Income Tax Basic Exemption Limits AY 2018-19. 5% tax rate for income up to Rs. 500000/- Rebate u/s 87A reduced to Rs. 2500/-

Income Tax Basic Exemption Limits AY 2018-19. 5% tax rate for income up to Rs. 500000/- Rebate u/s 87A reduced to Rs. 2500/- 

As forecasted by ABCAUS, the tax rate has been reduced to 5% for first income tax slab and rebate u/s 87A has been pegged at Rs. 2500/-.

The Income Tax basic Exemption Limits for AY 2018-19 (FY 2017-18) as announced in the Budget Speech are as under:

(A) For Individuals, HUF , AOP, BOI and artificial juridical person

Income Slab/Bracket Income Tax Rates
Up to rs. 250000/- Nil
From Rs. 250001 to Rs. 500000/- 5%
From Rs. 500001 to Rs. 1000000/- 20%
Above Rs. 1000000/- 30%

(B) Resident Individual, of the age of 60 years or more but less than eighty years at any time during the previous year:

Income Slab/Bracket Income Tax Rates
Up to rs. 300000/- Nil
From Rs. 300001 to Rs. 500000/- 5%
From Rs. 500001 to Rs. 1000000/- 20%
Above Rs. 1000000/- 30%

(C) Resident Individual, of the age of 80 years or more at any time during the previous year:

Income Slab/Bracket Income Tax Rates
Up to rs. 500000/- Nil
From Rs. 500001 to Rs. 1000000/- 20%
Above Rs. 1000000/- 30%

Surcharge:
(i) 10% . of such income-tax in case of a person having a total income exceeding fifty lakh rupees but not exceeding one crore rupees; and
(ii) 15%. of such income-tax in case of a person having a total income exceeding one crore rupees.

Tax Rates for domestic companies/Co-operative Societies/Firms/local authorities is the same as for FY 2016-17

The Forecast made earlier:

The Forecast made by ABCAUS on 26-01-2017 was under :

With no authentic data to support and defend the much touted demonetization objectives, the Government may, in its Budget 2017-18 proposals which are to be presented on 1st February, 2017, try to appease lower, middle income group people with declaring higher basic income tax exempt brackets and/or lower tax rates.

Whether there would be an increase in tax exemption limits for AY 2018-19 (FY 2017-18) and how much it could be are the questions that are purely speculative and only the Budget proposals would reveal what the Government thinks of it.

However, if past can be a clue, then the following options would definitely have caught attention of the Government before deciding the tax proposals.

(a) Differential slabs for married and un-married tax payers, with incremental increasing slab based on number of child wholly and mainly dependent on the individual.

Please note that the above model was first introduced in the Finance Act of 1961 (14 of 1961) as under:

Income Tax Basic Exemption Slab Limits in Budget 2017-18

However, this is very much unlikely course of action, especially in view of ensuing elections in four States.

(b) More slabs in place of existing four slabs giving relief to lower tax brackets and incremental higher tax on higher tax brackets. The tax rate may be as low as 5% and as high as 35% depending on tax brackets.

This model was first introduced in Finance Act of 1965 (10 of 1965) with nine tax brackets with lowest tax rate of 5% and 65% as highest one. The First Schedule was further revised by the Finance Act, 1969 ( of 1969) whereby two more slabs were added making total tax slabs to eleven with peak rate of 75%. Again the said tax brackets and rates were further enhanced by the Finance Act, 1970 increasing income tax brackets to 12 with peak tax rate to 85% as under:

Income Tax Basic Exemption Slab Limits in Budget 2017-18

Subsequently, the income slabs have been gradually reduced from 12 nine and again following the recommendation of the Tax Reform Committee, 1991, to four slabs with only three tax brackets as they exists presently.

Now, taking a clue from the past and conduct of the Government so far, the following tax rates and income brackets might be a good relaxation to individuals in low o middle income groups.

The estimated Income Tax basic exemption limit, brackets and tax rates for individuals for the Assessment Year 2018-19 (Financial Year 2017-18) could be as under:

Income Bracket Tax Rates

Tax incidence on upper threshold income bracket

Existing Tax incidence on upper threshold income bracket

1. Up to Rs. 3,00,000/- Nil NIL Nil
2. Rs. 3,00,001/- to Rs. 5,00,000/- 5% 10,000/- 25,000/-
3. Rs. 5,00,001/- to Rs. 7,50,000/- 15% 47,500/- 75,000/-
4 Rs. 7,50,001/- to Rs. 10,00,000/- 20% 97,500/- 1,25,000/-
5. Rs. 10,00,001/- to Rs. 1,00,00,000/- 30% 27,97,500/- 28,25,000/-
6. Above Rs. 1,00,00,000/- 35%

Surcharge may be abolished. Rebate u/s 87A for AY 2018-19 may either be abolished or pegged at Rs. 2,500/- (for those with Total Income up to Rs. 5,00,000/-) making effective basic income tax exemption limit to Rs. 3,50,000/-

Disclaimer: As stated before, the above rates/income brackets are purely based on estimation and do not in any way represent actual budget proposal.

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