The Finance Minister Arun Jaitley, presented the Union Budget 2017 yesterday. This was a highly anticipated budget, being the first budget after demonetization. The Finance Minister had promised honest tax payers, that they would be treated with dignity. The Finance Minister has stuck to his promise. Yesterday in a bold move, the Finance Minister cut income tax rates from 10% to 5%, for citizens earning INR 2.5 Lakhs to INR 5 Lakhs. Now, citizens have more money to shop and spend.
This bold move will also help citizens in the higher tax brackets. The benefit of this move…..More money to spend and give a boost to the economy, it so badly needs after demonetization.
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Citizens of our country love to evade taxes. It’s become a way of life. Take a look at some of these statistics of citizens, who filed tax returns in Financial Year 2015-16. About 3.7 crore citizens filed ITR in 2015-16. Out of this, 99 Lakh citizens showed an income below INR 2.5 Lakhs a year. This means they pay no taxes. Another 1.95 crore citizens showed an income between INR 2.5 Lakhs to INR 5 Lakhs. Another 52 Lakh citizens filed income tax returns, showing an income between INR 5 Lakhs to INR 10 Lakhs. About 24 Lakh citizens filed income tax returns showing an income above INR 10 Lakhs.
What does this mean? Only 76 Lakh citizens have shown an income of over INR 5 Lakhs and filed ITR. This is way too low, for a country of more than 125 crore citizens. The Finance Minister has got to find a way to increase the number of tax payers (Widen the tax base). He has done so by reducing income tax rate by half, for citizens earning INR 2.5 Lakhs to INR 5 Lakhs a year. This would encourage citizens to file ITR and cut down on tax evasion.
The Finance Minister has cut income tax rates from 10% to 5%, for citizens earning INR 2.5 Lakhs to INR 5 Lakhs a year. This move will cut down the tax you pay, putting more money in your pocket.
Let’s understand this through a simple example. You earn a salary of INR 5 Lakhs. You get a tax deduction up to INR 1.5 Lakhs a year under Section 80C, if you invest in certain tax saving instruments. Let’s take a look at the income tax you pay in Financial Year 2016-17.
Now, let’s take a look at the income tax you pay in Financial Year 2017-18. Income tax rate is 5% for citizens earning INR 2.5 Lakhs to INR 5 Lakhs.
The Government has reduced the income tax rebate under 87A for FY 2017-18 to INR 2,500 for income up to INR 3.5 Lakhs.
You save INR 2,575 (INR 5,150 – INR 2,575) in taxes, just because the Finance Minister reduced the tax rates.
Let’s say you earn an income of INR 10 Lakhs. You can avail the Section 80C deduction. Take a look at how much tax you save.
You save INR 12,875 in taxes just because the Finance Minister reduced the tax rates.
The Finance Minister has given you more money to spend by cutting down income tax rates. It’s your turn to repay the favor. Start spending and boost the economy. Be Wise, Get Rich.
Mr C.S.Sudheer is a management graduate. He started his career with ICICI Prudential Life Insurance and later on worked with Howden India. After his brief stint in Howden India, he moved on and incorporated Suvision Holdings Pvt Ltd which is the sole promoter of IndianMoney.com. He aims to build a nation that is financially literate with investment savvy citizens.