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6 Income Tax Changes Which Might Impact You

Mr. C.S. Sudheer | Posted On Friday, February 03,2017, 03:41 PM

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6 Income Tax Changes Which Might Impact You



The Finance Minister Arun Jaitley, presented the Union Budget 2017 in Parliament, on February 1st 2017. Popularly known as a Budget of Change, this is a budget of Many Firsts. This was the first time a budget was presented this early in the year. The previous budget was presented on February 29th 2016. This was also the first time in 92 years that the General Budget was merged with the Railway Budget.

Now to the important part. How will the Union Budget 2017 impact you? Will it change the way you live? In this article you will learn about 6 income tax changes which might impact you.

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Finance Minister Reduces The Income Tax Rate

The Finance Minister cut income tax rates from 10% to 5%, for citizens earning INR 2.5 Lakhs to INR 5 Lakhs. The cut in income tax rates also helps you, if you fall in the higher tax brackets. Now, you have more money to shop and spend.

The Finance Minister also reduced the Section 87A rebate from INR 5,000 to INR 2,500. There is no rebate if you have an income above INR 3.5 Lakhs.

Filing Income Tax Returns To Become Easy

If you have taxable income up to INR 5 Lakhs other than business income, filing income tax returns just got easy. The Finance Minister has introduced a simple one-page form for filing income tax returns.

There’s more….If you are filing income tax returns for the first time, your tax returns would not be subjected to any scrutiny by the tax officers of the income tax department. But, there’s an exception to this rule. If the tax department has specific information that you have made a high value transaction, then your tax returns could be subject to scrutiny (thorough checking by the income tax department).

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The Government ends tax benefits under Rajiv Gandhi Equity Savings Scheme

The Government proposes to end tax benefits under Rajiv Gandhi Equity Savings Scheme (RGESS). This scheme was introduced by the previous UPA Government.

RGESS gives tax deductions under Section 80 CCG of the income tax act. This deduction is over and above the deduction of INR 1.5 Lakhs a year, you get under Section 80C. If you are a first time investor in equity and have an income up to INR 12 Lakhs a year, you could get a tax deduction of 50% of the investment amount, up to a maximum of INR 50,000 a year. This scheme had a lock-in of 3 years. After the Union Budget 2017, Rajiv Gandhi Equity Savings Scheme will rest in peace (RIP).

Penalty for not filing income tax returns in time

If you do not file your income tax returns in time, you would have to pay a penalty of up to INR 10,000. This applies from Assessment Year 2018-19. (Financial Year 2017-18). If your total income does not exceed INR 5 Lakhs, the maximum penalty will not be more than INR 1,000.

Lower tax on gains from selling house/property

The Finance Minister Arun Jaitley, has proposed that the holding period of a property for qualifying as long term capital gains will get reduced to 2 years, currently set at 3 years. You will be able to enjoy long term capital gains tax benefits after just 2 years of selling your property.

Earlier, if you sold a house/property within 3 years, the profits are called short term capital gains. These profits are added to your taxable income and taxed as per the income tax slab you fall under.

Restriction on tax benefits for second home

The Finance Minister has made a proposal to restrict the tax benefit on loan repayment of a second house. Earlier, if you rented out your house/property, you could deduct the entire interest you paid on the home loan, after adjusting the rental income you earn by renting out your home. After the new rule, you can claim a deduction only up to INR 2 Lakhs a year, after adjusting rental income. This means the tax you pay goes up. However, if you suffer a loss, this can be carried forward and be set off against house property income, you earn in subsequent 8 years.

Find this difficult to understand? Let me explain. You avail a home loan, buy a second house and pay an interest of INR 5 Lakhs a year. You rent the house and earn a rental income of INR 2 Lakhs a year. You suffer a loss of INR 3 Lakhs (INR 5 Lakhs – INR 2 Lakhs). You could easily set off this loss of INR 3 Lakhs against taxable income. Now, you can set off only INR 2 Lakhs. The tax you pay goes up.

The Union Budget 2017 is done. It’s time for you to understand its impact on your life. Be Wise, Get Rich.

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