Background

Finance Minister Arun Jaitley, presented the Budget for the year 2016-17 on 29^th February, 2016. We have come up with a detailed analysis of the changes proposed by the Finance Minister in a series of articles. This is Part-IV of the “Major Amendments in Income Tax, 1961 through the Finance Bill, 2016” series. It will highlight the existing provisions, proposed provisions and the date from which the proposed provisions will be effective on the above mentioned topics.

Incentives for promoting affordable housing

1. With a view to incentivize affordable housing sector as a part of larger objective of ‘Housing for All’, anew section 80-IBA is proposed to be introduced.
2. Under this new Section 80-IBA, it is proposed that 100% deduction of the profits shall be available to an assessee developing and building affordable housing projects, subject to the following conditions:
   • The project is approved by the competent authority after the 1^st June, 2016, but on or before 31^st March, 2019;
   • The project is completed within 3 years from the date of its approval;
   • The built-up area of the shops and other commercial establishments included in the housing project <= 3% of the aggregate built-up area;
   • Where the project is in four metros namely Delhi, Mumbai, Chennai & Kolkata or within 25 km from their municipal limits,
     1. the plot of land measuring >= 1000 sq. mts.,
     2. the residential unit <= 30 sq. mts. , and
     3. the project utilizes >= 90% of the floor area ratio permissible
   • Where the project is in any area other than that mentioned at d. above,
     1. the plot of land measuring >= 2000 sq. mts.
     2. the residential unit <= 60 sq. mts.
     3. the project utilizes >= 80% of the floor area ratio permissible
   • Where a residential unit in the housing project is allotted to an individual, no other residential unit in the housing project shall be allotted to the individual or the spouse or the minor children of such individual; and
   • This deduction shall not be available to any undertaking which executes the housing project as a works-contract awarded by any person (including the Central Government or the State Government)
3. Effective From: 1^st April, 2017

Deduction of interest on loan for residential house property

1. Current Provision:
   • The existing provisions of section 80EE provide a deduction of up to Rs. 1 lakh in respect of interest paid on loan by an individual for acquisition of a residential house property.
   • This benefit is available for the two assessment years beginning on the 1st day of April 2014 and on the 1st day of April 2015.
2. Proposed Provision:
   • The current Section 80EE is proposed to be replaced with new text to incentivize first-home buyers availing home loans.
   • The limit for deduction for interest on loan for residential house property, taken from any financial institution is proposed at Rs. 50,000.
   • To avail this deduction,
     1. the value of the house <= Rs. 50 lakhs;
     2. loan amount <= Rs. 35 lakhs;
     3. loan has been sanctioned during the period from the 1st day of April, 2016 to the 31st day of March, 2017; and
     4. the assessee must not own any residential property on the date of sanction of loan.

3. Effective From: 1^st April, 2017

Expiration of certain deduction u/s 80-IA, 80-IAB and 80-IB

1. Current Provision: 100% profit linked deductions are available for specified period on eligible business carried on by industrial undertakings or enterprises referred in section 80IA; 80IAB, and 80IB.
2. Proposed Provision: It is proposed that no deduction under the relevant section shall be available for the following activities commenced on or after 1^st April, 2017
   • Development, operation and maintenance of an infrastructure facility (80-IA)
   • Development of special economic zone (80-IAB)
   • production of mineral oil and natural gas (80-IB)
3. Effective From: 1^st April, 2017

Deduction for employment of new employees

1. Current Provision:
   • The existing provisions of Section 80JJAA provide for a deduction of 30% of wages paid to new regular workmen (in excess of 100) in a factory for three years.
   • This deduction is available to the business of manufacture of goods in a factory where ‘workmen’ are employed for >= 300 days in a previous year.
   • Benefits are allowed only if there is an increase of 10% or more in total number of workmen employed on the last day of the preceding year.
2. Proposed Provision:
   • The employment generation incentive has been proposed to be extended to all sectors.
   • The current Section 80JJAA is proposed to be replaced with new text whereby the deduction under the said provisions shall be available for cost incurred on any employee whose total emoluments are <= Rs. 25,000/- per month.
   • No deduction, however, shall be allowed in respect of cost incurred on those employees, for whom the entire contribution under Employees’ Pension Scheme notified in accordance with Employees’ Provident Fund and Miscellaneous Provisions Act, 1952, is paid by the Government.
   • Minimum number of days of employment in a financial year have been reduced from 300 days to 240 days.
   • The condition where deduction is available only in case the increase in the number of employees beyond 100 and where the increase >= 10% is proposed to be done away with. Hence any increase in the number of employees will be eligible for deduction under the provision.
3. Effective From: 1^st April, 2016

Taxation of Dividend Income

1. Current Provision:
   • Under Section 10(34), dividend, on which dividend distribution tax (DDT) is paid under section 115-O, is exempt in the hands of the shareholder.
   • Under section 115-O dividends are taxed only at the rate of 15% at the time of distribution in the hands of company declaring dividends.
2. Proposed Provision:
   • The existing provisions create vertical inequity amongst the tax payers as those who have high dividend income are subjected to tax only at the rate of 15% whereas such income in their hands would have been chargeable to tax at the rate of 30%.
   • Hence, a new Section 115BBDA is proposed to be introduced, whereby, in the case of an individual, HUF or a firm who is resident in India and whose dividend income > of Rs. 10 lakhs, the income tax payable on such dividend income shall be chargeable to tax @ 10%.
3. Effective From: 1^st April, 2017

Treatment of amount received on closure or opting out of Pension Scheme

1. Current Provision: Where an assessee has taken a deduction with respect to contribution to the pension scheme u/s 80CCD, any amount standing to his/ her credit in his pension account, when received, either by the assessee or his nominee, in whole or in part, on closure or opting out of pension scheme will be deemed to be income of the assessee on the year in which the amount is received.
2. Proposed Provision: A new proviso has been proposed to be added to the effect that in the above case, that where the amount is received by the nominee, on the death of the assessee, such receipt of money shall not be deemed income.
3. Effective From: 1^st April, 2017