With the Budget 2017 and the Finance Bill 2017 of the Government of India approved, there are new tax rules related to taxes that have been introduced.
Here are 10 rules that you can impact you as an individual. You need to be aware of the same and thus, possibly benefit from them.
#1 Income Tax slabs
The income tax slabs for Individuals and HUFs have a small change. For those in the 10% tax bracket earlier, now need to pay only 5% tax for the year FY 2017-18. The various slabs for taxable income are as below:
- Upto Rs. 2.5 lakhs – NIL tax
- Over Rs. 2.5 lakhs and upto Rs. 5 lakhs – 5% tax
- Over Rs. 5 lakhs and upto Rs. 10 lakhs – 20% tax
- Over Rs. 10 lakhs – 30% tax
For senior citizens, over 60 years and upto 80 years of age, the first tax bracket for NIL tax is upto Rs. 3 lakhs and for those over 80 years, there is no tax upto Rs. 5 lakhs of taxable income.
#2 Surcharge on Tax for income over Rs. 50 lakhs
For those with taxable income of over Rs. 50 lakhs, there is an additional surcharge on tax at the rate of 10%. For those with taxable income of over Rs. 1 crore, the surcharge rate is 15%.
#3 Income from House property benefit reduced
So, far if you had a second house on a loan, you could treat that as a ‘let out’ house and claim the entire interest paid as a deductible. The loss as a result could be used to reduce your overall taxable income. For example, if your Income from Salary is 15 lakhs while the Income from House property is a loss of 3 lakhs, then your total taxable income is reduced to Rs. 12 lakhs (15 – 3).
This clause goes away from the current year. Now, the maximum setoff available against other income is limited to Rs. 2 lakhs per year. So, in the previous example, the taxable income will be Rs. 13 lakhs (Rs. 15 lakhs – Rs. 2 lakhs).
However, any balance loss under the head “Income from House Property” can be carried forward to other years as per existing provisions.
#4 Rajiv Gandhi Equity Savings Scheme (RGESS) abolished
This was a complicated tax saving tool for getting first time users to invest in stocks. Very few individuals actually availed it. This has been abolished from the current year.
#5 NPS – partial withdrawal up to 25% of contribution made by employee
There is a relaxation in withdrawal norms of NPS. For specified purposes such as medical treatment, education, etc, an individual can now withdraw upto 25% of his own contribution (not employers) from the NPS account. This is subject to other sub provisions and lock-ins as applicable.
To bring the self employed individual contributions to NPS at par with the corporate employee contributors, the NPS contribution of upto 20% of total income of self employed individuals is exempt.
#6 Long term capital gains holding period for land and building
Till now, long term capital gains on land + building was applicable after 3 years of holding. From this year, the same has been reduced to 24 months or 2 years. So, if you have a property you bought in May 2015 and you sell it in June 2017, the property holding period exceeds 24 months. Hence, you can take benefit of long term capital gains with the cost indexation benefit.
#7 Change of cost index inflation base period to 2001
Related to point 6 above is the change in the calculation of cost index inflation base. The base year till now was 1981. It has now been shifted to 2001. This can get you a lower tax benefit. Consult your tax advisor to know how it will be applicable to you.
#8 More options for savings under Sec 54 EC – capital gains bonds
If you sold real estate (property) and have long term capital gains, you can save the entire amount from any tax. How? Simple. You invested in another property or bought notified bonds of REC / NHAI under section 54 EC.
To provide more options on bonds, now any Central Government Bond which is redeemable after 3 years and notified by the Government is eligible for saving under this provision.
It remains to be seen which other bonds issued by the Government become available.
#9 Requirement to deduct TDS on rent paid by individuals
If you are an individual paying more than Rs. 50,000 per month as rent, then you are required to deduct TDS at the rate of 5% (if the landlord has a PAN) else at the rate of 20% (if there is no PAN).
Such TDS has to be deducted only once in a year. You also don’t have to obtain a Tax Account Number or TAN to deduct such TDS. Once deducted, you will have to deposit the same with the Tax department via a challan and then issue a form to the landlord for such deduction.
Some hassle there for sure.
#10 Consolidation of MF schemes and tax implication
If your mutual fund is merging or consolidating two or more of its schemes into one, then for capital gains purpose, your holding period is to be considered from the date of original investment and NOT the date of merger or consolidation.
Hope you find this update on tax rules useful. In case you have more questions, please do share with us.