By Ameet N. Patel
The latest Budget presented by the Finance Minister Mr. Arun Jaitley sends out a clear message that the government wants to discourage the use of cash in daily transactions and wants to bring as many people as possible into the formal economy. It is with this clear intent that several amendments have been proposed to promote the digital economy. These amendments would affect NRIs as much as Resident Indians, because in most cases, no distinction is made on the basis of residential status. Apart from these type of amendments, there are a few others as well which would affect NRIs. Here’s a look at some of the important ones.
Most of the changes are effective from 1st April 2017 (i.e. FY 2017-18).
- Reduction of tax rate in the lowest slab
At present, the rate of tax for the lowest slab of income (between Rs. 2,50,000 and Rs. 5,00,000) is 10%. Apart from this, a rebate is available upto Rs. 5,000 for those with incomes below Rs. 500,000. Thus, effectively, a person earning upto Rs. 3,00,000 does not have to pay any tax.
One of the amendments in the Finance Bill has reduced the rate of tax for the first slab to 5%. Consequentially, the upper limit for the rebate has also been reduced to Rs. 2,500 and the eligibility for the rebate is that taxable income should not be in excess of Rs. 3,50,000. Therefore, effectively, a person earning upto Rs. 3,00,000 will continue to not pay any tax while a person earning between Rs. 3,00,000 and Rs. 5,00,000 will have a tax liability of Rs. 10,000 (plus education cess) as compared to existing Rs. 20,000 (plus education cess).
- Sale of immovable property
At present, the period of holding for immovable assets (i.e. land and building) to be treated as long term capital assets is more than 36 months. In the latest budget, this term has been reduced to 24 months. Therefore, a house or a plot of land or any other immovable property which is held as a capital asset for more than 24 months would now be considered as a long term capital asset. Therefore, the gains on such assets would be taxed at the concessional rate of 20% after taking benefit of indexation of cost.
- Change in base year for computing indexation of cost
At present, if a capital asset is acquired prior to 1st April, 1981, the investor has the option to substitute the actual cost of acquisition with the fair market value as on 1st April, 1981. In budget 2017, an amendment has been made to fast forward the cut-off date to 1st April, 2001. Therefore, in respect of sale of capital assets after 31st March, 2017, what will be relevant is whether the asset was acquired prior to 1-4-2001; and if yes, the fair market value as on 1-4-2001 can be substituted in place of actual cost at the option of the investor.
- Exemption for long-term capital gains from listed shares
Long-term capital gains on listed equity shares of a company are exempt from tax if the transaction of sale is chargeable to Securities Transaction Tax. It has been noticed that the exemption provided under section 10(38) was being misused by certain people for converting their unaccounted income into exempt long-term capital gains by entering into sham transactions. With a view to prevent this abuse, an amendment has been made in section 10(38) to provide that exemption under this section shall be available if the acquisition of share is done on or after 1 October 2004 & such purchase is also subject to Securities Transactions Tax .However, to protect the exemption in genuine cases where the Securities Transactions Tax could not have been paid like acquisition of share in IPO, FPO, bonus or right issue by a listed company acquisition by non-resident in accordance with FDI policy of the Government etc., it is also proposed to notify transfers for which the condition of chargeability to Securities Transactions Tax on acquisition shall not be applicable. This amendment would affect a lot of people, and unless the notification is worded properly, it is likely to cause a lot of hardship to genuine investors.
- Restrictions on cash acceptance
One measure proposed in the Finance Bill to curb the use of cash is the restriction on acceptance of cash in excess of Rs. 3,00,000 in aggregate from any person in a day or in respect of a single transaction or in respect of transactions relating to one event or occasion. In case any person receives any amount in excess of Rs. 3,00,000, a penalty equal to the sum accepted would be levied unless a sufficient reason is proved. Certain exceptions have been provided. But this amendment will need to be understood carefully.
- TDS on Rent
Another amendment that is likely to affect a lot of people is one which requires any individual (whether a taxpayer or not) to deduct tax from rent paid to a resident, if the rent exceeds Rs. 50,000 per month or part of the month. The TDS will have to be deducted by the payer @ 5%. While compliance has been kept simple, the fact remains this amendment brings an additional burden.
- Fees for late filing of return
In order to promote timely filing of tax returns, the Finance Bill proposes to levy a penal fee of for returns filed after the due date. Most NRIs who do not have business income would be aware that the due date for filing return of income in India is 31st July. With this amendment, if the return is filed after 31st July but before 31st December, a penal fee of Rs. 5,000 can be levied. And if the return is filed after 31st December, the penal fee would be Rs. 10,000. However, if the taxable income does not exceed Rs. 500,000 then in either case, the fee would be restricted to Rs. 1,000. This amendment should encourage everyone to file their tax returns within the prescribed time limit. A delay would result in unnecessary penal fee having to be paid.
- Surcharge to be paid for income above Rs. 50,00,000
At present, individuals, HUFs, AOPs, BOIs with taxable income of more than Rs. 1,00,00,000 have to pay a surcharge of 15% (of tax) in addition to the tax. As per the amendment proposed in the Finance Bill, 2017, from next financial year onwards, a surcharge of 10% (of tax) will be applicable to those with more than Rs. 50,00,000 of taxable income. The surcharge of 15% will continue for those with taxable income more than Rs. 1,00,00,000.
There are hardly any changes in indirect taxes, because the government is hoping to implement the Goods & Service Tax in the months ahead.