Key changes in the budget for an individual tax payer
February 3, 2017
The Union budget was presented on Wednesday by the Finance Minister finally laid to rest all the speculations around it. One of the ten themes of the budget was Tax Administration - honouring the honest. The FM in his speech acknowledged the expectations of the common man and keeping this in view, he has made several proposals to mobilise additional revenue and undertake rationalisation measures. However, one is not sure if the same has met all expectations as there willbe an increase in the tax liability for few sections of taxpayers.
Some of the key proposals affecting individual tax payers are analysed below:
- With the belief that if a nominal rate of taxation is kept for lower slab, more people will prefer to come within the tax net, the rate of tax for individual taxpayers with income between INR 2.5 lakhs to INR 5 lakhs has been reduced to 5% from existing 10%. This will result in a tax benefit of INR 12,500 for all categories of taxpayers as well.
- The rebate of INR 5,000 currently available to taxpayers with income up to INR 5 lakhs will now be INR 2,500 and available to taxpayers with income up to INR 3.5 lakhs only. This is done in order to avoid duplication of benefits and would effectively nullify the tax liability of taxpayers with income up to INR 3 lakhs.
- In order to make up for the loss in revenue on account of the reduction in the tax rate, a surcharge of 10% has been introduced for taxpayers earningincome above INR 50 lakhs up to INR 1 Crore.
The impact of the above on the tax liability is captured in the table below:
- Individuals paying rent of INR 50,000 or above per month would now be required to deduct tax at source of 5% on such rent paid in the last month of the tenancy or the financial year and, deposit the same by way of tax challan-cum-statement. There will be no requirement to obtain tax deduction account number.
- The set-off of loss from let out house property against other heads of income in the current year will now be restricted to INR 2 lakhs. Earlier, there was no limit on the loss forlet-out house property. The remaining loss can be carried forward for next 8 years and set off against income from house property.
- Holding period for immovable property to be considered as long term asset will be reduced to 2 years from existing period of 3 years. This will reduce the tax liability, if the immovable property is sold in third year.
National Pension System (NPS)
- Currently, the base year for computingcapital gains is 1981 which will be shifted to 1.4.2001.This would mean that 1.4.2001 would be the base year for considering the fair market value for cost of acquisition of the immovable property or actual cost whichever is higher for the purpose of indexation.
- Self-employed individuals will now be eligible to claim deduction of up to 20% of their gross total income as against existing 10% in respect of contributions made to NPS. This would besubject to the overall deduction limit of Rs 150,000
- Partial withdrawal from NPSup to 25% of the contribution made by an employee in accordance with the specified terms andconditions is proposed to be exempt
- In a measure towards rationalisation, time limits for completion of assessments have been reduced. The time limit for completion of scrutiny assessment from tax year 2017-18 would be 30 months and from tax year 2018-19 would be 24 months from the end of the relevant tax years.
- In order to enable swifter completion of assessments as outlined above, the time limit for filing of revised returns has been reduced to 1 year from the end of the tax year
- Fees in the range of Rs 1,000 to 10,000 has been proposed for delay in filing of tax return
- The provisions enabling the tax officer to withhold processing of return and issuance of refund in scrutiny cases is proposed to be done away with.
The FM's efforts to bring in tax efficiencies and rationalisation in tax administration is evident from the above
The author is Director of EY India. AmmuSadanandhan, Senior Tax Professional at EY contributed to the article.
The views expressed in this article are personal to the author