Highlights of Union Budget 2016

(Highlights restricted to Financial Sector, Personal Taxation and Investments)

• New health protection scheme will provide health cover of up to र 100,000 per family. For senior citizens an additional top-up package up to र 30,000 will be provided.


• “Stand Up India Scheme” to facilitate at least two projects per bank. This will benefit at least 2.5 lakh entrepreneurs. Entrepreneurship Education and Training through Massive Open Online Courses.


• Allocation of 55,000 crore in the Budget for Roads. Additional 15,000 crore to be raised by NHAI through bonds.


• Reforms in FDI policy in the areas of Insurance and Pension, Asset Reconstruction Companies, Stock Exchanges.


• A comprehensive Code on Resolution of Financial Firms to be introduced


• Statutory basis for a Monetary Policy framework and a Monetary Policy Committee through the Finance Bill 2016.


• A Financial Data Management Centre to be set up.


• RBI to facilitate retail participation in Government securities.


• New derivative products will be developed by SEBI in the Commodity Derivatives market.


• Comprehensive Central Legislation to be bought to deal with the menace of illicit deposit taking schemes.


• General Insurance Companies owned by the Government to be listed in the stock exchanges.


• Bill for Targeted Delivery of Financial and Other Subsidies, Benefits and Services by using the Aadhar framework to be introduced.


• Amendments in Companies Act to improve enabling environment for start-ups.


• Fiscal deficit in RE 2015-16 and BE 2016-17 retained at 3.9% and 3.5%.


• Raise the ceiling of tax rebate under section 87A from र 2000 to र 5000 to lessen tax burden on individuals with income upto र 5 lacs.


• Increase the limit of deduction of rent paid under section 80GG from र 24000 per annum to र 60,000 to provide relief to those who live in rented houses.


• Exemptions provided on housing loan interest for first time home buyers and affordable housing would boost the stressed residential sectors. Scrapping of dividend distribution tax on Real Estate Investment Trusts (REITs) would help developers to raise funds, as this makes investments attractive for investors. REITs works similar to mutual funds where individuals and institutions pool in money to invest in leased office or retail assets.


• Extend the presumptive taxation scheme with profit deemed to be 50%, to professionals with gross receipts up to र 50 lakh.


• Corporate Tax rate proposals:


• New manufacturing companies incorporated on or after 1.3.2016 to be given an option to be taxed at 25% + surcharge and cess provided they do not claim profit linked or investment linked deductions and do not avail of investment allowance and accelerated depreciation.


• Lower the corporate tax rate for the next financial year for relatively small enterprises i.e companies with turnover not exceeding 5 crore (in the financial year ending March 2015), to 29% plus surcharge and cess.


• 100% deduction of profits for 3 out of 5 years for startups setup during April, 2016 to March, 2019. MAT will apply in such cases.


• 10% rate of tax on income from worldwide exploitation of patents developed and registered in India by a resident.


• Period for getting benefit of long term capital gain regime in case of unlisted companies is proposed to be reduced from three to two years.


• Exemption of Service tax on general insurance services provided under ‘Niramaya’ Health Insurance Scheme launched by National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disability.


• Withdrawal up to 40% of the corpus at the time of retirement to be tax exempt in the case of National Pension Scheme (NPS). The government has done this to ensure tax uniformity between defined benefits (GPF) and defined contributions schemes (NPS). Assuming other rules remain the same, then 40% of minimum corpus to be annuitized above age 60, 40% of remaining corpus is tax-free (Budget 2016 recommendation) and rest 20% will be taxed as per slab when withdrawn. Annuity fund which goes to legal heir will not be taxable.


• 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 April 2016.


• Limit for contribution of employer in recognized Provident and Superannuation Fund of 1.5 lakh per annum for taking tax benefit. Exemption from service tax for Annuity services provided by NPS and Services provided by EPFO to employees.


• Reduce service tax on Single premium Annuity (Insurance) Policies from 5% to 1.4% of the premium paid in certain cases.


• 100% deduction for profits to an undertaking in housing project for flats upto 30 sq. metres in four metro cities and 60 sq. metres in other cities, approved during June 2016 to March 2019 and completed in three years. MAT to apply.


• Deduction for additional interest of र 50,000 per annum for loans up to र 35 lakh sanctioned in 2016-17 for first time home buyers, where house cost does not exceed र 50 lakh.


• Distribution made out of income of SPV to the RE ITs and INVITs having specified shareholding will not be subjected to Dividend Distribution Tax, in respect of dividend distributed after the specified date.


• Exemption from service tax on construction of affordable houses up to 60 square metres under any scheme of the Central or State Government including PPP Schemes.


• Additional tax at the rate of 10% of gross amount of dividend will be payable by the recipients receiving dividend in excess of 10 lakh per annum.


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


• Tax to be deducted at source at the rate of 1 % on purchase of luxury cars exceeding value of ten lakh and purchase of goods and services in cash exceeding two lakh.


• Securities Transaction tax in case of ‘Options’ is proposed to be increased from .017% to .05%.


• Equalization levy of 6% of gross amount for payment made to non¬residents exceeding 1 lakh a year in case of B2B transactions.


• Krishi Kalyan Cess, @ 0.5% on all taxable services, w.e.f. 1 June 2016. Proceeds would be exclusively used for financing initiatives for improvement of agriculture and welfare of farmers. Input tax credit of this cess will be available for payment of this cess.


• Infrastructure cess, of 1% on small petrol, LPG, CNG cars, 2.5% on diesel cars of certain capacity and 4% on other higher engine capacity vehicles 12 and SUVs. No credit of this cess will be available nor credit of any other tax or duty be utilized for paying this cess.


• Excise duty of 1% without input tax credit or 12.5% with input tax credit’ on articles of jewellery [excluding silver jewellery, other than studded with diamonds and some other precious stones], with a higher exemption and eligibility limits of 6 crores and 12 crores


• Committed to providing a stable and predictable taxation regime and reduce 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%, which is a total of 45% of the undisclosed income. Declarants will have immunity from prosecution.


• Surcharge levied at 7.5% of undisclosed income will be called Krishi Kalyan surcharge to be used for agriculture and rural economy.


• New Dispute Resolution Scheme to be introduced. No penalty in respect of cases with disputed tax up to 10 lakh. Cases with disputed tax exceeding 10 lakh 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.


• Expansion in the scope of e-assessments to all assessees in 7 mega cities in the coming years.


• Interest at the rate of 9% p.a against normal rate of 6% p.a for delay in giving effect to Appellate order beyond ninety days.


• ‘e-Sahyog’ to be expanded to reduce compliance cost, especially for small taxpayers.