Union Budget 2017-18: FM trims tax to 5% for income up to Rs5 lakh

Union finance minister Arun Jaitley reduced the rate of taxation from existing 10 per cent to 5 per cent for individual assesses between income of Rs2.5 lakh and Rs5 lakh.

This will reduce the tax liability of all persons below Rs5 lakh income either to zero (with rebate) or 50 per cent of their existing liability.

While presenting the Budget in the Parliament, Jaitley said the present burden of taxation is mainly on honest tax payers and salaried employees who are showing their income correctly. Therefore, post-demonetisation, there is a legitimate expectation of this class of people to reduce their burden of taxation.

The fnance minister further said that if a nominal rate of taxation is kept for lower slab, many more people will prefer to come within the tax net.

The minister also made an appeal to all the citizens of India to contribute to nation building by making a small payment of 5 per cent tax if their income is falling in the lowest slab of Rs2.5 lakh to Rs5 lakh.

Jaitley said the government is trying to bring within the tax-net more people who are evading taxes. So, in order to expand tax net, it is decided to have a simple one-page form to be filed as Income Tax Return for the category of individuals having taxable income upto Rs5 lakh other than business income.

Also, a person of this category who files income tax return for the first time would not be subjected to any scrutiny in the first year unless there is specific information available with the department regarding his high value transaction.

The finance minister further said that in order not to have duplication of benefit, the existing benefit of rebate available to the same group of beneficiaries is being reduced to Rs2,500, available only to assessees upto income of Rs3.5 lakh.

The combined effect of both these measures will mean that there would be zero tax liability for people getting income upto Rs3 lakh per annum. and the tax liability will only be Rs2,500 for people with income between Rs3.0 and Rs3.5 lakh.

While the taxation liability of people with income upto Rs5 lakh is being reduced to half, all the other categories of tax payers in the subsequent slabs will also get a uniform benefit of Rs12,500 per person.

The total amount of tax foregone on account of this measure is Rs15,500 crore.

To compensate some of this revenue loss, a surcharge of 10 per cent of tax payable on categories of individuals whose annual taxable income is between Rs50 lakh and Rs.1 crore has been proposed. This is likely to give additional revenue of Rs2,700 crore.

The finance minister said that the direct tax proposals for exemptions, etc. would result in revenue loss of Rs22,700 crore but after counting for revenue gain of Rs2,700 crore for additional resource mobilisation proposal, the net revenue loss in direct tax would come to Rs20,000 crore.

Tax on dividend income

The Budget also proposes:

  1. To extend the provisions of Section 115BBDA of the Income-tax Act which provides for levy of tax at the rate of 10 per cent on dividend income exceeding Rs10 lakh, to all resident persons except domestic companies or trust or institution or fund registered under section 12AA or referred to in section 10(23C). Presently, these provisions are applicable only to the individuals, Hindu undivided family (HUF) and firms.
  2. Widen the scope of Section 56 of the Income-tax Act to provide that any money, immovable property or specified movable property received without consideration or with inadequate consideration, by any person, subject to certain exemption and exceptions, shall be taxable if its value exceeds Rs50,000.
  3. In case of transfer of unquoted equity shares, where the fair market value, determined in the prescribed manner is less than the consideration received, such fair market value shall be the deemed value of consideration for the purpose of computation of capital gains.
  4. Some restrictions have been put on the exemption from long-term capital gains in case of transfer of listed shares acquired after 1st October, 2004.
  5. Introduction of a new provision in the Income-tax Act to provide for tax deduction at source at the rate of 5 per cent by an individual or HUF, other than those whose books of account are required to be audited, while making payment of rent of an amount exceeding Rs50,000 per month.
  6. In order to align the transfer pricing provisions with the OECD transfer pricing guidelines and international best practices a new section will be inserted to provide that the assesse shall make secondary adjustment where the primary adjustment to the transfer price has been made in certain cases.The provision shall apply if the primary adjustment exceeds Rs1 crore and the excess money attributable to the adjustment is not brought to India within the prescribed time.
  7. In order to address the issue of thin capitalisation, a proposal has been made that the interest paid by an Indian company or permanent establishment of a foreign company, shall not be allowed as deduction in computing its taxable profit subject to certain conditions.
  8. Provisions have also been made to address the existing anomaly of interest deduction in respect of let-out property vis--vis self-occupied property.
  9. The donation by an entity registered under Section 12A or approved under section 10(23C), to other entity, registered under Section 12A, with the direction that such donation shall form part of the corpus, shall not be treated as application of income for charitable purposes.