Yesterday, the Finance Minister Shri Arun Jaitley presented the Union Budget for the Financial Year 2017-18.
Discussed below are some of the key provisions of the same, with respect to our day-to-day money matters.
Some of these tax proposals were announced in the speech, and hence are known to many.
However, a few provisions remained hidden and buried within the bulky budget documents (which I spent the whole night decoding for the benefit of one and all).
Listed below are 14 personal-finance related key takeaways of the #budget2017.
1. Reduction in the Rate of Income Tax
Earlier, the earnings between Rs.2.50 to Rs.5 lakhs were charged income tax at the rate of 10%.
This has been reduced to @5%.
Accordingly, the tax burden
a) of those with income between Rs.2.50 lakhs to Rs.5 lakhs will either become half or zero,
b) and everyone else who earns more than Rs.5 lakhs will save Rs.12,500 next year
2. Tax rebate u/s 87A reduced
Earlier, a person earning up to Rs.5 lakhs was entitled to a tax rebate of up to Rs.5000. Given the above reduction in the tax rate from 10% to 5%, this rebate has been amended.
Henceforth, a person earning up to Rs.3.50 lakhs would be entitled to a tax rebate of up to Rs.2,500.
Therefore,
a) tax is zero for people earning up to Rs.3 lakhs, and
b) tax is Rs.2500 for people earning Rs.3.50 lakhs (down from Rs.5000 earlier).
3. Restriction on cash transactions
Henceforth, no person can receive — in cash — an amount of Rs.3 lakhs or more per day per person, either for one transaction or multiple transactions relating to one event or occasion.
Penalty for breaking this rule would be equal to such amount received.
Accordingly, the earlier provision to collect tax at source @1%, for the sale of jewellery in cash exceeding Rs.5 lakhs, stands omitted.
4. Surcharge for income between Rs.50 lakhs to Rs.1 crore
Earlier, only people earning above Rs.1 crore were liable to pay a surcharge @15%. There was no surcharge for income below Rs.1 crore.
Now, those earning between Rs.50 lakhs to Rs.1 crore will come under the purview of surcharge. The rate of surcharge for them would be 10%.
5. Condition for Long Term Capital Gains Tax relaxed
Earlier, the profit on sale of immovable property was considered as long term gains, if the property was held for more than 36 months. Accordingly, it enjoyed concessional rate of tax of 20% along with the indexation benefit.
This period has now been reduced to 24 months.
Thus, property held for up to 24 months would attract short term capital gains tax (= marginal income tax slab rate of the tax payer), and concessional long term capital gains tax if held for more than 24 months.
6. Restriction on set-off of loss from House property
The loss from house property — which, in many instances, is the interest paid on the home loan — can be set-off against income from any other source (in many instances the salary or the business income).
Presently, there is no limit on this set-off for the 2nd (and subsequent) rented properties... and hence a great tax saving alternative.
Henceforth, this benefit would be LIMITED to Rs.2 lakhs only (i.e. same as on the 1st self-occupied property.
Unabsorbed loss, if any, can be carried forward for 8 years and allowed to be set-off ONLY against the income from house property in those years. This is an existing provision and continues.
7. Change of base year for computing capital gains
Presently, for the properties acquired before April 1, 1981, an assessee is allowed to consider either the actual cost of the asset or its fair market value as on 1.4.1981 as the cost of acquisition. Further, the assessee is also allowed to claim deduction of the cost of improvement incurred after 1.4.1981.
Due to difficulty in obtaining more than three decades old data on the fair market value, the Govt. has decided to change the base year.
Henceforth, the fair market value as on April 1, 2001 will be considered as the cost of acquisition for properties acquired before 1.4.2001. Consequently, only the cost of improvement incurred AFTER 1.4.2001 would be allowed as deduction.
8. More bonds under section 54EC
Presently, one of the options to save long term capital gains tax is to reinvest the gains (maximum up to Rs.50 lakhs) in specified bonds issued by Rural Electrification Corporation (REC) or National Highways Authority of India (NHAI).
The list of such companies, who may issue such 3-year tax saving bonds u/s 54EC, is now proposed to be expanded.
The Govt. will notify the new companies which will qualify for such tax exemption.
9. Restriction on cash donations
Presently, you can claim tax deduction u/s 80G for donations "in cash" up to Rs.10,000. For higher amounts, other modes of payments are necessary to claim deduction.
Henceforth, only up to Rs.2000 as donations in cash would be allowed as deduction u/s 80G. For higher amounts, the payment has to be in other modes.
10. New condition regarding Nil Tax on long term capital gains on equity / equity MFs
Presently, no tax is payable if you sell your equity shares or equity-oriented mutual funds (held for more than one year) on which Securities Transaction Tax (STT) has been paid at the time of selling.
This clause is being misused and hence is amended:
Henceforth, the long term capital gains on equity shares or equity-oriented mutual funds would be exempt from tax, if STT was chargeable EVEN at the time of acquisition of such shares / units.
This, however, will not include cases of purchase where STT was not applicable e.g. IPOs, FPOs, Bonus / Rights Issue etc.
11. Higher penalty for delay in filing income tax returns
Earlier, Rs.5000 was the penalty if the returns were not filed before the end of the Assessment Year.
In order to improve tax compliance, non-filing of the income tax returns in time would now be penalized as under:
- Rs.5,000 would be the penalty if the returns are filed after the due date but on or before Dec 31st of the Assessment Year.
- For any other case, the penalty would be Rs.10,000.
However, if the total income is Rs.5 lakhs or less, the penalty levied would not exceed Rs.1000.
12. Rajiv Gandhi Equity Saving Scheme (RGESS) to be phased out
From FY 2017-18 onward, no new investment would be allowed under the Rajiv Gandhi Equity Saving Scheme.
Only the investors who have claimed tax benefit under the RGESS Scheme in 2016-17 or earlier, would be allowed to claim deductions till FY 18-19 as per the provisions of the said section.
13. Tax benefit on early withdrawal under National Pension System (NPS)
Presently, in the NPS Scheme only 60% amount can be withdrawn at maturity (remaining 40% amount is compulsorily invested in an Annuity Plan). Of this 40% is tax-free and 20% is taxable.
However, partial withdrawal if any does not enjoy any tax exemption.
Henceforth, partial withdrawals too shall be exempt from tax for an amount not exceeding 25% of the employee's contribution.
14. Simple one-page return form
For people having taxable income up to Rs.5 lakhs (other than business income), the Govt. will introduce a simple one-page form for filing their Income Tax Return.
Further, those filing their tax return for the first time under this category, will be exempt from any scrutiny in the first year. This, of course, is subject to the condition that there is no specific information of any high value transaction with the IT Department.
This, in a simple and concise form, is what the budget for 2017-18 has to offer.
Discussed below are some of the key provisions of the same, with respect to our day-to-day money matters.
Some of these tax proposals were announced in the speech, and hence are known to many.
However, a few provisions remained hidden and buried within the bulky budget documents (which I spent the whole night decoding for the benefit of one and all).
Listed below are 14 personal-finance related key takeaways of the #budget2017.
1. Reduction in the Rate of Income Tax
Earlier, the earnings between Rs.2.50 to Rs.5 lakhs were charged income tax at the rate of 10%.
This has been reduced to @5%.
Accordingly, the tax burden
a) of those with income between Rs.2.50 lakhs to Rs.5 lakhs will either become half or zero,
b) and everyone else who earns more than Rs.5 lakhs will save Rs.12,500 next year
2. Tax rebate u/s 87A reduced
Earlier, a person earning up to Rs.5 lakhs was entitled to a tax rebate of up to Rs.5000. Given the above reduction in the tax rate from 10% to 5%, this rebate has been amended.
Henceforth, a person earning up to Rs.3.50 lakhs would be entitled to a tax rebate of up to Rs.2,500.
Therefore,
a) tax is zero for people earning up to Rs.3 lakhs, and
b) tax is Rs.2500 for people earning Rs.3.50 lakhs (down from Rs.5000 earlier).
3. Restriction on cash transactions
Henceforth, no person can receive — in cash — an amount of Rs.3 lakhs or more per day per person, either for one transaction or multiple transactions relating to one event or occasion.
Penalty for breaking this rule would be equal to such amount received.
Accordingly, the earlier provision to collect tax at source @1%, for the sale of jewellery in cash exceeding Rs.5 lakhs, stands omitted.
4. Surcharge for income between Rs.50 lakhs to Rs.1 crore
Earlier, only people earning above Rs.1 crore were liable to pay a surcharge @15%. There was no surcharge for income below Rs.1 crore.
Now, those earning between Rs.50 lakhs to Rs.1 crore will come under the purview of surcharge. The rate of surcharge for them would be 10%.
 |
| Lower Tax. Lower EMIs. Lower Inflation. So NO MORE tightening the belt! |
5. Condition for Long Term Capital Gains Tax relaxed
Earlier, the profit on sale of immovable property was considered as long term gains, if the property was held for more than 36 months. Accordingly, it enjoyed concessional rate of tax of 20% along with the indexation benefit.
This period has now been reduced to 24 months.
Thus, property held for up to 24 months would attract short term capital gains tax (= marginal income tax slab rate of the tax payer), and concessional long term capital gains tax if held for more than 24 months.
6. Restriction on set-off of loss from House property
The loss from house property — which, in many instances, is the interest paid on the home loan — can be set-off against income from any other source (in many instances the salary or the business income).
Presently, there is no limit on this set-off for the 2nd (and subsequent) rented properties... and hence a great tax saving alternative.
Henceforth, this benefit would be LIMITED to Rs.2 lakhs only (i.e. same as on the 1st self-occupied property.
Unabsorbed loss, if any, can be carried forward for 8 years and allowed to be set-off ONLY against the income from house property in those years. This is an existing provision and continues.
7. Change of base year for computing capital gains
Presently, for the properties acquired before April 1, 1981, an assessee is allowed to consider either the actual cost of the asset or its fair market value as on 1.4.1981 as the cost of acquisition. Further, the assessee is also allowed to claim deduction of the cost of improvement incurred after 1.4.1981.
Due to difficulty in obtaining more than three decades old data on the fair market value, the Govt. has decided to change the base year.
Henceforth, the fair market value as on April 1, 2001 will be considered as the cost of acquisition for properties acquired before 1.4.2001. Consequently, only the cost of improvement incurred AFTER 1.4.2001 would be allowed as deduction.
8. More bonds under section 54EC
Presently, one of the options to save long term capital gains tax is to reinvest the gains (maximum up to Rs.50 lakhs) in specified bonds issued by Rural Electrification Corporation (REC) or National Highways Authority of India (NHAI).
The list of such companies, who may issue such 3-year tax saving bonds u/s 54EC, is now proposed to be expanded.
The Govt. will notify the new companies which will qualify for such tax exemption.
9. Restriction on cash donations
Presently, you can claim tax deduction u/s 80G for donations "in cash" up to Rs.10,000. For higher amounts, other modes of payments are necessary to claim deduction.
Henceforth, only up to Rs.2000 as donations in cash would be allowed as deduction u/s 80G. For higher amounts, the payment has to be in other modes.
10. New condition regarding Nil Tax on long term capital gains on equity / equity MFs
Presently, no tax is payable if you sell your equity shares or equity-oriented mutual funds (held for more than one year) on which Securities Transaction Tax (STT) has been paid at the time of selling.
This clause is being misused and hence is amended:
Henceforth, the long term capital gains on equity shares or equity-oriented mutual funds would be exempt from tax, if STT was chargeable EVEN at the time of acquisition of such shares / units.
This, however, will not include cases of purchase where STT was not applicable e.g. IPOs, FPOs, Bonus / Rights Issue etc.
11. Higher penalty for delay in filing income tax returns
Earlier, Rs.5000 was the penalty if the returns were not filed before the end of the Assessment Year.
In order to improve tax compliance, non-filing of the income tax returns in time would now be penalized as under:
- Rs.5,000 would be the penalty if the returns are filed after the due date but on or before Dec 31st of the Assessment Year.
- For any other case, the penalty would be Rs.10,000.
However, if the total income is Rs.5 lakhs or less, the penalty levied would not exceed Rs.1000.
12. Rajiv Gandhi Equity Saving Scheme (RGESS) to be phased out
From FY 2017-18 onward, no new investment would be allowed under the Rajiv Gandhi Equity Saving Scheme.
Only the investors who have claimed tax benefit under the RGESS Scheme in 2016-17 or earlier, would be allowed to claim deductions till FY 18-19 as per the provisions of the said section.
13. Tax benefit on early withdrawal under National Pension System (NPS)
Presently, in the NPS Scheme only 60% amount can be withdrawn at maturity (remaining 40% amount is compulsorily invested in an Annuity Plan). Of this 40% is tax-free and 20% is taxable.
However, partial withdrawal if any does not enjoy any tax exemption.
Henceforth, partial withdrawals too shall be exempt from tax for an amount not exceeding 25% of the employee's contribution.
14. Simple one-page return form
For people having taxable income up to Rs.5 lakhs (other than business income), the Govt. will introduce a simple one-page form for filing their Income Tax Return.
Further, those filing their tax return for the first time under this category, will be exempt from any scrutiny in the first year. This, of course, is subject to the condition that there is no specific information of any high value transaction with the IT Department.
This, in a simple and concise form, is what the budget for 2017-18 has to offer.
