(This article was first published on the front page of The Economic Times.)
The Budget has rewarded honest taxpayers with lower tax rates and tax rebates. The tax rate for those earning up to Rs 5 lakh has been reduced from 10% to 5%, a move that will affect nearly two crore taxpayers.
However, the tax rebate enjoyed by this segment of taxpayers under Section 87 has been reduced from Rs 5,000 to Rs 2,500 and will apply only to incomes up to Rs 3.5 lakh.
For other taxpayers, the Budget has offered a flat tax rebate of Rs 12,500. If you add the savings on education cess, most taxpayers will save Rs 12,875. Those earning over Rs 1 crore will save over Rs 14,000.
However, upper middle class taxpayers earning between Rs 50 lakh and Rs 1 crore will shell out more tax due to the 10% surcharge on tax. Another reason to cheer for small taxpayers is the simplification of the Income Tax Return form for income up to Rs 5 lakh.
This ITR form will now be a one-page document, very similar to the Saral form introduced several years ago. The finance minister also said that anyone filing tax returns for the first time will not attract scrutiny. This might induce individuals to start filing their tax returns.
At the same time, the Budget has also proposed stricter rules for tax filing. There will be a fee of Rs 5,000 if the tax return is filed after the due date, but before 31 December of the assessment year. If filed after that, the fee will be Rs 10,000. However, if the annual income of the taxpayer is up to Rs 5 lakh, the fees will be lower at Rs 1,000.
“In view of the non-intrusive information-driven approach for improving tax compliance and effective utilization of information in tax administration, it is important that the returns are filed within the due dates,” Finance Minister Arun Jaitley said.
Jaitley reiterated his government’s resolve to stamp out black money. “We are committed to make our taxation rates more reasonable, our tax administration more fair and expand the tax base in the country. This approach will change the colour of money,” he said in his speech.
As a step in this direction, the Budget has proposed to ban all cash transactions above Rs 3 lakh. The budget has also proposed that tax authorities can open cases of up to 10 years back if search and seizure operations reveal undisclosed income and assets worth over Rs 50 lakh. Currently, tax records of only up to six years can be reopened for scrutiny.
The government seems intent on plugging all the leaks in tax compliance. Salaried taxpayers who fudge house rent receipts will now find it difficult to claim exemption for housing rent allowance.
The budget proposes to make it mandatory for TDS to be deducted if the rent exceeds Rs 50,000 a month. Three years ago, it was made mandatory to mention the landlord’s PAN if the rent exceeds Rs 1 lakh a year. Now, with the TDS requirement, it will become even more difficult to submit fake rent receipts to claim tax exemption.