Income Tax Changes

Income Tax Changes – Financial Year 2017-18

Income Tax Changes – Financial Year 2017-18

The Union Budget for Financial Year 2017-18 was tabled in the Parliament by the Finance Minister of India on 01-Feb-2017. Here are the key proposals related to computation of income tax changes which payroll managers need to consider for Financial Year 2017-18.

A change in the income tax rate

The income tax rate for the Rs 2,50,001 to Rs 5,00,000 salary slab changes from 10% to 5%. The rates for the other salary slabs remain the same.

The tax rates (for FY 2017-18) for salaried employees below 60 years of age are as follows.

Total Income for the Year in RsTax Rate in %
 Up to 2,50,000 Nill
 2,50,001 to 5,00,000 5
 5,00,001 to 10,00,000 20
 Above 10,00,000 30

The income tax rates (for FY 2017-18) for salaried employees aged 60 years and above but below 80 years are as follows.

Total Income for the Year in RsTax Rate in %
 Up to 3,0,000 Nill
3,00,001 to 5,00,000 5
5,00,001 to 10,00,000 20
 Above 10,00,000 30

A new surcharge

In case the total taxable income for the year goes beyond Rs 50 lakh (but is less than or equal to Rs 1 crore) in the year, a surcharge of 10% (subject to marginal relief) on the income tax is to be deducted – there was no equivalent surcharge in Financial Year 2016-17.

In case the total taxable income for the year goes beyond Rs 1 crore in the year, a surcharge of 15% (subject to marginal relief) on the income tax is to be deducted – the surcharge was 15% in Financial Year 2016-17 too.

Income Tax relief under Section 87A (Tax Rebate)

The tax credit under Section 87A has been decreased to Rs 2,500 for Financial Year 2017-18 from Rs 5,000 for Financial Year 2016-17 if the total income does not exceed Rs 3.5 lakh (reduced from Rs 5 lakh for FY 2016-17) for the year. This means that there will be no tax payable up to a taxable salary of Rs 3 lakh per annum.

Restriction of housing loan interest benefit.

In Financial Year 2016-17, the maximum interest (on housing loan) benefit one could get on the self-occupied property was Rs 2 lakh while for let-out property there was no ceiling on the interest benefit as long as the employee declared the rent (received or deemed to be received) as income from house property. For example, let assume that an employee-owned 2 properties – one self-occupied and the other let-out.

(i) If the employee’s interest payable on the self-occupied property was Rs 2 lakh, the benefit available on the self- occupied property was Rs 2 lakh.

(ii) If the employee’s interest payable on housing loan for the let-out property was Rs 6 lakh and he received Rs 3 lakh as rent, the benefit available on the let-out property was Rs 3 lakh.

In total, the employee could set-off the loss of Rs 5 lakh (Rs 2 lakh from the self-occupied property and Rs 3 lakh from the let-out property) against his salary, thereby reducing his taxable salary.

As per the 2017 budget, in Financial Year 2017-18, the maximum interest benefit available on house property shall be restricted to Rs 2 lakh, irrespective of the number of house properties owned.

In the above example, the employee can set-off only Rs 2 lakh (even after considering both the properties) against his salary in the year Financial Year 2017-18.

It may be noted that the unused benefit (beyond Rs 2 lakh) can be carried forward to subsequent years up to 8 years and set off against house property income in subsequent years.

This change is likely to increase the tax liability of many employees (especially those that draw a high salary) who have been claiming housing loan interest benefit on multiple house properties so far.

Restriction on cash donations

The maximum limit of cash donations deductible under section 80G has been proposed to be reduced to INR 2,000 from INR 10,000.

1st-time tax filers will not be subject to scrutiny if no cash deposits

People filing returns for the first time will not be subject to IT scrutiny unless there is a clear indication of cash deposits under demonetization. Also, people with income under Rs 5 lakh (without any business income) will now file a simplified one-page return. This will encourage people to file returns and get all the benefits of filing like easier access to home loans, bank accounts, and more.

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