Those earning between ₹2.5 lakh and ₹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.
Mr. Jaitley also announced that all the other categories of tax payers in the subsequent slabs will also get a uniform benefit of ₹12,500 per person.
He said the existing rebate for those earning ₹5 lakh or less will now be reduced to ₹2,500 and available only to those earning an income of up to ₹3.5 lakh.
The Finance Minister has also proposed to levy a surcharge of 10% of tax payable on those whose annual taxable income is between ₹50 lakh and ₹1 crore.
The existing surcharge of 15% of tax on people earning more than ₹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.
“Therefore, 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.”
“The FM has provided a welcome relief firstly by reducing the tax rate to 5% from 10% for income below ₹5 lakh and at the same time reducing the rebate from tax to ₹2,500,” Parizad Sirwalla, Partner and Head of Global Mobility Services, KPMG in India said.
“This gives every tax payer benefit up to a maximum ₹14,807 depending on income level other than the few in the bracket of ₹50 lakh to ₹1 crore who will have to pay an additional surcharge on tax at the rate of 10%.”
The combined effect of the reduced tax rate and the rebate of ₹2,500 will mean that those earning up to ₹3 lakh a year will effectively see their tax liability fall to zero (a tax incidence of ₹2,500 at 5% of ₹50,000 minus the rebate of ₹2,500). Those earning between ₹3 lakh and ₹3.5 lakh will have a tax liability of ₹2,500 (a tax incidence of ₹5,000 minus a rebate of ₹2,500).
“If the limit of ₹1.5 lakh under Section 80C for investment is used fully the tax would be zero for people with income of ₹4.5 lakh,” Mr. Jaitley said.
The Finance Minister pointed out that the total tax foregone on account of these measures is ₹15,500 crore.
In the table accompanying the article, the tax rate for senior citizens in the Rs 3,00,001 to Rs 5,00,000 group was initially wrongly mentioned as 10%. It should be 5%. The error has since been corrected.
