Finance Minister has opted to offer a small concession on income tax front. However, he has also capped the benefit on income from house property.
The budget of 2017 has many provisions which affect an individual tax payer. Let us discus these in detail.
Reduced tax rates for initial tax slab and imposition of surcharge on higher taxable income
Looking at the fact that the tax base of the tax payer is very narrow in the country as compared to other countries, the finance minister did not have the luxury of increasing the present limit exemption limit of Rs. 2.50 lakh. In order to increase the tax base, the Finance minister has proposed reduced tax rate for the initial tax slab of Rs. 2.50 lakh to Rs. 5 lakh from 10% to 5%. This will reduce tax liability almost all the tax payers. However in order to make up for the loss due to proposal of reduced tax rates, the finance minister has proposed to levy a surcharge of 10% on the taxpayers whose income is above Rs. 50 lakh. Surcharge of 15% on the income above Rs 1 Crore will continue to be levied.
Reduction in amount and eligibility for tax rebate under Section 87A
Presently an Individual tax payer is eligible to a tax rebate of up to Rs. 5000 in case the taxable income does not exceed Rs. 5 lakh. The Finance minister has proposed to reduce both. Now the eligibility for this rebate has been reduced to Rs. 3.5 Lakh and the quantum of the tax rebate will also be restricted to Rs. 2500 only. So effectively individual with income less than Rs 3 lakh and senior citizens with income less than Rs 3.50 lakh will not have to pay any tax. Of course, they still have to file income tax returns. .
Revision of income tax return and fee for delay in filing of income tax returns
The time limit for filing of your income tax return was reduced by one year to the end of the assessment year by the previous budget. Meaning thereby, you can file income tax return of the year ending 31st March 2017 by 31st March 2018. Currently you are allowed to revise your return within one year from the end of the assessment year or before completion of the assessment whichever happens earlier. So the return for 31st March 2017 can be revised any time before the assessment is completed but by 31st March 2019. This budget proposes to reduce this time limit and bring the time limit for filing of the return and revising the return filed to before end of assessment year. The budget also provides for levy of mandatory fee in case you delay filing of your income tax return beyond the due date of 31st July. In case delay is only upto 31st December the late fee is Rs. 5000 for delay upto 31 March is Rs. 10,000. However, in case of tax payers with income up to Rs. 5 Lakh the late fee shall be restricted to Rs. 1000 only.
Reduction in holding period for immovable property and change in base year for indexation
Presently land and building qualify for benefits of concessional treatment as long term if the same are held for more than 36 months on date of sale. The budget proposes to bring down it to 24 months. This is beneficial provision for owner of the immovable properties. Presently, for the purpose of computation of capital gains, you have the option to take the fair market value of the property as on 1st April 1981 as your cost in case acquired before this date and apply the benefit of indexation on it. The budget proposes to move this from 1st April 1981 to 1st April 2001. This will be very beneficial for all the tax payers as the price appreciation between your date of acquisition and 1st April 2001 becomes fully tax free in your hand. Though you were allowed to index the market value on 1st April 1981 but the general price increase in capital assets has been more than the cost inflation index between these years.
Concession for partial withdrawal of NPS and higher deduction for non salaried persons
Till now the salaried are entitled to contribute and claim deduction for contribution to NPS account up to 10% of salary in addition to contribution by employer of 10%. So an employee can get deduction for 20% of his salary for contribution towards his NPS account, whereas a non salaried was allowed to claim deduction only 10% of his income. The budget proposes to remove this anomaly and make non salaried also to be eligible for deduction upto 20% of his income. Moreover presently 40% of the withdrawal from the NPS corpus on attaining 60 years of age is fully exempt whereas any partial withdrawal during continuance of the account is fully taxable. Now the budget proposes to make partial withdrawal up to 25% of the account holder contribution fully exempt.
TDS on rent paid by individual and HUF and restriction on set off of loss on let out property
The budget proposes to cast a duty on the individual and HUF tax payers to deduct tax at source @ 5% of the rent paid by them in case the amount of the rent exceeds Rs. 50,000 per month.
The budget also proposes to put a cap on set off of loss due to interest on money borrowed under the head income from house property against other income to Rs. 2 lakh for a year and the unabsorbed loss shall be allowed to be carried forward and set off against income under this head only.
The author is CA, CS and CFP. At present, he is working as Company Secretary of Bombay Oxygen Corporation Limited. The views expressed in this article are his own.