Budget 2017: Decoding personal taxation

In a bonanza of sorts for the middle-class Indians which are mostly the salaried class of people, Union Finance Minister Arun Jaitley reduced the rate on income tax slab of Rs 2.5 lakh to Rs 5 lakh from 10 to 5 per cent and the rest remained same.

While the taxation liability of people with income up to Rs 5 lakhs is being reduced to half, all the other categories of tax payers in the subsequent slabs will also get a uniform benefit of Rs 12,500 per person. The biggest relief came was for the lower strata income group, after a gap of 20 years much to the cheer of general public. The tax relief will benefit around 2 crore taxpayers, which is a correct way of appreciating the honest taxpayers and salaried employees who regularly pay their taxes.

Union Budget also proposed to levy a surcharge of 10 per cent of tax payable on categories of individuals whose annual taxable income is between Rs 50 lakhs and Rs 1 crore. However, the existing surcharge of 15 per cent of tax on people earning more than Rs 1 crore will continue. Moreover, those with income between Rs 50 lakh and Rs 1 crore have been hit with a surcharge of 10 per cent. Their tax liability can go up to about Rs 2.9 lakh. Those with a taxable income of over Rs 1 crore will continue to pay a surcharge of 15 per cent.

To avoid duplication of benefits from the rate cut, the Budget reduced tax rebate to Rs 2,500 from Rs 5,000 i.e. 50 per cent for individuals with total income up to Rs 3.5 lakh. So, for a person earning Rs 3 lakh income, tax liability of Rs 2,500 on taxable income of Rs 50,000 at the rate of 5 per cent will become zero because of the rebate, which would translate into a tax-free income up to Rs lakh. Therefore, in short, taxpayers whose income is between Rs 2.5 lakh and Rs 3 lakh would neither set to gain or lose from the Budget. However, those with Rs 3.50 lakh income will stand to gain the most in this category as their income-tax liability of Rs 5,000 will be reduced to Rs 2,500 because of the rebate of Rs 2,500.

On income above threshold of Rs 3.5 lakh, there will be no rebate. So, if one has income of Rs 4 lakh, liability on taxable income of Rs 1.50 lakh will be Rs 7,500 at 5 per cent as rebate is not allowed for an income above Rs 3.5 lakh.

Similarly, for a person with an income of Rs 5 lakh, net tax liability after rebate in 2016 was Rs 20,000, which was bought down to Rs 12,500. So, this category of taxpayer will gain by Rs 7,500. Earlier, Rs 5,000 rebate was not available to those with income of more than Rs 5 lakh, so in this, they also can benefit the most, saving Rs 12,500 from the rate cut.

In the Budget speech, Union Finance Minister pointed out that if people availed deduction of Rs 1.5 lakh on making investment under Section 80C in Public Provident Fund (PPF), mutual funds and insurance products, they could avoid paying tax for an income up to Rs 4.5 lakh.