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Budget Highlights - Important Direct Tax Proposals

No change in tax rates including the rate of surcharge/ education cess. However, basic
exemption limit for individual/ HUF/AOP is raised from Rs.2 lacs to Rs.2.5 lacs and for
individuals of the age of 60 years or more but less than 80 years the basic exemption limit is
raised from Rs.2.5 lacs to Rs.3 lacs.
Investment in Pubic Provident Fund Scheme has been increased from Rs.1 lacs to Rs.1.5
lacs. Correspondingly, investment limit u/s 80C has been raised from Rs.1 lacs to Rs.1.5 lacs.
Deduction limit on account of interest on loan taken for acquisition or construction of self-
occupied property has been raised from Rs.1.50 lacs to Rs.2 lacs.
The benefit of concessional rate of withholding tax of 5% u/s 194LC on interest paid by an
Indian Company to non-residents on monies borrowed in foreign currency from a source
outside India under a loan agreement or issue of long term bond is extended on borrowings
made before 01.07.2014.
Any securities held by Foreign Institutional Investors would be treated as capital asset and
therefore income arising from transfer of such securities would be treated as capital asset and
not business income.
A roll back mechanism is introduced in Advance Pricing Agreement (APA). Presently, a
person can get the arms length price (ALP) determined in relation to an international
transaction by entering the APA. The agreement is valid for a period not exceeding the 5
previous years. It is now provided that one such agreement is entered it would also apply for
preceding four previous years.
Deduction u/s 32AC @ 15% which is presently made available to a company engaged in
business of manufacturing or production of any article or thing if it acquires and install new
plant and machinery exceeding Rs.100 crores has been reduced to Rs.25 crores to cover
medium size investments. The benefit is available for three years i.e. for investment upto
31.03.2017.
Tax holiday period u/s 80IA for ten years is extended to undertaking which begin generation,
distribution and transmission of power by 31.03.2017.
Any sum of money received as advance in course of transfer of capital asset, if forfeited
would be chargeable to tax as income from other sources u/s 56 and not reduced from cost of
acquisition of the asset as presently provided in section 51.
In case of payment to non-residents without deduction of tax at source, expenditure is
disallowed u/s 40(a)(i) if it is not paid within the time prescribed u/s 200(1). This period is now
extended to provided that if tax is deducted during the previous year and paid before the due
date of filing of return u/s 139(1), the expenditure would not be disallowed.

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In case of any payment to resident without deduction of tax at source, entire expenditure is
allowed u/s 40(a)(ia). It is now provided that such disallowance should be restricted to 30% of
the expenditure as against 100% disallowance presently made. Further, under existing
provision only certain payments are covered. Certain payment such as salary, directors fees
etc are not covered. It is provided that disallowance u/s 40(a)(ia) shall extend to all
expenditure on which tax is deductible u/s Chapter XVIIB of the Act.
The presumptive income u/s 44AE in case of an assessee who is engaged in the business of
plying, hiring or leasing goods carriages and owning not more than 10 goods carriages is
presently Rs.5,000/- p.m for heavy good vehicles (HGV) and Rs.4,000/- p.m. for other than
HGV. The distinction between HGV and other than HGV has been removed and the
presumptive income is proposed at Rs.7,000/- p.m.
Eligible transaction in respect of trading and commodity derivatives in the recognized
association and chargeable to commodity transaction tax shall not be considered to be a
speculative transaction.
Section 54 and 54F provides exemption from capital gain where assessee makes investment
in purchase/ construction of a residential house. There were controversy as to whether the
word a means one or any and whether the residential house should be in India only or can
be outside India also. It is therefore proposed that benefit of section 54/54F would be
available only when the investment is made in one residential house situated in India.
Section 54EC is amended to provide that where capital gain arises from the transfer of a long
term capital asset, the assessee can make investment in the specified capital asset within a
period of 6 months of Rs.50 lacs only even if such period falls in two financial years.
Reference u/s 142A for estimating the value of any investment, bullion, jewellery or property
can be made by AO to the valuation officer even without rejecting the books of accounts. The
valuation officer is required to send a copy of his estimates within a period of 6 months from
the end of the month in which the reference is made.
Explanation 2 to section 37 is inserted to clarify that expenditure on Corporate Social
Responsibility referred in section 135 of the Companies Act, 2013 shall not be deemed to be
an expenditure incurred for the purpose of business. Thus, CSR expenditure would be
disallowed in computing the total income.
The rate of tax on long term capital gain on transfer of units of mutual funds other than equity
oriented funds is increased from 10% to 20%. Further, unlisted securities and the units of
mutual funds other than equity oriented mutual funds shall be considered as short term capital
asset if it is not held for more than 36 months.
DDT is to levy on gross amount instead of the amount paid net of taxes.
Government to review DTC in its present shape and take a view in a whole matter.