The budget speech by finance minister Arun Jaitley on Wednesday had a populist tone and there is a good reason why. While tax relief for the lower income group (LIG) keeping in mind the forthcoming state elections appeared obvious, the finer details now reveal that he took away several benefits of upper middle class and high networth individuals (HNIs). The budget has proposed to levy 5 per cent tax on HRA claims of over Rs 50,000 per month from June 1.
“In order to widen the scope of tax deduction at source, it is proposed to insert a new section 194-IB in the Act to provide that individuals or a HUF (other than those covered under 44AB of the Act), responsible for paying to a resident any income by way of rent exceeding Rs 50,000 for a month or part of month during the previous year, shall deduct an amount equal to 5 per cent of such income as income-tax thereon,” the Finance Bill, 2017 said.
In addition, set-off of loss from house property under the head “income from ho?use property” against any other head of income shall be restricted to Rs 2 lakh during any assessment year.
In other words, a house bought for Rs 50 lakh taking bank loan, will have an EMI of Rs 50,000. In a year, the total interest (assuming the entire Rs 50,000 is interest), it amounts to Rs 6 lakh that can be claimed as loss from house property. But this ben?e?fit has been curtailed with the budget proposing to rest?r?i?ct the loss on house pro?perty that can be deducted from other heads of income to Rs 2 lakh.
The new rule will take effect from April 1, 2018. “This was a big benefit for people in the upper middle class, as it helped them red?u?ce taxable income. So, while the finance minister has given the benefit of Rs 12,500 by reducing the tax rates in the initial slab, he has taken away significant tax benefits for the upper middle class,” said Amit Aga?r?wal, Partner, Nangia & Co.
The amended provisions of the Finance Bill said these steps would help the go?v?e?r?n?ment widen the tax base and mobilise additional revenue.
In another key proposal, the government will tax sha?re sale of unlisted firms at fair market value (FMV). In case shares are sold at a hig?h?er price than FMV, it will be taxed at a higher value. Con?s?idered an anti-abuse mea?sure, the new provisions will apply from the next financial year.
“It is proposed to insert a new section 50CA to provide that where consideration for transfer of share of a firm (other than quoted share) is less than FMV of such share determined in accordance with the prescribed manner, FMV shall be deemed to be the full value of consid?er?a?t?ion for computing income under the head capital gai?ns,” it said. The move is expected to impact private equity firms and HNIs.
Further, the scope of section 56 will be widened and will also cover any kind of gifts in cash or kind or for no consideration with few exemptions and exceptions.
To rein in the non-filers and increase compliance, the budget has proposed to penalise those failing to file their returns.
“In order to widen the scope of tax deduction at source, it is proposed to insert a new section 194-IB in the Act to provide that individuals or a HUF (other than those covered under 44AB of the Act), responsible for paying to a resident any income by way of rent exceeding Rs 50,000 for a month or part of month during the previous year, shall deduct an amount equal to 5 per cent of such income as income-tax thereon,” the Finance Bill, 2017 said.
In addition, set-off of loss from house property under the head “income from ho?use property” against any other head of income shall be restricted to Rs 2 lakh during any assessment year.
In other words, a house bought for Rs 50 lakh taking bank loan, will have an EMI of Rs 50,000. In a year, the total interest (assuming the entire Rs 50,000 is interest), it amounts to Rs 6 lakh that can be claimed as loss from house property. But this ben?e?fit has been curtailed with the budget proposing to rest?r?i?ct the loss on house pro?perty that can be deducted from other heads of income to Rs 2 lakh.
The new rule will take effect from April 1, 2018. “This was a big benefit for people in the upper middle class, as it helped them red?u?ce taxable income. So, while the finance minister has given the benefit of Rs 12,500 by reducing the tax rates in the initial slab, he has taken away significant tax benefits for the upper middle class,” said Amit Aga?r?wal, Partner, Nangia & Co.
The amended provisions of the Finance Bill said these steps would help the go?v?e?r?n?ment widen the tax base and mobilise additional revenue.
In another key proposal, the government will tax sha?re sale of unlisted firms at fair market value (FMV). In case shares are sold at a hig?h?er price than FMV, it will be taxed at a higher value. Con?s?idered an anti-abuse mea?sure, the new provisions will apply from the next financial year.
“It is proposed to insert a new section 50CA to provide that where consideration for transfer of share of a firm (other than quoted share) is less than FMV of such share determined in accordance with the prescribed manner, FMV shall be deemed to be the full value of consid?er?a?t?ion for computing income under the head capital gai?ns,” it said. The move is expected to impact private equity firms and HNIs.
Further, the scope of section 56 will be widened and will also cover any kind of gifts in cash or kind or for no consideration with few exemptions and exceptions.
To rein in the non-filers and increase compliance, the budget has proposed to penalise those failing to file their returns.
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