What The Revised Tax Structure Means For You

Lakhs of Indians watched on with bated breath as the FM announced amendments to personal taxes for the coming fiscal year. Post the demonetisation lead strife, the air was laden with expectation of widespread tax cuts as a possible 'appeasement' for the collective pain undertaken by the populace, post the historic November 8 announcement.

All in all, the FM made only minor tweaks to the existing personal tax structure. Three changes were announced. First, the percentage payable for the 2.5 lakh to 5 lakh bracket was reduced from 10 per cent to 5 per cent. Second, a new surcharge of 10 per cent was introduced for HNI's earning between 50 lakhs and 100 lakhs per annum. Third, the provisions of Section 87A were given a minor adjustment, reducing the maximum rebate available to individuals earning up to Rs. 3.5 lakhs, to Rs. 2,500 from Rs. 5,000. No rebates are now applicable to individuals earning in excess of Rs. 3.5 lakhs - previously, rebates were allowed for individuals earning up to Rs. 5 lakhs per annum.

Here's a simple explanation of how the changes in the tax structure will impact your net tax outgo for the next fiscal.

If your income is under 3 lakh per annum
There's no change in your tax outgo - it was zero earlier, and it's zero now. Prior to the change, you could offset your tax outgo of up to Rs. 5,000 per annum (10 per cent of Rs. 50,000) with the rebate allowed under Section 87A, resulting in zero tax liability. How, you can offset your tax outgo of Rs. 2,500 per annum with the maximum allowed rebate of Rs. 2,500.

If your income is between 3 and 3.5 lakh per annum
Your tax liability went down by up to Rs. 2,500 per annum. For instance, an individual earning Rs. 3.5 lakhs had an earlier tax liability of 10 per cent of Rs. 1 lakh (Rs. 10,000), minus the cap of Rs. 5,000 allowed under Section 87A, which worked out to Rs. 5,000. Post budget, it's 5 per cent of Rs. 1 lakh (Rs. 5,000) minus the revised maximum rebate of Rs. 2,500, which is Rs. 2,500.

If your income is between 3.5 lakh and 5 lakh per annum
The rebate of Rs. 5,000 no longer applies to you, but you stand to save up to Rs. 12,500 in taxes due to the reduction in taxable income from 10 per cent to 5 per cent (of Rs. 2.5 lakhs). This means a total reduction in your tax liability of up to Rs. 7,500. An individual earning Rs. 5 lakhs per annum had to shell out Rs. 20,000 earlier (Rs. 25,000 minus the rebate). Now, he or she needs to pay Rs. 12,500 (5 per cent of Rs. 2.5 lakhs)

If your income is between 5 lakh and 50 lakh per annum
The tax payable on your income between Rs. 5 lakhs and 50 lakhs stays the same. However, the amount of tax payable on your income up to Rs. 5 lakhs falls by Rs. 12,500. The rebate was not applicable to you in any case, so your net reduction in tax liability is Rs. 12,500.

If your income is between 50 lakh and 100 lakh per annum
The uniform tax benefit of Rs. 12,500 applies to you too, but this benefit is negated by the new surcharge (tax on tax) of 10 per cent that is now applicable. If you're earning Rs. 50 lakhs per annum, this has increased your annual tax liability by Rs. 1.18 lakhs. If you're earning Rs. 100 lakhs per annum, the net increase in your tax liability stands at Rs. 2.68 lakhs.

If your income is more than 100 lakh per annum
Surcharge for those earning more than Rs. 100 lakh per annum was already hiked from 12 per cent to 15 per cent per annum in the previous budget. This remains the same. Net, your tax liability has now come down by a rather trifling sum of Rs. 12,500 from the coming fiscal!