Union Budget 2017 slashed the income tax rate for individuals in the lowest income tax slab to 5 per cent, a move which will also benefit individuals in higher tax brackets. But tax experts who were expecting a hike in Section 80C limit were a bit disappointed. “The limit of Section 80C (of the Income Tax Act) could have been increased from Rs. 1.5 lakh to Rs. 2 lakh in this Budget as the existing limit is not sufficient to cover various payments like PF, insurance, tuition fees, etc. Further, the cap on certain allowances like, children education allowance, medical reimbursements and hostel allowance have been fixed a long time ago. It could have been increased in this Budget,” said Rakesh Bhargava, director of Taxman.
Here are 10 things to know about the proposed changes in tax laws for individuals:
1) Reduced income tax rate on income between Rs. 2.5 lakh and Rs. 5 lakh to 5 per cent from 10 per cent. However, he reduced Section 87A rebate from Rs. 5,000 to Rs. 2,500. And no rebate will be applicable for taxpayers having income above Rs. 3.5 lakh.
2) This means tax savings of up to Rs. 7,700 for people with taxable income between Rs. 3 lakh and Rs. 5 lakh. And for persons with taxable income between Rs. 5 to 50 lakh, tax savings of Rs. 12,900. A 10 per cent surcharge has been proposed for individuals having income ranging from Rs. 50 lakh to Rs. 1 crore. (Existing surcharge of 15 per cent will remain same for individuals having income above Rs. 1 crore.)
3) A simple one-page form will be introduced for filing tax return for individuals having taxable income up to Rs. 5 lakh other than business income. A person in this category who files income tax return for the first time would not be subjected to any scrutiny in the first year unless there is specific information available with the tax department regarding his high value transaction.
4) No deduction will be allowed for investment in Rajiv Gandhi Equity Saving Scheme from Assessment Year 2018-19.
5) Income tax officials can now reopen tax cases for up to 10 years if search operations reveal undisclosed income and assets of over Rs. 50 lakh. Currently, tax officers can go back up to six years to scrutinise the books of accounts of assesses. The amendment to the Income Tax Act will take effect from April 1, 2017. This means that the books of accounts of an assessee can be reopened by the taxman back till 2007.
6) Taxpayers who do not file their returns on time will have to shell out a penalty of up to Rs. 10,000 from Assessment Year 2018-19. However, if the total income of the person does not exceed Rs. 5 lakh, the fee payable under this section shall not exceed Rs. 1,000.