Finance Minister Arun Jaitley in Union Budget 2017 slashed the existing rate of taxation for individuals with income between Rs 2.5 lakh to Rs 5 lakh to 5 percent from the existing 10 percent.
“While the government is trying to bring in its tax net more people who are not paying tax, the present burden is on the taxpayer and on the employees who are showing their income correctly,” Jaitley said.
The finance minister added that there was a “legitimate expectation” post demonetisation that tax burden on honest individuals be lowered. Further, Jaitley emphasised that if the nominal tax rate is lower for the lowest slab, more people will prefer to come under the tax net.
Earlier, personal income tax was exempt for an annual income up to Rs 2.5 lakh but charged at 10 percent for income between Rs 2.5 lakh to Rs 5 lakh.
As this comes down to 5 percent, the tax burden of individuals in the income bracket is likely to become zero or halve as compared to previous years, Jaitley said.
Individuals with income between Rs 5 lakh and Rs 10 lakh will continue to be taxed at 20 percent and those above the Rs 10 lakh income bracket will be taxed at 30 percent, the finance minister added.
“If the exemption of Rs 1.5 lakh is used fully under Section 80C, the tax liability will be zero for income up to Rs 4.5 lakh,” Jaitley said. “All other categories of tax payers in subsequent brackets will also get a uniform benefit of Rs 12,500 per person.”
Jaitley said that the government will forego revenue to the tune of Rs 15,500 crore due to the tax incentive. To recover some of the revenue loss, he announced an additional surcharge of 10 percent for those whose annual taxable income is between Rs 50 lakh to 1 crore; Surcharge on income of Rs 1 crore or more remains unchanged.
In order to expand the tax net, the government also proposed a simple one-page form for individuals with an income up to Rs 5 lakh. Jaitley also said that anyone filing income tax return for the first time will not be subject to any income scrutiny in the first year unless there’s specific information with the taxman about high-value transactions.
“I appeal to all citizens to contribute to nation building by making a small contribution of 5 percent tax if their income is under Rs 5 lakh,” Jaitley said.