In a bid to improve tax compliance and reward salaried taxpayers in the aftermath of demonetisation, finance minister Arun Jaitley on Wednesday announced halving of the income tax rate to 5%, levied on incomes between Rs 2.5 lakh and Rs 5 lakh. However, this benefit would come with a greater cost for individuals with annual salaries of Rs 50 lakh and above as they will have to cough up a 10% surcharge on income up to Rs 1 crore.
The changes in the personal income tax would result in a net revenue loss of Rs 12,800 crore to the government. While the lowering of tax would mean a revenue loss of Rs 15,500 crore, the surcharge would mitigate the loss by Rs 2,700 crore, Jaitley said in his Budget speech.
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The individuals with R3-lakh annual income will in effect pay a zero rate of tax, given the availability of R2,500 as a rebate. Moreover, if the limit of R1.5 lakh under Section 80C for investment is used fully, the tax would be zero for people with income of R4.5 lakh. “Post-demonetisation, there is a legitimate expectation of this class of people to reduce their burden of taxation. Also, an argument is made that if a nominal rate of taxation is kept for lower slab, many more people will prefer to come within the tax net,” Jaitley said.
The finance minister added that taxpayers with income up to R5 lakh other than business income will require to fill a simple one-page form for filing income tax return.
Further, the Budget announced reduction in holding period of immovable properties for computation of long-term capital gains to two years from three years earlier.
Additionally, it was also announced that the base year for counting the cost of property would now be from April 2001 compared to 1981 earlier. Both the measures are expected to bring down tax liability for those holding immovable assets.
“The FM recognised the contribution of the salaried class to the tax revenues yet did not meet the expectation of standard deduction of this class. However, a tax saving for all is proposed by reducing the rate of tax from 10% to 5% for the income slab of R2,50,000 to R5,00,000,” Sonu Iyer, tax partner and people advisory services leader, EY India, said.