The financial bill 2017 (commonly known as Budget) has been passed by the Lok Sabha with some amendments. This bill deals with government finances along with tax provisions. Here are 21 changes that would be effective from the next financial year (FY 2017-18) which starts on April 1, 2017.
- 1 1. Reduced Tax for Lower slab:
- 2 2. Rebate under Section 87A reduced to Rs 2,500
- 3 3. 10% Surcharge for Income above Rs 50 Lakhs
- 4 4. NO RGESS Tax exemption from FY 2017-18
- 5 5. Interest deduction on rented property capped at Rs 2 Lakh
- 6 6. More tax deduction on NPS for self-employed
- 7 7. Tax-exemption to partial withdrawal from NPS
- 8 8. TDS of 5% if the monthly rent paid is more than Rs 50,000
- 9 9. Lower Taxes for Small Business:
- 10 10. Audit Threshold Limit raised to Rs 2 crore
- 11 11. Change of Base year for Indexation:
- 12 12. Long Term Capital Gains for Property:
- 13 13. Long Term Capital Gains on Shares:
- 14 14. Aadhaar number must for applying for PAN Card and filing Income tax Return
- 15 15. Penalty for Late filing of Income Tax Return
- 16 16. Simple Tax Return Form:
- 17 17. NO Scrutiny for First Time ITR
- 18 18. Reduced Time to revise ITR
- 19 19. Tax Cases can be reopened for up to 10 years
- 20 20. Cash Donation Limit to Rs 2,000
- 21 21. Limit of Rs 2 Lakh for cash transaction
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. 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. Due to this change Senior citizens with income between Rs 3.5 lakhs to 4 lakhs would pay more tax in FY 2017-18 as compared to FY 2016-17.
3. 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.
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
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. Aadhaar number must for applying for PAN Card and filing Income tax Return
Effective July 1, 2017 Aadhaar number would be compulsory to obtain a new PAN card. Also you will need to link your existing PAN Car to your Aadhaar number. You will also have to mention your Aadhaar number in the income tax return form from this year (AY 2017-18 onwards). This used to be optional field until now.
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.
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.
Also Read: How are your common Investments Taxed?
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.
19. Tax Cases can be reopened for up to 10 years
The income tax department can now scrutinize income tax returns up to previous 10 years if it suspects undisclosed income or assets of more than Rs 50 lakhs. Currently this limit was 6 years.
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. Limit of Rs 2 Lakh for cash transaction
Now you cannot pay more than Rs 2 lakh in cash for any transaction. The limit has been amended in the finance bill from the earlier proposed limit of Rs 3 lakh. This limit is not only per day, but per transaction and per event. In case of violation, the person has to pay 100% of the cash used in transaction as penalty.
Knowing about changes in Income Tax laws for the new Financial Year 2017-18 will help you plan your taxes better!