Budget 2016 had proposed certain changes in taxes which became effective from June 1, 2016. You might have come across some and missed others. Here are 9 changes that became effective this month and how it impacts you.
1 Krishi Kalyan Cess
This government loves cess and effective June 1, 2016 you will need to pay additional 0.5% as Krishi Kalyan Cess on the existing service tax. This would take the effective service tax to 15% (14% service tax + 0.5% Swach Bharat Cess + 0.5% Krishi Kalyan Cess). As the name suggests the additional money so collected would be used for rural and farmers welfare. (Alas! If government spending were so transparent)
This cess in turn would make all the services like banking, telephone, eating out, etc expensive. In last 2 years the service tax has increased from 12.36% to 15%.
2 Tax Collection at Source
Government has introduced the concept of tax collection at source (TCS) for following purchases
- Products or services of more than Rs 2 lakh paid in cash
- Jewelry of more than Rs 5 lakh paid in cash
- Cars of more than Rs 10 lakhs
Download Free Tax Planning Guide for FY 2016-17
The TCS in all the above cases would be deducted at 1% of the transaction value. This tax collected by the seller has to be deposited to income tax department. You would be able to take tax credit for the same. This is done to trace big cash transactions and curb black money circulation but would also increase the workload of many sellers.
This TCS along with recent Infrastructure Cess on Car (up to 5% effective March 1, 2016) has been bad news for both consumers and manufactures.
3 Advance Tax
The advance tax for individuals would now be payable in 4 installments – June 15 being the deadline for first installment. The next installments would be due of September 15, December 15 and March 15. Until last year advance tax for individuals was paid in 3 installments. This again hurts tax payers as it would entail additional transaction and also advances the tax payment.
Also Read: How to calculate & Pay Advance Tax?
4 Income Declaration Scheme 2016 launched
You can take advantage of Income Tax Declaration Scheme, if you have undeclared income. The tax rate is 45% and the deadline to file the application is September 30, 2016.
5 Form 12BB for Salaried Tax payers
Income tax department has notified Form 12BB for salaried employees to claim HRA, LTA and Chapter VI deductions (includes Section 80C, 80D, etc). Earlier there was no uniform format and employers used their own forms. Going forward salaried tax payers have to fill up Form 12BB to claim relevant tax exemption.
6 Equalization Levy or Google Tax
If you use Google/Facebook and other digital medium to advertise, you might be impacted. An equalization levy at the rate of 6% needs to be deducted for payments made in connection to online advertisement to non-residents/ foreign companies. The deducted amount should be deposited to government before 7th of succeeding month. Google has clarified its customers that this would be borne by the customers.
7 TDS Changes for EPF Pre-mature withdrawal
Following changes have been made for tax deduction at source.
The TDS limit for EPF pre mature withdrawal has been increased from Rs 30,000 to Rs 50,000. So no TDS would be deducted for EPF withdrawal of up to Rs 50,000. Remember that the EPF pre-mature withdrawal is only tax free if you have continuous service of 5 years. You can submit Form 15G/H in case you are eligible to avoid TDS.
Also Read: How to Fill Form 15G and 15H?
8 TDS on Life Insurance Maturity Payment reduced to 1%
On maturity if the life insurance payout in not tax free, then TDS of 1% of the entire maturity amount would be deducted. The TDS rate has been cut down from 2% to 1%.
Also Read: Does Your Life Insurance Offers Tax Benefit?
9 Form 15G/H for Rental Income
If you are eligible you can fill Form 15G/H to avoid TDS on rental income. This is good move but fill up these forms only if you are eligible to do so.
All the above changes are effective June 1, 2016.
Most of the changes above is bad news for common man as it takes more and more from them. The government in last 2 years has introduced 3 cesses – Swach Bharat Cess, Krishi Kalyan Cess and Infrastructure Cess. According to a recent CAG report, governments have not used the cess money for its intended purpose and this time it would be no different. Also with changes in advance tax and introduction of tax collection at source, government has advanced tax collection which again would hurt common man’s pocket. All in all not a very good move from a government which came to power on promise of lower taxes!