Major Tax Changes and its Impact

Tax Changes impact the common man both financially and from the compliance perspective. In these dynamic times, Tax changes are more frequent compared to the past. Moreover, it is important to overhaul the tax system as per current requirement. Another reason is to nail tax evaders who are smarter due to easy access of information. As i mentioned in my previous posts that less than 3% of India’s population pay direct tax. As per my calculation, 110 mn individuals are still out of tax net. In order to bring these people in tax net, Income tax department has no other option but to follow these approaches

(a) Deduct TDS on financial products

(b) Increase indirect tax

(c) Foolproof compliance processes for high-value purchases

It seems Govt is on right track. In my previous post, i highlighted How the changes in TDS Rules will impact you?. In this post, we will discuss other major tax changes and how it will impact. I covered some of these tax changes briefly in my post 7 Changes from Current Financial Year but in this post we will discuss in detail

PAN is now Mandatory for all the transactions above Rs 1 Lakh

In my opinion, this is a welcome step to curb domestic black money and nail tax evaders. It is one of the smartest tax changes in the recent past. What it implies is that whatever you buy worth more than 1 lakh, you need to share your PAN with the merchant/shopkeeper/dealer. In other words, you have to apply for PAN if you have to make a purchase of more than 1 lakh. So next time, if you are planning to buy a car or LED TV worth more than 1 lakh then please carry your PAN along with you.

Now you must be wondering how it is one of the intelligent tax changes. The reason being, income tax department reconcile the income and spending pattern of the taxpayer. Assuming, you paid income tax on income of Rs 5 lakh & you bought a car of Rs 8 lakh then it raises suspicion. Now you will say that i bought from my own savings. Fair enough, if you can explain the source of funds and if you have already paid tax on same then you need not worry. The only benefit of this rule is that now IT department can track all the transactions of more than 1 lakh and may ask for the source of fund.

The best part is that Income tax department will also keep track of “split transactions” to avoid sharing of PAN. If i have to buy a jewellery worth Rs 2 lakh  then i may split it into 3 parts of Rs 80k, Rs 80k and Rs 40k but trust me it will not help. In case you do this then you will invite more trouble.

You will say that new tax changes will make the life more difficult. I agree that new tax changes will make life difficult but only for dishonest taxpayers/tax evaders. Honest taxpayers need not worry and fear about new tax changes. I anticipate that in future, this limit of Rs 1 lakh will be further reduced to Rs 50k and gradually PAN will be must for almost all the transactions. The concern that it will impact poor is uncalled for. If someone is buying a jewellery of more than 1 lakh is not poor as such. It means he has a source of income and should pay tax.

Real Estate Transactions of more than Rs 20,000

Till recent past, Real Estate was safe heaven to park black money. The cash component of 30%-40% is very common in hot markets likes Mumbai, Delhi etc. Though it is mandatory to quote PAN for real estate transactions, but there is no other way to curb the flow of cash component. From 1st June, 2015 it will be mandatory to transfer any amount more than or equal to Rs 20,000 through Cheque/NEFT/RTGS only. 100% penalty can be imposed on the seller if he/she accepts cash from the buyer. This is one of the important tax changes from the compliance perspective. For example, if the seller accepts a cash of 5 lakh in property transaction then he can be penalized 5 lakh for the violation of a rule. Only exception to this rule is property transaction between farmers provided both of them fulfill following conditions

(a) Buyer and Seller both should be farmers

(b) Both should have only agricultural income

(c) Both should not have any other income chargeable to income tax i.e. income from interest/rent/salary etc

This rule is also applicable for the refund of advance accepted i.e. token money in case property transaction is called off.

In my opinion, it will be very difficult to implement this rule because of difference in Market Value and Guidance Value/Circle Rate. The scope of cash component is high if there is a wide difference between Market Value and Guidance Value/Circle Rate. The state govt’s should try to bridge this gap and revision of guidance value/circle rate should be more frequent than annual revisions.

Service Tax is increased from 12.36% to 14%

The new service tax rate of 14% is implemented w.e.f 1st June, 2015. The good part is that now the service tax will be charged at a flat rate and there is no additional education cess or higher education cess. As service tax is indirect tax therefore it is the best way to bring more people under the tax net. There is a widespread anticipation that after GST roll out, Service Tax will be increased to 16%. With the increase in indirect tax collection, the rate of direct taxes should come down.

Service wise service tax is as listed below

Restaurant: 5.6%
Hotel Lodging: 8.4%
Vehicle Rent: 5.6%
Hall with Catering: 9.8%
Catering: 8.4%
Building Repairing: 9.8%
Civil Contract with Material: 5.6%
Building Residential: 3.5%
Building Commercial: 4.2%
GTA Transports: 4.2%
All other Services: 14%

Notice for assessment or reassessment u/s 148

This is another imp change in the list of tax changes which no one discussed. A notice u/s 148 is issued by AO if he believes that any income which should have been charged to income tax has escaped the assessment. Now to avoid harassment of taxpayers, this notice cannot be issued after the expiry of 4 years from the end of the applicable assessment year. Any such notice can only be issued after due approval from chief/Commissioner or Principal Chief/Commissioner. The notice can only be issued by AO of the rank of Joint Commissioner or above.

Tax Changes related to Payment to Non Resident Indian

Next in the list of Tax changes is related to payment to Non Resident Indian by the Resident Indian. Any such payment whether it is subjected to TDS u/s 195 or not, Resident Indian has to furnish complete information related to such payments to the tax authorities.

Concluding Remarks: Besides the important tax changes highlighted by me, there are a lot of other tax changes which may not be relevant to general public. As i mentioned earlier also that an honest taxpayer need not worry about these tax changes, but dishonest taxpayers have every reason to worry. We should pay our taxes honestly as it helps in nation building. In my opinion, direct taxes should be abolished and for better tax compliance TDS and indirect taxes are the best way to mop up tax collection.

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