The Union Budget 2017 focuses on improving
the domestic economy especially in the rural areas with clear focus towards
farmers, poor and the under privileged and infrastructure with increased stress
on an efficient tax administration while maintaining fiscal prudence.
Another speciality
of this budget its enthusiasm on youth empowerment. Budget introduced quality
education programmes such as measuring learning outcomes in schools, innovation
fund for secondary education, reforms in UGC so as to improve higher education,
providing market relevant training, etc for energising the youth.
The Budget 2017
left much to be desired for the start-ups. The budget which focused more on
digital economy of the country gave some concessions to the start-ups while
holding out some of the major demands of the start-up community.
Here are the
salient features of Direct Tax proposals
1. Reduction
in Income tax rate from 10% to 5 % for individuals having income between Rs 2.5Lakhs – Rs 5Lakhs.
This is clear cut reduction in 50% rate for the above slab.
All other categories of tax payers in subsequent
brackets will get a benefit of Rs 12,500/-.
But in order to avoid the duplication effect, the
budget proposed to reduce the rebate (u/s 87A) of Rs 5,000 to Rs 2,500.
That means no income tax for income up to Rs 3Lakhs.
For the income class up to Rs 4.5Lakhs, there will be no income tax if they
utilize the deductions under Chapter VI A.
The below table will bring out clear cut impact of
the change:
Income
Slab Before
|
Tax
Rate Before
|
Income
Slab Now
|
Tax
Rate Now
|
Up
to Rs 250,000/-
|
NIL
|
Up
to Rs 250,000/-
|
NIL
|
Rs
250,001 to Rs 500,000/-
|
10%
|
Rs
250,001 to Rs 500,000/-
|
5%
|
Rs
500,001 to Rs 10,00,000/-
|
20%
|
Rs
500,001 to Rs 10,00,000/-
|
20%
|
Above
Rs 10,00,000/-
|
30%
|
Above
Rs 10,00,000/-
|
30%
|
2.
There will be an
additional surcharge of 10% on
individual income above Rs 50Lakhs up to Rs 1Crore. Surcharge of 15% on income
above Rs 1Crore will remain continued.
3.
Regarding
maintenance of books of accounts for individuals, threshold limit has been
increased from present turnover of Rs 10Lakhs to Rs 25Lakhs or income from
present Rs 1.2Lakhs to Rs 2.5Lakhs. It’s a slight relief for individuals and
HUF’s.
4. Simple one page return for people with an annual
income of Rs 5Lakh other than business income.
5. People filing I-T returns for the first time will
not come under any government scrutiny.
6.
For revision of return, time period has
been reduced to twelve months from completion of financial year at par with the
time period of filing of return
7.
With regard
to Capital Gain tax, holding period has been reduced from 3 years to 2 years
for transfer of immovable property. It has also been proposed to shift the base
year of indexation from 1 April 1981 to 1 April 2001 for all classes of assets
including immovable property.
8.
Restriction on
cash transactions:
a)
transactions above Rs 300,000/- should be done through an account payee cheque or
account payee bank draft or use of electronic clearing system through a bank
account and not in cash.
b)
any payment in
cash above Rs 10,000/- (present limit Rs 20,000/-) to a person in a day, shall
not be allowed as deduction in computation
9.
There is a
big and rewarding relief to the small and medium sized enterprises which
account for 96% of our industry. Income tax rate has been reduced from 30% to
25% with turnover up to Rs. 50Crores. It’s a boost to SME’s & MSME’s
sector.
10.
There is a big relaxation for the small and
medium tax payers who opt for presumptive taxation scheme. If their turnover is
below Rs. 2Crore they can compute their deemed or presumptive income @6%
(present rate 8%), provided the receipts are in digital or banking means.
Also, those who opt for presumptive taxation scheme shall be liable for
get his books of accounts audited if the turnover exceeds Rs.2Crore.
11. Section 79
of the Income Tax Act, 1961 allows for carry forward of losses of a company for
seven years and then set-off against the profits of the future years. However,
there was a restriction on carry forward and set-off of losses if 51% of
shareholding didn’t remain intact in the year of loss and in the year of
set-off.
But, in respect of carry forward of losses for start ups, the condition of continuous
holding of voting rights of 51% has been relaxed as long as the original
investment of the promoter is not diluted. Not only that, the profit linked
exemption available for 3 out of 5 years has been changed to 3 out of 7 years.
Start-up
Start-up means an entity, incorporated or registered in India not
prior to five years, with annual turnover not exceeding INR 25Crore in any
preceding financial year, working towards innovation, development, deployment
or commercialization of new products, processes or services driven by
technology or intellectual property.
Some essential points to be considered are:
a.
Such an entity should not be formed by splitting up or
reconstruction of a business already in existence
b.
The entity shall cease to be a ‘Start-up’ if its turnover for the
previous financial years has exceeded INR 25Crores or it has completed 7
(present 5) years from the date of incorporation/ registration.
c.
Start-up shall be eligible for tax benefits only after it has
obtained certification from the Inter-Ministerial Board, setup for such
purpose.
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