From a personal tax front, the budget seems to be balanced providing relief to the low income level taxpayers.
The budget presented earlier today by the Hon’ble Finance Minister has clearly lifted the ball out of the park. If market sentiments are an indicator, then clearly the Government has “walked the talk” on its ambitious demonetisation scheme with a very balanced budget which is progressive and focuses on a diverse spread from rural area and infrastructure to incentivising the use of digital transactions.
From a personal tax front, the budget seems to be balanced providing relief to the low income level taxpayers. Although the threshold limit of exempt income remains intact (i.e. Rs 2.5 lakhs), the tax rate for the taxable income upto Rs 5 lakhs has been reduced from 10% to 5%.
In addition to the above, the taxpayers having an income upto Rs 3.5 lakhs will also be entitled to avail a rebate of Rs 2,500.
Possibly with an objective to make good for the revenue loss on account of lower tax rates and to bring parity between the rich and poor, a surcharge of 10% is proposed to be levied on taxpayers earning income between Rs 50 lakhs to Rs 1 crore. While the new surcharge will negatively impact 1.72 lakh individual taxpayers, lowering the tax rate would benefit 271 lakh individual taxpayers. This is perfectly in line with Adam Smith’s first canon of taxation – Canon of Equity.
There are other reasons to cheer too, for the individuals. The holding period for qualifying gain from immovable property as long term has been reduced to 2 years (earlier 3 years). Also, the base year for indexation is proposed to be shifted from 1981 to 2001 for all asset categories. Conversion of preference shares into equity shares will not be considered as transfer liable to capital gain tax. Investment options under capital gains savings scheme is set to increase.
To encourage investment in National Pension Scheme, the deduction limit for contribution made by non-salaried taxpayers, is proposed to be enhanced to 20% of the gross total income (subject to the limit as prescribed under section 80CCE). Also withdrawal (subject to satisfactions of conditions specified) to the extent of 25 percent of the contribution would be exempt.
To harmonise the tax benefit between self-occupied house property and let-out house property, it is proposed to restrict the set off of loss for a let-out property to Rs 2 lakhs. The balance loss can be carried forward for set off.
A simple one-page Income Tax Return is proposed to be introduced for individuals having taxable income upto Rs 5 lakhs (other than business income). Measures have been proposed to levy a fee on the taxpayers filing the tax return after the due date. A fee of Rs 5,000 would be charged if the return is furnished on or before 31st December of the assessment year; Rs 10,000 in any other case. However, if the total income of the person does not exceed five lakh rupees, the fee payable would not exceed Rs 1,000.
Clearly the budget is bold and in line with the vision that the honest be rewarded while the defaulters be subjected to harsh measures.
(This article is authored by Shuddhasattwa Ghosh, Partner, People Advisory Services, EY. With inputs from Rahul Jain and Rahul Agarwalla, Senior Tax Professionals, EY)