From tax evasion to political funding: Key highlights of the Finance Bill

Arun Jaitley said 98 per cent of adults or 108 crore people have Aadhaar number

Arun Jaitley

The Finance Bill was passed by the Lok Sabha on Wednesday. This effectively means that Parliament has passed the Bill. The Rajya Sabha does not have any power to reject a money Bill. The amendments to the Finance Bill include a provision to cap legal cash transactions at Rs 2 lakh from April 1 got approval. The bill had originally proposed the cap at Rs 3 lakh. Besides, amendments to the Companies Act, the Employees Provident Fund Act, Smuggling and Foreign Exchange Act, TRAI Act and Information Technology Act were passed. 

Finance Minister Arun Jaitley, while answering the questions on Finance Bill debate, said that Aadhaar will play a vital role in curbing tax evasion. Also, the Cabinet approved amendments in Customs and Excise Act.

Here are the key highlights of the decisions taken:

Aadhaar mandatory for PAN and Income Tax:  It has been made mandatory for every person to quote their Aadhaar number after July 1, 2017 when: (i) applying for a Permanent Account Number (PAN), or (ii) filing their Income Tax returns.

In case a person does not have an Aadhaar, he will be required to quote their Aadhaar enrolment number, indicating that an application to obtain Aadhaar has been filed.

Political funding

Parliament on Wednesday approved the government’s proposal to relax conditions for contributions made by corporate entities. This will also facilitate the broadening of political funding channels.Till now, corporate entities could contribute only 7.5 per cent of average net profit in the past three financial years. This cap has been removed, allowing free flow of funds to political parties. For this, provisions of the Companies Act will be amended as part of the Finance Bill.

Electoral bonds: The government proposes incentives for political donations to be paid through digital payments and cheques as part of its efforts to clean up funding in Indian politics. Cash donations have been capped at Rs 2,000. Reserve Bank of India will be able to authorise smaller banks to issue electoral bonds -- which can be bought by cheque or digital payments -- for funding political parties and election campaigns.

Cash transactions: The bill lowers the maximum size of cash transactions to Rs two lakh from Rs three lakh proposed earlier in the budget. Revenue Secretary Hasmukh Adhia tweeted that anyone who accepts cash transactions above that limit will face a penalty. It is not clear whether the fine will be equal to the entire transaction value or will be equal to the amount exceeding the permissible limit. In November, Modi decided to scrap high-value currency notes of 500 and 1,000 rupees, accounting for 86 percent of the cash in circulation.

Lowering tax: Corporate tax has been cut by 5 percent to 25 percent for small firms with annual turnover of up to Rs 50 crore to boost investment. The rate of personal income tax on annual incomes of Rs 2.5-5 lakh is lowered to 5 percent from 10 percent. A 15 percent surcharge will be imposed on tax on annual income of over Rs one crore.

Tax exemptions for realtors and start-ups: The bill proposes tax exemptions for real estate developers if they complete their projects in five years -- up from the previous three years.The Finance Bill will exempt start-ups from paying income tax for any three consecutive years out of initial seven years after incorporation.

Govt merges ‘autonomous’ tribunal: The government has merged several administrative tribunals and assumed powers to appoint and remove their chiefs, triggering fears the unprecedented move will undermine the authority and independence of these quasi-judicial institutions.