Poorva Prakash, Senior Director, Deloitte Haskins and Sells LLP
This year's Budget came in the backdrop of demonetisation, and the global turmoil. In his Budget speech, the Finance Minister emphasised India is a tax non-compliant society, with a low tax-to-GDP ratio.
With this background, he presented the Union Budget 2017 with an objective to stimulate growth in the real estate sector, incentivise digitisation, and focus on compliance. At the same time, he has focused on rewarding the common man through a reduced tax rate.
Here are some of the key proposals of the Union Budget 2017 that impacts the common man:
The Finance Minister has provided relief by reducing the tax rates on income between Rs 2.5 lakh to Rs 5 lakh from 10 per cent to 5 per cent. This quantifies into a tax saving of Rs 12,500 for an individual less than 60 years of age, and Rs 10,000 for a person between 60 to 79 years of age. Additionally, in order to avoid the duplication of benefits, the existing tax rebate has been reduced to Rs 2,500, available only to tax payers with income of upto Rs 3.5 lakh.
On the other hand, individuals in the higher income bracket of Rs 50 lakh to Rs 1 crore will have to pay a surcharge of 10 per cent. This means an increase in the effective tax rate from 30.9 per cent to 33.99 per cent for such individuals, resulting in an increased tax outflow by Rs 2 lakh for such tax payers.
To motivate real estate investors and encourage activity in the real estate sector, FM has reduced the holding period from 36 to 24 months for immovable assets, in order to categorise such assets as long-term capital assets. This will enable potential investors to avail beneficial tax rate of 20 per cent on long-term capital gains, after holding the immovable for two years (which was earlier three years).
Further, the base year of indexation has been shifted from 1981 to 2001, which would also result in reduced long-term capital gains on account of increased cost of acquisition, and cost of improvement. Additionally, the scope of Section 54EC has been widened by including investments in any bond (presently restricted to only two specific bonds) notified by the Central government to be eligible for claiming capital gain exemption.
Some of the areas that could adversely impact individuals (other than those whose accounts are audited) paying rental income are on account of TDS imposed @5 per cent on rental payments exceeding Rs 50,000 per month. However, the government has tried to ease the compliance burden by allowing such tenants to deduct tax only once in a previous year and doing away with the requirement of Tax Deduction Account Number (TAN).
This year's Budget has also restricted the set-off of loss from house property to Rs 2 lakh. This will impact tax payers who buy property for the purpose of earning rental income. The unabsorbed loss for the relevant tax year would now need to be carried forward for eight years and set off against subsequent year's rental income. This may have a substantial impact for people who have huge loss from house property due to high loan, and are unable to absorb the same from their rental income.
To discourage cash transactions, the FM has proposed a provision limiting the receipt of cash in excess of Rs 300,000 from a person in a day for a single transaction. A penalty will be imposed of an amount equivalent to the sum of such receipt.
Lastly, to encourage tax filings by all, a simple tax filing form has been proposed for tax payers with income up to Rs 5 lakh, and not having business income. The revised tax filing timelines have been reduced by one year. Further, a fine will be imposed in case the tax returns are not filed within the due date.
Views expressed are personal.