With effect from 1st June 2016, few tax changes are going to put extra burden on your pocket while few changes may bring cheer on your face. Here is a quick cheat sheet on the changes that will impact your pocket from 1st June 2016.
List of Changes from 1st June 2016
Service Tax Pain aka Krishi Kalyan Cess
In form of Krishi Kalyan Cess, a levy of 0.50% is going to add up to existing rate of service tax on all taxable services which sums up to total service tax of 15%. Arun Jaitely, in his first budget had increased service tax rate to 14% from 12.36% and then added 0.50% as Swachh Bharat Cess from 15th November, 2015. Now, with krishi kalyan cess of 0.50%, the new service tax rate will be 15% effective from 1st June 2016.
With the increment in the service tax rate of 0.50%, travelling in rail would become marginally costlier from 1st June. Krishi Kalyan Cess of 0.50% will be imposed on all AC class tickets, parcels and freights.
However, tickets booked before 1st June 2016 for the Journey on or after 1st June would not attract KKC. Further, KKC is not applicable to Non-AC and Sleeper Class travel because they fall under the mega exemption list of service tax.
What is Krishi Kalyan Cess?
A Cess is a tax levied by the Government to raise fund for some specific purpose. Such as collection from education cess and higher education cess is purported for betterment of education in our country.
Similarly, Krishi Kalyan Cess will be levied to raise funds to be used specifically for initiatives related to improvisation of agriculture sector and farmer welfare.
How Krishi Kalyan Cess is Calculated?
Krishi Kalyan Cess is calculated on the total taxable value and not on tax value. Suppose you raise an invoice of Rs.100 for some services, than the service tax will be Rs.14 at 14%, Swachh Bharat Cess would be 0.05 at 0.50% and Krishi Kalyan Cess would also be 0.05 at 0.50%. So the total invoice value will become Rs.115.
From Which date Krishi Kalyan Cess would be Levied?
Krishi Kalyan Cess would be applicable from 1st June 2016 however, in case the services under negative list or mega exemption list, no cess would be levied. Also if the payment for the invoice is done prior to 1st June 2016 in form of advances than no cess would be payable.
Tax at 1% on Cash Purchase of Gold Rolled Back
In budget 2016-17 Arun Jaitely had proposed to levy TCS (tax collection at source) of 1% on the cash purchase of Gold Jewellery exceeding Rs.2 lakh. But witnessing the falling demand of Gold and serious protest by gold jewelers, Government has decided to roll back levy of 1% TCS on the cash purchase of gold jewellery Rs.2 lakh and reset the threshold to the earlier limit to Rs.5 lakh with effect from 1st June 2016.
TCS was introduced in budget 2012-13 to curb tax evasion and keep a check on black money transaction.
TCS is collected by seller from the buyer at the time of sale and is deposited with the Government. For example if you buy gold worth Rs.10 lakh than Rs.10,000 is collected in addition to bill amount as TCS by seller.
Same as TDS, taxpayer gets tax credit of TCS while filing income tax return.
Please note that 1% excise duty is still to be levied on the jewellery and is not rolled back. However, the excise duty is collected from the manufacturers not buyer but final impact is passed on the buyer in form of higher manufacturing cost.
No TDS on PF Withdrawals up to Rs.50,000
In a major relief to EPFO members, Government has decided to raise the threshold limit for levy of TDS under section 192A on PF withdrawals to Rs.50,000 from existing Rs.30,000 in the Finance Act, 2016.
According to the existing TDS provision, tax at 10% is to be deducted from the withdrawal amount of PF, provided PAN is provided else tax is be deducted at maximum marginal rate of 34.608%. However, there are certain rules under which no tax is be deducted which are as follows:
1 PF amount is withdrawn after continuous service of 5 years. Continuous service does not mean service under one employer; it means taxpayer needs to contribute regularly for 5 years in his/her of EPF account.
2 If taxpayer submits Form 15G or Form 15H as applicable declaring that his/her income after receiving PF amount will be below basic exemption limit, than no tax is to be deducted.
3 No TDS is to be deducted in case of transfer of fund from one account to another. In case of switching services from one employer to another, transfer of PF fund will not attract TDS.
Read: TDS on PF Withdrawals Rules
Income Declaration Scheme window Open for 6 months
Under the Income Declaration Scheme, person making disclosure of unaccounted assets will be given six months window from 1st June to 30th November to come clean by paying tax and penalty of 45% on fair market value of such assets. The declarants shall further be liable to capital gains tax on sale of such disclosed asset in future.
However, the undisclosed income which has been assessed to tax or is pending before Appellate Tribunal cannot be disclosed under this scheme. Also, people earned income through corrupt methods will not be allowed to get benefitted from income declaration scheme.
Luxury Car would Cost More
Luxury Car priced above Rs.10 lakh comes under the ambit of TCS. In budget 2016-17, finance minister has imposed TCS of 1% on the luxury cars priced over Rs.10 lakh. The tax is to be collected on ex-showroom price and dealer is required to collect and deposit it with Government. However, taxpayer can claim tax credit of the TCS paid while filing ITR.
Earlier, it was assumed that only passenger vehicles will attract TCS but with the clarification, all the vehicles including trucks, buses, two wheeler and four-wheeler falls under the purview of TCS.
Additionally, TCS in not only imposed on new cars, individuals selling old used cars exceeding Rs.1o lakh are also required to collect TCS at 1% of the sale consideration from the buyer and submit a tax certificate to the buyer. Further, buying spare parts for 2 lakhs or more also attracts this tax provision.
Higher Securities Transaction Tax (STT) on Options
Starting from 1st June, option traders will have to shed increased Securities Transaction Tax (STT) of 0.05%. Currently, STT is 0.017% which will now be increased by 0.033%. STT is charged on all sell transactions for both futures and option contracts in the derivative segment but only on the premium value, not the contract value.
In addition to higher STT, traders will also be required to pay more in terms of brokerage due to increase in service tax rate of 0.50%. The effective service tax rate is raised to 15% due to levy of 0.50% of Krishi Kalyan Cess.