In todays budget there were many more things then
just reduction of income tax by 5% for the people having income below Rs. 5
lakhs. Lets look at the fine prin of the budget and what other changes which
may impact the finances of an individual.
1. Revision in income
tax rate:
The existing rate of income tax for
individual assesses drawing an income between Rs 2.5 lakh to Rs 5.0 lakh has
been reduced to 5% from the present rate of 10%. This tax reduction will bring
about a savings of Rs 12,500.
2. Reduction in tax
rebate under Section 87A of the Income-tax Act, 1961:
The existing provisions of Section 87A
provide for a rebate up to Rs 5,000 from the income-tax payable to a resident
individual if the total income does not exceed Rs 5.0 lakh. It is now proposed
to amend Section 87A so as to reduce the maximum amount of rebate available
under this Section from existing Rs 5,000 to Rs 2,500. This rebate shall
be available to only resident individuals whose total income does not exceed Rs
3.5 lakh.
3. One page Income-Tax
Return form:
For
individuals earning an income up to Rs 5 lakh (other than business income) a
one page Income Tax Return form has been proposed. This would make tax filing for
individuals easy.
4. Fee for delayed
filing of return:
A fee of Rs 5,000
shall be payable, if the return is furnished after the due date but on or before
the 31st day of December of the Assessment Year. A fee of Rs 10,000 shall be
payable in any other case.
However, in a case where the total income does not exceed Rs 5.0 lakh,
it is proposed that the fee amount shall not exceed Rs 1,000. This is aimed at
instilling a sense of discipline amongst tax payers.
5. Increased surcharge:
A surcharge
of 10% on all individuals whose taxable income is between Rs 50 lakhs and Rs 1 crore.
6. Change in the period
of Long Term Capital Gain for immoveable property:
Under the
current provisions, to qualify for long-term asset, an immovable property is to be held for a
period of 36 months or more. However, it is proposed to reduce the period of
holding to 24 months (i.e. 2 years). This amendment will give respite to individuals
who are looking to sell their properties and aid liquidity in the asset class.
7. Change in base year
for indexation benefit:
The base year
for calculating the indexation benefit has been revised from April 1, 1981 to
April 1, 2001. It was highlighted that assesses were finding it difficult to compute the
capital gains in respect of a capital asset, especially immovable property
acquired before April 1, 1981 due to non-availability of relevant information,
especially the fair market value.
8. Expanded the scope of
long term bonds under Section 54EC:
The scope of
Section 54EC of the Income-tax Act, 1961 has been widened to all bonds redeemable
after 3 years which have been notified by the Central Government.
The existing provision of section 54EC provides that capital gain to the extent of Rs 50 lakhs arising from the transfer of a long-term capital asset shall be exempt if the assesse invests the whole or any part of capital gains in certain specified bonds, within the specified time. Currently, investments in bonds issued by the National Highways Authority of India (NHAI) or by the Rural Electrification Corporation Limited (REC) are eligible for exemption under this Section.
9. Rationalisation of
deduction under Rajiv Gandhi Equity Savings Scheme (RGESS) (under Section
80CCG):
Since limited number of
individuals have availed this deduction and to rationalize multiplicity of
deductions under Section 80C, the Finance Minister proposed to phase out this
deduction by providing that no deduction under Section 80CCG shall be allowed
from Assessment Year 2018-19.
10. Restriction on set
off of loss from house property:
In lines with the
international best practices, it is proposed to restrict the set-off of loss
under the head "Income from house property" against any other head of
income to Rs 2.0 lakh for any Assessment Year. However, the unabsorbed
loss shall be allowed to be carried forward for set-off in subsequent years in
accordance with the existing provisions of the Act.
11. Tax-exemption to
partial withdrawal from National Pension System (NPS):
Partial
withdrawals from NPS not exceeding 25% of the contribution made by an employee would be
exempt from tax. This proposed provision is in addition to the current
provision of exempting 40% of the amount payable to the subscriber on closure
of the account or opting out of NPS.
12. Rationalisation of
deduction for self-employed individuals depositing for NPS:
Under the current
provisions of Section 80CCD, an employee subscribing for NPS is permitted a
cumulative deduction of 20% of salary, where as in case of other individuals,
the total deduction under Section 80CCD is limited to 10% of gross total income
In order to provide
parity between an individual who is an employee and an individual who is
self-employed, it is proposed to amend section 80CCD so as to increase the
upper limit of 10% of gross total income to 20% in case of individual other
than employee.
13. Rationalisation of
deduction under Rajiv Gandhi Equity Savings Scheme (RGESS) (under Section
80CCG):
Since limited
number of individuals have availed this deduction and to rationalize multiplicity of
deductions under Section 80C, it is proposed to phase out this deduction. No
deduction under Section 80CCG shall be allowed from Assessment Year 2018-19.
14. Restriction on cash
transactions:
In order to
achieve the mission of the Government to move towards a less-cash economy and curb
black money, it is proposed to insert Section 269ST of the Act.
No person shall receive an amount of Rs 3.0 lakh or more—
- In aggregate from a person in a day;
- In respect of a single transaction; or
- In respect of transactions relating to one
event or occasion from a person,
Only an account payee cheque or account payee bank draft or use of
electronic clearing system through a bank account shall be permitted.
Moreover, in order to bring transparency to the source of funding by
political parties, no donations of Rs 2,000 or more can be made in cash.
Political parties will be entitled to receive donations by cheque or digital mode
or electoral bonds from their donors.
Finally:
To keep our finances in healthy in the
long term, we should ensure that we are saving and investing wisely in wealth
creating investment avenues while our endeavour to achieve many financial goals in
life. Let’s Be a smart and a wise investor in your journey to wealth creation;
don’t depend only on union budgets.
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