Amendments in Income Tax in Union Budget 2015

1.       Exemption in respect of transport allowance increased:

The exemption in respect of transport allowance, which is granted to an employee to meet his expenditure for the purpose of travelling between the place of his residence and the place of his duty is proposed to increase from Rs. 800 per month to Rs. 1,600 per month.

2.      Deduction under section 80C:

It is proposed to provide that, the benefit of deduction u/s 80C will also be available for investment in “Sukanya Samriddhi Scheme”. Corresponding interest income and withdrawal from such account is also exempt u/s 10. The Finance Bill, 2015 proposes to amend section 80C to allow deduction to parent or legal guardian of the girl child for the sum paid or deposited during the year in the scheme in the name of girl child.

  •          What is “Sukanya Samriddhi Scheme”?

It is a deposit scheme framed for encouraging the education of daughter. This account can be opened either with post office or an authorized bank, in the name of daughter at anytime up to her attaining the age of 10. An initial deposit of Rs. 1,000 is required. After opening this account, additional deposit can be made for next 14 years. Currently, the annual rate of interest on deposit is 9.1% which is tax-free.

This account matures on completion of 21 years from the date of its opening or the date of the girl’s marriage, whichever is earlier. However, the scheme also allows withdrawal (of up to 50% of the balance) before maturity for the purpose of higher education or pre-marriage expenses of daughter. Withdrawal from the scheme is also exempt from tax.

This deposit can be opened for maximum of two daughters only. An exception being in the case of birth of twins or
triplets.  It is to be noted that, the amount invested in this scheme is covered in the overall limit of Rs. 1, 50,000.

3.       Deduction under section 80CCC:

This deduction is available for pension fund and only to an individual. Amount should be paid or deposited under an annuity plan of LIC of India or any other insurer for receiving pension. Amount should be paid out of income chargeable to tax.

 The maximum amount deductible under this section was Rs.1, 00,000. In the proposed budget, this limit has been increased to Rs. 1, 50,000. Kindly note that, aggregate amount of deduction u/s 80C, 80CCC and 80CCD (i.e. contribution by an employee or any other individual towards National Pension Scheme) cannot exceed Rs. 1, 50,000.

4.       Deduction under section 80CCD:

The existing provision of section 80CCD provide for a deduction of an amount not exceeding Rs. 1,00,000, towards contribution to National Pension Scheme, now the Finance Bill proposes an additional deduction of Rs. 50,000 for contributions to New Pension Scheme.

5.       Deduction under section 80D:

The limit of aggregate deduction for health insurance premium of taxpayer or his family or any payment toward preventive health check-up is proposed to increase from Rs. 15,000 to Rs. 25,000. And for senior citizen (whose age at any time during the relevant previous year is at least 60 years) is increased from Rs. 20,000 to Rs. 30,000. Therefore, the total deduction available u/s 80D of the Act has been increased to 55,000 from the earlier deduction available of Rs 35,000.

6.      Deduction under section 80DD and 80U:

Deduction u/s 80DD is the deduction in respect of medical treatment of a ‘dependent’ being a person with disability. This deduction is available to resident individual or a resident HUF. In the case of individual, “dependent” means spouse, children, parents, brothers, and sisters, who are wholly and mainly dependent upon the individual. In the case of HUF, “dependent” means any member of the family who is wholly and mainly dependent upon the family. ‘Person with disability’ means a person who suffers 40 percent or more of: blindness, low vision, leprosy-cured, hearing impairment, locomotors disability, mental retardation and mental illness.

Presently, the deduction was fixed at Rs. 50,000, and in case, if such dependent relative is suffering from a severe disability (having disability of 80% or more) and the deduction was fixed at Rs. 1, 00,000. This deduction is available regardless of actual expenditure.

In the budget 2015, the limit of Rs. 50,000 has been increased to Rs. 75,000. And in case of severe disease the limit of deduction is increased from Rs. 1, 00,000 to 1, 25,000.

7.       Deduction under section 80DDB:

This deduction is available in respect of medical treatment of a specified disease or ailment as specified by the board.  A resident individual or a resident HUF can claim deduction u/s 80DDB. Medical expenditure should be actually incurred for medical treatment of the taxpayer himself or mainly/ wholly dependent spouse, children, parents, brothers and sisters of individual and in the case of HUF, for any member of the family.

The amount of deduction under this section is ‘Actual expenditure on medical treatment’ or Rs. 40,000 (Rs. 60,000 in case of a senior citizen who is 60 years of age during the financial year), whichever is lower. In the budget 2015, the expenditure on account of specified diseases is enhanced to Rs. 80,000 from Rs. 60,000 in case of very senior citizens (80 years or more). The taxpayer is also required to obtain a prescription from a specialist doctor in a Government hospital in order to claim deduction.

 8.       Deduction under section 80G:

This deduction is available in respect of donations to certain funds, charitable institutions, etc. The deduction is available to any taxpayer (maybe individual, company, firm, or any other person).

At present, deduction u/s 80G is available for contribution to certain funds and institutions formed for social purpose of national importance, like Prime Minister’s National Relief Fund, National Foundation for Communal Harmony etc. at 100%. Now, it is proposed to include certain funds in the list of such eligible institutions, namely, “National Fund for Control of Drug Abuse” (w.e.f. FY 2015-16), “Swachh Bharat Kosh” and “Clean Ganga Fund” (w.e.f. FY 2014-15.)

Section 80JJAA:

Deduction under this section is available to Indian Companies on additional wages paid to new workmen. Now, it is proposed to extend the benefit to all taxpayers having manufacturing units rather than restricting it to companies only. It is also proposed to deny deduction to taxpayers who acquired the factory by way of transfer from any other person. Further, in order to enable smaller units to claim this incentive, it is proposed to extend the benefit to units employing 50 instead of 100 regular workmen.

9.       Increase in surcharge rate:

In the case of all persons other than companies (i.e. individual, HUF, Association of Person, Body of Individual, Co-Operative Societies, Local Authorities and Partnership Firms), the rate of surcharge has been increased from 10% to 12% in the case of persons having total income exceeding Rs. 1 crore i.e. super-rich people. On the other hand, in the case of Domestic Companies whose total income is more than Rs. 1 crore but less than Rs. 10 crores, the surcharge has been increased from 5% to 7%, whereas, in the case of other domestic companies having total income in excess of Rs. 10 crores, the surcharge has been increased from 10% to 12%.

10.  Corporate Taxation:

a)    Presently, additional depreciation at 20 percent of the cost of new plant or machinery acquired and installed by certain assessee’s (i.e. assessee’s engaged in the business of manufacture or production of any article) is allowed as per section 32 of the act. Also, the allow-ability of additional depreciation is restricted to 50% (i.e. at the rate of 10% of the cost of new plant or machinery acquired and installed) when the new plant and machinery is put to use for a period of less than 180 days in the year.

It is proposed to provide that the balance 50% of the additional depreciation on new plant or machinery used for less than 180 days, which has not been allowed in the year of acquisition and installation of such plant or machinery shall be allowed in the immediately succeeding year.

b)      It is also proposed to insert a new section 32AD to provide that higher additional depreciation u/s 32(1.) (iia) at the rate of 35% (instead of 20%) shall be allowed in respect of the actual cost of the new plant or machinery acquired and installed by a manufacturing undertaking or enterprise, which is set up in the notified backward area of the State of Andhra Pradesh or the State of Telangana on or after 1st April 2015.

This higher additional depreciation shall be available in respect of acquisition of any new machinery or plant during the period beginning on the 1st of April 2015 and ending before the 1st of April 2020. In this case also, the balance 50% of the higher additional depreciation (i.e. 17.5%) is also proposed to be allowed in the immediately succeeding year on the new plant and machinery, which is used for the period less than 180 days in the year of acquisition and installation.

Kindly note that, it is proposed that in case the new asset is sold or otherwise transferred (except in connection with amalgamation or demerger) within a period of five years from the date of its installation, the deduction allowed will be deemed to be income in the year of such sale or transfer.

Further, it is proposed that this deduction will be over and above the existing deduction available u/s 32AC of the act. Accordingly, an undertaking which is set up in the notified backward areas in the States of Andhra Pradesh or Telangana shall be eligible to claim deduction under the existing provisions of section 32AC as well as proposed section 32AD if it fulfills the conditions specified in section 32AC and in 32AD.

c)       Presently, the transfer of capital asset by way of demerger is exempt in the hands of resulting company u/s 47(vib) of the act, also there is no express provision in the act for determining the cost of acquisition of capital asset in the hands of resulting company. Now, it is proposed to provide that cost of acquisition of capital asset acquired by the
resulting company shall be the cost for which the demerged company acquired the capital asset, as increased by the cost of improvement incurred by the demerged company. Consequently, period of holding of such asset in the hands of resulting company will also include the period for which the asset was held by the demerged company.

d)     Corporate Tax Rate is proposed to be reduced from the current 30% to 25% over the next 4 years for higher level of investment, higher growth and more jobs.

Wealth Tax:

It is proposed to abolish the levy of Wealth Tax from the year 2015-16. The Income Tax Returns shall be suitably modified in order to capture the information relating to assets, which is currently required to be furnished in the wealth-tax return.

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