Union Budget 2016: Relief to taxpayers

The key pillars on which Budget 2016 focussed from a tax perspective are relief to small tax payers, moving to a pension based society, thrust on affordable housing, simplification of tax compliance processes and increased use of technology.

Additional revenue collection measures in the form of higher surcharge for super rich, tax on large dividend earners will increase the overall tax bill for high income earners. The finance minister has introduced voluntary disclosure Schemes (VDIS) for undisclosed income once again.

There is also a welcome clarity on taxability of only 40 per cent of National Pension System (NPS) withdrawals and super annuation schemes.

Currently the entire withdrawals were taxable.  However, the tax on 60 per cent of withdrawals from Employees’ Provident Fund (EPFO) in respect of contributions made from April 1, 2016 (in respect of employees with salary above specified threshold) is probably an effort to bring taxation of various retirement schemes (e.g. NPS, super annuation and Employee Pension Scheme) on par.

The increase in tax exemption for employer contribution to Rs 1.5 lakh per annum on super annuation scheme from the existing Rs 1 lakh per annum is again a good move.

However the employer contributions to provident fund which were currently exempt upto a specified percentage of salary will now be taxable over and above Rs 1.5 lakh per annum. It seems that the tax provisions on all retirement products have been sought to be made similar. The finance minister has provided incentive to emplo-yers by funding employer pension contributions for new low wage earners and deductions for creating new jobs in non-manufacturing sectors as well.

There is no change to basic slabs or rates of tax.  Small tax payers have been provided a relief by enhancement of tax rebate to Rs 5,000 from Rs 2,000 — a saving of Rs 3,090 a year. Taxpayers in the Rs 1-crore  plus income bracket to pay increased tax on account of enhancement of surcharge to 15 per cent from the existing 12 per cent.

Consequently the highest maximum marginal rate enhances to 35.54 per cent from current rate of 34.62 per cent. This translates into an increased tax liability for these super rich individuals to the tune of Rs 96,500 a year.  

(The writer is a partner and head of global mobility services, tax, KPMG in India)