In the Union Budget announced today, Finance Minster Arun Jaitley assured honest tax payers that they will be treated with dignity. And, looks like he has lived up to his promise. In a bold move the Finance Minister took personal tax measures which will put more money into the hands of tax payers. He halved income tax rates for individuals earning Rs 2.5- 5 lakhs today.
He said, “I, propose to reduce the existing rate of taxation for individual assesses between income of Rs 2.5 lakhs to Rs 5 lakhs to 5 percent from the present rate of 10 percent. This would reduce the tax liability of all persons below Rs 5 lakh income either to zero (with rebate) or 50 percent of their existing liability."
He reduced tax rate to 5 percent for Rs 2.5 lakhs to Rs 5 lakhs, down from 10 percent. This means the overall tax rate will come down for those who have income up to Rs 5 lakhs. In fact, even those who have income above Rs 5 lakhs will benefit slightly.
Moreover, in order to avoid duplication, the existing benefit of rebate available to the same group of beneficiaries is being reduced to Rs 2,500 for those with income upto Rs 3.5 lakhs. This is a double-edged sword as the combined effect of both these measures would be zero tax liability for people whose income is up to Rs 3 lakhs per annum and the tax liability will only be Rs 2,500 for people with income between Rs 3 and Rs 3.5 lakhs.
Pankaj Mathpal, Mumbai-based Certified Financial Planners says, “This sounds like a good move. If you look at the numbers in details, for those with income of Rs 10 lakh for Assessment Year (AY) 2017-18, the net tax payable is Rs 97,850 (including education cess) but for AY 2018-19 the net tax payable (including cess) is Rs 84,975.”
See charts below to understand how income tax will be applicable now:
Income Rs 5 lakhs
AY 2017-18 : Net tax payable (Including education cess) is Rs 5,150
But for Ay 2018-19: Net tax payable (Including education cess) is Rs 2,575
If the limit of Rs 1.5 lakh under Section 80C for investment is used fully, the tax would be zero for people with income of Rs 4.5 lakhs.
While the taxation liability of people with income upto Rs 5 lakhs is reduced to half, all the other categories of tax payers in the subsequent slabs will also get a uniform benefit of Rs 12,875/- per person. The total amount of tax foregone on account of this measure is Rs 15,500 crore.
Other moves in personal tax space were:
Surcharge of 10 percent of tax payable on categories of individuals whose annual taxable income is between Rs 50 lakhs and Rs 1 crore
Simple one-page form to be filed as Income Tax Return for the category of individuals having taxable income up to Rs 5 lakhs other than business income
All citizens to contribute to nation building by making a small payment of 5 percent tax if their income falls in the lowest slab of Rs 2.5 lakhs to Rs 5 lakhs.
Want to know your tax next year? Check out our tax calculator here
Updated Date: Feb 03, 2017 12:20 PM