More pain than gain for the common man

‘Shoot for the stars, you’ll at least land among the tree tops’ — that’s quite the story of hope versus reality on personal income tax in Budget 2017. Expectations were running high this time around. Among other things, the wish-list included a sharp increase in the tax exemption and Section 80C investment limits, rationalisation of tax rates, and hike in interest deduction on home loans.

Small tax break As it turned out, the Finance Minister gave, but little. So, the only big benefit for the individual taxpayer in the Budget was a reduction in the tax rate in the Rs 2.5 lakh to Rs 5 lakh income slab — from 10 per cent to 5 per cent. But then, the tax rebate benefit was cut — from ₹5,000 for those with incomes up to ₹5 lakh to ₹2,500 for those with incomes up to ₹3.5 lakh. Net-net, with these changes, there will be no tax for those with income up to ₹3 lakh. The outgo can reduce by up to half for others with income up to ₹5 lakh, and for those with higher income, the tax reduction is ₹12,875 (including cess). Incidentally, these changes have higher benefits for those less than 60 years than for senior citizens (60-80 years) whose maximum tax reduction is ₹10,300.

That’s because there has been no change in the Budget in the tax-exempt income limits, higher for senior citizens (₹3 lakh) compared to those under 60 (₹2.5 lakh). Super-senior citizens (above 80 years) will not see tax reduction, as their tax-exempt income limit is ₹5 lakh.

Besides, with the Finance Minister playing Robinhood, there’s no cheer, rather there’s pain, if your annual taxable income is between ₹50 lakh and ₹1 crore; the Budget has introduced a surcharge of 10 per cent of tax payable on this category. If it’s any consolation, those with taxable income exceeding ₹1 crore will continue paying the higher surcharge of 15 per cent.

But there is the silver lining of ‘marginal relief’ for both these rich taxpayer categories. So, the increase in income tax due to surcharge will not be higher than the actual increase in income above the thresholds (₹50 lakh and ₹1 crore); in such cases, the surcharge is restricted to the increased income. It helps those with income marginally higher than the thresholds. For instance, on income of ₹50.1 lakh, the total tax liability will be restricted to about ₹13.6 lakh (after marginal relief), as against ₹14.9 lakh (without marginal relief).

There were no higher tax breaks on interest on loans for self-occupied property; it stays at ₹2 lakh a year. Rather, set-off of loss from let-out properties (arising due to interest on loans) has also been restricted to ₹2 lakh a year; earlier there was no limit on this claim. But carry-forward of the excess loss is allowed for eight years.

Other carrots and sticks The Budget sweetened the deal for NPS in some ways. Partial withdrawal up to 25 per cent of employee’s contribution has been exempt from tax; this improves the product’s liquidity. Also, to bring the salaried and non-salaried subscribers to NPS on par, the deduction available to the latter has been increased to up to 20 per cent of gross total income, from 10 per cent earlier.

The Rajiv Gandhi Equity Savings Scheme (RGESS) has been discontinued. But those already enrolled in the scheme shall be allowed the tax deduction (up to ₹25,000) until fiscal 2018-19.

The Budget has proposed a scheme to provide assured pension to senior citizens at 8 per cent annually for 10 years. While this will be helpful in the current low rate scenario, the scheme need to be compared with options such as Senior Citizens Savings Schemes which offers 8.5 per cent currently and can be held for up to eight years.

Contrary to fears, the Budget did not bring long-term capital gains on equity under the tax net. But it has tightened the rules. Earlier, tax exemption was given if securities transaction tax (STT) was paid on the sale transaction. Now, unless the purchase transaction has been subject to STT, the exemption will not be allowed. The rule will be relaxed in cases such as initial public offers (IPO) and further public offers (FPO).

Delay in filing your tax returns can now cost you more. Currently, the taxman can levy penalty of ₹5,000. This can now go up to ₹10,000, depending on the income and the delay. The Budget has proposed a simplified one-page tax return form for individuals having taxable income (other than business income) up to ₹5 lakh.

Push to cashless Going forward, donate but not in cash. While earlier cash donations up to ₹10,000 were allowed the deduction, the limit has now been cut to ₹2,000.

The Budget has also prodded small and medium tax payers with turnover up to ₹2 crore to go cashless. For this category, the presumptive tax of 8 per cent of turnover has been reduced to 6 per cent, but this benefit is available only in respect of non-cash turnover. Besides, the Budget has proposed that no transaction above ₹3 lakh will be permitted in cash, except in certain cases.

All said, the tax savings for the aam aadmi are not much, but I guess, something’s better than nothing.

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