Decoding the Income Tax amendments in the Union Budget 2015

A detailed analysis of the amendments
proposed in the Income Tax Act, 1961 in the Union Budget 2015
1.       Reduction
of Corporate Tax Rate from 30% to 25%
The amendment is to be spread over the next four financial years. Though it is
a welcome move, it would have been more welcomed by the Corporate world had the
entire reduction in the tax rate be given with immediate effect. In fact, the
reduction will take effect only from next financial year which means that for
the financial year 2015-16, corporates will end up paying higher tax at 34.60%
due to the increase in surcharge.
2.       Increase
of surcharge for domestic companies
The proposal to increase the surcharge for domestic companies with total income
exceeding Rs.1 crore but not exceeding Rs.10 crores from the existing 5% to 10%
and for those exceeding Rs.10 crores from the existing 10% to 12% will take away
the benefits of the reduced tax rate and push up the corporate tax rate from
32.445% to 33.063% for the former category of companies and from 33.99%
to.34.61% for the latter.
3.       Increase
in the rate of Minimum Alternate Tax
Though there is no specific provision for increase in this tax rate, the
cascading effect of the increase in the surcharge rate would be felt here too
with the effective MAT rate for smaller companies having total income between
Rs.1 Crore and Rs.10 Crore from 20.01% to 20.38% and for the bigger companies
having total income above Rs.10 Crores from 20.96% to 21.34%.
4.       Additional
surcharge for income over Rs.1 Crore
Effect:  The rich would be taxed more, the mantra
behind this proposal. It will make the high net worth assessees pay higher tax
by way of this surcharge increased from the existing 10% to 12%. The maximum
marginal tax would go up from the present 33.99% to 34.61% considering the fact
the cascading effect of the education cess of 3% will now be computed on the additional
surcharge too. Smaller assessees would be spared.
5.       Abolishing
wealth tax
Effect: A
welcome move, because now you don’t have to go through the hassle of filing
another set of returns. However, for all those who felt that their high end
assets would not come under the scrutiny of the tax authorities, it’s no time
to cheer. All these assets will now have to be disclosed and declared in the
income tax returns.
6.       TDS
on interest paid by co-operative banks to members
Effect: It
will be a big set off for senior citizens and other assesses in the lower tax
bracket that hitherto had been getting a nominal membership of the co-operative
banks and being spared the hassle of TDS. It’s an additional burden for the
banks too. Co-operative credit societies, quite surprisingly continue to enjoy
this benefit.
7.       Increase
in exemption limit for transport allowance
This is a welcome move for employees since the limit of Rs.800 per month has
been considered too low and not at par with the increased cost of
transportation in the real sense. The increase to Rs.1600 per month would
certainly bring cheer to the working class.
8.       Making
employers responsible for obtaining evidence of deduction
The proposed amendment to Section 192 makes it mandatory for employers to
obtain evidence of deductions/exemptions/set-off of any losses that the
employees claim from their taxable salary. Additional burden on the employers,
the rules and the forms and the manner in which the employers are required to
collect this evidence is to be announced shortly.
9.       Increase
in the deduction for payment of medical premia
Effect: A
welcome move again, considering the high cost of medical treatment these days.
The increase in the limit from Rs.15000 to Rs.25000 under Section 80D will be
cheered by the individual tax payers.
10.   Increase
in the deduction for payment of medical premia for senior citizens
Effect: A
big cheer from the senior citizens for increasing this deduction under Section
80D from the present Rs.20000 to Rs.30000. Also commendable is the fact that
for the uninsured very senior citizens, above the age of 80, they can claim
this deduction for the expenses incurred for their medical treatment.
11.   Requirement
of furnishing PAN for all transactions above Rs.1 lakh
This move is certainly going to go a long way in curbing the black money menace
and bring in more transparency in all transactions.
12.   No
transactions relating to transfer of immovable property in cash above certain
The proposal to restrict acceptance of any loan and/or deposits from any person
as also repay any such loans/deposits above Rs.20000 relating to the transfer
of an immovable property, will also go a long way in curbing generation of black
money in immovable property transactions which today is quite rampant.
13.   TDS
on interest on recurring deposits
Effect: The
proposal to rope in interest on recurring deposits too at par with interest on
fixed deposits to be eligible for deduction of tax at source if it exceeds
Rs.10000 in a financial year is a move towards bringing both the forms of
investments in banks at par. This amendment is to be effective from 1st
June 2015.
14.   TDS
on premature deposits from provident fund
Effect: I
find no reason in this move when such withdrawals are anyway not subject to
tax. Premature withdrawals from PF will now be subject to TDS @ 10% (at maximum
marginal rate if employee does not furnish PAN) if the withdrawal amount
exceeds Rs.30000.The only explanation I can see in this proposal is that it
will ensure better tax compliance, though it is again going to burden the
employers with more compliance.
15.   Increase
in cap for deduction on contribution to prescribed annuity/pension plans
This proposal of increasing the cap for such contributions from Rs.1 lakh to
R.1.50 lakhs would enable assessees not to look for other avenues of
investments within the overall ceiling of Rs.1.50 lakhs under section 80C.
16.   Additional
deduction for contribution to the New Pension Scheme
Effect: This
proposal of providing another tax saving investment avenue under section 80CCD
for contribution to the NPS upto Rs.50000 will benefit individual assessees by
way of further tax savings.
17.   Deduction
for contribution to the Sukanya Samriddhi Scheme
Effect: An
opportunity to earn tax sops on philanthropic activities, contribution made to
this scheme, relating to the education of the girl child is a welcome move,
proposed to be introduced retrospectively effective from financial year 2014-15
under Section 80C. A great initiative in allowing even the payment received
from such schemes to be totally tax free. Now parents of a girl child can
rejoice that they not only get tax deduction for investments made under this
scheme, but also would not be required to pay any tax of payments received
under this scheme.
18.   Deduction
for donations made to certain funds
Effect: The
proposal to include donations made to Swachh Bharat Kosh and Clean Ganga Fund
under the ambit of section 80G is a welcome move, which again is made effective
retrospective from financial year 2014-15. Donations made to the National Fund
for Control of Drug Abuse also being included from financial year 2015-16. The
great news is that you get 100% deduction for donations to these funds.
19.   Furnishing
of details for payments to non-residents without TDS
Effect: Making
payments to non-residents and claiming foreign tax credit has been made a
little more cumbersome with now the assessees required to furnish various
details of the same. The required details are yet to be prescribed, but the
message is loud and clear that non-compliance will attract stringent penalty.
20.   Increase
in the surcharge on Dividend Distribution Tax
Effect: The proposal to
increase the surcharge on DDT and on the tax on income distributed by mutual
funds from 10% to 12% will make the declaration of dividend dearer to the
companies and thereby reduce the income received by the shareholder or the unit
21.   Increase
in surcharge on the tax on buy-back of shares
Effect: This
proposal will make corporates think again before venturing to buy back its
shares by increasing their tax liability on the same effectively from 22.66% to
22.   Reduction
of rate of TDS on royalty and fees for technical services to foreign entities
Effect: This
proposal to reduce the rate of TDS from 25% to 10% is a welcome move since many
DTAA already had 10% rate prescribed and hence it was logical to get the rates
under the Income Tax Act also at par with these tax treaties. The effective TDS
rate due to this amendment would reduce from 27.04% to 10.82%.
23.   Threshold
limit for domestic transfer pricing enhanced
The proposal to enhance the threshold limit from the existing Rs.5 crores to
Rs.20 crores would result in lesser compliance by smaller domestic companies.
24.   Scope
of levy of interest for default in payment of advance tax extended
Effect: The
proposal to extend the scope of the levy of this interest to even income
declared before the settlement commission will result in increasing the tax
burden in cases where application has already been filed before the settlement
commission for earlier years.
25.   Favourable
tax orders can now be revised by higher authorities
The proposal to allow favourable tax orders passed by the assessing officers to
be revised by the CIT (Commissioner of Income Tax) will come in as a shock to
many assessees who can end up finding orders passed in their favour being later
26.   Concealment
penalty to be imposed even if tax is paid
This proposed amendment to impose concealment penalty even to cases where the
disallowance or additions are made under the normal provisions and the
requisite tax thereon has already been paid under MAT or otherwise does not
auger well with the various case laws of the courts and hence will be a big
burden on the assessees.
27.   Future
proposal to levy 2% Swachh Bharat Cess on services
Though not directly relating to any provisions under the Income Tax Act, I find
it pertinently important to include this here since this proposed future
suggestion may result in pushing up the service tax rate from 14% to 16% thereby
increasing the cost of these services to the common man.
CA. Sanjay Thampy


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