In a major step, Finance Minister Arun Jaitley on Wednesday announced the reduction of the existing rate of taxation for individuals with income ranging between Rs 2.5 lakh to Rs 5 lakh to 5 per cent instead of 10 per cent. There will be a surcharge of 10 per cent for those whose annual income is Rs 50 lakh to Rs 1 crore. Additionally, the 15 per cent surcharge on Rs 1 crore or more remains unchanged. This is to make up for Rs 15,000 crore loss due to the cut in the personal income tax rate.
Experts at BMR Advisors decode the key changes proposed in the Union Budget announced by the Finance Minister on February 1, 2017.
1. Tax slabs
It has been proposed to reduce the tax rate for taxable income less than Rs 500,000 from current 10% to 5% benefiting Individuals (resident/ non-resident) below the age of 60 years and Individuals (resident/ non-resident) above the age of 60 years and below the age of 80 years.
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2. Rebate under section 87A
Rebate under section 87A of the Income-tax Act, 1961 (“the Act”) is proposed to be reduced from Rs 5,000 to Rs 2,500. It has also been proposed to restrict such rebate to resident individuals whose total income does not exceed Rs 350,000 (earlier Rs 500,000).
Considering the above amendments, the net benefit arising to an individual with taxable income of Rs 350,000 and Rs 500,000 is Rs 2,575 and Rs 7,725 respectively.
