The Finance Ministry, led by Arun Jaitley, recently announced some important changes in the Income Tax rules. FM Jaitley had proposed a number of income tax changes in Budget 2017. Besides, some new amendments were passed by the Lok Sabha in the recent Finance Bill. Here are 8 of the most important changes that take effect from April, which is the first month of the FY 2017-2018.
- Changes in Tax Rate: On income between Rs. 2.5 lakh and Rs. 5 lakh, the tax rate is now halved to 5 percent from 10 per cent. Rebates under Section 87A is also reduced from Rs. 5,000 to Rs. 2,500. For taxpayers with incomes above Rs. 3.5 lakh, there is no rebate. Simply put, for taxpayers with incomes between Rs 3 and 5 lakhs, tax savings of up to Rs. 7,700 is now in effect. Taxpayers with incomes between Rs. 5 lakh and Rs. 50 lakh can now avail tax savings of Rs. 12,900.
- Simplified returns: A one-page form is in place for filing tax return for individuals with a taxable income up to Rs. 5 lakh. This excludes business income.
- TDS changes: From June 1, Individuals must deduct a TDS (or tax deducted at source) of 5 per cent TDS for rental payments above Rs. 50,000 per month. This is in place to check tax irregularities.
- Rajiv Gandhi Equity Saving Scheme: No deduction will be allowed for investment in the Rajiv Gandhi Equity Saving Scheme (starting from Assessment Year 2018-19).
- More power for Income tax officials: IT officials can now reopen tax cases for up to 10 years (provided that searches reveal disproportionate assets exceeding Rs. 50 lakhs). This is more than the 6 years the IT officials had before. Taxpayers failing to file their returns on time will have pay a penalty of up to Rs. 10,000 (from assessment year 2018-’19.
- Withdrawals from NPS: Partial withdrawals from the National Pension System (NPS) entails no tax. Changes are this: NPS subscribers can withdraw 25 percent of their contribution for emergencies before retirement. Withdrawal of 40 percent of the corpus, after retirement, is tax-free.
- Aadhaar is a must: the limit on cash transactions has been fixed at Rs. 2 lakh, 1 lakh less than the sum proposed by The Finance Bill . Anyone seen crossing this cash cap will have to pay a sum equal to the amount.
- GST Bill: If the GST Bill rolls out from July, many of the existing IT laws will get much more simplified. This will ensure less tax avoidance as well as stopping harassment of honest taxpayers. This is being touted by Arun Jaitley as one of his major achievements.