Key tax proposals in union budget 2017

Budget Update 2017
Key Tax proposals in India’s Union Budget 2017-18
3 February 2017
Utsav Shah & Associates
Chartered Accountants

Contents
1
2
Direct Tax Proposals
Indirect tax Proposals

Union Budget 2017-18 Utsav Shah & Associates
Tax Rates
Individuals
 Tax rates for individuals earning income upto Rs. 5 lacs reduced from 10% to 5%
 Surcharge of 10% proposed to be introduced in case of Individuals, HUF, AOP,
BOI having total income exceeding Rs. 50 lacs upto Rs. 1 crore
 Surcharge of 15% continues where total income exceeds Rs. 1 crore
 Education cess to continue at existing rates
 Rebate of Rs. 2,500 available to resident individuals whose total income does not
exceed Rs. 3.5 lacs
 Simple one-page form to be filed by individuals having taxable income (other than
business income) upto Rs. 5 lacs
Corporates
 Tax rate of 25% to apply for Domestic companies having total turnover in FY 2015-
16 of less than Rs. 50 crore
 In all other cases, the tax rate to remain unchanged

Fee or penalty to be levied in certain
cases
Fee for delayed filing of return of income
 Rs. 5,000 where the return is furnished after due date but before 31 December of
the assessment year
 Rs. 10,000 where the return is furnished thereafter
 Provision to apply from AY 2018-19
 If total income does not exceed Rs. 5 lacs, the amount of fee shall be Rs. 1,000
 The fee shall have to be paid alongwith tax and interest before filing the return of
income
Penalty on professionals for furnishing incorrect information
 Penalty may be levied on an accountant or merchant banker or registered valuer if
they furnish incorrect information in a report or certificate issued under the
provisions of the Income-tax Act or Rules
 The amount of penalty is Rs. 10,000 per certificate
 Assessing Officer or Commissioner of Income-tax (Appeals) can levy the penalty

Additional Resource Mobilisation
Taxation of dividend income
 Currently dividend income in excess of Rs. 10 lacs is chargeable to tax at the rate
of 10% in the hands of resident individual, HUF and firm
 It is proposed to be levied on all resident assessee except Domestic company and
certain funds, trusts, institutions, etc
Withholding of tax on payment of rent
 Individual and HUF (other than those subject to audit) required to withhold tax at
5% on rental payments made to a resident if it exceeds Rs. 50,000 for a month or
part of a month during the financial year
 Tax required to be withheld during the last month of the financial year or last month
of tenancy (if property vacated during the year)
 No requirement to obtain TAN by the tenant
 Where tax is required to be withheld under section 206AA (ie where the recipient
does not have PAN), the amount of withholding tax shall not exceed the amount of
rent payable for the last month

Housing and Real Estate
 Period of holding of immovable property (land, building or both) reduced from 36
months to 24 months, to qualify as long term capital asset
 In order to bring parity with interest deduction for self-occupied property and
rented properties, it is proposed to restrict set-off of loss from house property in
the current year up to Rs. 2 lakhs
 The balance loss, if any would be allowed to be carried forward for eight years
 Base year for cost inflation index for calculating long term capital gains changed
from 1981 to 2001 for all classes of assets including immovable property
 No notional income for House property (building and land appurtenant thereto)
held as stock-in-trade and not let out for a period of 1 year from the year of receipt
of completion certificate

Housing and Real Estate
 In case of profit-linked income tax deduction scheme for promotion of affordable
housing, carpet area to be considered instead of built up area
 30 sq. mtr. limit will apply only in case of municipal limits of 4 metropolitan cities
while for the rest of the country including in the peripheral areas of metros, limit of
60 sq. mtr. will apply
 For Joint Development Agreement signed for development of property, the liability
to pay capital gains tax will arise in the year in which the project is completed
 Exemption from capital gains tax provided for persons holding land on 2 June
2014, the date on which the State of Andhra Pradesh was reorganised, and whose
land is being pooled for creation of capital city of Andhra Pradesh under the
Government scheme

Measures for stimulating Growth
 Benefit of concessional tax rate of 5% on
 Interest on foreign currency borrowings to be extended on loans taken before 1 July 2020
 Interest arising to foreign portfolio investors on rupee borrowings/ bonds taken before 1
July 2020
 Where foreign tax credit (FTC) claimed against MAT liability exceeds the FTC that
would have been allowable while computing income under other provisions of the
Act, such excess FTC shall be ignored while computing MAT credit to be carried
forward
 Clarification provided that the reduced capital gains rate of 10% chargeable to
non-residents on transfer of unlisted securities to apply retrospectively from 1 April
2013
 Tax incentives for start-ups
 Deduction of 100% of profits for any 3 consecutive years allowed out of 7 years instead of
5 years provided earlier

Promoting digital economy
 Restriction on cash receipts of more than Rs. 3 lacs for a single transaction or
relating to one event or occasion from a person
 Penalty to be levied equal to the amount of cash received
 Deduction under section 80G for donations exceeding Rs. 2,000 to be granted
only if payment is made by any mode other than cash
 Deemed profitability rate in case of small unorganised business reduced from 8%
to 6% on amounts received through digital mode
 Cash payment exceeding Rs. 10,000 not eligible for deduction if incurred towards:
 Capital expenditure for any specified business;
 Any expenditure;
 Acquisition of capital assets - depreciation not to be allowed

Transparency in Electoral funding
 Maximum amount of cash donation, a political party can receive will be Rs. 2,000
from one person
 Political parties will be entitled to receive donations by cheque or digital mode from
their donors
 Every political party would have to file its return within the time prescribed in
accordance with the provision of the Income-tax Act
 Exemption to the political parties from payment of income-tax would be available
only subject to the fulfilment of these conditions
 Amendment to be made to the Reserve Bank of India Act to enable the issuance
of electoral bonds in accordance with a scheme to be framed in this regard

Ease of Doing Business in India
Indirect transfer taxation
 Indirect transfer provisions not applicable to:
 Transfer of investments in a Category I and II Foreign Portfolio Investor retrospectively
from 1 April 2011
 Redemption of shares/ interest outside India arising out of redemption or sale of
investment in India which is chargeable to tax
Conversion of preference shares to equity prospectively not chargeable to tax
 Period of holding of preference shares to be included in holding of equity shares
 Cost of acquisition of equity shares to be cost of acquisition of the preference
shares
Masala bonds
 Transfer of masala bonds outside India between non-residents not chargeable to
tax
 Tax exemption on currency fluctuation gains on redemption of masala bonds
available to secondary purchase of bonds
 Interest on masala bonds issued before 1 July 2020 eligible for 5% concessional
tax rate

 Commission payable to individual insurance agents exempt from the requirement
of TDS subject to their filing a self-declaration that their income is below taxable
limit
 Rate of withholding of tax of 2% to apply on payment to be made to a person
engaged only in the business of operation of call centre
 Cost of acquisition of shares in an Indian Company transferred pursuant to foreign
company demerger shall be available to the resulting foreign company
 Threshold limit for audit of business entities who opt for presumptive income
scheme increased from Rs. 1 crore to Rs. 2 crores.
 Threshold for maintenance of books for individuals and HUF increased from
turnover of Rs. 10 lacs to Rs. 25 lacs or income from Rs. 1.2 lacs to Rs. 2.5 lacs
 Under scheme for presumptive taxation for professionals with receipt upto Rs. 50
lacs advance tax can be paid in one instalment instead of four

 Income from transfer of carbon credits to be chargeable to tax at 10% (plus
applicable surcharge and cess) on gross basis
 Interest of 0.5% per month to be granted on refund of TDS to the deductor of tax
 Long term capital gain exemption not available where shares are acquired
pursuant to introduction of STT but without payment of STT
 Certain exemption indicated – to be introduced later – for IPO, FPO, rights issue and
bonus by non-resident investors, etc
Authority for Advance Rulings (‘AAR’)
 AAR forum expanded to cover cases relating to central excise, custom duty and
service tax
 Eligibility criteria for appointment as Chairman of AAR amended to provide a
former chief Justice of a High Court, or a person who has been a High Court
Judge for at least seven years

Rationalisation Measures
Minimum Alternate Tax (‘MAT’)
 Fair value adjustments included in other comprehensive income (which are never
re-classified to Profit and Loss Account) to be considered in computing MAT
liability in the year of realisation. Where items are re-classified to Profit and Loss
Account, the same need to be considered while computing book profit in the year
of re-classification
 Adjustment recorded in reserves and surplus (excluding Capital Reserves and
Securities Premium Reserve) which would never be reclassified to Profit and Loss
Account shall be included in computing book profits equally over a period of 5
years from the first year of adoption subject to some exception
 First time adoption of Ind AS adjustments (ie opening adjustments) to be
considered while computing the MAT liability of the year in which Ind AS is to be
adopted

Anti abuse measures
Introduction of interest limitation rules
 Interest payment in excess of Rs. 1 crore by an Indian company or a PE of foreign
company in India towards debt issued/ guaranteed by a non-resident Associated
Enterprise (‘AE’) is deductible only upto 30% of EBIDTA
 Excess interest not deductible can be carried forward for 8 subsequent
assessment years
Unlisted share valuation
 Capital gains tax proposed to be levied on transfer of unlisted shares based on
deemed consideration (at fair market value)
Taxation on receipt of assets
 Taxation on receipt of sum of money or any assets (including immovable
properties) with inadequate or without consideration in excess of Rs. 50,000 by
any assessee (including companies, trusts and institutions) w.e.f 1 April 2017

Transfer Pricing
Introduction of secondary transfer pricing adjustment
 Secondary adjustment in cases where a primary transfer pricing adjustment
(exceeding Rs. 1 crore) has been made:
 Voluntarily by the taxpayer in the tax return
 By the Assessing Officer and such adjustment is accepted by the taxpayer
 As a result of an APA/ MAP/ safe harbour rules
 Unless the differential profits arising due to such secondary adjustment are
repatriated to India within the time limit (to be prescribed), it will be deemed to be
an advance by the taxpayer to the AE and interest shall be imputed thereon
Scope of Specified Domestic Transactions (SDT) reduced
 Payments to persons covered under section 40A(2)(b) shall not be subject to SDT
provisions
 Transaction involving tax holiday units continue to be subject to SDT provisions

Changes in timelines
Section Existing timeline Proposed timeline
Revised Return of Income
(section 139(5))
12 months from the end of the
assessment year
End of the assessment year
Scrutiny assessment
proceedings
(section 143 or 144)
assessment year
AY 2018-19: 18 months from end
of assessment year
AY 2019-20 onwards 12 months
from end of assessment year
Reassessment proceedings
(section 147)
financial year in which notice
under section 148 is served
12 months from end of the
financial year in which notice
under section 148 is served
Set aside proceedings
(section 254 or 263 or 264)
9 months from end of the FY in
which order is received/
passed
12 months from end of the FY in
which order is received/ passed

Service Tax
 There is no change in the Service Tax rate.
 There is also no change in the rate of Swachh Bharat Cess and Krishi Kalyan
Cess
Changes in Negative list
 Services by way of carrying out any process amounting to manufacture or
production of goods excluding alcoholic liquor for human consumption are omitted
and inserted in the mega exemption notification
Changes in exemptions with effect from 02.02.2017
 Scope of exemption for services provided by Indian Institutes of Management by
way of 2-year full-time post-graduate programmes has been widened
 Exemption has been provided to services of transport of passengers provided by
airlines to the government against viability gap funding (VGF), embarking or
terminating from a Regional Connectivity Scheme Airport. Exemption is available
up to one year from date of commencement of such airports

Service Tax
Changes effective from retrospective date
 Retrospective exemption to life insurance services provided by Army, Naval and
Air Force Group Insurance Funds to members of defence forces. The amendment
is effective from 10 September 2004
 Retrospective exemption for payment of service tax on one-time upfront amount
(premium, salami, cost price and development charge by whatever name called)
for long-term lease of 30 years or more of industrial plots by State Government
Industrial Development Corporation or Undertaking. The amendment is effective
from 1 June 2007 to 21 September 2016
 Refund is to be filed for service tax already collected. Application for refund is to be
filed within a period of six months from the date of enactment of Finance Bill, 2017

Service Tax
Changes in Valuation Rules
 For works contract services, service tax would be payable at normal rate if the
value of land or undivided share of land is not included. In case the value of land
or undivided share of land is included in the total contract value, service tax would
be payable at reduced value as provided from 1 July 2010

Goods and Service Tax (‘GST’)

Goods and Service Tax (‘GST’)
 The Finance Minister reiterated the progress made on the GST front and also
highlighted the momentum of the government to introduce GST at the earliest
 GST Council has finalized its recommendations on most issues based on
consensus
 Preparation of IT system for GST is on schedule
 Extensive reach-out efforts to trade and industry for GST will commence from 1
April 2017

Thank You
Utsav Shah & Associates
The information contained herein is in summary form and is therefore intended for general
guidance only. This publication is not intended to address the circumstances of any
particular individual or entity. No one should act on such information without appropriate
professional advice after a thorough examination of the particular situation. It is not intended
to be a substitute for detailed research or the exercise of professional judgment. Before
acting on any matters contained herein, reference should be made to subject matter experts
and professional judgment needs to be exercised. Utsav Shah & Associates cannot accept
any responsibility for loss occasioned to any person acting or refraining from action as a
result of any material in this publication.
For more information, contact us on:
1001, Yash Signature,
V.N.Purav Marg, Deonar,
Mumbai – 400088
Tel: +91 88283 93414
+91 98338 57793
Email: info@ussh.co.in
www.ussh.co.in
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