04/02/2017
In this article, taking three provisions of Finance bill 2017, taxation effect is studied under different scenarios with hint of tax planning. Further, controversial provision of surcharge under one of the scenarios with its suggested solution is also given.
1. Income Tax slabs are not changed, but the tax rate for first taxable slab of income from Rs. 2,50,001/Rs. 3,00,001 to Rs. 5,00,000 is decreased from 10% to 5%. So, now there will be directly a slab of 20% after the slab of 5% tax. As in the case of very senior citizens (every individual, being a resident in India, who is of the age of eighty years or more at anytime during the previous year), tax rate is NIL till income of Rs. 5,00,000, so above mentioned change will not affect to them. [Applicable from A. Y. 2018-19]
2. Surcharge in case of individual, H.U.F., A.O.P., B.O.I. and artificial juridical persons will be in two phases as under.
Sr.
No. | Taxable Income | Surcharge on Tax |
| 1 | More than Rs. 50 Lakhs but not exceeding Rs. 1 Crore | 10% |
| 2 | More than Rs. 1 Crore | 15% |
[Applicable from A. Y. 2018-19]
3. Rebate under section 87A is decreased from (up to) Rs. 5,000/- to (up to) Rs. 2500/-. Further, this rebate will be available to individual resident in India whose taxable income does not exceed Rs. 3,50,000.] [Applicable from A. Y. 2018-19].
4. Aggregating the effects of point no. 1, 2 and 3 given above, tax is calculated under different scenarios in tables given below.
Table-1
| Scenario-1
Taxable Income of Rs. 3,50,000/- | Scenario-2
Taxable Income of Rs. 5,00,000/- |
| Particulars | AY 2017-18
(existing) | AY 2018-19
(After Budget) | AY 2017-18
(existing) | AY 2018-19
(After Budget) |
| | | | |
| Tax as per slab(s) | 10,000 | 5,000 | 25,000 | 12,500 |
| Less: Rebate | 5,000 | 2,500 | 5,000 | 0 |
| Tax after Rebate | 5,000 | 2,500 | 20,000 | 12,500 |
| Add: Surcharge | 0 | 0 | 0 | 0 |
| Add: Cess | 150 | 75 | 600 | 375 |
| Total Tax | 5,150 | 2,575 | 20,600 | 12,875 |
| Savings in Tax | 2,575 | 7,725 |
Table-2 (Tax planning)
| Scenario-3
Taxable Income of Rs. 51,00,000/- | Scenario-4 (Tax Planning)
Gross Income of Rs. 51,00,000/- |
| Particulars | AY 2017-18
(existing) | AY 2018-19
(After Budget) | AY 2018-19
(After Budget) | AY 2018-19
(After Budget)
Suppose Rs. 1 lakh donated in Prime Minister’s National Relief Fund |
| | | | |
| Tax as per slab(s) | 13,55,000 | 13,42,500 | 13,42,500 | 13,12,500 |
| Less: Rebate | 0 | 0 | 0 | 0 |
| Tax after Rebate | 13,55,000 | 13,42,500 | 13,42,500 | 13,12,500 |
| Add: Surcharge | 0 | 1,00,000 | 1,00,000 | 0 |
| Add: Cess | 40,650 | 43,275 | 43,275 | 39,375 |
| Total Tax | 13,95,650 | 14,85,775 | 14,85,775 | 13,51,875 |
| Savings/(Excess) in Tax | -90,125 | 1,33,900 |
| | | So, net savings after donation Rs. 33,900 |
Comment: In Table-2 (Scenario-3), you can observe that surcharge of Rs. 1 lakh (even after marginal relief) is payable after budget when someone earns Rs. 1 lakh in excess of 50 lakhs. Here one can make tax planning by contributing that amount of Rs. 1 lakh to say Prime Minister’s National Relief Fund by which taxable income will get down to Rs. 50 lakhs and surcharge of Rs. 1 lakh (plus 3% Cess thereon) can be saved and further saving of tax @ 30% (plus 3% Cess thereon) on the amount of that 1 lakh.
Table-3
| Scenario-5
Taxable Income of Rs. 1,02,00,000/- |
| Particulars | AY 2017-18
(existing) | AY 2018-19
(After Budget) |
| | |
| Tax as per slab(s) | 28,85,000 | 28,72,500 |
| Less: Rebate | 0 | 0 |
| Tax after Rebate | 28,85,000 | 28,72,500 |
| Add: Surcharge | 2,00,000 | 2,00,000 |
| Add: Cess | 92,550 | 92,175 |
| Total Tax | 31,77,550 | 31,64,675 |
| Savings/(Excess) in Tax | 12,875 |
Table-4 (Surcharge related controversy)
| Scenario-6 |
| Particulars | AY 2018-19
(After Budget)
Taxable Income of Rs. 1,02,00,000/-[1] | AY 2018-19
(After Budget)
Taxable Income of Rs. 1,00,00,000/-[2] | Gain/(Loss) of Tax [3]=[1]-[2] |
| | | |
| Tax as per slab(s) | 28,72,500 | 28,12,500 | 60,000 |
| Less: Rebate | 0 | 0 | 0 |
| Tax after Rebate | 28,72,500 | 28,12,500 | 60,000 |
| Add: Surcharge | 2,00,000 | 2,81,250 | -81,250 |
| Add: Cess | 92,175 | 92,813 | -638 |
| Total Tax | 31,64,675 | 31,86,563 | -21,888 |
Comment: In Table-4 (Scenario-6), you can observe that person whose income is Rs. 1 crore will have to pay more tax of Rs. 21,888/- as compared to the tax on income of Rs. 1.02 crore. This is against the canon of equity which says “The subjects of every state ought to contribute towards the support of the Government, as nearly as possible, in proportion to their respective abilities, that is, in proportion to their revenue which they respectively enjoy under the protection of the State”.
So, it is suggested to finance ministry to add the para given below as point (c) at the end of Paragraph A to Part III to The First Schedule to The Finance Bill, 2017.
“(c) Notwithstanding anything contained in preceding para (b), minimum surcharge payable, in case of taxable income exceeding Rs. 1 crore, will be determined as per following formula.
Surcharge = amount of taxable income * 2,81,250 / 1 Crore”.
By inserting the above provision, it can be assured that proportion of surcharge payable on income of Rs. 1 crore will be applied to those whose income is in excess of Rs. 1 crore (even when he/she gets marginal relief regarding surcharge). This will ensure canon of equity.
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About the author
vijay rai
ACCOUNTS AND TAX CONSULTANTS
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