<p>Every year without fail, we look forward to the Union Budget with a sense of anticipation, hope and expectation. Budget 2016 was no different. Compared to the earlier ones, this was a lengthy one and has plenty of amendments to all major tax laws in the country. An attempt is being made here to categorise the critical provisions into three major categories. <br /><br />The Good<br /><br /></p>.<p>Income Taxes: Income tax rates for individuals have reached a sweet spot. Finance Minister Arun Jaitley has done the right thing in not increasing the rates or subjecting them to some cess or surcharge. The reduction in the corporate tax rates to 29% and 25% for certain classes of companies should be welcomed as it is in keeping with the twin mottos of the government to phase out exemptions and reduce rates. <br /><br />The Finance Bill has tabulated the exemptions that will be withdrawn over a period of time. Ignoring startups in this Budget would have been a blunder – the 100% tax exemption will be a boon to startups. The use of the word “eligible startup” will cause some eyebrows to raise on whether there will be needless restrictions imposed. <br /><br />Section 80GG which provides a deduction for house rent paid was ignored for a long time – the increase from Rs 24,000 to Rs 60,000 is generous. The decision to postpone the provisions on Place of Effective Management by one year is to be welcomed because it gives time to define what is place of effective management clearly. <br /><br />The proposed amendment to Section 24 (b) – increasing the time limit for construction of a house from three to five years to avail the deduction of Rs 5 lakh – was also overdue considering the fact that many housing projects remain only projects for a long time. Increasing the deduction under Section 80EE for first time housing loans to Rs 150,000 will benefit only a few but continues on the theme of housing for all. <br /><br />Excise Duties: Imposing “sin taxes” is a low hanging fruit that no finance minister can ignore. Budget 2016 has increased duties on tobacco in all forms. Not many would be happy with the proposal to make luxury cars costlier but then the CFO of the country cannot please everyone. <br /><br />The Bad<br /><br />Income Taxes: The Dividend Distribution Tax scheme was working well with companies paying the tax at 15%. The finance minister proposes to tax this in the hands of individuals in case the dividends exceed Rs 10 lakh. While this may be a good way to tax the rich, it does provide some worries whether stability and consistency in taxing transactions can be maintained. <br /><br />Service Tax: Everyone was expecting Jaitley to raise service tax rate to 16%. He has not done this directly but has very subtly introduced a Krishi Kalyan Cess at 0.5% on all taxable services. Like the Swacch Bharat Cess, we can expect this not to be a cess on the tax but a tax in itself. This makes the service tax rate 15% now. Cesses are supposed to have a limited shelf life since they are for a specific purpose. The absence of a time frame on this levy gives the impression that it is nothing but service tax in a new name. <br /><br />There has been a tendency every year to tinker with the negative list by adding services to the exemption list. This year is no different – we have 15 new exemptions in service tax, ranging from housing projects under the Pradhan Mantri Awas Yojana, services provided by the Provident Fund office to the services provided by the IIMs. We can now state with some authority that the negative list is lengthier than the erstwhile positive list. Instead of picking and choosing items to exempt, the government would do well to exempt sectors – agriculture, government schemes, low-cost housing, education and medical services are sectors that come instantly to mind. <br /><br />The Ugly<br /><br />Income Taxes: While this Budget appears to have given something for everyone, the class of people who will feel left out are the salaried taxpayers who have housing loans. The pre-Budget gossip was that the standard deduction would be reintroduced. Income from salaries does not find a mention in the relaxations announced in the tax deducted at source scheme. <br /><br />It is time for the government to introduce a liberal standard deduction scheme for the salaried class and link increases in this deduction to inflation once in two years. This is the only way the taxpayer can counter street inflation and the various cesses that hit him in some form or the other. And to rub salt into the wounds of the salaried man, a partial taxation on PF withdrawals has been introduced. <br /><br />Without taking the name of Vodafone, the finance minister has categorically stated that they can settle the case by paying only the tax due and withdrawing all litigation that they have filed in different fora. The government would respond by waiving the interest and penalty. Jaitley has stated that the government will not resort to retrospective litigation in future. <br /><br />While this will certainly provide some monetary relief to Vodafone and the like, it does not rule out the fact that the government is viewing this transaction only from the amount involved and not the merits of the laws as they prevailed when the transaction was made. I have chosen to categorise this as ugly because there may be other complicated transactions in the future, which the government fails to interpret correctly. <br /><br />One of the nine pillars that the finance minister indicated in his Budget speech was tax reform to reduce compliance with faith in the citizenry. This narrative is not the defining theme in Budget 2016 but appears only sporadically. <br /><br />(The writer is a Bengaluru-based tax expert)</p>
<p>Every year without fail, we look forward to the Union Budget with a sense of anticipation, hope and expectation. Budget 2016 was no different. Compared to the earlier ones, this was a lengthy one and has plenty of amendments to all major tax laws in the country. An attempt is being made here to categorise the critical provisions into three major categories. <br /><br />The Good<br /><br /></p>.<p>Income Taxes: Income tax rates for individuals have reached a sweet spot. Finance Minister Arun Jaitley has done the right thing in not increasing the rates or subjecting them to some cess or surcharge. The reduction in the corporate tax rates to 29% and 25% for certain classes of companies should be welcomed as it is in keeping with the twin mottos of the government to phase out exemptions and reduce rates. <br /><br />The Finance Bill has tabulated the exemptions that will be withdrawn over a period of time. Ignoring startups in this Budget would have been a blunder – the 100% tax exemption will be a boon to startups. The use of the word “eligible startup” will cause some eyebrows to raise on whether there will be needless restrictions imposed. <br /><br />Section 80GG which provides a deduction for house rent paid was ignored for a long time – the increase from Rs 24,000 to Rs 60,000 is generous. The decision to postpone the provisions on Place of Effective Management by one year is to be welcomed because it gives time to define what is place of effective management clearly. <br /><br />The proposed amendment to Section 24 (b) – increasing the time limit for construction of a house from three to five years to avail the deduction of Rs 5 lakh – was also overdue considering the fact that many housing projects remain only projects for a long time. Increasing the deduction under Section 80EE for first time housing loans to Rs 150,000 will benefit only a few but continues on the theme of housing for all. <br /><br />Excise Duties: Imposing “sin taxes” is a low hanging fruit that no finance minister can ignore. Budget 2016 has increased duties on tobacco in all forms. Not many would be happy with the proposal to make luxury cars costlier but then the CFO of the country cannot please everyone. <br /><br />The Bad<br /><br />Income Taxes: The Dividend Distribution Tax scheme was working well with companies paying the tax at 15%. The finance minister proposes to tax this in the hands of individuals in case the dividends exceed Rs 10 lakh. While this may be a good way to tax the rich, it does provide some worries whether stability and consistency in taxing transactions can be maintained. <br /><br />Service Tax: Everyone was expecting Jaitley to raise service tax rate to 16%. He has not done this directly but has very subtly introduced a Krishi Kalyan Cess at 0.5% on all taxable services. Like the Swacch Bharat Cess, we can expect this not to be a cess on the tax but a tax in itself. This makes the service tax rate 15% now. Cesses are supposed to have a limited shelf life since they are for a specific purpose. The absence of a time frame on this levy gives the impression that it is nothing but service tax in a new name. <br /><br />There has been a tendency every year to tinker with the negative list by adding services to the exemption list. This year is no different – we have 15 new exemptions in service tax, ranging from housing projects under the Pradhan Mantri Awas Yojana, services provided by the Provident Fund office to the services provided by the IIMs. We can now state with some authority that the negative list is lengthier than the erstwhile positive list. Instead of picking and choosing items to exempt, the government would do well to exempt sectors – agriculture, government schemes, low-cost housing, education and medical services are sectors that come instantly to mind. <br /><br />The Ugly<br /><br />Income Taxes: While this Budget appears to have given something for everyone, the class of people who will feel left out are the salaried taxpayers who have housing loans. The pre-Budget gossip was that the standard deduction would be reintroduced. Income from salaries does not find a mention in the relaxations announced in the tax deducted at source scheme. <br /><br />It is time for the government to introduce a liberal standard deduction scheme for the salaried class and link increases in this deduction to inflation once in two years. This is the only way the taxpayer can counter street inflation and the various cesses that hit him in some form or the other. And to rub salt into the wounds of the salaried man, a partial taxation on PF withdrawals has been introduced. <br /><br />Without taking the name of Vodafone, the finance minister has categorically stated that they can settle the case by paying only the tax due and withdrawing all litigation that they have filed in different fora. The government would respond by waiving the interest and penalty. Jaitley has stated that the government will not resort to retrospective litigation in future. <br /><br />While this will certainly provide some monetary relief to Vodafone and the like, it does not rule out the fact that the government is viewing this transaction only from the amount involved and not the merits of the laws as they prevailed when the transaction was made. I have chosen to categorise this as ugly because there may be other complicated transactions in the future, which the government fails to interpret correctly. <br /><br />One of the nine pillars that the finance minister indicated in his Budget speech was tax reform to reduce compliance with faith in the citizenry. This narrative is not the defining theme in Budget 2016 but appears only sporadically. <br /><br />(The writer is a Bengaluru-based tax expert)</p>
