Direct Taxes – Union Budget 2016-17 Highlights

Direct Taxes – Union Budget 2016-17 

The major tax proposals on the direct taxes in Union Budget 2016-17 are as follows

Rebate Under Section 87A

Section 87A to be amended so as to increase the maximum amount of rebate available from existing limit of ₹2,000.00 to ₹5,000.00, in the case of resident individuals having total income not exceeding ₹5,00,000.00.

Rate of Surcharge

The rate of surcharge to be raised from 12% to 15% in case of individuals, HUF, AOP or BOI and every artificial juridical person, having total income more than ₹1 crore. However, the rate of surcharge remains unchanged for co-operative societies, firms, LLPs, and companies.

Income tax slabs and rates for FY 2016-17/AY 2017-18

Tax on Dividend

The Income by way of dividend, to be chargeable to tax in the case of an individual, HUF of a firm, who is resident in India @ 10%, if the same is in excess of ₹10 lakh.

Section 80GG Limit Increased

The Maximum limit of deduction under section 80GG, in respect of rent paid by individuals who do not get any house rent allowance from the employer and who do not own any house to be increased from ₹2000.00 p.m. to ₹5000.00 p.m.

The threshold limit for tax audit under section 44AB, for getting  accounts audited to be increased from ₹25 lakhs to ₹50 lakhs, in the case of persons carrying on the profession.

The Threshold limit for a person other than companies or LLP’s having income from business opting presumptive taxation under section 44AD to be increased from ₹1 crore to ₹2 crore.

Corporate Tax Rate

  • The effective corporate tax rate for small companies having the turnover less than Rs 5 crore reduced to 31.96%.
  • New manufacturing companies incorporated on or after March 1, 2016, have been provided with an option either to adopt a reduced corporate tax of 27.55% (where the income exceeds Rs 1 crore but does not exceed Rs 10 crore) or 28.84% (where income exceeds Rs 10 crore) provided such companies do not claim profit-linked or investment-linked deduction or do not avail of investment allowance and accelerated depreciation.

Tax Incentives to Start-Ups

In order to encourage start-ups and aid their growth in the early phase of their business, a deduction of 100% of the profits and gains derived by an eligible start – up from a business involving innovation development, deployment or commercialization of new products, processes or services driven by technology or intellectual or intellectual property to be provided. Such benefit would be available to an eligible start-up which is set up before 01.04.2019.

First home buyers availing home loans, to be eligible for an additional deduction of ₹50,000 in respect of interest on the loan is taken for residential house property from any financial institution.

100% deduction of the profits of an assessee developing and building affordable housing projects.

Direct Taxes Dispute Resolution

The Direct Tax Dispute Resolution Scheme 2016: In order to reduce the huge backlog of cases and to enable the Government to realise its dues expeditiously, the Direct Tax Dispute Resolution Scheme. 2016 to be introduced in relation to tax arrears and specified tax.


The penalty rates will now be 50% if the tax in case of under-reporting of income and 200% of tax where there is misreporting of income.

The rate of interest on refunds to be increased: The rate of interest on the refunds to be increased from 6% p.a. to 9% p.a. in case there is the delay in giving effect to Appellate order beyond ninety days.

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