Some changes in income tax laws that you should be aware of.
As the new financial year kicks in, a clutch of new tax provisions will impact you as a taxpayer. For some, the tax incidence will come down, while others will have to shell out a bit more on their earnings.
Given below are some of the new tax provisions that become effective and how they will impact you:
Change in the Slab Rate:
Due to change in the tax rate to 5% instead of 10% (earlier tax rate) for the taxpayer whose income is between INR 2.5 Lakh to INR 5 Lakh,
For taxpayers whose income is less than INR 3.50 lakh a rebate of INR 2,500 will be available as against the earlier rebate of INR 5,000 for an income upto INR 5 lakh.
Impact: A relief or maximum tax benefit of INR 12,500 (exclusive of applicable surcharge and education cess)
Change in rate of surcharge
Individuals shall be liable for surcharge of 10% with an income exceeding INR 50 lakh but less than Rs.1 crore. The surcharge of 15% for income exceeding Rs.1 crore continues to apply as earlier.
Impact: additional tax cost of INR 154,500 on high income earner.
Simplified tax return form
A one pager tax return form will be introduced and will be applicable to individuals with a total income not exceeding INR 5 lakh (other than business income) and will not be subject to a scrutiny by the income tax department, for the first year, unless necessitates.
Set off of loss from house property
Limiting up to INR 2 Lakh for set off of loss of house property from other heads income during the current year will impact individuals seeking to invest in house property because even if loss after adjusting mortgage interest is more than INR 2 lakh and tax payer is allowed to adjust upto INR 2 Lakh from other heads income and in subsequent years (eight in total) the deduction of carried forward is only allowed against House Property and no other head.
Filing of revised tax return
Tax returns can now be revised within 12 months of the end of the financial year instead of 24 months in the current regime.
Failure to furnish a tax return within the specified due date shall attract a fees of INR 5000 if the return is filed up to the month of December or INR 10,000 if the return is filed by March.
Impact: It will push to the large number of return filing to file the return within due date of filing tax return.
Change in base year for indexation
Taxpayers who had purchased assets prior to 1st April 2001, were allowed to replace the cost of acquisition with the fair market value taking 1st April 2001 as the revised base year (earlier base year 1st April 1981) and indexed cost of acquisition to be done taking into consideration same base year.
Impact: The Long Term Capital Gains may decline because the cost of acquisition of property will increase and hence, lowering the long-term capital gain tax burden while transferring property.
Also, change in base year can have negative impact too due to increase in denominator value (i.e. 476 for 1.4.2001 as against 100 for 1.4.1981) leading to overall decrease in the indexed cost of acquisition.
Period for considering long term capital asset for immovable property
Period for considering long term capital gain on immovable property is reduced from 3 years to 2 years.
Impact: If there are losses on such long term capital assets (immovable property), set off of such long term capital losses may not be possible with short term gain available.
Individual taxpayers would be required to deduct taxes at a rate of 5% on housing rentals paid to a resident landlord, if the monthly rent exceeds INR 50,000. It is proposed that the tax could be deducted at the time of credit of rent for the last month of the tax year or last month of tenancy, as applicable. There are however certain relaxations with respect to other withholding tax compliances that any other deductor is required to do.The writer is Partner at Felix Advisory.