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Budget 2017: New income tax rates for individuals post budget announcement

Budget 2017: New income tax rates for individuals post budget announcement
Budget 2017: New income tax rates for individuals post budget announcement

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Finance Minister Arun Jaitley on Wednesday relaxed the base slab tax rate from 10 percent to 5 percent on income of between Rs 2.5 lakh to Rs 5 lakh, providing respite to millions of taxpayers in the lower brackets.

Jaitley, noting that India is ‘largely a non-tax compliant society’, announced that there will be zero tax liability to people having annual income up to Rs 3 lakh to avoid duplication of benefits for the Rs 2.5 lakh to Rs 5 lakh tax slab.

He also imposed a surcharge of 10 percent for those whose annual income is Rs 50 lakh to Rs 1 crore. The 15 percent surcharge for those with income of over Rs 1 crore was left unchanged.

Earlier, a tax rate of 10 percent, 20 percent and 30 percent was applicable for persons with income over Rs 2.5 lakh, Rs 5 lakh and Rs 10 lakh respectively.

After today’s announcement, the following tax slabs will be applicable:

Current (Fiscal 2016-17) Current (Fiscal 2016-17) Proposed (Fiscal 2017-18)
Proposed (Fiscal 2017-18)
Annual IncomeIncome TaxSurchargeIncome TaxSurcharge
Upto Rs 3 lakh N/AN/AN/AN/A
Rs 3 to 5 lakh10%N/A5%N/A
Rs 5 to Rs 10 lakh20%N/A20%N/A
Rs 10 to Rs 50 lakh30%N/A30%N/A
Rs 50 lakh to Rs 1 crore30%N/A30%10%
Above Rs 1 crore30%15%30%15%

In addition, Jaitley reduced the holding period for long-term capital gains tax on property to 2 years from 3 years and proposed to allow a carry forward of Minimum Alternative Tax for a period of 15 years up from the current 10 years now.The FM also said the government plans to extend the basket of financial instruments to which the capital gains can be invested without the payment of tax.

The minister also provided some respite to small companies with an annual turnover of Rs 50 crore or less, reducing their income tax from 30 percent to 25 percent, a move that is bound to boost compliance among small taxpayers.

Jaitley’s full announcement about tax slabs:

“I, therefore, propose to reduce the existing rate of taxation for individual assesses between income of Rs 2.5 lakh to Rs 5 lakh to 5% from the present rate of 10%. This would reduce the tax liability of all persons below Rs 5 lakh income either to zero (with rebate) or 50% of their existing liability.

In order not to have duplication of benefit, the existing benefit of rebate available to the same group of beneficiaries is being reduced to Rs 2500 available only to assesses up to income of Rs 3.5 lakh. The combined effect of both these measures will mean that there would be zero tax liability for people getting income up to Rs 3 lakh p.a. and the tax liability will only be Rs 2,500 for people with income between Rs 3 and Rs 3.5 lakh. 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 lakh.

While the taxation liability of people with income up to Rs 5 lakh is being reduced to half, all the other categories of taxpayers in the subsequent slabs will also get a uniform benefit of Rs 12,500/- per person. The total amount of tax foregone on account of this measure is Rs 15,500 crores.

In order to make good some of this revenue loss on account of this relief, I propose to levy a surcharge of 10% of tax payable on categories of individuals whose annual taxable income is between Rs 50 lakh and Rs 1 crore. The existing surcharge of 15% of Tax on people earning more than Rs 1 crore will continue. This is likely to give additional revenue of Rs 2,700 crores.

In order to expand tax net, I also plan to have a 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. Also a person of this category who files income tax return for the first time would not be subjected to any scrutiny in the first year unless there is specific information available with the Department regarding his high value transaction. I appeal to all citizens of India to contribute to Nation Building by making a small payment of 5% tax if their income is falling in the lowest slab of Rs 2.5 lakh to Rs 5 lakh.”

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