turnover not more than Rs. 2 crores may declare presumptive income at the rate of 8% of the gross receipts and pay tax accordingly. This option was earlier available to the assessees with turnover till Rs. 1 crore only. Also, professionals with receipts not more than Rs. 50 lakhs have been given an option to declare their income at 50% of gross receipts. While the presumption of profit margin seems a little higher for the professionals, still many professionals may like to opt for it, given the relaxation from book keeping and audit requirements for such assessees.
- Advance Tax Requirements – Persons with tax liability (net of TDS during the year) of Rs. 10,000 or above were required to deposit advance tax in three instalments earlier, which has now been changed to four instalments during the year, on 15th of June, September, December and March. Accordingly, the assessees will be required to compute tax liability well in advance and deposit tax accordingly or the penal interest provisions get applicable.
- Time to File Return reduced for Late Comers – While the official due date for most of the assesses, unless one falls under the audit purview, is 31st July immediately succeeding the end of the financial year, Income Tax Act gave an option to file the return as belated return upto 2 years from the end of the financial year. This additional time has now been reduced to only one year now. So, if you are liable to file Income Tax Return, don’t forget to file it before the next 31st March.
Through this budget, FM has tried to simplify tax affairs for the common man, but at the same time, there has not been much of relief to the common man in terms of his finances and tax outgo. Most likely, budget is likely to squeeze the pockets, instead of giving extra room, but given the focus on growth, the #CommonMan may still hope, Achhe Din Aayenge.