Union Budget 2017 : Tax Rate Reduced to 5% on income 2.5 to 5 Lakh

Union Budget 2017 : Tax Rate Reduced to 5% on income 2.5 to 5 Lakh. In the previous article, we have given Top 80 Union Budget 2017 Highlights and Benefits and Drawbacks of Budget 2017 in Different Fields. Today we are providing major changes related to income tax because of union budget 2017.

Union Budget 2017 

a. Those earning between Rs 2.5 lakh and Rs 5 lakh a year will now have to pay income tax at the rate of 5% instead of the earlier 10%, according to Finance Minister Arun Jaitley’s Budget 2017-18 proposal.

b. Mr. Jaitley also announced that all the other categories of tax payers in the subsequent slabs will also get a uniform benefit of Rs 12,500 per person.

c. He said the existing rebate for those earning Rs 5 lakh or less will now be reduced to Rs 2,500 and available only to those earning an income of up to Rs 3.5 lakh.

d. The Finance Minister has also proposed to levy a surcharge of 10% of tax payable on those whose annual taxable income is between Rs 50 lakh and Rs 1 crore.

e. The existing surcharge of 15% of tax on people earning more than Rs 1 crore will continue.

“While the Government is trying to bring within the tax net more people who are evading taxes, the present burden of taxation is mainly on honest taxpayers and salaried employees who are showing their income correctly,” Mr. Jaitley said in his Budget speech on Wednesday.

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

Major changes relating to Income-tax

a. Jaitley reduced the holding period for long-term capital gains tax on property to 2 years from 3 years.

b. There is also a proposal to allow a carry forward of Minimum Alternative Tax for a period of 15 years up from the current 10 years now.

c. On the corporate side, income tax for small companies with an annual turnover of Rs 50 crore, has been reduced to 25 percent, from the earlier 30 percent.

d. The FM has provided a welcome relief firstly by reducing the tax rate to 5% from 10% for income below Rs 5 lakh and at the same time reducing the rebate from tax to ₹2,500.

e. In order to bring about parity between an individual who is an employee and an individual who is self-employed, it is proposed to amend section 80CCD of the Act so as to increase the upper limit of 10% of Gross Total Income (“GTI”) to 20% in case of individual who is self-employed. Accordingly, for a self-employed individual, contributions to NPS to the extent of 20 percent of his/ her GTI will now be allowed.

f. Reduction of holding period for computation of capital gains for immovable property :

It is proposed to amend section 2(42A) of the Act to reduce the holding period from existing 36 months to 24 months in case of immovable property being land and building or both to quality as long-term capital asset.

g. Withholding tax obligation for individual not liable to tax audit :

As per the existing provision of the Act, withholding tax obligation on rent payments arises only in case of individuals or HUF who are liable to tax audit. It is proposed that individual or HUF not liable for tax audit will now be required to withhold tax at the rate of 5%, if the rent exceeds Rs 50,000 per month or part of month on payment of rent.

Also Tax deduction and collection Account Number (“TAN”) will not be required to be obtained.

Further, tax would be required to be withheld only once during the previous year in the last installment payable for the year.

In addition to the above, it is proposed that under section 206AA of the Act, maximum deduction shall not exceed the rent payable for the last month of the previous year/ last month of tenancy

h. Expansion of scope of long-term bonds under section 54EC

It is proposed to provide exemption under section 54EC of the Act on investment of long-term capital gains in any bond redeemable after three years that shall be notified by the central government. This will be in addition to investments in NHAI bonds and RECL bonds where exemption was allowed on investment up to Rs 5,000,000

Here is the comparative analysis of tax slabs for the Financial year 2016-17 & 2017-18 :

Comparative tax slabs for individuals Income tax slab rates for Financial Year 2016-17 (relevant to Assessment Year 2017-18) and Financial Year 2017-18 (relevant to Assessment Year 2018-19)

a) Individuals Below Age 60

b) Resident Senior Citizens Individuals (Above 60 years of age and less than 80 years of age)

c) Resident Super Senior Citizens Individuals (Above 80 years of age)

d) Non-resident Individuals

Other related changes

• Surcharge of 10 percent on income of individuals above 50, 00,000 and less than 1,00,00,000. (new levy)
• Surcharge of 15 percent on income of individuals above 1,00,00,000. (Existing Levy)
• Rebate under section 87A available to resident individuals reduced to Rs.2,500 (from existing Rs.5,000) and available only to individuals with income up to Rs.3,50,000 (existing limit was Rs.5,00,000).

Brief Discussion on Following Topics :

Tax Deduction at Source

a) In order to widen the scope of tax deduction at source, new section 194-IB, proposed to be inserted to provide for tax deduction at source @ 5% by an Individuals or a HUF (other than those covered under 44AB), while making payment of rent to a resident of an amount exceeding Rs 50,000 per month or part of month. To reduce compliance burden, the deductor shall not be required to obtain TAN or file any separate TDS return for this purpose

b) In order to promote ease of doing business, section 194J proposed to be amended to provide for lower the rate of deduction of tax from 10 % to 2% in case of payments made or credited to a person engaged only in the business of operation of call centre.

c) A concessional withholding rate of 5% is being charged on interest earned by foreign entities in external commercial borrowings or in bonds and Government securities. This concession is available on borrowings made, under a loan agreement at any time on or after 1st July 2012, but before 1st July 2017; or by way of any long-term bond including long-term infrastructure bond on or after 1st October 2014 but before 1st July 2017, respectively. The Concessional rate of 5% proposed to be extended in respect of borrowings made before 1st July 2020. This benefit is also proposed to be extended to Rupee Denominated (Masala) Bonds.

Capital Gain Taxation

a) With a view to promote the real-estate sector and to make it more attractive for investment, the period of holding for considering gain from immovable property, being land or building or both to be long term is proposed to be reduced from 3 years to 2 years.

b) The base year for indexation proposed to be shifted from 1.4.1981 to 1.4.2001 for all classes of assets including immovable property. The change in base year will significantly lessen the capital gain tax liability while encouraging the mobility of assets.

c) Presently, investment in bond issued by the National Highways Authority of India or by the Rural Electrification Corporation Limited is eligible for exemption under section 54EC.

In order to widen the scope of the section for sectors which may raise fund by issue of bonds eligible for exemption, the said section proposed to be amended so as to provide that investment in any bond redeemable after three years which has been notified by the Central Government in this behalf shall also be eligible for exemption.

Tax Proposals to Reduce Cash Transactions and Promote Digital Economy

a) No deduction to be allowed under section 80G in respect of donation by any mode other than cash if such amount of donation exceeds Rs. 2,000. The present limit is Rs.10,000.

b) The threshold limit under section 40A(3) for allowability of revenue expenditure incurred in cash is proposed to be reduced from Rs. 20,000 to Rs. 10,000.

c) Currently, there is no provision to disallow the capital expenditure incurred in cash. In order to discourage cash transactions even for capital expenditure, limit of Rs. 10,000 is proposed. Accordingly, capital expenditure incurred in cash shall be ignored for the purposes of determination of actual cost under section 43, if such amount of expenditure exceeds Rs. 10,000. Further, no deduction would be allowable under section 35AD, in respect of such capital expenditure incurred in cash for an amount exceeding Rs. 10,000.

d) To promote digital transactions and to encourage small unorganized business to accept digital payments, section 44AD proposed to be amended to reduce the existing presumptive taxation rate of 8% to 6%, in respect of the amount of such total turnover or gross receipts received by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account during the previous year or before the due date specified in sub-section of section 139 in respect of that previous year. However, the existing rate of deemed profit of 8% referred to in section 44AD of the Act, shall continue to apply in respect of total turnover or gross receipts received in any other mode. This amendment is proposed to be effective from A.Y. 2017-18.

However, the existing rate of deemed profit of 8% referred to in section 44AD of the Act, shall continue to apply in respect of total turnover or gross receipts received in any other mode. This amendment is proposed to be effective from A.Y. 2017-18.

Personal Taxation

a) The existing rate of income tax applicable on income between Rs. 2.5 lacs to Rs. 5 lacs is proposed to be reduced from 10% to 5% in case of individuals/HUFs or AOPs or BOIs.

b) The rebate of Rs. 5,000 currently available under section 87A in case of an individual resident in India whose total income does not exceed Rs. 5,00,000, is proposed to be reduced to Rs. 2,500, where the total income does not exceed Rs. 3,50,000 from A.Y. 2018-19.

c) Surcharge @ 10% of tax payable is proposed to be levied on individuals/HUFs or AOPs or BOIs whose total income exceeds Rs. 50 lakhs but does not exceeds Rs. 1 crore. Thereafter, surcharge @15% would continue to be applicable on total income exceeding Rs. 1 crore.

Corporate Taxation

a) To give effect to the announcement made by the Finance Minister, in Union Budget 2015-16 that the corporate income tax rate would be reduced to 25% gradually and in order to make Medium and Small Enterprises more viable and to encourage firms to migrate to company format, the corporate tax rate is proposed to reduce to 25% from A.Y. 2018-19 for Medium and Small Enterprises companies with annual turnover upto Rs.50 crore.

b) The period for carry forward of MAT credit proposed to be increased from 10 years to 15 years. Similar amendment is proposed in section 115JD to allow carry forward of Alternate Minimum Tax (AMT) to 15 years.

c) Provisions relating to computation of book profit for the purpose of levy of minimum alternate tax (MAT) for Ind-AS compliant companies introduced.

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