Huge relief for common man, finance ministry lower tax rate

Huge relief for common man, finance ministry lower tax rate

Finance Minister Arun Jaitley has proposed to slash the tax rate for individuals in the lowest income tax slab – ₹2.5 lakh to ₹5 lakh –to 5% instead of 10%. The existing rebate under Section 87A (currently given to people with income up to ₹5 lakh) is proposed to be reduced to ₹2500 from the existing ₹5000 for individuals earning between ₹2.5 lakh to ₹3.5 lakh.

As a result of the combined effect of the new Section 87A rebate and the reduction in the lowest slab tax rate to 5% the tax burden for those with income upto ₹3 lakh would be zero and tax burden those in the ₹3 lakh to ₹3.5 lakh bracket would be ₹2500.

Those earning ₹4.5 lakh can therefore reduce their tax liability to zero by fully utilising the tax break under Section 80C combined with these new proposals.

Those falling in the higher income tax slabs will also be eligible for this lower tax rate of 5% on income between ₹2.5 lakh and ₹5 lakh. Therefore, those in the higher tax slabs will pay lower tax by ₹12500 per person.

Individuals earning between ₹50 lakh and ₹1 crore will have to pay a surcharge of 10% on the total income tax payable by them. Currently there was no such surcharge on this category. Only those with income above ₹1 crore were required to pay surcharge of 15% which continues.

The tax an Indian pays every year is calculated on the basis of his/her gross total income. The tax is calculated according to the income tax slabs announced by the government every year in the Budget. The annual union budget is normally announced in the month of February.