What the Union Budget means for personal finance
Finance Minister Arun Jaitley’s Budget speech lasted nearly two hours. And perhaps the most keenly watched announcement – related to taxes and personal finance – came in the last 10 minutes of his speech. This is because any change in income tax levels or exemptions directly affects the taxpayer.
Like every year, there were a lot of expectations and demands from the public for tax cuts and other benefits. Let’s take a look at what the budget means for personal finance.
- Reduction in taxation for the first slab
The finance minister proposed to reduce the tax rate on income between Rs 2.5 lakh and Rs 5 lakh to 5% from the existing 10%. This has certainly brought cheers to taxpayers in this tax slab. However, the tax rebates available to this group of taxpayers have been modified in order to prevent duplication of benefit.
The FM reduced the current benefit of rebate under Section 87A to Rs 2,500 from Rs 5,000. Also, it will only be available for those having a taxable income of less than Rs 3.5 lakh per annum. This limit was Rs 5 lakh earlier. This means there will be zero tax liability for individuals with income up to Rs 3 lakh per annum and Rs 2,500 for people with income between Rs 3 lakh to Rs 3.5 lakh. This is before you take into account all the tax deductions under Section 80C.
- Increase in taxation on the rich
When the above tax reduction comes into effect, the government will miss out on tax revenues to the amount of Rs 15,500 crore. As a counter-measure, the Finance Minister proposed a surcharge of 10% of tax payable on individuals whose taxable income is between Rs 50 lakh and Rs 1 crore. This move is likely to provide additional revenue of Rs 2,700 crore to the government.
- Expansion of tax net
In order to increase the number of taxpayers in the country, the Finance Minister proposed a single one-page form for easy filing of income tax returns. This feature is applicable for individuals with taxable income of up to Rs 5 lakh apart from business income. This is his way of honouring those paying taxes honestly. In addition, he assured that individuals who filed IT returns for the first time in this category would not be subjected to scrutiny unless there was specific information regarding high-value transactions. This should ease worries of individuals who had to deposit money in their banks after demonetisation.
- Penalty on late filing of tax returns
In order to ensure that taxpayers file their tax returns on time, a penalty of up to Rs 10,000 has been proposed. This fee shall be levied on taxpayers from the assessment year 2018-19 onwards. But in the case of small taxpayers with an annual income of less than Rs 5 lakh, the penalty has been limited to Rs 1,000.
- 5% TDS for rent above Rs 50,000
Individuals who receive rental payments greater than Rs 50,000 shall now have to incorporate a 5% Tax Deducted at Source (TDS). This move aims to bring people with large rental incomes into the tax net. It will come into effect from 1 June, 2017.
- No change in Section 80C
Despite a lot of expectations, there was no hike in Section 80C of the Income Tax Act. At the moment, it incorporates various payments such as PF, tuition fees and insurance. With the rise in cost of living, experts believe that the exemption limit of Rs 2 lakh is not enough. But those who expected an increase of this limit to at least Rs 3 lakh were left disappointed.
The bottom line
With regard to personal finance, the verdict on the budget has left people with mixed reviews. It all depends on which tax bracket you come in. Tax payers in the lower bracket have cause to cheer while those in the middle section are disappointed. But overall, the main aim of these measures was to bring a larger number of people into the tax net.