Union Budget 2016 Analysis

Here is the List of Major Changes in Income Tax Laws as per Union Budget 2016, that will affect every Taxpayer.

1. Income Tax Slab Rates

  1. No Changes have been made to Income Tax Slab Rates and they remain continue to be the same as were in for Financial Year 2015-16. View 2016-17 Income Tax Slab Rates.
  2. Rebate U/s 87A has been increased from Rs. 2000 to Rs. 5000 for Tax payers having income of Rs. 5 Lacs or Less
  3. Surcharge increased from 12% to 1@ 15% will be payable only if taxable income is above Rs. 1 crore.

2. Homes Made More Affordable:

  1. The Income Tax Department intends to give relief to tax payers by allowing them to claim Tax Benefits on Interest on home loan even if the construction of house gets completed within 5 Years instead of previous time limit of 3 years
  2. For the 1st Time Home Buyers, deduction for additional interest of Rs. 50,000 per annum shall be allowed if loan up to Rs. 35 lakhs is sanctioned during the next financial year and the value of the house does not exceed Rs. 50 lakhs.
  3. No more Service tax on construction of affordable houses up to 60 square meterss under any scheme of the Central or State Government including PPP Schemes.
  4. Standard deduction of 30% shall be allowed against the amount received on account of Unrealised Rent.

3. Long term capital Gain:

  1. The period for getting benefit of long term capital gain regime in case of Unlisted Companies is to be reduced from 3 to 2 years.
  2. Capital gain arising from transfer of a long term asset being share of a private limited company shall be chargeable to tax at the rate of 10 per cent.
  3. In computing capital gain on sale of immovable property, the date of agreement shall be taken as the date under section 50C for determining the stamp duty value of such property, provided any payment for this purpose has been made by the purchaser on such date by any mode other than cash.

4. Taxation on Withdrawal from Pension schemes, Superannuation Funds and Provident Funds:

  1. In the case of National Pension Scheme withdrawals up to 60% shall be liable to tax and only 40% of the corpus at the time of retirement shall be exempt.
  2. In case of superannuation funds and recognized provident funds, including EPF, the same norm of taxability of 60% of corpus will apply in respect of corpus created out of contributions made after 1.4.2016.
  3. Further, the annuity fund which goes to the legal heir after the death of pensioner will not be taxable in all three cases.
  4. In case of contribution from employer in recognized Provident and Superannuation Fund monetary limit for taking tax benefit shall be Rs. 1.5 lakhs per annum.

5. Deduction in respect of rent paid under section 80GG:

The limit of deduction in respect of rent paid under section 80GG is being increased from Rs. 24,000 per annum to Rs. 60,000 per annum, provided:

  1. The taxpayer does not have any house of his own; AND
  2. does not get any house rent allowance from any employer

6. Rebate under section 87A:

The ceiling of tax rebate has been increased under section 87A from Rs. 2,000 to Rs. 5,000.

7. Advance Tax/ TDS/TCS:

  1. New Dates of Advance Tax : Individuals, HUF and Firms are also required to pay Advance Tax in 4 installments (previously it was 3 installments) on or before the due dates as follows:-
    • 1st Installment : 15th June,
    • 2nd Installment : 15th September,
    • 3rd Installment : 15th December and
    • 4th Installment : 15th March.
  2. On purchase of a luxury car exceeding value of Rs. 10 lakhs, the seller will collect 1% as tax (TCS) from the purchaser of the said car. Similarly, on purchase of goods and services in cash exceeding Rs. 2 lakhs, the seller will collect 1% as tax from the purchaser of said goods and services
  3. No tax will be deducted on rental payments if the income of the recipient below the taxable limit and Form No. 15G/15H has been furnished to this effect.

8. Income Tax Returns:

  1. Belated returns can also be revised if such return is furnished before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier.
  2. A return furnished in response to a notice issued under section 142 (1) of the Income-tax Act cannot be revised
  3. A return would not be treated defective merely because self-assessment tax and interest under section 140A has not been paid on or before the date of furnishing of the return.

9. Scheme for Declaring Undisclosed Income:

  1. A Compliance Window for domestic taxpayers to declare undisclosed income or income represented in the form of any asset shall be set up.
  2. Assesses can clear up their past tax transgression by paying tax at 30%, and surcharge at 7.5% and penalty at 7.5%, which is a total of 45% of the undisclosed income.
  3. There will be no scrutiny or enquiry regarding income declared in these declarations under the Income Tax Act or the Wealth Tax Act and the declarants will have immunity from prosecution.
  4. It is planned to open the window under this scheme from 1st June to 30th September, 2016 with an option to pay amount due within two months of declaration.

10. Presumptive taxation scheme under section 44AD of the Income Tax Act:

  1. The Limit of the turnover has been increased to Rs. 2 Crores in order avail the benefit of scheme u/s 44AD
  2. However if the taxpayer opts for the presumptive taxation scheme, he has to remain in that scheme for 5 years. Further, if he does not offer the income as per the said scheme in any of the five years, he shall not be eligible to claim the benefit under the scheme for next 5 years.
  3. Advance tax liability imposed for all taxpayers covered u/s 44AD with a relief to pay only one installment on or before the 15th March of the financial year.

11. Presumptive taxation scheme for professionals:

Presumptive taxation scheme launched by professionals with gross receipts up to Rs. 50 lakhs with the presumption of profit being 50% of the gross receipts.

12. Depreciation:

A maximum cap of 40% is imposed on depreciation claimed by some specified industries. As a result plants & machinery owned by certain industries which are eligible for 60%, 80% or 100% depreciation will now be depreciated upto 40% only.


  1. Krishi Kalyan Cess will be levied on any or all the taxable services at a rate of 0.5% on the value of any or all taxable services thus making effective rate of service tax to 15%. The proceeds from this Cess would be utilized for the purposes of financing and promoting initiatives to improve agriculture or for any other purpose relating thereto.
  2. Service tax shall be exempt on construction of affordable houses up to 60 square metres under any scheme of the Central or State Government including PPP Schemes.
  3. Following is a list of items that will turn Costlier :
    • Cars
    • Cigarettes, cigar, tobacco, paper rolled beedis and gutaka
    • All services like bill payments, eating out, air travel
    • Ready made garments and branded apparel of more than Rs 1,000
    • Gold and Silver; jewellery articles excluding silver
    • Water including mineral water, aerated water containing added sugar or sweetening matter
    • Goods and services above Rs 2 lakh in cash
    • Aluminium foil
    • Air Travel
    • Plastic bags and sacks
    • Ropeway, cable car rides
    • Imported imitation jewellery
    • Industrial solar water heater
    • Legal services
    • Lottery tickets
    • Traveling by hiring stage carriage
    • Hiring of packers & movers
    • E-reading devices
    • Instruments for VoIP (Voice over Internet Protocol)
    • Imported Golf Cars
    • Gold bars
  4. Following is a list items that will turn Cheaper :
    • Footwear
    • Solar lamp
    • Router, broadband modems and set top boxes, Digital video recorder and CCTV cameras
    • Hybrid electric vehicles
    • Sterilised dialyser
    • Low cost houses with less than 60 sqmt carpet area
    • Hiring of folk artists for performance
    • Refrigerated containers
    • Pension plans
    • Microwave ovens
    • Sanitary pads
    • Braille paper

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