Taxation of Individuals Amendments proposed by Finance Bill 2015

Transcription

1 SPECIAL STORY Finance Bill, 2015 CA. Ketan Vajani Taxation of Individuals Amendments proposed by Finance Bill 2015 The Finance Bill, 2015 presented in Parliament on 28th February, 2015 has proposed several amendments to the Income-tax Act, Though there are no retrospective amendments following the broad policy of this Government, some of the amendments have unsettled the settled position of law in a drastic way. Fortunately though such amendments are not proposed as far as taxation of individuals are concerned. This article proposes to deal with some of the amendments that the Finance Bill has proposed to the taxation of individuals. One needs to bear in mind that the individuals are normally the most tax obedient citizens and probably therefore suffer the most when it comes to levy of tax. Amidst this general belief, this Finance Bill has brought some reliefs to the individuals by providing for larger tax reliefs. Let us look at what lies in for a common man in this Finance Bill as far as Direct Tax provisions are concerned. Sukanya Samriddhi Account Scheme A girl child needs to be supported for the better social balance of our country. The Finance Bill takes one step in the direction to achieve this object. The Finance Bill proposes amendments to section 80C and section 10 of the Incometax Act relating to the investment in Sukanya Samriddhi Account Scheme. Section 80C Section 80C of the Act provides for deduction under Chapter VIA from the gross total income in the case of an Individual or HUF. Maximum deduction permissible under this section is ` 1,50,000/-. Various investments which are eligible for deduction under this section are listed in sub-section (2) of the section. Subsection (4) of the section lists down persons, in whose name the investment is permissible. Amendment Clause 15 of the Finance Bill seeks to make amendment in clause (viii) of sub-section (2) and also sub-section (4) of section 80C. Effectively the amendments seek to provide that in the case of an individual, the sums deposited as subscription, in the name of that individual or any girl child of that individual or any girl child for whom such person is the legal guardian, to any security of the Central Government or any such deposit scheme as that Government may by notification in the Official Gazette specify, will qualify for the deduction u/s. 80C of the Act. SS-VI-21 The Chamber's Journal 29

2 The Government has already introduced a savings scheme called Sukanya Samriddhi Account Scheme and the said scheme has been noti ed under clause (viii) of sub-section (2) of section 80C vide Notification No. 9/2015 S.O. 210 (E) F. No. 178/3/2015-ITA-I dated The amendment now proposed will allow the investment made by a parent in the name of the girl child also in the said scheme for the purpose of deduction u/s. 80C. Section 10 Section 10 of the Income-tax Act provides for various incomes which do not form part of total income i.e., exempt incomes in common parlance. Clause 7(I) of the Finance Bill seeks to insert clause (11A) in section 10 so as to provide that any payment from an account opened in accordance with the Sukanya Samriddhi Account Rules, 2014, made under the Government Savings Bank Act, 1873 shall be exempt while computing the total income. As such, the interest earned by an assessee on the above account will be an exempt interest. Even the withdrawal from the said scheme will also be exempt from tax. These amendments are proposed with effect from and will accordingly apply retrospectively from A.Y onwards. A miss out While the purpose of the amendment is laudable and must be appreciated, the benefit of the deduction u/s. 80C for this particular clause is restricted to individuals only. It would have been desired if the amendment has also been made so as to cover the HUFs depositing the amount in the name of a girl child who is the member of the HUF. Amendment to Section 80CCC Section 80CCC of the Act allows deduction in respect of contribution to certain pension funds. The maximum deduction permissible under this section at present is ` 1 lakh in a year. Clause 16 of the Finance Bill seeks to amend the provisions of sub-section (1) of section 80CCC so as to increase the above limit of ` 1 lakh to ` 1,50,000/-. Comment As per the existing provision of section 80CCE there is an overall limit of ` 1,50,000/- in respect of deductions under sections 80C, 80CCC and 80CCD. Due to the provisions of section 80CCC, maximum deduction under the said section was ` 1,00,000/- and the assessee could avail of total ` 1,50,000/- if he invests balance ` 50,000/- in some other investments eligible either under section 80C or section 80CCD. By virtue of the amendment, the assessee will now be able to invest entire amount of ` 1,50,000/- in the pension fund and claim the deduction accordingly. Amendment to Section 80CCD Section 80CCD of the Act provides for deduction in respect of contribution to pension scheme of Central Government. Sub-section (1) of the section provides for deduction in the case of (a) an individual, employed by the Central Government on or after or (b) an individual employed by any other employer or (c) any other individual. The deduction is allowed for the amount deposited in his account 30 The Chamber's Journal

3 SPECIAL STORY Finance Bill, 2015 under a noti ed pension scheme. There is a limit for the deduction to the extent of 10% of salary in the case of an employee and 10% of Gross Total Income in the case of other assessees. Sub-section (2) of the section provides for deduction of the contribution made by the Central Government or any other employer to the said account of the individual under the pension scheme to the extent it does not exceed 10% of the salary. Sub-section (1A) of the section provides that the amount of deduction in respect of the employees own contribution to the scheme shall not exceed ` 1,00,000/-. With a view to encourage contribution towards NPS, clause 17 of the Finance Bill seeks to amend section 80CCD of the Act in the following manner : (a) (b) (c) (d) Sub-section (1A), which provides for limit of ` 1,00,000/- is proposed to be omitted. A new sub-section (1B) is proposed to be inserted so as to provide for additional deduction of up to ` 50,000/- in the case where the assessee deposits amount in his account under the pension scheme notified or to be notified by the Central Government. A proviso is also inserted to the proposed sub-section (1B) so as to provide that no deduction under this sub-section shall be allowed in respect of the amount on which a deduction has been claimed and allowed under sub-section (1). Consequential amendments are also proposed in sub-sections (3) and (4) of section 80CCD. Note : On a combined reading of sub-section (1B) and the proviso thereto, it appears that the Central Government will notify separate pension schemes the amount deposited in the pension account under such scheme will qualify for additional deduction of up to ` 50,000/- over and above the deduction available under the present NPS which is notified under sub-section (1) of section 80CCD. However, if the individual deposits the amount in the present in a position to claim double deduction in respect of the same investment once under sub-section (1) and once under sub-section (1B). Amendment to Section 80D Section 80D of the Act provides for deduction in respect of health insurance premium. The section provides for deduction of up to ` 15,000/- paid by an individual towards the health insurance premium for himself and his family members. An additional deduction of up to ` 15,000/- is also allowed to the individual if the payment is made in respect of health insurance premiums for the parents of such individual. Similar deduction is also allowed in the case of HUF if the payment is made towards health insurance premium of any of the members of the HUF. The section also presently provides for a deduction of twenty thousand rupees in both the cases if the person insured is a senior citizen of sixty years of age or above. Clause 18 of the Finance Bill seeks to amend section 80D of the Act. The amendments proposed to the section 80D are as discussed hereunder : 1) Increase in limits As per the memorandum explaining the provisions, the limits of ` 15,000/- and ` 20,000/- in the case of senior citizens are SS-VI-23 The Chamber's Journal 31

4 proposed to be enhanced to ` 25,000/- and ` 30,000/- respectively. However, when one looks at the Finance Bill provisions, it is seen that clause (a) of sub-section (2) of section 80D, which provides for maximum deduction of ` 15,000/- in the case of an individual has not been amended. It seems that non amendment of clause (a) of sub-section (2) is through oversight and the same will get amended while passing the Finance Bill. 2) Medical expenditure in respect of a very senior citizen Two new sub-clauses (c) and (d) are proposed to be inserted in sub section (2) so as to provide that any payment made on account of medical expenditure for assessee for himself or for a family member or any of his parents will be allowed as a deduction subject to limit of ` 30,000/-. First proviso to sub-section (2) provides that the above deduction in respect of medical expenditure will be allowed only if the expenditure is in respect of a very senior citizen and also if no amount has been paid to effect or keep in force an insurance on the health of such person. Second proviso to sub-section (2) provides that the aggregate of the sum specified under clauses (a) and (c) or under clauses (b) and (d) shall not exceed ` 30,000/- Example The memorandum has given an example which is helpful in understanding the exact provisions. The said example is reproduced hereunder: Particulars Health Insurance Premium paid for Individual and his family Amount (`) 21,000 Health Insurance Premium paid for Mother Medical Expenditure incurred on Father, who is a very senior citizen and no Insurance Premium is paid on his health Eligible Deduction is as under Health Insurance Premium for self and family members Health Insurance Premium for mother ` 18,000/- and Medical Expenditure on father (very senior citizen) ` 15,000/- - Total ` 33,000/- but restricted to 18,000 15,000 21,000 30,000 Total Deduction permissible 51,000 3) Increase in limits and also Medical expenditure in the case of HUF Sub-section (3) of the section, which deals with deduction in the case of HUF, is proposed to be replaced by a new subsection so as to provide that the HUF will be eligible to the following deductions: (a) (b) Amount paid to effect or keep in force an insurance on the health of any member of the HUF subject to maximum ` 20,000/- as against current ` 15,000/-. Amount paid on account of medical expenditure incurred on the health of any member of the HUF subject to maximum ` 30,000/- provided that the same is paid for a very senior citizen and no amount has been paid to effect or to keep in force an insurance on the health of such person. The total deduction to HUF under both clauses (a) and (b) shall not exceed ` 30,000/-. 4) Senior citizen and very senior citizen de ned 32 The Chamber's Journal

5 SPECIAL STORY Finance Bill, 2015 An Explanation is proposed to be inserted in sub-section (5). The proposed Explanation defines the terms senior citizen and very senior citizen for the purpose of the section as under : (i) (ii) Senior citizen means an individual resident in India who is of the age of sixty years or more at any time during the relevant previous year; Very senior citizen means an individual resident in India who is of the age of eighty years or more at any time during the relevant previous year.. Amendment to Section 80DD and also Section 80U s Section 80DD of the Act, inter alia, provides for a deduction to an individual or HUF, who is a resident in India, who has incurred (a) Expenditure for the medical treatment (including nursing), training and rehabilitation of a dependent, being a person with disability as de ned under the said section; or (b) paid any amount to LIC or any other insurer in respect of a scheme for the maintenance of a disabled dependent. The deduction permissible is of maximum ` 50,000/- if the dependent is suffering from the disability. If, however, the dependent is suffering from severe disability, the deduction is permissible for maximum ` 1,00,000/-. Similarly section 80U of the Act provides for a deduction to an individual, being a resident, who, at any time during the previous year, is certi ed by the medical authority to be a person with disability as de ned under the said section. The deduction available in section 80U is of ` 50,000/- if the person is suffering from disability and ` 1,00,000/- if the person is suffering from severe disability as de ned under the said section. s Clause 19 of the Finance Bill seeks to amend section 80DD and Clause 23 of the Finance Bill seeks to amend section 80U of the Income-tax Act so as to increase the above limits in both the sections as under : Section Particulars In the case of person with disability 80DD Maximum deduction permissible (subject to actual expenditure ) In the case of person with severe disability 75,000 1,25,000 80U Deduction amount 75,000 1,25,000 Reason The limits under section 80DD and section 80U in respect of a person with disability were xed by Finance Act, Further, the limit under section 80DD and section 80U in respect of a person with severe disability was last enhanced by Finance (No. 2) Act, The amendments are now made with a view to address the rising cost of medical care and special needs of a disabled person. Amendment to Section 80DDB Section 80DDB of the Act provides for deduction in the case of a resident individual or HUF. The SS-VI-25 The Chamber's Journal 33

6 deduction is available in respect of the amount actually paid for the medical treatment of certain chronic and protracted diseases such as Cancer, full blown AIDS, Thalassaemia, Haemophilia etc. The maximum deduction permissible is ` 40,000/-. The limit of deduction is ` 60,000/- if the payment is made in respect of a person who is senior citizen. The deduction is available to an individual for medical expenditure incurred on himself or a dependent relative. It is also available to a Hindu undivided family (HUF) for such expenditure incurred on its members. Dependent in case of an individual means the spouse, children, parents, brother or sister of an individual and in case of an HUF means a member of the HUF, wholly or mainly dependent on such individual or HUF for his support and maintenance. The section also provides that the assessee has to furnish a certificate in the prescribed form, from a neurologist, an oncologist, a urologist, a haematologist, an immunologist or such other specialist working in a Government hospital for the purpose of claiming the deduction. s Clause 20 of the Finance Bill seeks to amend the provisions of section 80DDB in the following manner : (a) Relaxation in condition of obtaining certi cate The requirement of obtaining a certi cate from a specialist working in a Government hospital is being done away with and instead the assessee will be required to obtain a prescription from a specialist doctor for the purpose of availing the deduction. Reason It has been represented that the requirement of a certificate from a doctor working in a Government hospital causes undue hardship to the persons intending to claim the aforesaid deduction. Government hospitals at many places do not have doctors specialising in the above branches of medicine. Accordingly it may be dif cult for the taxpayer to obtain a certi cate from a Government hospital. (b) Providing for higher limit for very senior Citizens A higher limit of ` 80,000/- is being proposed for the expenditure incurred in respect of medical treatment of a very senior citizen. A very senior citizen is proposed to be defined as an individual resident in India who is of the age of eighty years or more at any time during the relevant previous year. Conclusion The above amendments are as such benevolent amendments and therefore they are welcome. The only doubt remains about the suf ciency of the benevolent amendments. Probably one will have to wait for some more time to see the real acche din for the common man. It is said that Ummid pe Duniya Kayam Hai. I would like to end this article on a positive note therefore, praying for better days to come. I am extremely thankful to the Chamber of Tax Consultants for enabling me this opportunity to be part of this prestigious project year after year. This opportunity really allows me to study the provisions of Finance Bill in greater detail, which but for this, I might not. 34 The Chamber's Journal