Key Income Tax Rule Changes To Look Out For In FY 2017-18

Budget 2017 is already out and it’s time to understand its impact on income tax outgo for individuals during the upcoming financial year 2017-18. 

CC Image Courtsey of TaxCredits.net on Flickr

1) Marginal change in income tax slab - The finance minister announced reduced tax rate of 5% for taxpayers falling in the lowest tax bracket of up to Rs. 5 lakh. Earlier a tax rate of 10% was applicable on this slab. Let’s see how this income tax rule change will benefit tax payers of different slabs.

	FY2016-17	Tax Burden	FY2017-18	Tax Burden
0 - 2.5 Lakh	0%	Nil	0%	Nil
2.5 - 5.0 Lakh	10%	25,000	5%	12,500
5.0-10.0 Lakh	20%	25,000 + 20% of income over 5 Lakh	20%	12,500 + 20% of of income over 5 Lakh
10.0 Lakh & Above	30%	1,25,000 + 30% of income over 10 lakh	30%	1,12,500 + 30% of income over 10 Lakh

The total reduction in tax outgo for tax payers will be to the tune of Rs 12,500. At the same time, 10% and 15% surcharge is applicable for individuals with annual income above Rs 50 Lakh and Rs 1 Crore respectively. 

2) TDS on home rent payments - New guidelines make it compulsory for Individuals and HUF to deduct 5% TDS on rent payments that exceed Rs 50,000 per month. 

3) Loss on let out property - Until now, loss from let out house property was allowed to be set off against income from salary without any restriction. This means that even a loss of Rs 3,00,000 from let-out house property was allowed to be set against income from salary while filing returns. But, Budget 2017 changes this income tax rule as it caps the amount to Rs 2 lakh. Unadjusted losses from this head can be carried forward and set off against ‘income from house property’ in subsequent assessment years till eight years.  

4) Rebate under Section 87A - Individuals with income below Rs 5 lakh were eligible for tax rebate up to Rs 5,000. Now the income eligibility for rebate under this section stands reduced to Rs 3,00,000. Also, the rebate is capped to Rs 2,500 from Rs 5,000 for income between Rs 2.5 lakh and Rs 3.5 lakh. The rebate, when combined with the new lower tax rate for tax slab up to 5 Lakh, will mean zero tax liability for those earning up to Rs 3 Lakh.

5) Time limit for income tax revision - The government has reduced the time limit for revision of income tax returns by one year. This implies that revisions for income tax filed for FY 2016-17 can be revised until March 31, 2018, unlike the previously allowed time limit till March 31, 2019. 

6) Penalty for delay in filing income tax returns - A mandatory fee is applicable for late filing of income tax returns after the due date of July 31st each year. A fee of Rs 5,000 will be levied on those filling return till December 31st and Rs 10,000 for fillings till March 31st of the assessment year. The late fee limit is capped at Rs 1,000 for individuals with income up to Rs. 5 Lakh. 

7) Holding period of immovable property - As of now, an immovable property qualifies to be a long-term asset only after completion of 3 years from the date of acquisition. However, in a bid to provide relief to property owners, the government has now reduced the time period to two years.

Above points are few of the key changes introduced in the budget this year and should help you to plan your taxation accordingly. 

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

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