Changes Brought Out by Finance Act 2017

1. Changes in the tax rates:  In case of individual and HUF, tax rate for the second slab (Rs 2,50,000 - Rs 5,00,000 ) reduced from 10 % to 5 %.

·         Rates of income-tax in respect of income liable to tax for the assessment year 2018-19.

1.     No change in basic exemption limit.

2.     The tax rate for individual, HUF, AOP, BOI or artificial jurisdictional person in the income bracket of Rs.2.5 lakhs (Rs.3 lakhs in case of individual of the age of 60 yrs or more but less than the age of 80 yrs) to Rs.5 lakhs reduced to 5% from the present rate of 10%.

3.     Rebate of income tax u/s 87A for individual having total income not exceeding Rs.5 lakhs is reduced to Rs.3.5 lakhs and the amount of tax which was Rs.2,000/- (for AY 2017-18, earlier it was Rs.5,000/-) is to be allowed at Rs.2,500/-.

4.     Surcharge @ 10% of tax payable is levied on individuals, HUF, AOP, BOI or artificial jurisdictional person whose total income is above Rs.50 lakhs but does not exceed Rs.1 crore.

5.     In case of domestic companies, rate of income tax is reduced to 25% if total turnover or gross receipts of PY 2015-16 does not exceed Rs.50 crore. Benefit of lower tax is not available to other business entity.

6.     The Taxation Law (Second Amendment) Act, 2016 has w.e.f. 01.04.2016 has levied surcharge @ 25% on income chargeable to tax u/s 115BBE.

2. Rs 50,000 rent per month. Ready for (Sec194(IB): Under section 194I, Individual / HUF are now required to deduct TDS in respect of Rent if the aggregate rent paid or payable during the financial year exceeds Rs 1,80,000. Further TDS provisions will apply only if they are subject to tax audit in the preceding financial year.

A new section 194-IB has been introduced 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 / month or part of month during the previous year, shall deduct an amount equal to 5 % of rent paid or payable.

TDS shall be required to be deducted in the month of March or last month of tenancy whichever is earlier. There is no requirement to obtain TAN No. However if PAN number is not furnished by the deductee, then TDS is required to be deducted if 206AA @ 20 % . However, if the amount of tax deductible cannot exceeds the rent of March or last month of tenancy.

Earlier Position:- Previously  TDS provisions were applicable only if Individual/HUF  were subject to tax audit in the preceding financial year.

3. Planning to sell assets - Good news for you: At present for capital assets acquired before 1st April 1981, FMV on 1st April 1981 can be substituted. It is proposed to advance the cut off date to 1st April 2001. If you own a house property from 1980 , if you sell the same by 31st March 2017, you can take the FMV on 1st April 1981, where as if you sell the property on 1st April 2017 or thereafter, then you can take the FMV on 1st April 2001.

4. Planning to sell land, building - Good news: Currently sale of land or building or both will be considered as long term if they are sold after 36 months. It is proposed to reduce holding period from 36 months  to 24 months to become long term.

5. Second home by borrowing - No benefit for interest: Under section 24, at present deduction up to Rs 2,00,000 is available for Interest on borrowed capital for self occupied property and any amount of Interest can be claimed for let out and deemed to be let out properties. Due to this Loss from HP could be more than 2 Lacs also.  Section 71 has been amended to restrict the set off of loss to 2 Lacs.

6. Not yet Joined NPS - One more reason to join: Contribution to National Pension Scheme is eligible for deduction under section 80CCD subject to the limits prescribed under that section. It has been clarified that the withdrawal of such contribution is also exempt provided it is as per the scheme and the withdrawal does not exceed 25 percent.  Further the contribution to the said scheme in case of self employed has been increased from 10 percent of the gross total income to 20 percent of the gross total income.  

7. Planning to Donate - Think before you donate in cash: At present donation given to various institutions/ funds are allowed as deduction under section 80G. However, donation in excess of Rs 2,000 cannot be made in cash.

8. Say no to cash dealings or face penalty: A new Section 269 ST has been introduced to curb cash transactions. No person shall receive an amount of Rs 2,00,000  or more
(a) In aggregate from a person in a day;
(b) In respect of a single transaction; or
(c) In respect of transactions relating to one event or occasion from a person,
Otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account.

9. If you delay the returns - Pay a mandatory fee: New section 234F has been introduced to provide fee for delayed filing of return of income.  Returns filed after the due date to 31st December Rs 5,000 Returns Filed after 31st December - Rs 10,000 If total income does not exceed Rs 5,00,000 - Rs 1,000 simultaneously, penalty under section 271F has been abolished.

10. Planning to revise your return - Do it quickly: At present returns filed u/s 139(1) / 139(4) can revised within 1 year from the end of the relevant assessment year. It is proposed to reduce the time limit for revising the return from 1 year from the end of the relevant assessment year to end of the relevant assessment year.

11. Check this before selling shares: At present exemption u/s 10(38) will be available if STT is paid at the time of transfer. It has been amended by Finance Act 2017, that for shares acquired on or after 1st Oct 2014, exemption will be available only if STT is paid at the time of acquisition. Also, List of exceptions is expected to be notified soon.

12. Expenditure in cash - be careful: At present any payment in excess of Rs 20,000 made otherwise than by way of an account payee cheque or account payee draft , subject to Rule 6 DD, will not allowed as deduction. It is proposed to reduce the limit to Rs 10,000.

13. Buying assets in cash, no wear & tear: At present any payment in excess of Rs 20,000 ( 10,000 from AY 18-19) made otherwise than by an account payee cheque or draft will not be allowed as deduction. The provisions of Sec 40 (A)(3) are not applicable for capital expenditures. In order to bring capital expenditures on which depreciation has been claimed in to the ambit, a proviso has been introduced in Sec 43(1), whereby if any person acquires asset other than by way of account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account for a sum of more than Rs 10,000 then such item cannot be considered for capital expenditure and consequently no depreciation on the same.

14. Collections in Digital way - less tax: Section 44AD provides for presumptive income at the rate of 8 % of turnover or gross receipts as the case may be for an eligible assessee doing eligible business . In order to enable small business to embrace digital payments, the presumptive income in respect of amount received in digital mode to 6 %. The amount can be received digitally up to due date for filing return of Income under Sec 139(1) of the Income tax Act.

15. Beware of insertion of Section 271J: Penalty on professionals for furnishing incorrect information in statutory report or certificate under section 271J Applicable to an accountant or a merchant banker or a registered valuer: 

 If they furnish incorrect information in a report or certificate under any provisions of the Act or the rules made thereunder that can be imposed by the Assessing Officer or the Commissioner (Appeals) Penalty can be 10,000 For each such report / Certificate. Penalty can be waived if there is "Reasonable cause".

16. Political funding and electoral bonds

Finance Bill, 2017 has made a major amendment to how private companies provide donations to political parties, which are not under Right to Information Act and need not disclose the source of contributions under Rs 20,000.

As of now, a company can donate up to 7.5 per cent of the average of its net profits in the last three consecutive financial years to parties, and disclosure of the donations against the names of the political parties who have been the beneficiaries must be displayed in the company balance sheet.

Once the amendments made in Finance Bill, 2017 come into effect, the cap of 7.5 per cent of the average of its net profits in the last three consecutive financial years will be removed. Additionally, companies will not be required to name the beneficiary political party.

Though companies can contribute via cheque, bank draft or e-transfer, electoral bonds, which might be introduced as means to fund political parties to “maintain donor anonymity” would become the main route through which money goes into the coffers of political parties.

17. Amendment in Search & Seizure:-The Amendment to Section 132 of Income Tax Act gives the taxman power to not disclose to any individual or even an Appellate Tribunal the reason why he or she conducted the raid.

“Clause 50 of the Bill seeks to amend section 132 of the Income-tax Act relating to search and seizure. Sub-section (1) of the said section provides that where an income-tax authority mentioned therein, based on the information in his possession, has reason to believe of
circumstances specified therein, he may authorise an authority specified therein to carry out search and seizure.

“It is proposed to insert an Explanation after the fourth proviso to the said sub-section (1) so as to provide that the reason to believe recorded by the income-tax authority specified therein under the said sub-section shall not be disclosed to any person or any authority or the Appellate Tribunal. This amendment will take effect retrospectively from 1st , April, 1962, the date of commencement of the Income-tax Act, 1961.

“Sub-section (1A) of the said section provides that where an authority mentioned therein, based on the information in his possession, has reason to suspect of the circumstances specified therein, he may authorise an authority specified therein to carry out search and seizure.
It is proposed to insert an Explanation in the said subsection (1A) so as to declare that reason to suspect recorded by the income-tax authority specified therein under the provisions of the said sub-section shall not be disclosed to any person or any authority, or the Appellate Tribunal.”

This amendment will take effect retrospectively from 1st October, 1975.

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CA Shivam Gupta
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