The income tax slab of 2016 -17 is same as earlier. However, the middle class will get the tax benefit of Rs 3000. Almost 1 crore people will enjoy this tax benefit. The budget 2016 did not change the income tax slab. The tax relief is given through the rebate.
There are few more opportunity to save tax. The first time home buyer would get extra tax saving on the home loan interest. Those who lives in the rented house, also have a reason to cheer.
The budget 2016 has also fulfilled the long time demand of Tax exemption on NPS withdrawal. This demand has been partially met. The companies which employ the fresher would get some financial benefit due to the new EPF rules. The TDS rules of EPF is also relaxed.
While there are many tax benefits to the middle class and employees, the rich has to bear more tax burden. I will discuss all these new tax decisions. Along with this you would also learn the new income tax slab of 2016. You would also learn the tax calculation as well.
Budget 2016 – Main Points Related to Tax
No Change in Income Tax Slab
The income tax slab for individuals, females, senior citizen remains same in the FY 2016-17. There is no change. Thebasic exemption remain at 2.5 lacs.There is no extra concession for females.
Income Tax Rebate Increased
The income tax rebate is increased by Rs 3000. In the FY 2015-16, it was Rs 2000, now the tax rebate is Rs 5000. This rebate is available to those whose taxable income is below 5 lacs. It means, that the tax liability of such people would come down by Rs 5000. Because of this provision, those who earns up to Rs 3 lacs are not required to pay any tax. Rather, if a person uses the all available deductions, the income up to Rs 5 lacs can become tax-free.
Rent Deduction Increased
The tax deduction for the rent payment (section 80GG) is increased from 24,000 to 60,000. This deduction is available to those who lives in rented house and do not get House Rent Allowance from the employer.
More Deduction On Home Loan Interest
The home buyer would have the opportunity to claim more tax deduction. The budget 2016 has increased the tax deduction for home loan interest by 50 thousand. This extra deduction of 50,000 would be available over and above the 80C limit of Rs 1.5 lac. It means, your total tax deduction under section 80C can go up to Rs 2 lacs provided you are paying at least 50,000 as home loan interest. This extra tax deduction is available to those home buyers who buy a home in the financial year 2016 – 2017. The cost of the house should be more than 50 lacs and home loan amount should not be more than 35 lacs.
In FY 2014-15, The government has given similar tax benefit on the home loan interest.
Surcharge Rate Increased For Individuals
The income tax surcharge is levied on the taxpayers who earns more than Rs one crore in a year. For individuals, this surcharge was 12%. But budget 2016 has increased the burden of surcharge for them. Now the surcharge on income tax has become 15%. The surcharge for all other categories of the taxpayers would remain same.
No Capital Gains Tax on Gold Bond
There would not be a capital gains tax on redemption of the Sovereign Gold Bond. The long term capital gains arising from transfer of gold bond would be eligible for indexation benefit. The sovereign gold bond scheme is launched to discourage the purchase of physical gold for the investment purpose.
No Capital Gains Tax On the Earning from Gold Monetisation Scheme
The government would not charge any capital gains tax on the interest income of gold monetization scheme. The gold monetization scheme was launched to channelize the idle household gold.
Exemption Limit Increased For a pension Fund
If an employer invests into the pension fund of an employee, the invested amount is exempt from tax. Till now such exemption is limited to 1 lac rupee(section 17 (2)(vii)). The Budget 2016 has increased this limit to the 1.5 lac.
NPS Withdrawal Tax Exemption
The biggest hurdle of NPS is the tax on withdrawal. Because of the tax during withdrawal, The NPS subscribers were in disadvantage compared to the EPF and PPF members. Now Government has tried to reduce this anomaly. The 40% withdrawal of NPS would exempt from the tax. Along with this the NPS wealth given to the nominee after the death of subscriber would be 100% exempt from the tax.
EPF TDS Limit Increased
The EPF withdrawal before completing 5 years is subject to TDS. Till now EPF withdrawal up to 30,000 was not subject to TDS. Now this limit has been increased up to 50,000. There would be No TDS if premature EPF withdrawal amount is less than Rs 50,000.
The Income Tax Slab For FY 2016-17 and AY 2017-18
Now I am giving you the tax slab and rates of the financial year 2016-17. These tax rates are applicable on the income earned during 1 April 2016-31 march 2017. You should take account of this income tax slab rate. The assessment of income tax according to this slab rate will be done in the year 2017-18. It means you have to apply these rates while filing the income tax return in 2017.
Besides the income tax rates, surcharge is also charged if total taxable income exceeds Rs 1 Crore. Since the budget 2016, the income tax surcharge on individuals is increased to 15%. Two years back it was mere 10%. However, marginal relief is given in such cases.
Income tax slab rate is different for a different class of taxpayers.
- Individual/HUF
- Senior Citizen
- Super Senior citizen
- Cooperative society
- Firm
- Local Authority
- Domestic Company
- Other Than Domestic Company
In this post, I would cover the income tax slab rate for every class of taxpayers. I would also tell you the tax saving because of the new income tax slab rate.
Let us start with the individual taxpayers. Among the individual taxpayers, the salaried class is the biggest block. Let us take them first.
Income Tax Slab Rate for Individual Below 60 Or HUF
This income tax slab is most commonly used. Most of the taxpayers in India are salaried individuals below the age of 60 years. This income tax slab rate is applicable for those born on or after 1ST April 1956.
I am putting this income tax slab first because you may belong to this class. This income tax slab is also applicable to Non-Resident Indian, Hindu undivided family (HUF), Association of Persons, Body of Individuals and Artificial Judicial Person.
Now you know that following income tax slab is most important.
Income Tax Slab for 2016 – 17 |
Tax Rate |
||
| Taxable income is less than Rs. 2,50,000 | |||
| Taxable income is more than Rs. 2,50,000 but less than Rs. 5,00,000 | 10% of the amount above and over 2,50,000. | ||
| Taxable income is more than Rs. 5,00,000 but less than Rs. 10,00,000 | Rs. 25,000 + 20% of the amount by which the taxable income exceeds Rs. 5,00,000 | ||
| Taxable income is more than Rs. 10,00,000 | Rs. 1,25,000 + 30% of the amount by which the taxable income exceeds Rs. 10,00,000 | ||
According to this income tax slab rate, If you are earning up to Rs 2.5 lakh, you are not required to pay any income tax. Note, this 2.5 lakh income is after the various exemptions, thus, often a higher CTC salary may also come within this range.
If you still come in the range of taxable income, you can use the tax deductions to make your tax liability zero. Also, there is a tax rebate of 5000. This rebate is available to the taxpayers whose taxable income is less than Rs 5 lacs.
However, if your earning is beyond the available deductions and income tax exemptions then you should be get ready to pay the income tax.
If your taxable income is above the 2.5 lakh, you have to pay the income tax at the rate of 10%. This 10% income tax rate is applicable on the income which is over and above the Rs 2.5 lakh.
Suppose you are earning 3.5 lakh per year, in such case the 10% income tax rate would be applicable on Rs 1 lac (3.5-2.5 lac), Hence, your tax liability would be Rs 10 thousands (10% of 1 lac).
Whereas if your taxable income goes beyond Rs 5 lacs, the 20% rate of tax would come in the picture. The income which exceeds Rs 5 lacs would be the subject to 20% income tax.
suppose you earn Rs 8 lacs per years. In this case you are earning 3 lacs above the the Rs 5 lacs. Therefore the tax on income of 3 lacs would be at the rate of 20%. Along with this you have to also pay tax @ 10% on 2-5 lacs. Finally your tax would be 25,000 + 60,000= 85,000.
Similarly, the income of above10 lacs would be subject to 30% income tax. It means rich pays tax on the higher rate than the poor.
Education Cess
Besides the tax rate, cess is also charged. The cess is a tax on the tax. For a normal individual, the cess is 3%. Because of this cess the effective tax rates translates into 10.3%, 20.6% and 30.9% according to the slabs.
Effective Tax Rate
| Income Slab | Tax Rate | Education Cess | Aggregate Tax Rate |
| 0 – 2.5 Lakh | Nil | Nil | Nil |
| 2.5 – 5.0 Lakh | 10.00% | 3.00% | 10.30% |
| 5.0 – 10.0 Lakh | 20.00% | 3.00% | 20.60% |
| Above 10 Lakh | 30.00% | 3.00% | 30.90% |
Tax on Different Income of individuals (below 60 years)
| Annual Taxable Income | Total tax | Tax After full 80C Tax deduction |
| upto 2.5 lacs | Nil | Nil |
| 3.0 lacs | Nil | Nil |
| 3.5 Lacs | 5,150 | Nil |
| 4.0 Lacs | 10,300 | Nil |
| 4.5 lacs | 15,450 | Nil |
| 5.0 lacs | 20,600 | 5,150 |
| 6.0 lacs | 46,350 | 15,450 |
| 7.0 lacs | 66,950 | 36,050 |
| 8.0 lacs | 87,550 | 56,650 |
| 9.0 lacs | 1,08,150 | 77,250 |
| 10.0 lacs | 1,28,750 | 97,850 |
| 15.0 lacs | 2,83,250 | 2,36,900 |
Note that after all the available exemption and deduction your net taxable income comes below 5 lacs then you can also reduce your tax liability by Rs 5000. Calculate this rebate before adding the cess.
Income Tax Slab For Female
The income tax slab for female is same as the male. Since last some years, the government has ended the different taxation on the basis of gender. Earlier females used to get a relaxed tax slab. The females taxpayer were liable to less tax. However, now there is no such distinction. Thus, the women should refer to the tax slab of individuals, given above.
Income Tax Rate For Senior Citizen
The senior citizen get preferable treatment from the government. They have a different tax slab. The tax slab of senior citizens is relaxed. The tax free income of senior citizen is more than the individual below 60.
Because of the higher basic exemption, the senior citizens are liable to less tax on similar income. Among senior citizens, there is a separate class of super senior citizen as well. They get far better tax treatment. I will discuss it later.
To avail the benefit of senior citizen’s income tax slab of 2016-17, one should be born on or after 1st April 1936 but before 1st April 1956. These dates are applicable for the income tax slab rate of the financial year 2016-17.
| Income Slab | Tax Rate | ||
| Taxable income is less than Rs. 3,00,000 | nil | ||
| Taxable income is more than Rs. 3,00,000 but less than Rs. 5,00,000 | 10% of the amount above and over 3,00,000. | ||
| Taxable income is more than Rs. 5,00,000 but less than Rs. 10,00,000 | Rs. 20,000 + 20% of the amount by which the taxable income exceeds Rs. 5,00,000 | ||
| Taxable income is more than Rs. 10,00,000 | Rs. 1,20,000 + 30% of the amount by which the taxable income exceeds Rs. 10,00,000 | ||
Education Cess
Senior citizens are also required to pay education cess similar to other individuals. The 3% cess is charged on the income tax of senior citizens. Due to this the effective income tax slab rate increases.
Effective Tax Rate of senior Citizens
| Income Slab | Tax Rate | Education Cess | Aggregate Tax Rate |
| 0 – 3.0 Lakh | Nil | Nil | Nil |
| 3.0 – 5.0 Lakh | 10.00% | 3.00% | 10.30% |
| 5.0 – 10.0 Lakh | 20.00% | 3.00% | 20.60% |
| Above 10 Lakh | 30.00% | 3.00% | 30.90% |
You can see the senior citizens enjoy tax-free income of up to Rs 3 lakh. They get an extra concession on the income of Rs 50,000. This relaxation of 50K translates the tax saving of 15450 for the senior citizens who fall in 30% tax slab.
Tax on Different Income of Senior Citizens (60-80 years)
| Annual Taxable Income | Total tax | Tax After full 80C Tax deduction |
| upto 2.5 lacs | Nil | Nil |
| 3.0 lacs | Nil | Nil |
| 3.5 lacs | Nil | Nil |
| 4.0 lacs | 5,150 | Nil |
| 4.5 lacs | 10,300 | Nil |
| 5.0 lacs | 15,450 | 5,150 |
| 6.0 lacs | 41,200 | 15,450 |
| 7.0 lacs | 61,800 | 30,900 |
| 8.0 lacs | 82,400 | 51,500 |
| 9.0 lacs | 1,03,000 | 72,100 |
| 10.0 lacs | 1,23,600 | 92,700 |
| 15.0 lacs | 2,78,100 | 2,31,750 |
According to income tax slab the senior citizen gets basic exemption up to the income of Rs 3 lacs. But, because of income tax rebate, the income up to Rs 3.5 lacs gets tax-free.
Income Tax Slab of Super Senior Citizens (Above 60 years)
The senior citizens of above the age of 80 gets maximum tax concession from the government. They get this concession considering increased medical and healthcare expenses.
To get the benefit of this income tax slab rate, one should be born before 1st April 1936.
Income Tax Slab |
Tax Rate |
||
| Taxable income is less than Rs. 5,00,000 | Nil | ||
| Taxable income is more than Rs. 5,00,000 but less than Rs. 10,00,000 | 20% of the amount by which the taxable income exceeds Rs. 5,00,000 | ||
| Taxable income is more than Rs. 10,00,000 | Rs. 1,00,000 + 30% of the amount by which the taxable income exceeds Rs. 10,00,000 | ||
The super senior citizen can enjoy up to Rs 5 lakh tax-free income. It is a really big relief in comparison to the normal individual. However, income above the Rs 5 lakh is considered for 20% tax. It means there is no slab of 10% tax.
Education Cess
Super senior citizens are also not spared of education cess. They need to pay 3% cess on the tax.
Effective Tax Rate for Super Senior Citizens
| Income Tax Slab | Tax Rate | Education Cess | Aggregate Tax Rate |
| 0 – 5.0 Lakh | Nil | Nil | Nil |
| 5.0 – 10.0 Lakh | 20.00% | 3.00% | 20.60% |
| Above 10 Lakh | 30.00% | 3.00% | 30.90% |
Tax on Different Income of Super Senior Citizens (Above 80 years)
| Annual Taxable Income | Total tax | Tax After full 80C Tax deduction |
| upto 2.5 lacs | Nil | Nil |
| 3.0 lacs | 5,150 | Nil |
| 3.5 Lacs | 10,300 | Nil |
| 4.0 Lacs | 15,450 | Nil |
| 4.5 lacs | 20,600 | Nil |
| 5.0 lacs | 25,750 | Nil |
| 6.0 lacs | 20,600 | Nil |
| 7.0 lacs | 41,200 | 10,300 |
| 8.0 lacs | 61,800 | 30,900 |
| 9.0 lacs | 82,400 | 51,500 |
| 10.0 lacs | 1,03,00 | 72,100 |
| 15.0 lacs | 2,57,500 | 2,11,150 |
Income Tax Slab And Rates For Businesses
For Cooperative Society
Unlike an individual the Cooperative societies do not get any exemption. It have to pay income tax on the first rupee it earns.
Like an individual, it has to pay the education cess as well.
Like an individual, the cooperative societies has different income tax slabs according to the taxable income. Among the business classes, only cooperative society has different tax slabs. All other businesses class pays uniform tax rate.
| Income Tax Slab | Tax Rate | ||
| Taxable income is not more than Rs. 10,000 | 10% of total income | ||
| Taxable income is more than Rs. 10,000 but less than Rs. 20,001 | Rs. 1,000 + 20% of income in excess of Rs. 10,000 | ||
| Taxable income is more than Rs. 20,000 | Rs. 3,000 + 20% of the amount by which the income exceeds Rs. 20,000 | ||
Income Tax Slab Rate For the Business Firm
Any income of the firm is taxable from the beginning. Also the tax rate is highest.
There is no tax slabs. The firm has to pay 30% tax on its total income. This rate is uniform irrespective of the earning. Any income a firm earns is taxable, whether it is rupee one or crores.
Besides this, Education cess and surcharge is also applicable. The total effective tax rate of a firm is 30.9%.
Local Authority
Similar to the firm local authority also pays income tax at the rate of 30%.
After an addition of education cess, the effective tax rates becomes 30.9%
Domestic Company
- In the case of a domestic company, income tax is payable at the rate of 30%.
- The domestic company gets relaxation on the surcharge. If the income exceeds Rs 1 crore surcharge rate is 7%. Earlier it was 5%.
- If the income exceeds Rs 10 crore, the surcharge rate is 12%. Earlier it was 10%
- 3% education cess is also charged on the income tax of the domestic company.
For Foreign Company
Foreign company means a company whose control and management are situated wholly outside India. Also, the company has not made the prescribed arrangements for declaration and payment of dividends within India.
- A foreign company has to pay 40% income tax. 3% educations cess is also charged.
- The surcharge is 2% if taxable income exceeds Rs 1 crore but not more than Rs 10 crores.
- The surcharge is 5% if taxable income exceeds 10 crores.
Marginal Relief
Marginal relief is given to the taxpayer who is liable to pay the surcharge. These are the income taxpayer whose total income exceeds Rs 1 crore. This relief is necessary for a level playing field. To understand the marginal relief, we should go through an example.
Suppose Firm XYZ earns Rs 1 crore taxable income. In this case, his tax would be 30% of total income. It would be Rs 30,00,000
Another firm ABC earns 10,000 more than xyz. Its total income is 1,00,10,000. He has to pay the tax @ 30% plus 12% surcharge, as his income exceeds Rs 1 crore.
The income tax of ABC = 30% of 1,00,10,000 + 3.6% of 1,00,10,000
= 30,03,000 + 3,60,360
= 33,63,360
Now look at the situation. The Firm ABC only earned Rs 10,000 more but its tax increases by Rs 3,63,360. To avoid this unfair situation government has the provision of marginal relief.
A surcharge can not be more than the excess amount minus tax payable on the excess amount. Take the above example. The firm ABC earns 10,000 more than one crore rupees. The income tax on this excess amount would be Rs 3000. In this example, surcharge can’t be more than Rs 7,000 (10000-3,000). Therefore total income tax of ABC would be 30,00,000 + 7,000= 30,07,000. Note, there would be education cess in addition.
In Which Income Income Tax Slab Do You Fall
Suppose your salary is 7 lakh per annum. What would be your effective income tax slab? Do you come under 20% tax slab as you earn more than Rs 5 lakh?
This is the most common question. How do I determine the tax slab? Which income should be considered for determining the tax slab?
To determine a tax slab, you should consider your net income which comes after subtracting all the available exemptions and deductions. But It should also include any extra income and un-exempted capital gains.
Steps To Determine Income Tax Slab
- Subtract the exemptions of HRA, Conveyance and Medical expense from the gross salary.
- Add the extra income of interest, commission and bonuses, if any.
- Add the rental income, if any.
- Add the capital gains, if any.
- Subtract the deductions available under section 80C, Section 80D and other deductions under Chapter VI.
- The resultant income should be net taxable income. The income tax slab should be applied on this final income.
The Application of Tax Slab on The Income
We should understand the application of tax rate according to the tax slab. Note these points.
- Every individual taxpayer gets the benefit of tax-free income, irrespective of his/her total income.Out of one’s total income, Rs 2.5 lakh gets tax free.
- After the deduction of tax-free income, the income of 2.5 lakh falls in the 10% tax bracket. So your first 2.5 lakh became tax-free, the next 2.5 lakh fell in 10% category.
- Now, another 5 lakh from your income would come under 20% tax bracket.
- Any remaining income after the above 5 lakh would be subject to 30% tax.
Let us understand this method of taxation with an example
Calculation of Income Tax Rebate
The budget 2016 has given extra tax benefit to the middle class taxpayers. If your net taxable income is less than Rs 5 lakh, you enjoy the rebate of Rs 5000. The rebate of 5000 would deducted from your total tax. Please note you have to apply this rebate just before adding the cess. The cess is calculated after deducting Rs 5000.
The Tax Calculation: An Example
Suppose Shyam earns 15 lakh gross salary in a year. After the exemptions and deduction, his net taxable income comes 11 lakh. This 11 lakh is subject to the tax.
Step 1
From this 11 lakh, initial 2.5 lakh becomes tax free.
11,00,000 – 2,50,000 (Tax free) = 8,50,000
Tax 1 = 0
Step 2
From the remaining 8.5 lakh another 2.5 lakh us subject to 10% tax
8,50,000 – 2,50,000 (10% tax) = 6,00,000
Tax 2 = 25,000
Step 3
Now Shyam has 6 lakh Rupees. From this amount the Rs 5,00,000 is subject to 20% tax rate.
6,00,000 – 5,00,000 (20% tax) = 1,00,000
Tax 3 = 1,00,000
Step 4
The remaining 1 lakh rupees would be subject to 30% tax.
tax 4 = 30,000
Step 5
The income tax liability would be the addition of tax 1, tax 2. tax 3 and tax 4.
Total Tax liability = tax 1 + tax 2+ tax 3 + tax 4
= 25,000+ 1,00,000+30,000
= 1,55,000
Step 5
Now we have to charge cess on this tax. The cess is 3% of the tax.
1,55,000 *3/100
= 4,650
Step 6
Total Tax = 1,55,000+4,650
= 1,59,650
You can also use the income tax calculator to get the tax amount.
Do you find the tax liability a big amount? Use the tax exemptions and tax deduction effectively to reduce the tax outgo. The higher your tax rate is, the higher would be the tax saving. The 80C deduction gives you opportunity to save tax up to 46,350.