Tax reforms proposed in Budget 2016-17

Arun jaitely proposed few tax reliefs and changes in the existing tax structure. It was necessary to transform and impetus the economic growth of India. The other pivotal measures taken in budget 2016-17 can be read here- Vital measures taken in budget 2016-17. Besides the measures to push Agriculture and Social sector schemes, tax proposals change are taken as:-

• Glossary of key terms of Budget

Relief to Small tax payers:

• Tax rebate under section 87A has been raised from Rs.2000 to Rs.5000 provided that tax amount to one year does not exceed Rs.5 lakhs.
• Increase the limit of deduction of rent paid under section 80GG from Rs.24000 per annum to Rs.60000, to provide relief to those who live in rented houses.
• Presumptive taxation scheme under section 44AD of the Income Tax Act is available for small and medium enterprises, having turnover Rs.1 crore annually. The tax limit has been raised to Rs.2 crore per annum.
• Extended the presumptive taxation scheme to professionals with gross receipts up to Rs.50 lakh with the presumption of profit being 50% of the gross receipts. 

Relief to Private sectors from taxes:

•  The accelerated depreciation provided under IT Act will be limited to maximum 40% from 1.4.2017.
• The benefit of deductions for Research would be limited to 150% from 1.4.2017 and 100% from 1.4.2020.
• The benefit of section 10AA to new SEZ units will be available to those units which commence activity before 31.3.2020.
• The weighted deduction under section 35CCD for skill development will continue up to 1.4.2020.
• The new manufacturing companies which are incorporated on or after 1.3.2016 are proposed 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.
• Proposed to lower the corporate income tax rate for the next financial year of relatively small enterprises i.e companies with turnover not exceeding Rs.5 crore (in the financial year ending March 2015), to 29% plus surcharge and cess.
• Proposed to assist their propagation through 100% deduction of profits for 3 out of 5 years for startups set up during April 2016 to March 2019. MAT will apply in such cases. Capital gains will not be taxed if invested in regulated/notified Fund of Funds and by individuals in notified startups, in which they hold majority shares.
• Proposed a special patent regime with 10% rate of tax on income from worldwide exploitation of patents developed and registered in India.
• Complete pass through of income-tax to securitization trusts including trusts of ARCs. Securitisation trusts required to deduct tax at source.
• 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.
• Non-banking financial companies shall be eligible for deduction to the extent of 5% of its income in respect of provision for bad and doubtful debts.
• Determination of residency of foreign company on the basis of Place of Effective Management (POEM) is proposed to be deferred by one year.
• Commitment to implement General Anti Avoidance Rules (GAAR) from 1.4.2017.
• Exemption of service tax on services provided under Deen Dayal Upadhyay Grameen
• Kaushalya Yojana and services provided by Assessing Bodies empanelled by Ministry of Skill Development & Entrepreneurship.
• Exemption of Service tax on general insurance services provided under ‘Niramaya’ Health Insurance Schemelaunched by National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disability.
• Basic custom and excise duty on refrigerated containers reduced to 5% and 6%.
• A number of assistive devices, rehabilitation aids and other goods for differently abled (Divyang) persons attract Nil basic customs duty. It was proposed to extend this exemption to Braille paper.
• Changes in customs and excise duty rates on certain inputs to reduce costs and improve competitiveness of domestic industry in sectors like Information technology hardware, capital goods, defence production, textiles, mineral fuels & mineral oils, chemicals & petrochemicals, paper, paperboard & newsprint, Maintenance repair and overhauling [MRO] of aircrafts and ship repair.