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  • Impact of New Income Tax Slab on Common Taxpayers

    About Income Tax Slab:

    It is the duty of every eligible citizen of India to pay tax to the government, failing which the growth of the country would stall, pushing us back towards medieval times. With over 1.2 billion people in the country, one would expect a huge majority of the population to pay tax but this is not the case, as the government has kept the needs of the common people in mind while framing the tax slabs. A tax slab, for the uninitiated is a simple table containing provisions about the tax liability of individuals based on their income in a particular year. The Income Tax department prepares and updates these slabs every year, on the direction of the Finance Ministry.

    Tax Slab for Financial Year 2015-2016:

    The tax slab for the financial year 2015-2016 was revealed by the Finance Minister Mr. Arun Jaitley during the Annual Budget. The current tax slab has been divided into three categories, one for general citizens, one for senior citizens and one for very senior citizens and keeps their individual financial resources and tax payment capacities in mind. The tables below highlight the new tax slabs.

    Tax Slab for Taxpayers under the age of 60 years:

    Annual Income

    Tax Rate

    Less than or Equal to Rs 2,50,000

    Nil

    Between Rs 2,50,000 and Rs 5,00,000

    10%

    Between Rs 5,00,000 and Rs 10,00,000

    20%

    Greater than Rs 10 lakh

    30%

    Tax Slab for very Senior Citizens (aged over 60 years):

    Annual Income

    Tax Rate

    Less than or Equal to Rs 3,00,000

    Nil

    Between Rs 3,00,000 and Rs 5,00,000

    10%

    Between Rs 5,00,000 and Rs 10,00,000

    20%

    Greater than Rs 10 lakh

    30%

    Tax Slab for very Senior Citizens (aged over 80 years):

    Annual Income

    Tax Rate

    Less than or Equal to Rs 5,00,000

    Nil

    Between Rs 5,00,000 and Rs 10,00,000

    20%

    Greater than Rs 10 lakh

    30%

    Impact of New Tax Slab on Taxpayers:

    The current tax slab has been designed keeping the financial requirements of the taxpayers in mind. While there is no major change from the previous year for members who earn well, there has been a change in the minimum tax exemption, which was raised to Rs 2.5 lakh. This increase in the minimum liability is bound to benefit millions of Indian citizens who are involved in small businesses or trade to earn their daily bread.

    It has often been observed that the hardest hit members when it comes to tax liability are those who just scrape through a living, and taxing them would be an injustice. By raising the limit, these former taxpayers can utilise these savings to improve their way of live, helping them grow and prosper.

    Other categories of taxpayers might not be additionally benefitted by the current tax slabs as there aren’t many new changes incorporated. They would continue to pay the same or almost same tax as before, subject to their income staying the same.

    Senior citizens and very senior citizens on the other hand are bound to benefit from the current tax slab, as their tax liability has also reduced in cases of them having limited sources of income. Members of these communities are typically known to survive on savings or through minimal income sources and raising the bar for them is bound to benefit thousands in the country, offering them an opportunity to live a dignified life without having to shell out extra in the form of taxes.

    Provisions to Save Tax:

    The Union Budget might not have made a host of changes in the Income Tax Slabs but they did modify the tax savings provisions. These provisions are designed to aid the common taxpayer, helping him/her save on taxes by means of smart investments. The maximum deduction under section 80C of the Income Tax Act was raised to Rs 1.5 lakh per year, while other investments like NPS and interest on education loan are eligible for deductions of Rs 50,000 each. Similarly, the other tax saving provisions are mentioned below.

    • Section 24 allows deductions to the tune of Rs 2 lakh
    • Section 80 D has a provision for deduction up to Rs 60,000 on medical insurance premiums
    • Section 80G has a provision for deduction up to Rs 40,000 towards donations to charitable funds

    There are a number of other such tax saving provisions available to the common taxpayer.

    Examples:

    Rakesh is a tailor who earns around Rs 20,000 per month, taking his annual income to approximately Rs 2.4 lakh. Under the old slabs he would have had to pay a certain portion of his income as taxes but with the exemption raised to Rs 2.5 lakh he now saves a considerable amount.

    Miss Uma is a teacher earning a salary of Rs 5 lakh per year. She invests in a number of schemes which offer tax benefits under Section 80C and 80D of the Income Tax Act. She had the same salary the previous year also and paid a tax of around Rs 7,000 (after considering all deductions). This year, the increased limit on deductions help her save around Rs 1,100, bringing her tax liability to Rs 5,900.

    Mr. Krishna is a retired professor who has an income or around Rs 8 lakh from various investments. At an age of 65 years, he no longer practices his profession and utilises the provisions of Section 80C and D to save on tax. His income was the same last year and he paid around Rs 48,000 as tax but this year, given the increased tax deductions his tax liability reduces by almost Rs 2,000, requiring him to pay taxes to the tune of Rs 46,000.

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