New Delhi, February 1: Finance Minister Arun Jaitley offered a big budgetary sop for middle class after demonetisation as he announced 50% reduction for those whose annual income is between Rs 2.5 lakh to Rs 5 lakh.
As a big relief to middle class, Jaitley on Wednesday halved the Income tax rate to 5% from current 10 % for those who earn between Rs 2.5 to Rs 5 lakh per year. FM announced that there would be “Zero” tax liability on persons who earn up to Rs 3 lakh per annum.
For high income groups with annual income in the bracket of Rs 50 lakh to Rs 1 crore, a surcharge of 10 % is introduced. While 15% surcharge on Rs 1 crore or more income group remains unchanged. This comes as a dab for Rs 15,000 crore loss following the proposed cut in the personal income tax rate.
Earlier, there were three income tax slabs of 10 per cent, 20 per cent and 30 per cent at annual income of Rs 2.5 lakh, Rs 5 lakh and Rs 10 lakh respectively.
After today’s announcement the new income tax slabs are:
- For Annual Income up to Rs 3 lakh, there is no tax liability.
- Those earning Rs 3-5 lakh annually, have income tax liability of 5 % and they will receive 2% education cess and 1 % higher education cess.
- Those earning Rs 5-Rs 10 lakh annually, have income tax liability of 20 % and they will receive 2% education cess and 1 % higher education cess.
- Those earning above Rs 10 lakh annually, have income tax liability of 30 % and and they will receive 2% education cess and 1 % higher education cess.
- Those earning above Rs 50 lakh annually, have income tax liability of 30 % and would also pay surcharge of 10%.
- Those earning above Rs 1 crore annually, have income tax liability of 30 % and would also pay surcharge of 15%.
FM also said those who earn less than Rs 5 lakh will have to file a return worth a one page form.
In the budget speech Jaitley said: This would reduce the tax liability of all persons below Rs 5 lakh income either to zero (with rebate) or 50% of their existing liability. In order not to have duplication of benefit, the existing benefit of rebate available to the same group of beneficiaries is being reduced to Rs 2500 available only to assessees upto income of Rs 3.5 lakhs. The combined effect of both these measures will mean that there would be zero tax liability for people getting income up to Rs 3 lakhs p.a. and the tax liability will only be Rs 2,500 for people with income between Rs 3 and Rs 3.5 lakhs.
If the limit of Rs 1.5 lakh under Section 80C for investment is used fully, the tax would be zero for people with income of Rs 4.5 lakhs. While the taxation liability of people with income up to Rs 5 lakhs is being reduced to half, all the other categories of tax payers in the subsequent slabs will also get a uniform benefit of Rs 12,500 per person. The total amount of tax foregone on account of this measure is Rs 15,500 crores.