Budget 2017: FM halves income tax rate to 5% for Rs 2.5-5 lakh bracket

Vaishali KarulkarMoneycontrolIn a major relief to taxpayers who are bearing the brunt of demonetisation, Finance Minister Arun Jaitley announced a reduction in the tax rate for individuals having income in the Rs 2.5 lakh-Rs 5 lakh bracket to 5 percent from the current 10 percent. This will lead to a 50 percent saving in the income tax if a person is earning up to Rs 5 lakh. Demonetisation has been hard-hitting on citizens and the government was under pressure to ease the pain."While the government is trying to bring within tax net more people who are evading taxes, 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," Jaitley said in his speech.The Finance Minister also announced that income between Rs 50 lakh and Rs 1 crore will attract a 10 percent surcharge. Jaitley also declared a rebate of Rs 12,500 for those who pay 20-30 percent tax."While the taxation liability of people with income upto Rs 5 lakh 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 total amount of tax foregone on account of this measure is Rs 15,500 crore," Jaitley said.Besides, a simple one-page return for people with annual income of Rs 5 lakh other than business income has been introduced in the Budget."In order to expand tax net, I also plan to have a simple one-page form to be filed as Income Tax Return for the category of individuals having taxable income upto Rs 5 lakh other than business income," he said.Spelling out taxpayer data, the Finance Minister said that India remains a “largely a tax non-compliant society”. He said, “Among the 3.7 crore individuals who filed the tax returns in 2015-16, 99 lakh show income below the exemption limit of Rs 2.5 lakh p.a.; 1.95 crore show (annual) income between Rs 2.5 to Rs 5 lakh, 52 lakh show (annual) income between Rs 5 to Rs 10 lakh and only 24 lakh people show (annual) income above Rs 10 lakh,”

The number of people showing income more than Rs 50 lakh in the entire country is only 1.72 lakh, he said. “We can contrast this with the fact that in the last five years, more than 1.25 crore cars have been sold, and number of Indian citizens who flew abroad, either for business or tourism, is 2 crore in the year 2015,” he said.

Attributing tax evasion to the predominance of cash in the economy, Jaitley said: “When too many people evade taxes, the burden of their share falls on those who are honest and compliant.”In the 2014 Budget, Jaitley had raised the exemption limit by Rs 50,000, the Section 80C tax-saving investment limit. He had also followed it up with a deduction on interest paid on home loan for self-occupied property. However, there were no positive announcements on the direct tax front in the following two Budgets.

The limit had remained the same at Rs 1,00,000 from 2006-07 when section 80C was introduced until 2013-14.