The existing provision of Section 44AD states that eligible businesses having gross receipts not exceeding Rs.1 crore shall be presumed to have an income equal to 8% of the gross receipts.

It is proposed to increase this limit for presumptive taxation from Rs.1 crore to Rs.2 crores.
It is further proposed that expenditure in the nature of salary, remuneration, interest, etc. paid to a partner under Section 40(b), which were erstwhile allowed as deduction, shall now not be admissible while computing income under this section.

For example, say the gross receipts of a firm, opting for presumptive taxation scheme, is Rs.70 lakhs for A Y 2017-18 and the remuneration paid to partners is Rs.2 lakhs. The taxability under current provisions and proposed provisions shall be as follows:-

It is also proposed that eligible businesses that declare profits in cognizance with Section 44AD as per presumptive taxation scheme and further, have not declared profits in line with the presumptive taxation scheme for any of 5 consecutive assessment year, such assesses shall not be eligible to claim the benefit under this Section for next 5 assessment years from the year of such deviation.

An illustrative example has been tabulated below:

It is also proposed that the eligible assessees, opting for presumptive taxation scheme, may pay advance tax on or before 15th March of the relevant previous year.

This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent assessment years.

The existing provision of Section 44AB provides for compulsory audit for professionals whose gross receipts exceed Rs.25 lakhs.

It is proposed to amend the said Section and raise the audit limit from Rs.25 lakhs to Rs.50 lakhs.

The increase in threshold for audit of businesses has not been increased from 100 lakhs to 200 lakhs to keep it in tune with the revision of limits in 44AD. This may give rise to a case where corporate assesses would be subject to tax audit if the turnover exceeds Rs 100 lakhs.

This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent assessment years.

The existing provisions of presumptive taxation do not include professionals within their ambit.

It is proposed to include professionals under the net of presumptive taxation by inserting a new Section 44ADA, which contains the following:-

The presumptive taxation scheme shall apply to professionals such as legal, medical, engineering, architecture, accountancy, technical consultancy or interior decoration or any other profession notified in the Official Gazette

The gross receipts from profession shall not exceed Rs. 50 lakhs

The presumptive rate of taxation shall be 50% of the total gross receipts or a sum higher than the presumptive profit, actually earned by the professional unless otherwise, the net profit offered is less than the profit at presumptive rate of taxation and the same is higher than the basic exemption limit.

The scheme shall apply to residents who are individual, HUF or partnership firm but not Limited Liability Partnership firm

The professional shall be deemed to have been allowed all deductions from Section 30 to Section 38 and the WDV of any asset shall be calculated as if the depreciation has been actually allowed for relevant assessment years. Books of accounts need not be maintained by the professional and audited if opted for presumptive taxation scheme, unless otherwise, the net profit offered is less than the profit at presumptive rate of taxation and the same is higher than the basic exemption limit

The deduction for partner’s remuneration is not made available in this section though it has not been expressly stated in the memorandum

This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent assessment years.

With the intent to ensure parity with the global tax regime and in due regard of guidelines issued by the OECD’s BEPS (Base Erosion Profit Shifting) Project, it is proposed to provide a concessional tax regime for eligible assesses engaged in patents and patented products.

In this context, it is proposed that in case of eligible assessee earning royalty income in respect of patents developed and registered in India, the same shall be taxed at the rate of 10% (plus surcharge and cess) on the gross amount of royalty.

It is further proposed that no expenditure or allowance in respect of such royalty income shall be allowed under the Act.

Eligible assessee means a person resident in India, who is first and true inventor of the invention and a patentee, whose patent is registered as per Patents Act, 1970.

Royalty income shall include any consideration received for –

– Transfer of rights of a patent, or

– Imparting information concerning working of, or the use of a patent, or

– Use of any patent, or

– Rendering any services in connection with clauses (i) to (iii).

However without serious improvements in the Patent Registration laws, there is minimal incentive for any person to register and receive IP incomes from India.

These amendments will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent years.

POEM (Place of Effective Management) based residence test was introduced in Finance Act 2015. Consequently a Company shall be resident in India, if it has a place of effective management, at any time, in India.

However, it is proposed that the applicability of POEM based residence test is deferred for 1 year and the same shall be effective from 01.04.2017.

Further, a new chapter has been inserted namely chapter XII-BC which deals with provisions for foreign company who tends to be resident for the first time in India.

The new Chapter contains various provisions in relation to computation of total income, treatment of unabsorbed depreciation, set off or carry forward and set off of losses, collection and recovery and special provisions relating to avoidance of tax with some exemptions and modifications as may be specified on fulfilment on prescribed conditions. Further, this chapter shall also apply to previous year succeeding the previous year in which foreign companies are determined to be resident in India in the assessment proceedings, if such previous year ends on or before the date on which such assessment proceeding is completed.

If the foreign company fails to fulfill the conditions subsequently, the exemptions and exceptions mentioned in the earlier part shall be deemed to be wrongly allowed and the Assessing Officer shall re-compute the total company of such foreign company and make necessary adjustments as if such exemptions and modifications do not exist. Further, the Assessing Officer can also invoke provisions of Section 154 and the specified time limit of 4 years in Section 154 shall be considered from the end of previous year in which the failure to comply the conditions takes place.

Further, every notification under this Chapter shall be laid before each House of Parliament.

The Hon’ble Finance Minister, during his budget speech, had stated the provisions of POEM to be deferred by a year – Yes these were to be applicable from financial year 2015-16 which has now been moved to the financial year 2016-17. Hence these provisions are applicable from the ensuing financial year.

These amendments will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent assessment years

Unrealised rent and arrears of rent under the existing provisions are spread across various Section 25A, 25AA and 25B, wherein the computation mechanism differs under different sections.

It is proposed to merge the above sections to a single Section 25A with the proposal that amount of rent received in arrears or unrealised rent received subsequently shall be charged to income tax in which such rent is received or realised, irrespective of the fact that whether the assessee is owner of property or not in that financial year.

It is further proposed that 30% of the arrears of rent or unrealised rent realised subsequently shall be allowed as standard deduction against such receipts.

However the provisions may prove to be unfair to an assessee who has been taxed on fair rental value which was in excess of actual rent.

This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent assessment years

As per the existing provisions of Section 24(b), one of the conditions, interalia, to claim the enhanced deduction of interest of Rs. 2 lakhs for a self occupied house property is that the house property shall be purchased or construction shall be completed, within 3 years from the end of the year in which the loan is taken.

It is proposed to amend this Section to extend the time period from 3 years to 5 years keeping in view the gestation time taken by the housing projects.

This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent assessment years

Under the existing provisions, tax treatment for National Pension System is EET (Exempt, Exempt and Tax) i.e. periodic contributions are allowed as deductions from income, interest accrued is exempt from tax and lump sum withdrawal are taxable. However, under Recognised Provident Funds and Super Annuation Funds, the treatment is EEE (Exempt, Exempt and Exempt) i.e. withdrawals are also exempt from tax.

It is proposed that any payment from National Pension System on account of closure of pension scheme shall be exempt upto 40% of such amount. However, if the amount is received by the nominee, because of the death of assessee, the entire amount shall be exempt from tax.

In order to bring uniformity in tax treatment of different plans, it was proposed that in respect of contributions made on or after 01.04.2016 by an employee participating in recognised provident fund and super annuation fund, withdrawal upto 40% shall be exempt from tax. Further, the balance 60% shall be exempt from tax only if the withdrawn amount is invested in annuity.

Further, it was proposed to increase the limit of employer’s contribution to an approved super annuation fund from Rs. 1 lakh to Rs. 1.5 lakhs, upto which no tax shall be charged in the hands of employee.

In addition, exemption is proposed to be provided to one-time portability from a recognised provident fund to National Pension System. Additionally, payment from an approved superannuation fund by way of transfer to the account of the employee under NPS and notified by the Central Government shall be exempt from tax.

It shall be noted that the Public Provident Fund (PPF) withdrawals shall continue to be exempt fully.

These amendments are proposed to be made effective from the 1st day of April, 2017 and shall accordingly apply in relation to assessment year 2017-18 and subsequent years.
However, the proposed changes of charging the withdrawal amount upto 60% for recognised provident fund and superannuation fund is subsequently withdrawn owing to political compulsions. Further the decision of imposing monetary limit of 1.5 Lacs has been withheld. Though the intent of the Government to make a pensionable society is certainly laudable the manner in which the implementation happened has forced them to roll back. However the benefit of 40% exemption is now available for withdrawal from National Pension Scheme.