Income Tax Declaration
In the beginning of every financial year, employees are asked for details like their investment in ELSS (Equity Linked Savings Schemes), insurance policies, house rent, home loan, education loan etc. by their employer to arrive at the annual tax liability of an employee. This annual exercise also helps you do tax planning for the year. Based on the declaration, your employer calculates TDS or tax deducted at source. The employer will deduct tax from salary and deposit it with the tax authorities. Starting April 1, 2017, some income tax laws have changed.
Here are changes in tax laws you should be aware before submitting tax declaration:
1) The tax rate on income between Rs. 2.5 lakh and Rs. 5 lakh has been halved to 5 per cent from 10 per cent. However, rebate under Section 87A gets reduced from Rs. 5,000 to Rs. 2,500. And no rebate will be applicable for taxpayers having income above Rs. 3.5 lakh.
2) A 10 per cent surcharge will be applicable for individuals having income ranging from Rs. 50 lakh to Rs. 1 crore (existing surcharge of 15 per cent will remain the same for individuals having income above Rs. 1 crore). However, those with taxable income of above Rs. 50 lakh get the benefit of marginal relief. The concept of marginal relief is designed to provide some relief in levy of surcharge to a taxpayer where the total taxable income marginally exceeds Rs. 50 lakh or Rs. 1 crore.
3) No deduction will be allowed for investment in Rajiv Gandhi Equity Saving Scheme, which has been scrapped this year. This tax-saving scheme was designed exclusively for the first-time individual investors in the securities market with gross total income below a certain limit.
4) The government has cut down tax benefits borrowers enjoyed on properties, other than self-occupied. For properties rented out, a borrower could deduct the entire interest paid on home loan after adjusting for the rental income. On the other hand, borrowers of self-occupied properties get a deduction of Rs. 2 lakh on interest repayment on home loan. But from this year, the borrower can only claim a deduction of up to Rs. 2 lakh per year after adjusting for the rental income.
5) And the amount above Rs. 2 lakh can be carried forward for eight assessment years. Since the interest component of home loan repaid in initial years is higher, experts say that the borrower may not be able to fully adjust the interest paid as deduction even in subsequent years.
6) Individuals are required to deduct a 5 per cent TDS (tax deducted at source) for house rent payments above Rs. 50,000 per month. Tax experts say that the move will ensure that persons who get a large rental income come into the tax net. It will be effective from June 1, 2017.
7) The holding period of a property for qualifying as long-term capital gains has been reduced to two years, from three years. This will help save tax if a property is sold after two years of buying. If a property is sold before two years, the profit from the transaction will be treated as short-term capital gains and will be taxed according to the slab rate applicable to him/her.
8) Along with the reduction in the holding period to two years, the base year for calculating indexation of cost has also been changed. The base year has been shifted from 1981 to 2001.
9) Income tax officials can reopen tax cases for up to 10 years if search operations reveal undisclosed income and assets of over Rs. 50 lakh. Currently, tax officers can go back up to six years to scrutinize the books of accounts of assessees. Taxpayers who do not file their returns on time will have to shell out a penalty of up to Rs. 10,000 from Assessment Year 2018-19. However, if the total income of the person does not exceed Rs. 5 lakh, the fee payable under this section shall not exceed Rs. 1,000. The government has also made it compulsory for people to quote their Aadhaar details in their tax returns.
10) Under the Pradhan Mantri Awas Yojana (Urban) for middle-income groups, home loan borrowers buying their first home are eligible for subsidy on interest repayments. Home loans sanctioned or applications are under consideration since January 1, 2017, are eligible for interest subsidy under the Credit Linked Subsidy Scheme for Middle Income Groups. The beneficiary earlier should not have own a house in his/her name.