IN A major relief to taxpayers, finance minister Arun Jaitley in his Budget speech on Wednesday announced reduction in tax rate for individuals in the R2.5-5 lakh taxable income bracket to 5% from the current 10%. This move will reduce tax liability by around R10,300 at the entry level tax slab.
“This would reduce the tax liability of all persons with below R5 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 R2500, available only to assessees with up to income of R3.5 lakh,” he said.
If an individual earning R5 lakh invests R1.5 lakh in products exempt under Section 80C of Income-Tax Act, tax liability would be R2,575 after the new rate is applied in the next financial year.
“While the taxation liability of people with income up to R5 lakh is being reduced to half, all the other categories of taxpayers in the subsequent slabs will also get a uniform benefit of R12,500 per person. The total amount of tax foregone on account of this measure is R15,500 crore,” Jaitley said.
Currently, a 10% tax rate applies to the R2.5-5 lakh income slab. This translates into a tax liability of R20,600. But in FY18, this rate will be 5%, thus reducing the tax liability by R10,300. However, for individuals with R5-10 lakh income, the rate of taxation continues to be 20% and it will be 30% for individuals who earn more than R10 lakh.
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Neha Malhotra, executive director, Nangia & Co. said, “It was a legitimate expectation post demonetisation that the personal income tax rate would be reduced to soften the tax hit on the pockets of individuals. Answering the hopes of taxpayers, the tax rate on income of R2.5-5 lakh has been reduced from 10% to 5%. Also, those earning an income upto R3 lakh shall be entitled to a rebate of R2,500, leading to nil tax outgo. But if you are earning an income of more than R3 lakh, the rebate shall not be available. To recoup the revenue loss, surcharge at 10% on income of R50 lakh to R1 crore has been levied which shall mop up additional revenue of R2,500 crore. Those earning more than R1 crore shall continue to be liable to pay surcharge at 15%.”