The rich will pay surcharge to make up for revenue loss.
Finance Minister Arun Jaitley on Wednesday proposed a reduction in the minimum tax to 5 per cent from the earlier 10 per cent for income tax slab of more than Rs 2.5 lakh to Rs 5 lakh.
However, the rebate of Rs 5,000 under Section 87A on an income of Rs 5 lakh has been reduced to Rs 2,500 on an income of Rs 3.5 lakh.
“If you earn Rs 3 lakh, then your taxable income will be Rs 50,000, which at 5 per cent works out to Rs 2,500. Due to the rebate of Rs 2,500, you end up with zero tax liability on an income of Rs 3 lakh,’’ says Arvind Rao, a certified financial planner (CFP). If the limit of Rs 1.5 lakh under Section 80C for investment is used fully, the tax will be zero for people with an income of Rs 4.5 lakh.
A surcharge of 10 per cent has been introduced on incomes between Rs 50 lakh to 1 crore. There is no relief for the super rich as the existing surcharge of 15 per cent of tax on people earning more than Rs 1 crore continues.
A simple one-page form will be introduced for filing income tax returns for individuals with taxable income upto Rs 5 lakh, provided it is not business income.
In cases where these individuals are filing income tax returns for the first time, they will not be subjected to scrutiny in the first year, unless there is specific information available with the Income Tax Department regarding high value transactions.
“The central government is hoping to widen the tax base,’’ says Yogita Dand, CFP. Currently, as against an estimated 4.2 crore persons engaged in organised sector employment, the number of individuals filing income tax returns for salary income is only 1.74 crore. As against 5.6 crore informal sector individual enterprises and firms doing small business in India, the number of returns filed by this category are only 1.81 crore.
However, the rebates, surcharges and cess levied by the central government could complicate the filing of returns. “We need a more simplified tax regime. Why complicate matters with rebates?,’’ says Gaurav Mashruwala, CFP.
The reduction in tax rate will reduce the tax liability of individuals with Rs 5 lakh income by 50 per cent and will give an additional Rs 12,500 in the hands of all other tax payers.
Besides, the Centre has proposed the levy of a late fee for delay in filing returns. “Returns filed in December (end of July is the last date usually) will attract a fee of Rs 5,000, while returns filed post-December will attract a fee of Rs 10,000. Earlier, only a penalty was levied, now it is a fee,’’ says Rao.
Also, for persons paying a rent of more than Rs 50,000 a month, the tenant has to deduct tax at source (TDS) at the rate of 5 per cent. The central government has capped the limit of cash transactions to Rs 3 lakh. In order to dissuade cash transactions, the government plans to levy a penalty of an equal amount, unless the person proves that there were good and sufficient reasons.
The set off of loss from interest paid on a housing loan will be restricted to Rs 2 lakh for any assessment year.
The unabsorbed loss shall be allowed to be carried forward for set-off in subsequent years. The amendment will be effective April 1, 2018. The move will affect second home buyers who could show the interest on the housing loan as losses.
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