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After the demonetisation phase, the expectations from the union budget were in the air. The budget matched the soared expectations of a common man to some extent, but it affected the rich taxpayers negatively, with the burden of heavy surcharge.
Today, I try to explain the effects of changes in tax payable by people due to change in taxation policies.
Taxpayers who are earning between Rs.50 lacs to Rs.1 crore have to pay an additional surcharge of 10% on their income which was not the case earlier. Apparently, there has been no change in the surcharge which is additionally levied at 15% on assesses who earn more than Rs.1 crore.
Furthermore, taxpayers who are earning taxable income between Rs 2.50 lacs to Rs 3.50 lacs will now get a Rebate of Rs.2,500 under section 87A as against the taxpayers whose taxable income was up to Rs. 5 lakhs.
FM Arun Jaitely said and I quote, “The present burden of taxation is mainly on the honest taxpayers and salaried employees.” So, in a bid to expand the tax base in the country, he reduced taxes. This step has given a rebate of Rs.12,500 for all the tax payers, but in the end, to overcome the accounting of less tax, the government announced an additional surcharge of 10% for salaried employees earning more than Rs.50 lakhs and less than a crore.
Let us understand the whole scenario with a hypothetical example, we consider a salaried employee who is earning an income of Rs.80 lakhs p.a.
| PARTICULARS | Rs. | Deduction allowed | Amount(in Rs.) |
| Income from Salary | 80,00,000 | ||
| Income from other sources :
Interest on taxable Bonds Interest income from savings bank account |
24,000 21,000 |
46,000 |
|
| Taxable Income | 80,46,000 | ||
| Less: | |||
| Deductions u/s 24(b)
Interest on housing loan |
|
2,00,000 |
|
| Deductions u/s 80C,80CCC(1) and 80CCD(1B) | |||
| ULIP Plan | 1,00,000 | ||
| PF Contribution | 20,000 | ||
| Housing Loan repayment | 50,000 | ||
| ELSS fund | 50,000 | ||
| NPS Contribution | 50,000 | ||
| Total Investments | 2,70,000 | ||
| Deductions limited up to | 2,00,000 | ||
| Deductions u/s 80TTA | |||
| Interest income from savings bank account | 21000 | 10,000 | |
| Deductions u/s 80D | |||
| Health insurance | 25000 | ||
| Total Deduction | (4,35,000) | ||
| Net Taxable Income | 76,11,000 |
Computation of Tax Liability (After Budget, New Slab)
| Income tax as per slab rate | Amount (in Rs.) |
| 0-2,50,000 | NIL |
| 2,50,000-5,00,000 @ 5% | 12,500 |
| 5,00,000-10,00,000 @ 20% | 1,00,000 |
| 10,00,000-76,11,000 @30% | 19,83,300 |
| Gross Tax excluding surcharge | 20,95,800 |
| Add: surcharge @ 10% | 2,09,580 |
| Gross tax after surcharge | 23,05,380 |
| Add: Education cess @ 3% | 69,161 |
| Net Tax Payable | 23,74,541 |
Computation of Tax Liability (Before Budget, Existing Old Slab)
| Income tax as per slab rate | Amount (in Rs.) |
| 0-2,50,000 | NIL |
| 2,50,000-5,00,000 @ 10% | 25,000 |
| 5,00,000-10,00,000 @ 20% | 1,00,000 |
| 10,00,000-76,11,000 @30% | 19,83,300 |
| Gross Tax excluding surcharge | 21,08,300 |
| Add: surcharge @ 10% | NIL |
| Gross tax after surcharge | 21,08,300 |
| Add: Education cess @ 3% | 63,249 |
| Net Tax Payable | 21,71,549 |
Information Source : The Financial Express
From the above calculation we can pierce through government’s veil of providing Rs.12,500 as a rebate or charging higher taxes.
It is clearly visible that even after paying at 10% on slab between 2,50,000-5,00,000 the total tax liability from the old existing slab is less as compared to the newly announced slab after the budget. The additional surcharge of 10% is a burden than the relief in the form of rebate provided by the government.
However, it should be kept in mind that, on total income exceeding Rs.50 Lakhs and not exceeding Rs.1 Crore, the total amount payable as income tax and surcharge on such income shall not exceed the total amount payable as income tax on a total income of Rs.50 lakhs by more than the amount of income that exceeds Rs.50 lakhs.
It can be said that government faces the trade-off between welfare of the rich class and the middle class. It has to look the both sides of the coin. So surcharge 10% cannot hide the fact of rebate of Rs. 12,500. We should accept it on the note that everything happens for a good cause.
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Very beautifully written. But if u intend to nullify the worth of rebate and lower tax rate at the initial taxation margins from this sentence”The additional surcharge of 10% is a burden than the relief in the form of rebate provided by the government.” Then I disagree with u as these are for two different classes of society…otherwise its commendable from u
hello Pragyan, I truly agree with what you have mentioned, and to answer your comment, I will say that this is what the heading is all about “BETTER OFF THE MIDDLE CLASS OR WORSE OFF THE RICH CLASS”
which signifies that different classes are there in the society.
And I also mentioned in the end that government always faces trade-off between the welfare of different classes of society, which means government has to “worse off someone to better off” the other, because of limited resources. In the end i will say that its not an article to question on government policies, but an informative article to provide information to various people.
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