The Finance Minister has announced a reduction of tax rate in tax slab of Rs 2.5 lacs to Rs 5 lacs from 10% to 5%. Here is how this move will impact you.
Before we move to work out the benefit or cost, let’s consider two more announcements in the Union Budget 2017.
- Rebate under Section 87A has been reduced to Rs 2,500 (from Rs 5,000) per financial year for taxable income up to Rs 3.5 lacs (earlier it was Rs 5 lacs).
- Additional surcharge of 10% has been introduced for taxable income between Rs 50 lacs and Rs 1 crore. This is a not a good news. Prior to this announcement, surcharge of 15% was applicable for above on taxable income above Rs 1 crore. (How Marginal Relief helps those who pay Surcharge on Income Tax?)
New Tax Slabs (from FY2018)
How your tax liability is affected?
If your taxable income is up to Rs 3 lacs, your tax payable is Rs 2,500 (Rs 50,000 *5%). However, taking into account the tax rebate under Section 87A, your tax liability becomes NIL. Do note rebate is after taking into account all the deductions. So, if your income is Rs 4.5 lacs and you made an investment of Rs 1.5 lacs under Section 80C, you tax liability will still be NIL.
If your taxable income is Rs 3.5 lacs, you pay a tax of Rs 2,500 (after rebate under Section 87A).
If your taxable income is Rs 5 lacs, you pay income tax of Rs 12,500. After accounting for cess, the tax liability is Rs 12,875. That is a neat saving of Rs 7,725 (after cess).
Subsequently, for higher tax brackets, the saving will be limited to Rs 12,500 (before cess).
However, if your taxable income exceeds Rs 50 lacs, there is a bit to be worried about. You pay a surcharge of 10% over the tax liability. As you can see in the above table, you feel the brunt of this tax rule change. There will be marginal relief whose income is marginally above Rs 50 lacs.
While the tax payers whose taxable income is less than Rs 50 lacs have a reason to rejoice, those whose income ranges between Rs 50 lacs and Rs 1 crore have to be prepared to shell out higher income tax.
Even for those who earn in excess of Rs 1 crore, there is a saving of Rs 12,500 before cess (since surcharge is unchanged for income above Rs 1 crore). Including cess and surcharge, the saving rises to Rs 14,806 (Rs 12,500 + Surcharge of Rs 1,875 + cess of Rs 431).
Clearly, the ones with taxable income in the range of Rs 50 lacs to Rs 1 crore are likely to a tad disappointed.
Effect on Various Income Levels
Disclosure/Disclaimer
The above post/illustration is as per my understanding of the Budget announcements. I am not a tax expert. You are advised to seek advice from a Chartered Accountant before taking any action. Additionally, I have merely written down proposals. These proposals become reality once the Finance Bill is passed by the Parliament. Therefore, such proposals may be withdrawn/amended before passage of the Finance Act.
2 thoughts on “Union Budget 2017: Tax Benefit Illustration”
Small correction perhaps. “If your taxable income is Rs 5 lacs, you pay income tax of Rs 12,500. After accounting for cess, the tax liability is Rs 12,875. That is a neat saving of Rs 12,500 (before cess).” I think you meant, a saving of Rs.7725 after cess and surcharge.
Thanks Anand for pointing out. I have corrected the error.