Finance Act 2017 – An Overview
The Finance Bill, 2017 which was introduced in the Lok Sabha on 1st February, 2017 which has now been made Finance Act 2017 w.e.f. 1st April, 2017 after receiving the assent of the President of India on 31st March, 2017.
Major changes in the Finance Act, 2017
Income Tax Rate for the AY 2018–19 (FY 2017–18)
For individual tax payer the new slab of surcharge of 10% for Total Income of Rs. 50 Lacs to Rs. 100 Lacs has been introduced. Whereas for the income exceeding Rs. 100 Lacs, the surcharge shall be 15% of total income. Presently a tax rebate of Rs. 5000/- is allowed if the total income does not exceed Rs. 5,00,000/-. With effect from 01/04/2017, the limit has been reduced to Rs. 2500/- up to the total income of Rs. 3,50,000/-.
In case of companies, where the total turnover or gross receipt does not exceed Rs. 50 Crore during FY 2015–16, the tax rate would be 25% for FY 2017–18.
Applicability of Tax Deducted at Source (TDS) Rate for FY 2017–18
The Finance Act, 2017 now specifies that every individual/HUF, not covered by Tax Audit Provisions, shall be liable to deduct TDS at the rate of 5%, if the monthly rent exceeds Rs. 50,000/- per month as compared to the earlier provision wherein the individual/HUF who comes under the tax audit provision (Turnover exceeding Rs. 1 Crore) were liable to deduct TDS on rent (whether used for business or residence) if the total rent exceeds Rs. 1,80,000/- per annum.
Provisions w.r.t Capital Gains
Holding Period of Capital Asset:
The Finance Act has reduced the holding period of Land/Building to 24 months. For various other assets such as All listed Shares, Units of Equity Oriented Mutual Funds and Securities the holding period has been reduced to 12 months and for any other type of capital asset including units or Debt Oriented Mutual Fund the period has been reduced to 36 months.
Exemption on Sale of Long Term Capital Gain on Equity Shares
With the Finance Act, 2017 coming into force one of the major amendment that has been made is w.r.t. exemption provided on Sale of Long Term Capital on Equity Shares (after paying Securities Transaction Tax STT) which shall be subject to the following conditions –
- The shares should have been purchased after paying STT if these were acquired after 01/10/2004.
- However, the above mentioned condition would not be applicable if the acquisition is out of IPO, Follow-on IPO, Right Issue or Bonus issue for which separate notification would be issued by Government.
Applicability of Joint Development Agreement on Land/Building owned by Individual/HUF
The Finance Act has tried to curb the problems faced by the owner’s w.r.t. Capital Gain liability which is triggered as soon as the Joint Development Agreement (JDA) is entered and possession of the property is handed over for development to developer, though the sale of the developed property which might take several years. Thus, to address such problems, new provisions under section 45 (5A) has been inserted in Income Tax Act, 1961 which lays down the following conditions-
a) There should be a registered agreement between the owner of the Land or Building or both and developer, to develop the real estate in consideration of land or building or both or part in cash.
b) Capital gain shall be chargeable to tax as income of the previous year in which the certificate of completion for the whole or part of the project is issued by the Competent For this purpose, the stamp duty value shall be the value on the date of issuing the completion certificate.
Shifting of Base Year for Computation of Capital Gains
The Finance Act, 2017 has provided the option to assessee to substitute the fair market value (FMV) as on 01/04/2001 in case of of asset acquired prior to 01/04/2001. Earlier this date was 01/04/1981.
Capital Gain applicability for Unquoted Share
With the introduction of new Section 50CA w.e.f. 1st April, 2017, the Fair Market Value (FMV) would be deemed to be the full value of consideration if actual sale consideration is less than the FMV on the date of sale of shares. Thus, the both seller and buyers would have to pay tax on the difference if the FMV is higher than the actual consideration.
Tax Provisions on Acquisition of Asset without consideration or inadequate consideration by firms/Association of Persons (AOP) and widely held companies
Until the present tax norms, firms, AOP and widely held companies were not liable to tax on difference between Fair Market Value (FMV) and actual consideration.
The recent Finance Act, 2017 now provides that firms/AOPs and widely held companies to pay tax under section 56(2) on the difference if the Fair Market Value is higher than actual consideration of movable or immovable asset. However trusts, transactions between relatives, HUF partition etc. are still out and not liable to pay the tax on the difference amount.
Setting off of Interest on Housing Loan on Rented Properties
The present tax structure allows the setting off of interest on housing loans in respect of let out properties against other income without any limit. With the Finance Act, 2017 in place, the loss under the `Income from House Property’ would be kept limited to Rs. 2,00,000/- for adjustment against…
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