1. Small Taxpayers

• Reducing income-tax burden by ₹ 3,000 for small tax payers by increasing rebate under section 87A;
• Increasing deduction for rent payment  under section 80GG to ₹ 60,000/-;
• Introducing presumptive taxation scheme for professionals with gross receipts upto ₹ 50 lakh
• Increasing the limit of turnover for availing presumptive taxation under section 44AD to ₹ 2 crores are the significant benefits to small tax payers.

Some of the above are the recommendations of ICAI which have been accepted.

• The additional deduction of ₹ 50,000 per annum towards interest on housing loan for first time small home buyers is a welcome proposal. Service tax exemption on construction of affordable houses under any Scheme of Central or State Government  will  further facilitate first time home buyers.  
• The Government is proposing to tax  60% of  provident fund withdrawals, which are as of now completely exempt from income-tax. In a country like India, since not many social security schemes are in place, this provision may require reconsideration in the interest of welfare of senior citizens who may not have alternate sources of income post retirement. 
• In a bid to rationalize NPS, the settled position relating to tax exemption of PF and superannuation funds has been disturbed. 
• Such withdrawals  would continue to be exempt only for employees participating in RPF with a monthly salary of upto ₹ 15,000, which threshold is very low. A significant number of employees would fall outside the scope of this exemption.   
• Furthermore, the proposal for placing a monetary cap of ₹ 1,50,000 on employer’s contribution to recognized provident fund would once again be detrimental to the interest of salaried class.   

II.        Reducing Litigation and providing certainty in taxation

• The Hon’ble Finance Minister’s stated objective is to counter tax evasion strongly and divert recourse in that direction and avoid long pending litigation and therefore, the tax proposals in this regard are in the nature “Limited Period Compliance Window”, providing for reduced rate of penalty and immunity from prosecution when the payment is made within the said limited period.
• Formulation of a new Dispute Resolution Scheme (DRS), keeping in mind the large number of cases pending before Commissioner (Appeals), is a welcome measure proposing penalty waivers based on disputed tax limits.  Reducing the stringency of penal provisions will go a long way in reducing tax litigation and improving compliance.
• The Finance Act, 2012 had made significant retrospective amendments bringing to tax gains from off-shore transactions where the value is attributable to the underlying assets located in India.  These amendments had huge revenue implications.  Now, the Budget proposes a  one-time scheme of Dispute Resolution for ongoing cases relating to such retrospective amendment. The scheme requires assessees to pay the tax arrears and withdraw any pending case. This, however, does not seem to be in line in line with the Government’s intention of not creating any fresh liability based on a retrospective amendment. This scheme, in effect, requires payment of the tax liability for closure of dispute.  Mere waiver of interest and penalty cannot be a cure for the huge tax liability resulting out of a retrospective amendment.   
• Introducing a graded penalty scheme in the place of a broad range of 100% to 300% of tax sought to be evaded would definitely serve the intended objective of reducing the discretionary power of the tax officers, and bring in an element of certainty. 
• Granting stay of demand on payment of 15% of disputed demand is yet another  taxpayer friendly measure.
• Other laudable measures are creation of eleven new benches of CESTAT and raising monetary limit of deciding an appeal by a single member bench of ITAT; these measures would reduce pendency at the appellate tribunal  level and help clear the huge backlog of pending cases. 
• Amendment in CENVAT Credit Rules, 2004, which have always been vulnerable to disputes, would help in clarifying the correct position of law  thereby reducing associated litigation.

III.    International Taxation  

• Tax Equalization Levy at 6% on payment to Non Resident for online advertisement and other specified payments covered under Chapter VIII of The Finance Act and not under the Income- tax Act will not be eligible for Foreign tax Credit to the Non Resident under the DTAA in his country.  Non Residents have over last few years entered into net of tax contracts with Indian residents.
• Considering that the guidelines relating to Place of Effective Management (POEM) have still not been notified, the postponement of provisions relating to POEM by one year is a welcome step. 
• Provisions regarding Country by Country reporting sought to be introduced under the Transfer Pricing provisions. This is in line with the OECD  Action Plan of Base Erosion and Profit Shifting (BEPS) which is being adopted by the Government.

 

Small taxpayer relief expands presumptive taxation and deductions to simplify compliance and reduce litigation exposure. The Budget widens simplified tax relief for small taxpayers by extending presumptive taxation to more professionals, raising the turnover threshold for presumptive business taxation, increasing rebates and deductions for rent and first time home buyers, while proposing taxation and caps affecting provident fund and employer contributions. It introduces a Dispute Resolution Scheme with reduced penalties and immunity subject to payment and withdrawal of disputes, a graded penalty framework, stay on demand on partial payment, appellate capacity increases, amendments to credit rules, and international measures including a Tax Equalization Levy and Country by Country reporting.