The government has said that most Indians will pay a lower income tax from 1st April, 2017. This is no April fool’s joke, by the way. The Finance Bill, recently passed by the Lok Sabha, means that the budget proposals of the finance ministry have been put into effect from the beginning of this month.
Here are the most important income tax changes that have been brought about:
Individuals earning between Rs. 2.5 lakhs and Rs. 5 lakhs per year are in for a bit of luck. The taxation rate will go down to 5% from the present 10%. So, for those with incomes below Rs. 5 lakhs, this reduces their tax liability to either zero, with rebates, or 50% of the original liability. People in the other tax slabs will enjoy tax savings of up to Rs. 12,500 per year.
The above reduction in tax rate is great for most people. But for the government, this poses the problem of duplication of benefits for a certain section of taxpayers. The reduction in taxes and existing rebates result in a duplication of benefits. With this in mind, the finance minister proposed a reduction in tax rebate.
For those with an annual taxable income between Rs. 50 lakhs and Rs. 1 crore, a surcharge of 10% will come into effect from the next fiscal year. The existing surcharge of 15% of tax will continue as before for those who earn more than Rs. 1 crore per annum.
The rules on the holding period for immovable property have also changed; a blessing for property owners. The ‘long-term’ holding period for immovable property has changed to two years instead of the existing three. This means property owners will pay tax at a lower rate of 20%. So, you need not wait for a whole year before selling your house, and you do not have to dread the 30% short-term capital gains tax that you would have incurred in the past.
The IT department will introduce a simple one-page Income Tax returns form for those who have taxable income up to Rs. 5 lakhs. This excludes any business income the taxpayer earns. The government has also promised that individuals filing income tax returns for the first time will not be subject to scrutiny. That is, unless the IT department knows about any high-value transactions the taxpayer has conducted.
The finance minister has amended the base year for adjusting the prices of inflation. Instead of 1 April 1981, it is now 1 April 2001, and applies to all asset classes, including immovable property. In other words, profits on the sale of assets would be lower. Also, the long-term capital gains tax will yield lower returns for taxpayers.
The government is taking active steps to help you avoid procrastination, especially when it comes to filing tax returns. Under the new laws, delays in filing tax returns will incur a penalty of Rs. 5,000 if you file it after the due date, but by or on 31 December 2018. The fine will be Rs. 10,000 if you file it later than that. But, the penalty for small taxpayers with income of up to Rs 5 lakh is Rs 1,000.
The bottom line
Change is the only constant in the world. But when it comes to taxes, it is good to know how these changes affect your financial future. The above points list the most important changes that affect the common citizen. Hopefully, they can help you identify the areas in which you can save more in the coming year.
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