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Lower holding limit for immovable long term assets will benefit those who exit early

LiveMint logoLiveMint 05-04-2017 Ashwini Kumar Sharma

H&R Block India is a subsidiary of a global leader in tax preparation and one of the largest individual tax services companies. Given that the new financial year has just started, we talk to Chetan Chandak, head of tax research, H&R Block India, about the changes in the Income tax Act, which an individual assessee should look out for during this financial year.

What are the income tax rules that have changed for individual tax payers for the financial year (FY) 2017-18?

Tax rates for the lowest slab of Rs2.5 lakh to Rs5 lakh has been reduced from existing level of 10% to 5%. The benefit of this reduced tax rate shall be available to all individuals and Hindu Undivided Families (HUFs).

A new surcharge at 10% of the income tax has been introduced, if the taxable income exceeds Rs50 lakh in a financial year. The existing surcharge of 15% of income tax, if taxable income exceeds Rs1 crore, will continue to be applicable for FY2017-18 too.

Currently, section 87A provides a relief up to Rs5,000 to resident individuals if their total income does not exceed Rs5 lakh.

The relief is reduced to Rs2,500 and is now available to only those resident individuals whose total income does not exceed Rs3.50 lakh in the financial year.

From assessment year 2018-19 (which is FY2017-18) immovable property is to be treated as a long-term capital asset if it was held for more than 24 months immediately before its sale.

Till now, immovable property was treated as a long-term capital asset if it was held for more than 36 months.

This is a beneficial move and will result in tax saving for those who are planning to exit their immovable property before holding it for 3 years.

Deduction for investments made under Rajiv Gandhi Equity Savings Scheme (RGESS) is to be withdrawn.

However, an assessee who has claimed deduction under this section for assessment year 2017-18 and the earlier assessment years too, shall be allowed to claim deduction under this section, as per its provisions .

Are there any new responsibilities that individual assessees need to adhere to in the FY2017-18?

An individual, or an HUF— paying to a resident, a rent that exceeds Rs50,000 per month, starting 1 April 2017—has to deduct 5% of such rent. The tax is to be deducted in the last month of the year or the last month of tenancy.

The tax is to be deducted at 20%, if landlord’s PAN is not available. There is no need to apply for TAN to pay this tax. The TDS return is to be filed only once a year. Note that non-compliance may result in payment of interest and severe penalties.

How does a change in the base year for capital gains calculation impact individuals?

For the purpose of computation of capital gains of assets acquired before 1 April 2001, the cost of acquisition to be taken as fair market value would be as on 1 April 2001 and the cost of improvement would increase thereafter.

This is applicable from AY 2018-19. It is a welcome move as the notional appreciation in the property price till 1 April 2001 will now be exempt from capital gain (as it is assumed to be included in the revised cost of the property).

However, indexed cost from 1 April 1981 till 31 March 2001 could give higher indexed cost than the fair market value, if appreciation on that property was lower than the inflation index over the 1981-2001 period.

What does the Rs2 lakh cap on set-off of losses from house property mean to an individual?

Union Budget 2017 has made a very important change relating to set-off of losses from house property, which was capped at Rs2 lakh against income from any other sources in a financial year. This loss can now be carried forward to 8 years but can be set off only against income from house property.

This move is expected to create a lot of ripples across the realty sector. Now, with this amendment in place, the rented properties will no longer enjoy set-off of losses without any cap, as they did earlier. This will bring them at par with persons who claim interest losses on self-occupied properties which are capped at Rs2 lakh per annum.

This can be a double-edged sword. On the one side it can help to bring down the property prices significantly, making it affordable to common man. On the other hand, it can demotivate those who can invest in properties and rent them out.

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