Budget 2016 Highlights (Direct Tax)


Budget 2016 Highlights (Direct Tax)

1. No change in Basic Exemption Limit for Individuals

There has been no change in personal tax rates. The basic exemption limit continues at Rs.2.50 lacs. Tax Rebate of Rs. 2000 available to small tax payers under Section 87A has been increased from Rs. 2,000 to Rs. 5,000. This will benefit about around 2 crore marginal tax payers.

2. HNIs in Higher Tax Net

With a view to tax high income tax payers, the surcharge on income-tax is proposed to be increased from 12% to 15% wherein income exceeds Rs. 1 Crore. This will result in maximum marginal rate of 35.535% {(30%+15% surcharge thereon)+3% cess} for financial year 2016-17 as against 34.608% {(30%+12% surcharge thereon)x3% cess} at present.

It is also proposed to tax any income by way of dividend in excess of Rs. 10 lakh in the case of an individual, Hindu undivided family (HUF) or a firm who is resident in India @ 10% on gross basis. However, HNIs can heave a sigh of relief that the much talked about long term capital gains tax exemption period for shares sold on the stock exchange continues at 1 year and has not been increased to 3 years.

3. No change in 80C Deduction Limit for Individuals

The limit for deduction under Section 80C of Rs. 1,50,000 remains unchanged. Section 80C provides for tax deduction in respect of investment in eligible savings such as Provident fund, ELSS, life insurance premium, housing loan repayment, 5 year bank deposits, NSC, ULIP to promote growth.

4. Withdrawals from Fresh Contributions to Recognized Provident Funds/ Pension Funds and National Pension Scheme Partially Taxable (Waiting for more clarification from Finance Minister – there is all possibility to withdraw this tax)

Under the existing provisions of the Income-tax Act, tax treatment for the National Pension System (NPS) referred to in section 80CCD is Exempt, Exempt and Tax (EET). It is proposed that withdrawal up to 40% of the corpus at the time of retirement shall be tax exempt in the case of National Pension Scheme. In case of superannuation funds and recognized provident funds, including employees provident Fund, 40% of corpus created out of contributions made on or from 1.4.2016 shall be tax exempt upon withdrawal. It may be pointed out that presently withdrawals from recognized Provident Funds are generally exempt from tax altogether whereas withdrawals from NPs are taxable entirely.

5. Focus on Reducing Litigation and Increasing Compliance

The Budget contains The Income Declaration Scheme which will provide a window to the taxpayers who have not paid full taxes in the past to ensure compliance by paying 45% of declared income as tax and penalty. This will result in no further interest or penalty or prosecution. The scheme will be open from June 2016 to September 2016 and will be subject to specified conditions.

There is also The Direct Tax Dispute Resolution Scheme 2016 which would permit the taxpayers whose appeals are pending before the first appellate authority to pay the tax and interest up to the date of assessment where disputed tax is up to Rs. 10 lacs. There will be no penalty or prosecution nor interest for the period after assessment. This is a golden opportunity for tax payers who have pending litigation to resolve the same without long drawn litigation, recovery and penalty proceedings and cost of litigation.

6. Additional Deduction of Interest on Housing Loan for first time home buyers

Deduction for additional interest of Rs. 50,000 per annum for loans up to Rs. 35 lakhs sanctioned in 2016-17 for first time home buyers,  where the house cost does not exceed Rs. 50 lakhs. In overall context, first home buyer can get maximum deduction of interest on housing loan up to Rs. 250,000 in aggregate comprising of Rs.2 lakhs under Section 24(b) of the IT Act and Rs.50,000 under section 80EE of the IT Act.

7. Increase in time limit of completion of construction of a self-occupied house property

It is proposed that the interest paid on capital borrowed for acquisition or construction of a self-occupied house property shall be available if the acquisition or construction is completed within five years from the end of the financial year in which capital was borrowed. The earlier time limit was 3 years.

8. 80GG Deduction Limit for Individuals revised from Rs. 24,000 per annum to Rs. 60,000 per annum

The existing provisions of Section 80GG provide for a deduction of any expenditure incurred by an individual in excess of 10% of his total income towards payment of rent in respect of any furnished or unfurnished accommodation occupied by him for the purposes of his own residence if he is not granted house rent allowance by his employer, to the extent such excess expenditure does not exceed Rs. 2000 per month or 25% of his total income for the year, whichever is less, subject to other conditions as prescribed therein. The limit for deduction for rent paid under Section 80GG has been increased from Rs. 2000 per month to Rs. 5000 per month, to provide relief to those who live in rented houses and do not get HRA from the employers.



1. Agriculture Sector (Total Expenditure Rs. 35984 Crore)

a) Govt. of India has proposed to introduced 3 major schemes for the farmers. Mainly Pradhan Mantri Fasal Bima Yojna to cover the farmers from the loss of unfavorable weather conditions, calamity changes etc and Rs. 5500 crore is propose to allocate to this scheme.

b) Aim to DOUBLE the INCOME of farmers by 2022 (nearly 5 years).

c) Aim to promote this sector by giving farmers better facilities regarding soil, fertilizers, value addition from farm to market, irrigation etc.

d) Propose to introduce 89 projects of IRRIGATION under AIBP & plan to cover 5 lakhs heactares of land will be brought under irrigation.

e) Propose Multilateral funding and Long-term irrigation fund shall be create in NABARD.

f) Soil Health Card scheme is introduced to cover 14 crores farm holdings by 31 March 2017.

g) An Unified agriculture market E-Platform will dedicate to nation on 14 April 2016 on the auspicious occasion of birth anniversary of Sh. Dada Saheb Ambedkar.

h) 97 lakhs MT storage capacity added to Central pool stock.

i) Target agriculture credit Rs. 9 lakhs crore in 2016-17.

j) 5 lakh acres to be brought under organic farming over a 3 year period.

k) Rs 60,000 crore for Water Resource Management as there is urgent need to focus on drought hit areas cluster development for water conservation.

2. Rural Economy Sector (Total Expenditure Rs. 87769 Crore)

a) 300 rurban clusters to be set up under Shyama Prasad Mukherji Rurban Mission to incubate rural growth.

b) Electrification of villages in 100 days of 5542 villages and aim for 100% electrification by 1 May 2018.

c) Approximately about Rs. 9000 crores will be allocate for “Swatch Bharat Abhiyan”.

d) Rs 38500 crore for Mahtma Gandhi MGNREGA for 2016-17 higest ever.

e) Hub to support and promote SC/ST entrepreneurs

f) Government is launching a massive mission to provide cooking gas to BPL families with state support.

g) LPG connections to be provided under the name of women members of family: Rs 2000 crore allocated for 5 years for BPL families.

h) FM appreciates 75 lakhs families for giving up LPG subsidy.

i) 87 lakh crore grants to gram panchayats and municipalities.

3.  Education Sector

a) 1804 crore set aside for Skill Develoment.

b) Propose to introduce New National Digital Literacy Plan to cover 6 crore Indians.

c) 62 new Narvodaya Vidyalaya to be open.

d) Introduced PM Kaushal Vikas Yojna (PMKVY) for youths and Rs. 1700 crore set aside for this scheme.

e) 1700 crore is for 1500 Multi Skill Develoment Centres.

f) Objective to skill 1 crore youth in the next 3 years under the PM Kaushal Vikas Yojna.

g) Entrepreneurship training to be provided across schools, colleges and massive online courses.

h) 10 public and 10 private educational institutions to be made world-class.

4. Health Sector

a) New Health scheme for lower income families.

b) National Dialysis Scheme with funds thru PPP mode to provide dialysis at all district hospitals.

c) Aim to open 3000 stores for generic drugs under PM Aushadi Yojna (PMAY).

d) Senior citizens will get additional healthcare cover of Rs 30,000 under the new scheme.

5. Infrastructure & Investments

a) Nearly 85% of languishing road projects put back on track to cover 8300 Kms.

b) 100 Model Careers Centers operational by 2016-17.

c) Total allocation for all road will be Rs. 97000 crores.

d) Total outlay for roads/railways Rs. 2.8 lakh crores in 2016-17.

e) 160 airports/airstrips to be revived.

f) NHAI will raise Rs. 1500 crore via bond in 2017.

g) Shops to be given option to remain open all seven days in a week across markets.

h) 100% FDI through FIPB route allowed in marketing food.

i) of Disinvestment to be renamed as Dept. of Investment and Public Asset Management.

j) will amend Motor Vehicles Act for entrepreneurship in road and allow more innovations.

k) MAT will be applicable for startups that qualify for 100 per cent tax exemption.

l) Direct tax proposals result in revenue loss of Rs.1060 crore, indirect tax proposals result in gain of Rs.20,670 crore.

m) Eak Bharat Shreshat Bharat Scheme introduced to link district and states.

6. Personal Expense

a) 1000 crore is set aside for new employees under EPFO scheme.

b) will pay EPF contribution of 8.33% for all new employees for first three years. (upto Salary 15000 pm).

c) Additional exemption of Rs. 50,000 for housing loans up to Rs. 35 lakh, provided cost of house is not above Rs. 50 lakh.

d) Service tax exempted for housing construction of houses less than 60 sq. m.

e) Deduction under section 80JJAA is now allowed to ALL Assesses.

7. Banking Sector

a) 25000 crores is set aside for recapitalisation of public sector banks.

b) Target of disbursement under MUDRA increased to 1,80,000 crore.

c) Process of transfer of government stake in IDBI Bank below 50% started.

d) General Insurance companies will be listed in the stock exchange.

e) Bank Board will be operational by 2016-17.

g) RBI Act, 1934 will amend.

8. Taxation

a) Deduction under section 80GG increased from Rs. 24000 p.a to Rs. 60000 p.a. to the assesses residing in rented house.

b) Infrastructure and agriculture cess to be levied.

c) Excise duty raised from 10 to 15% on tobacco products other than beedis.

d) Limit of turnover under Presumptive Income Tax has raised to Rs. 2 crores and for professional gross receipt increase to Rs. 50 lakhs.

e) Corporate Tax rate declined by 5% (30% to 25%) for those whose turnover is less than Rs. 5 crores.

f) Transparency & Efficiency in GST.

g) Maximum limit of Depreciation is fix to 40% till 1 April 2017.

h) Deduction allowed for scientific research 150% till 1 April 2017 and 100 % till 1 April 2020.

i) FM said that he will continue the deduction u/s 35CCD till 1 April 2020.

j) Deduction u/s 10 AA allowed to the assesses commence operations before 31 March 2020.

k) Debt Recovery Tribunal to be revived.

l) Tax Holidays to assist starts ups (100% Deduction) for 3 out of 5 years.

m) To get more investment in Asset Reco. Companies income taxed in the hands of investor not in the hands of trust.

n) 11 new benches for Tax Tribunal.

o) Propose to levy Krishi Kalyan & Infrasructure Cess & 0.5 per cent Krishi Kalyan Cess to be levied on all services 7.5% surcharge to be levied on undisclosed Income.

p) Withdrawal upto 40% from NPS to be tax exempt.

q) No penalty on disputed tax upto Rs. 10 Lakhs.

r) Any pending appeal can be settled by paying 25% (minimum) of imposable penalty.

s) Tax rate hike for SUV cars 4% and 2.5% for diesel cars.

t) Excise duty 1% on articles (Jewellery) other than silver.

u) Propose to reduce Basic Excise duty & Custom Duty.

v) Rebate u/s 87A increase by Rs. 3000.

w) Clean Energy cess to be renamed as Clean Environment Cess & limit increase from Rs/ 200/tnn to Rs. 400/tnn.

x) Propose to abolish 13 different cesses levied by various ministries in which revenue collection is less than Rs 50 crores per year.

y) Limited tax compliance window: 45% incl surcharge and penalties and immunity from prosecution.

z) Service tax exempted for general insurance schemes under Niramayi Swasthya Bima Yojna.

aa) Committed to implementing GAAR from April 1, 2017.

ab) Exemption from Service Tax has provided mainly the service provided by employer under EPFO and by National Pension scheme for Annuity services.


ad) Online service of E-Sahyog will be start by GOI for Income Tax mismatch etc.

ae) Target fiscal deficit 3.5% and revenue deficit to 2.5% in 2016-17.

af) Plan Expenditure Rs. 5.5 lakhs crore and non-plan expenditure Rs. 14.28 lakhs crore.

ag) GOI has made more amendments like in Companies Act etc and rationalized about 1500 schemes for detail analysis reader can read Finance Bill 2016

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