10 Income Tax Rules That Will Change From 1st April 2017

1) The tax rate on income between Rs. 2.5 lakh and Rs. 5 lakh will get halved to 5 per cent from 10 per cent. However, rebate under Section 87A gets reduced from Rs. 5,000 to Rs. 2,500. And no rebate will be applicable for taxpayers having income above Rs. 3.5 lakh. This means tax savings of up to Rs. 7,700 for those with a taxable income between Rs. 3 lakh and Rs. 5 lakh. And for persons with taxable income between Rs. 5 lakh and Rs. 50 lakh, tax savings of Rs. 12,900.

2) A 10 per cent surcharge will be applicable for individuals having income ranging from Rs. 50 lakh to Rs. 1 crore (existing surcharge of 15 per cent will remain the same for individuals having income above Rs. 1 crore.)

3) A simple one-page form will be introduced for filing tax return for individuals having a taxable income up to Rs. 5 lakh other than business income.

4) No deduction will be allowed for investment in Rajiv Gandhi Equity Saving Scheme from Assessment Year 2018-19. This tax-saving scheme, announced in the Union Budget for financial year 2012-13, was designed exclusively for the first-time individual investors in the securities market with gross total income below a certain limit.

5) Income tax officials can reopen tax cases for up to 10 years if search operations reveal undisclosed income and assets of over Rs. 50 lakh. Currently, tax officers can go back up to six years to scrutinise the books of accounts of assessees. Taxpayers who do not file their returns on time will have to shell out a penalty of up to Rs. 10,000 from Assessment Year 2018-19. However, if the total income of the person does not exceed Rs. 5 lakh, the fee payable under this section shall not exceed Rs. 1,000.

6) The holding period of a property for qualifying as long-term gains will be reduced to two years, from three years. This will help save tax if a property is sold within two years of buying. If a property is sold before two years, the profit from the transaction will be treated as short-term capital gains and will be taxed according to the slab rate applicable to him/her.

7) The government has cut down tax benefits borrowers enjoyed on properties let out on rent. As per current tax laws, for properties rented out, a borrower could deduct the entire interest paid on home loan after adjusting for the rental income. On the other hand, borrowers of self-occupied properties get a deduction of Rs. 2 lakh on interest repayment on home loan. But from April, on rented properties, the borrower can only claim a deduction of up to Rs. 2 lakh per year after adjusting for the rental income. And the amount above Rs. 2 lakh can be carried forward for eight assessment years. Since the interest component of home loan repaid in initial years is higher, experts say that the borrower may not be able to fully adjust the interest paid as deduction even in subsequent years.

8) Individuals will be required to deduct a 5 per cent TDS (tax deducted at source) for rental payments above Rs. 50,000 per month. Tax experts say that the move will ensure that persons who get a large rental income come into the tax net. It will be effective from June 1, 2017.

9) Partial withdrawals from National Pension System (NPS) will not attract tax. According to the proposed changes, NPS subscribers can withdraw 25 per cent of their contribution to the corpus for emergencies before retirement. Remember that withdrawal of 40 per cent of the corpus is tax-free on retirement.

10) Aadhaar number will be a must while applying for PAN as well as filing of income tax returns from July 1. To curb black money, the limit on cash transactions has been set at Rs. 2 lakh. The Finance Bill had originally proposed the cap at Rs. 3 lakh. If a person receives any sum in contravention of the tax law, he/she will be liable to pay, by way of penalty, a sum equal to the amount.

GOODS AND SERVICES TAX ( GST)

GST is a value-added tax levied at all points in the supply chain with credit allowed for any tax paid on input acquired for use in making the supply. It would apply to both goods and services in a comprehensive manner, with exemptions restricted to a minimum.

In keeping with the federal structure of India, it is proposed that GST will be levied concurrently by the Centre (CGST) and the states (SGST). It is expected that the base and other essential design features would be common between CGST and SGST across SGSTs for individual states. Both CGST and SGST would be levied on the basis of the destination principle. Thus, exports would be zero-rated, and imports would attract tax in the same manner as domestic goods and services. Inter-state supplies within India would attract an Integrated GST (aggregate of CGST and the SGST of the destination State).

In addition to the IGST, in respect of supply of goods, an additional tax of up to 1% has been proposed to be levied by the Centre. Revenue from this tax is to be assigned to origin states. This tax is proposed to be levied for the first two years or a longer period, as recommended by the GST Council.

Benefit of GST

GST has been envisaged as an efficient tax system, neutral in its application and distributionally attractive. The advantages of GST are : 

1.               Wider tax base, necessary for lowering tax rates and eliminating classification disputes

2.               Elimination of multiplicity of taxes and their cascading effects

3.               Rationalization of tax structure and simplification of compliance procedures

4.               Harmonization of center and state tax administrations, which would reduce duplication and compliance costs

5.               Automation of compliance procedures to reduce errors and increase efficiency.

Destination principle

The GST structure would follow the destination principle. Accordingly, imports would be subject to GST,while exports would be zero-rated. In the case of inter-state transactions within India, State tax would apply in the state of destination as opposed to that of origin.

Taxes to be subsumed

GST would replace most indirect taxes currently in place such as:

  Central Taxes

    Central Excise Duty [including additional excise duties, excise duty under the        

     Medicinal and Toilet Preparations (Excise Duties) Act, 1955]

     Service tax

     Additional Customs Duty (CVD)

    Special Additional Duty of Customs (SAD)

    Central Sales Tax ( levied by the Centre and collected by the States)

           Central surcharges and cesses ( relating to supply of goods and services)

State Taxes Value-added tax Octroi and Entry tax Purchase tax Luxury tax Taxes on lottery, betting and gambling State cesses and surcharges Entertainment tax (other than the tax levied by the local bodies)    Central Sales tax ( levied by the Centre and collected by states)

Taxation in India

Taxes are the government’s way of earning an income which can then be used for various projects that the government needs to indulge in to help boost the country’s economy or its people. Taxes in India are decided on by the central and state governments with local governments, such as municipalities, also deciding on smaller taxes that can be levied within their jurisdiction. It must, however, be remembered that the government cannot impose any tax that it wishes to. All the taxes imposed by the government must be laws. 

Types of Taxes : Taxes are of two distinct types, Direct and Indirect Taxes. The difference comes in the way these taxes are implemented. Some are paid directly by you. 

1) Direct Taxes : Direct tax, as stated earlier, are taxes that are paid directly by you. These taxes are levied directly on an entity or an individual and cannot be transferred onto anyone else. One of the bodies that overlooks these direct taxes is the Central Board of Direct Taxes (CBDT) which is a part of the Department of Revenue. It has, to help it with its duties, the support of various acts that govern various aspects of direct taxes. Some of these acts are:

These are some of the direct taxes that you pay

• Income Tax : This is one of the most well-known and least understood taxes. It is the tax that is levied on your earning in a financial year. There are many facets to income tax, such as the tax slabs, taxable income, tax deducted at source (TDS), reduction of taxable income, etc. The tax is applicable to both individuals and companies. For individuals, the tax that they have to pay depends on which tax bracket they fall in. This bracket or slab determines the tax to be paid based on the annual income of the assessee and ranges from no tax to 30% tax for the high income groups.

• Capital Gains Tax : This is a tax that is payable whenever you receive a sizable amount of money. It could be from an investment or from the sale of a property. It is usually of two types, short term capital gains from investments held for less than 36 months and long term capital gains from investments held for longer than 36 months. The tax applicable for each is also very different since the tax on short term gains is calculated based in the income bracket that you fall in and the tax on long term gains is 20%. The interest thing about this tax is that the gain doesn’t always have to be in the form of money. It could also be an exchange in kind in which case the value of the exchange will be considered for taxation. 

• Securities Transaction Tax : It’s no secret that if you know how to trade properly on the stock market, and trade in securities, you stand to make a substantial amount of money. This too is a source of income but it has its own tax which is known as the Securities Transaction Tax . How this tax is levied is by adding the tax to the price of the share. This means that every time you buy or sell shares, you pay this tax. All securities traded on the Indian stock exchange have this tax attached to them.

• Perquisite Tax : Perquisites are all the perks or privileges that employers may extend to employees. These privileges may include a house provided by the company or a car for your use, given to you by the company. These perks are not just limited to big compensation like cars and houses, they can even include things like compensation for fuel or phone bills. How this tax is levied is by figuring out how that perk has been acquired by the company or used by the employee. In the case of cars, it may be so that a car provided by the company and used for both personal and official purposes is eligible for tax whereas a car used only for official purposes is not. 

• Corporate Tax : Corporate tax is the income tax that is paid by companies from the revenue they earn. This tax also comes with a slab of its own that decides how much tax the company has to pay. For example a domestic company, which has a revenue of less than Rs. 1 crore per annum, won’t have to pay this tax but one that has a revenue of more than Rs. 1 crore per annum will have to pay this tax. It is also referred to as a surcharge and is different for different revenue brackets. It is also different for international companies where the corporate tax may be 41.2% if the company has a revenue of less than Rs. 10 million and so on. 

• Wealth Tax : The wealth tax, governed by the Wealth Tax Act, allows the government to impose a tax on the net wealth of a person, an HUF or a company. This tax is set to be abolished in 2016 but until then the tax levied on the net wealth is about 1% of the wealth that exceeds Rs. 30 lakhs. There are exceptions to this tax which are organisations that don’t have to pay wealth tax. These organisations could be trusts, partnership firms, social clubs, political parties, etc.

2) Indirect Taxes : Indirect taxes are those taxes that are levied on goods or services. They differ from direct taxes because they are not levied on a person who pays them directly to the government, they are instead levied on products and are collected by an intermediary, the person selling the product. The most common examples of indirect tax can be VAT (Value Added Tax), Taxes on Imported Goods, Sales Tax, etc. These taxes are levied by adding them to the price of the service or product which tends to push the cost of the product up.

These are some of the common indirect taxes that you pay.

• Sales Tax : As the name suggests, sales tax is a tax that is levied on the sale of a product. This product can be something that was produced in India or imported and can even cover services rendered. This tax is levied on the seller of the product who then transfers it onto the person who buys said product with the sales tax added to the price of the product. The limitation of this tax is that it can be levied only ones for a particular product, which means that if the product is sold a second time, sales tax cannot be applied to it. 

• Service Tax : Like sales tax is added to the price of goods sold in India, so is service tax added to services provided in India. In the reading of the budget 2015, it was announced that the service tax will be raised from 12.36% to 14%. It is not applicable on goods but on companies that provide services and is collected every month or once every quarter based on how the services are provided. If the establishment is an individual service provider then the service tax is paid only once the customer pays the bills however, for companies the service tax is payable the moment the invoice is raised, irrespective of the customer paying the bill. An important thing to remember is that since the service at a restaurant is a combination of the food, the waiter and the premises themselves, it is difficult to pin point what qualifies for service tax. To remove any ambiguity, in this regard, it has been announced that the service tax in restaurants will be levied only on 40% of the total bill.

 

• Value Added Tax (VAT) : The value added tax is a tax that is levied at the discretion of the state government and not all states implemented it when it was first announced. The tax is levied on various goods sold in the state and the amount of the tax is decided by the state itself. For example in Gujrat the government split all the good into various categories called schedules. There are 3 schedules and each schedule has its own VAT percentage. For Schedule 3 the VAT is 1%, for schedule 2 the VAT is 5% and so on. Goods that have not been classified into any category have a VAT of 15%.

• Custom duty & Octroi : When you purchase anything that needs to be imported from another country, a charge is applied on it and that is the customs duty. It applies to all the products that come in via land, sea or air. Even if you bring in products bought in another country to India, a customs duty can be levied on it. The purpose of the customs duty is to ensure that all the goods entering the country are taxed and paid for. Just as customs duty ensures that goods for other countries are taxed, octroi is meant to ensure that goods crossing state borders within India are taxed appropriately. It is levied by the state government and functions in much the same way as customs duty does. 

• Excise Duty : This is a tax that is levied on all the goods manufactured or produced in India. It is different from customs duty because it is applicable only on things produced in India and is also known as the Central Value Added Tax or CENVAT. This tax is collected by the government from the manufacturer of the goods. It can also be collected from those entities that receive manufactured goods and employ people to transport the goods from the manufacturer to themselves.

What is Tax Deduction

Tax deduction helps in reducing your taxable income. It decreases your overall tax liabilities and helps you save tax. However, depending on the type of tax deduction you claim, the amount of deduction varies. You can claim tax deduction for amounts spent in tuition fees, medical expenses and charitable contributions. Also, you can invest in various schemes such as life insurance plans, retirement savings schemes, and national savings schemes etc. to get tax deductions. The government of India offers tax exemptions for various expenses incurred in different activities to encourage individuals and commercial institutions take part in activities having social benefits.  

Tax Deduction under Section 80C:  

Under section 80C of the Indian Income Tax Act, 1961, you can get tax deductions on premiums paid towards life insurance, annuity received through deferred annuity plans , contributions made to provident fund schemes , investments in certain equity stocks /debentures etc. Section 80C has the following subsections:

• 80CCC: Deduction arising from contributions to certain pension funds of LIC or any other insurer. Deduction is allowed up to Rs. 1, 00,000.

 

• 80CCD: Deduction arising from contribution to pension scheme notified by Central Government. You can get tax deduction up to 10% of your salary. 

 

• 80CCF: Tax deduction for subscription to notified long-term infrastructure bonds. You can get tax deduction up to Rs.20,000. 

• 80CCG: Deduction up to Rs. 25,000 for investing in notified equity savings scheme. Individuals and members of Hindu undivided family (HUF) can avail this deduction. 

Tax Deduction under Section 80D:  

Under this section, get tax deduction for medical premiums paid for self, spouse and children by using any other means of payment other than cash to LIC or other insurance providers. Both individuals and members of HUF can benefit from this section. 80D includes the following sub-sections: 

• 80DD: Deduction of Rs. 50,000 is allowed to resident individual and members of HUF for the expense incurred in medical treatment of a dependent, or in training and rehabilitation of a dependent. 

 

• 80DDB: Deduction is offered for expenses spent in medical treatment of specified diseases and ailments. 

Tax Deductions under Section 80E:  

Under section 80E , get tax deduction for taking educational loan from financial institutions or approved charitable institutions. Deduction under this section is applicable for individuals only. 80E has the below mentioned subsection: 

• 80EE: Deduction is allowed on the interest payable on loan taken from any financial institution for purchasing residential property. Maximum deduction allowed is Rs. 3, 00,000. Deduction under both the sections (80E and 80EE) can be availed by individuals.  

Tax Deductions under Section 80G:  

Tax deduction under this section can be availed by all assesses. Donations to certain approved funds, trusts, charitable institutions, and donations for renovation or repairing of notified temples qualify for tax deduction under this section. 80G has four subsections which include: 

• 80GG: Rent paid in excess of 10% of total income for furnished or unfurnished residential accommodation qualifies for tax deduction.

 

• 80GGA: Donations for scientific, social or statistical research or rural development program qualifies for tax deduction under this section.  

• 80GGB: Amount contributed to any political party or electoral trust is eligible for tax deduction.

 

• 80GGC: Sum contributed to any political party or electoral trust is eligible for tax deduction.

Tax Deductions under Section 80 IA:  

You can get tax deductions for profits and gains from industrial undertakings or enterprises engaged in infrastructure development. 80 IA has the following subsections: 

• 80-IAB: Deduction for profits and gains derived from the business of developing a Special Economic Zone (SEZ) notified on or after 1/4/2005. This deduction can be availed by the developers of SEZ.

 

• 80-IB: Profits and gains from industrial undertakings, hotel, scientific research & development, mineral oil concern, cold storage plant, housing projects, cold chain facility, convention centers, multiplex theatres etc. qualify for tax deduction under this section. All assesses can avail this deduction.

• 80-IC: Profits and gains derived by an enterprise in the special category states including Himachal Pradesh, Uttaranchal, Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland and Tripura, qualify for tax deduction. All assesses can avail this deduction.

 

• 80-ID: Deduction arising from profits and gains from business of hotels and convention centers in certain areas. All assesses can avail this deduction.

• 80-IE: Get tax deduction for taking up certain activities in Northeastern states. All assesses can avail this deduction. 

Tax Deductions under Section 80J:  

Section 80J has been amended and it includes the following subsections: 80JJA and 80JJAA: 

• 80JJA: Deduction arising from profits and gains from the business of collecting and processing bio-degradable waste. All assesses can avail this deduction.

• 80JJAA: 30% additional wages paid to new regular workmen employed in the previous year qualifies for tax deduction. Indian company having profits and gains derived from manufacturing of goods can avail tax deductions under this section.

Tax Deduction under Section 80LA 

Incomes of Scheduled banks and banks incorporated outside India having offshore banking units in a Special Economic Zone qualify for tax deduction. Scheduled banks, banks incorporated outside India, units of International Financial Services Centre can get tax deductions under this act.  

Tax Deduction under Section 80P 

Deductions arising from specified incomes qualify for tax deduction. Co-operative societies can avail this deduction. 

Tax Deduction under Section 80QQB:  

Tax deduction under this section applies to the royalty income of an author of certain category of books. Maximum tax deduction allowed is up to Rs. 3, 00,000. Resident individual authors can avail tax deduction under it. 

Tax Deduction under Section 80RRB:  

You can get tax deduction on royalty on patents. Maximum deduction allowed is up to Rs. 3, 00,000. Such deduction can be availed any resident individual who is a patentee and receives the income by way of royalty for patent registered on or after 1/4/2003. 

Tax Deduction under Section 80TTA:  

Interest on deposits in savings bank accounts qualifies for tax deduction under this section. Maximum deduction offered is Rs. 10,000 p.a. Individuals and members of HUF can avail tax deduction under this section.  

Tax Deduction under 80U:  

Under this section, tax deduction of Rs. 50,000 is allowed to a resident individual who is certified by the medical authority to be a person with disabilities in the previous year. Autism, cerebral palsy etc. are included under multiple disabilities in this section.
 

What is Income Tax Return (ITR)

There is a prescribed form through which the particulars of income earned by a person, and the taxes paid thereon, are communicated to the Income Tax Department. There are different forms for the filing of returns based on different status and heads of income. This is called the return of income.

It’s basically just you telling the government how much you’ve earned, from where you’ve earned it, and how much tax you’ve paid on it.

Tax Forms:

The different forms which have been prescribed for different classes of taxpayers are as follows:

ITR Form Name	Description of Taxpayer
ITR – 1	This is applicable to all individuals having salary or pension income or income from one house property, or income from other sources (which aren’t income from lottery winnings and income from race horses). This is also known SAHAJ.
ITR – 2	This is for Hindu Undivided Families that have income from sources other than “Profits and Gains of Business or Profession”.
ITR – 3	This is for Hindu Undivided Families or individuals who are partnered in a firm. The income here is either by the way of interest, salary, bonus, commission or remuneration that’s due or received from the partnered firm. The head of income should be “Profits and Gains of Business or Profession”.
ITS – 4S	This is for individuals and Hindu Undivided Families who’ve opted for the presumptive taxation scheme of Section 44AD / 44AE. This is also called SUGAM.
ITR – 4	This is for individuals or Hindu Undivided Families who carry on a proprietary business or profession.
ITR – 5	This is for firms, LLPs, AOPs, BOIs, artificial judiciary persons, co-operative societies and local authorities. This does not apply to trusts, political parties, colleges, etc. who are required to instead file return of income under Sections 139(4A), 139(4B), 139(4C) and 139(4D) and do not use this form.
ITR – 6	This for companies that don’t claim exemptions under Section 11. Charitable and religious trusts can claim exemptions under Section 11.
ITR – 7	This is for persons and companies who are required to furnish returns under Sections 139(4A), 139(4B), 139(4C) and 139(4D).
ITR – V	This is the acknowledgement of filing of return of income.

 

One can acquire these forms from http://www.incometaxindia.gov.in.

You can also file your return electronically through a free software that the Income Tax Department has provided on www.incometaxindiaefiling.gov.in.