Budget 2017 made several changes in terms of Income Tax of Individuals & businesses, filing of Income Tax Returns, Capital Gains and Investments. We list them in detail below:
- 1 Income Tax: Budget 2017 Changes
- 1.1 1. Reduced Tax for Lower slab:
- 1.2 2. 10% Surcharge for Income above Rs 50 Lakhs
- 1.3 3. Rebate under Section 87A reduced to Rs 2,500
- 1.4 4. NO RGESS Tax exemption from FY 2017-18
- 1.5 5. Interest deduction on rented property capped at Rs 2 Lakh
- 1.6 6. More tax deduction on NPS for self-employed
- 1.7 7. Tax-exemption to partial withdrawal from NPS
- 1.8 8. TDS of 5% if the monthly rent paid is more than Rs 50,000
- 1.9 9. Lower Taxes for Small Business:
- 1.10 10. Audit Threshold Limit raised to Rs 2 crore
- 2 Capital Gains Tax: Budget 2017 Changes
- 3 Income Tax Return: Budget 2017 Changes
- 4 Discourage Usage of Cash:
- 5 Others:
Income Tax: Budget 2017 Changes
1. Reduced Tax for Lower slab:
The tax rate for income between Rs 2.5 lakh to Rs 5 lakhs has been reduced to 5% from 10%. This reduction would not benefit Very Senior Citizens (person who are aged 80 years or more) as they had NO taxes in this slab.
However there has been NO change in tax rates for other slabs.
Also Read: Income Tax Slabs for FY 2017-18 (AY 2018-19)
2. 10% Surcharge for Income above Rs 50 Lakhs
Budget 2017 has introduced 10% surcharge for people with taxable income of more than Rs 50 lakhs but less than Rs 1 crore. The surcharge of 15% on income above Rs 1 crore still applies.
3. Rebate under Section 87A reduced to Rs 2,500
The income tax rebate under section 87A has been reduced from Rs 5,000 to Rs 2,500. Also the eligibility of taxable income limit has been reduced from Rs 5 lakh to Rs 3.5 lakh. HUF or NRIs are not eligible for this rebate.
4. NO RGESS Tax exemption from FY 2017-18
Tax exemption under section 80CCG for RGESS (Rajiv Gandhi Equity Scheme) would NOT be available from FY 2017-18 on wards. The deduction was introduced in Budget 2012 to encourage retail participation in stock market but failed to take off as desired.
5. Interest deduction on rented property capped at Rs 2 Lakh
Budget 2017 has bridged the gap between self-occupied and rented property by capping the deduction on home loan interest to Rs 2 lakh in both cases. Earlier for rented property there was NO capping. However additional loss can be carried forward for 8 years.
6. More tax deduction on NPS for self-employed
From next financial year self-employed individuals can claim deduction up to 20% of their gross income for contribution made to National Pension System (NPS). The limit was 10% earlier. This deduction is part of Section 80C and hence not very beneficial!
Additional tax deduction on investment upto Rs. 50,000 under Section 80CCD (1B) will continue to remain the same for all NPS subscribers whether salaried or self-employed.
7. Tax-exemption to partial withdrawal from NPS
Partial withdrawal up to 25% of the contribution made by an employee would be exempted from tax.
8. TDS of 5% if the monthly rent paid is more than Rs 50,000
The TDS deduction has to be done on the last month of the financial year or the last month of tenancy. The TDS would be less of last month rent or 5% of total rent paid. This has been done to track high value transactions and do away with the problem of fake rent receipts.
9. Lower Taxes for Small Business:
The taxes for small business with turnover of less than Rs 50 crores has been reduced to 25%. This is significant cut in taxes from earlier 30%. However, there continues to be a 7% surcharge on tax for profit of Rs. 1 to 10 crores. And 12% surcharge on tax above Rs. 10 crore.
10. Audit Threshold Limit raised to Rs 2 crore
The limit for tax audit has been raised from Rs 1 crore to Rs 2 crore for business entities who opt for presumptive income tax scheme.
Also Read: 25 Tax Free Incomes & Investments in India
Capital Gains Tax: Budget 2017 Changes
11. Change of Base year for Indexation:
For calculation of indexation in case of Long Term capital gains for all assets, the base year has been changed from April 1, 1981 to April 1, 2001. This would in most cases be beneficial for tax payers.
12. Long Term Capital Gains for Property:
Budget 2017 changed the holding period for property to 2 years (from 3 years earlier) to qualify for Long Term Capital gains. This would lead to lower taxes.
Download: Excel based Capital Gains Calculator
Long term capital gains on shares would only be available if securities transaction tax (STT) was paid while acquisition of shares. This will apply to all shares acquired after October 1, 2004. However this does not include bonus shares or shares allotted during IPO (initial public offer) or FPO (follow- on public offer). It would impact ESOPs, etc.
14. More Investment Options to save Capital Gains
As of today there are two bonds National Highways Authority of India (NHAI) or Rural Electrification Corporation Ltd (REC) where you can park up to Rs 50 lakhs to save long term capital gains. Budget 2017 has proposed more investment options. More details are awaited.
Income Tax Return: Budget 2017 Changes
15. Penalty for Late filing of Income Tax Return
If the income tax return is filed after the due date but on or before the December 31 of the assessment year, there will be a fine of Rs 5,000. In all other cases, there would be fine of Rs 10,000. However, in case the total income is less than Rs 5 lakh, the penalty should not exceed Rs 1,000.
Also Read: How are your Investments Taxed?
16. Simple Tax Return Form:
A simple one page income tax return (ITR) form would be introduced for people with income less than Rs 5 lakhs with NO income from Business.
17. NO Scrutiny for First Time ITR
There would be NO scrutiny of income tax returns for people who file ITR for the first time unless there is specific information available with the Department regarding his high value transactions.
18. Reduced Time to revise ITR
The time period to revise tax returns has been reduced to 12 months.
Discourage Usage of Cash:
19. Limit of Rs 3 Lakh for cash transaction
Now you cannot pay more than Rs 3 lakh in cash for any transaction. This limit is not only per day, but per transaction and per event.
Also Read: 13 Investments to Generate Regular Income
20. Cash Donation Limit to Rs 2,000
Any donation above Rs 2,000 in cash would not be eligible for tax exemption u/s 80G. Donations have to be digital or by cheque to qualify for tax breaks.
21. Reduced Cash Expense Exemption
The limit on cash expenses claimed by a person has been reduced from Rs 20,000 to Rs 10,000 per day.
22. Cash donation to Political parties restricted to Rs. 2,000
Political parties can receive cash donations of only Rs. 2,000. They can receive cheques and digital payments. People willing to donate can do so by buying election donor bonds. These bonds will be redeemable.
Download: Tax Planning Guide for FY 2016-17
23. Penalty for CA, Valuers etc for incorrect reports
In case chartered accountant or a merchant banker or a registered valuer colludes with tax payer and prepares incorrect certificate for them, they would be liable for penalty of Rs 10,000 for each report/certificate.
24. No Service Charge on e-tickets booked through IRCTC
Rail tickets booked through IRCTC charged Rs.20 on Sleeper and Rs.40 on AC classes. Budget 2017 has removed this to encourage cashless transactions.
25. More PSUs to get listed
Many public sector organizations will get listed in the stock market. IRCTC, IRCON and IRFC are expected to be listed this year. Also expect more ETFs in lines of CPSE-ETF.