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Budget FY 2017-18 – Tax on Salary

Budget FY 2017-18 – Tax on Salary

The Union Budget for FY 2017-18 was tabled in the Parliament by the Finance Minister of India on 01-Feb-2017. Here are the key proposals related to computation of tax on salary which payroll managers need to consider for FY 2017-18.

1. A change in the tax rate.

The tax rate for the Rs 2,50,001 to Rs 5,00,000 salary slab changes from 10% to 5%. The rates for the other salary slabs remain the same.

The tax rates (for FY 2017-18) for salaried employees below 60 years of age are as follows.

Total Income for the Year in Rs Tax Rate in %
Up to 2,50,000 Nil
2,50,001 to 5,00,000 5
5,00,001 to 10,00,000 20
Above 10,00,000 30

The tax rates (for FY 2017-18) for salaried employees aged 60 years and above but below 80 years are as follows.

Total Income for the Year in Rs Tax Rate in %
Up to 3,00,000 Nil
3,00,001 to 5,00,000 5
5,00,001 to 10,00,000 20
Above 10,00,000 30

Note:
1. The Education cess including Higher Education cess stays at 3%.

2. Tax relief under Section 87A

The tax credit under Section 87A has been decreased to Rs 2,500 for FY 2017-18 (from Rs 5,000 for FY 2016-17) if the total income does not exceed Rs 3.5 lakh (reduced from Rs 5 lakh for FY 2016-17) for the year. This means that there will be no tax payable up to a taxable salary of Rs 3 lakh per annum.

3. A new surcharge

In case the total taxable income for the year goes beyond Rs 50 lakh (but is less than or equal to Rs 1 crore) in the year, a surcharge of 10% (subject to marginal relief) on the income tax is to be deducted – there was no equivalent surcharge in FY 2016-17.

In case the total taxable income for the year goes beyond Rs 1 crore in the year, a surcharge of 15% (subject to marginal relief) on the income tax is to be deducted – the surcharge was 15% in FY 2016-17 too.

4. Restriction of housing loan interest benefit.

In FY 2016-17, the maximum interest (on housing loan) benefit one could get on self-occupied property was Rs 2 lakh while for let-out property there was no ceiling on the interest benefit as long as the employee declared the rent (received or deemed to be received) as income from house property. For example, let assume that an employee owned 2 properties – one self-occupied and the other let-out.

1. If the employee’s interest payable on the self-occupied property was Rs 2 lakh, the benefit available on the self-occupied property was Rs 2 lakh.

2. If the employee’s interest payable on housing loan for the let-out property was Rs 6 lakh and he received Rs 3 lakh as rent, the benefit available on the let-out property was Rs 3 lakh.

In total, the employee could set-off the loss of Rs 5 lakh (Rs 2 lakh from self-occupied property and Rs 3 lakh from let-out property) against his salary, thereby reducing his taxable salary.

As per the 2017 budget, in FY 2017-18, the maximum interest benefit available on house property shall be restricted to Rs 2 lakh, irrespective of the number of house properties owned.

In the above example, the employee can set-off only Rs 2 lakh (even after considering both the properties) against his salary in the year FY 2017-18.

It may be noted that the unused benefit (beyond Rs 2 lakh) can be carried forward to subsequent years up to 8 years and set off against house property income in subsequent years.

This change is likely to increase the tax liability of many employees (especially those that draw a high salary) who have been claiming housing loan interest benefit on multiple house properties so far.

5. Phasing out of Rajiv Gandhi Equity Savings Scheme.

Currently, under Section 80CCG, employees who have invested in listed equity shares or units in equity oriented funds can claim deduction of 50% of amount invested to the extent such deduction does not exceed Rs 25,000 for three consecutive years (subject to certain conditions).

From FY 2017-18, no fresh deduction under the scheme can be claimed. However, those who have invested and claimed deduction earlier can continue to claim deduction for the next 2 years, until 31-Mar-2019, subject to conditions.

Posted in: Blog

Leave a Comment (14) ↓

14 Comments

  1. Subhajit March 28, 2017

    Well written. This article is organized in a great fashion to understand the changes in the tax rules from the previous financial year 2016-17. Easier to interpret here than what has been written by top media houses.

    reply
  2. Rakesh March 30, 2017

    Hi Gautham,

    Is there any impact of GST on salary from New Financial Year.

    reply
  3. Rakesh March 30, 2017

    h,i gone through an article in economics times. sharing the same for your views on same.
    http://economictimes.indiatimes.com/news/economy/policy/free-lunch-other-staff-perks-may-trigger-gst/articleshow/57884248.cms?from=mdr

    reply
    • gautham March 30, 2017

      The GST bill is still in Parliament and hence whatever is written in the article cannot be given effect now. If the GST bill which is finally passed contains these proposals, these shall be given effect only from the date of GST introduction (which is yet to be announced).

      reply
  4. Rakesh March 31, 2017

    hi,

    going through point 4, is it the benefit is restricted to 2 lacs for self and let out property.
    If i have two properties one self and other let out, self occupied interest is 2lacs and on let out property after considering annual rent loss is 2.5lacs
    Total Loss from House Property in previous year is 4.5 lacs but from 2017-18 it would be 2 lacs in all or 2lacs for self occupied and 2lacs for let out i.,4 lacs.

    reply
    • gautham March 31, 2017

      The loss from house property (across all house properties) shall be restricted to Rs 2 lakh for the purpose of set-off against salary income. It is not Rs 2 lakh for self-occupied and Rs 2 lakh for let-out.

      reply
  5. Rakesh April 5, 2017

    Thanks for clarifying the doubts Gautham ji.
    Is 80EE benefit continued in current financial year?

    reply
    • gautham April 5, 2017

      There is nothing specific to 80EE in this year’s budget. The conditions related to 80EE (specified in 2016 budget) stay the same.

      reply
  6. Rakesh April 6, 2017

    ok. so if anyone buys a property in last financial year and satisfy all conditions of 80EE then benefit of 50K is available in current F/Y also or the property acquired in current F/Y is eleible for deduction in current F/Y.

    reply
    • gautham April 7, 2017

      Yes, but one of the conditions is that the loan should have been sanctioned between 01-Apr-2016 and 31-Mar-2017.

      reply
  7. Rakesh April 17, 2017

    Hi,
    Request your guidance on the calculation of surcharge with marginal relief for an income of 10001000 (one crore and one thousand).

    reply
    • gautham April 18, 2017

      The below calculations are for FY 2017-18.

      1. Calculate the income tax and surcharge for Rs 10001000 (Rupees One Crore and One Thousand)

      Salary: 10001000
      Income Tax: 2812800
      Surcharge: 421920
      Total Tax (A): 3234720

      2. Calculate the income tax and surcharge for Rs 10000000 (Rupees One Crore)

      Salary: 10000000
      Income Tax: 2812500
      Surcharge: 281250 (Note: There is a surcharge of 10% for salary above Rs 50 lakh up to Rs 1 crore in FY 2017-18)
      Total Tax (B): 3093750

      3. Check if increase in salary beyond Rs 1 crore is more than the increase in tax

      Increase in salary (beyond Rs 1 crore) = 1,00,01000 – 1,00,00,000 = Rs 1,000
      Increase in tax = A – B = Rs 32,34,720 – 30,93,750 = Rs 140,970

      Since the increase in salary (beyond Rs 1 crore) is less than the increase in tax, the employee is eligible for marginal relief.

      4. Calculate marginal relief

      Marginal relief = Rs 140,970 – Rs 1,000 = Rs 1,39,970

      5. Calculate total tax after applying marginal relief

      Salary: 10001000
      Income Tax (T): 2812800

      Surcharge (C): 421920
      Marginal Relief (D): 139970
      Net Surcharge (E): 281950

      Education Cess at 3% of tax + surcharge (F): 92,843

      Total Tax (T+E+F): Rs 31,87,593

      reply
  8. Rakesh April 18, 2017

    Thanks….As always a path breaker for me. Cheersssssssssssss

    reply

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