Relief for earnings up to `5L Salaried classes get a chance to recover from note ban

New Delhi, Feb. 1: Softening the demonetisation blow, the Budget for 2017-18 on Wednesday halved the tax to five per cent on incomes up to `5 lakh but proposed a new surcharge of 10 per cent on incomes between `50 lakh and `1 crore and raised duties on cigarettes and pan masala while stepping up allocations for infrastructure, rural, agriculture and social sectors.

While the surcharge alone would net `2,700 crore a year, the finance minister’s give-away on direct tax proposals will result in a loss of `15,500 crore.

The change in the personal income tax rate for individual assessees between `2.5 lakh and ` 5 lakh income would reduce the tax liability of all persons below `5 lakh to either to zero (with rebate) or 50 per cent of their existing liability. Against the backdrop of demonetisation, the Budget has also barred transaction in cash above `3 lakh. ■ TAX SLABS What it means? 5% 20% 30% `2.5L to `5L `5L to `10L Those earning up to 3 lakh a year will pay no income tax after the rebate of `2,500. Those earning between `3 to `5 lakh will now save up to `7,500 a year. Those with incomes reaching as much as `50 lakh a year will make savings too — of up to `12,500. Over `10L 10% surcharge for those with income above `50 lakh. 15% surcharge for those with income above `1 crore. Page 2: What tax slab are you on? ■

The Union Budget 2017-18 has proposed to reduce income-tax rate for small businesses from 30 per cent to 25 per cent, offering a huge relief to the sector which was hit hard by cash crunch resulting from demonetisation announced by the government on November 8.

The sop will be available to firms with annual turnover of up to `50 crore, which would benefit more than 90 MSMEs, according to the government.

“In order to make MSME companies more viable and also to encourage firms to migrate to company format, I propose to reduce the income tax for smaller companies with annual turnover upto 50 crore to 25 per cent,” finance minister Arun Jaitley said in his Budget speech.

“As per data of Assessment Year 2015-16, there are 6.94 lakh companies filing returns, of which 6.67 lakh companies fall in this category and, therefore, percentage- wise, 96 per cent companies will get this benefit of lower taxation,” Jaitley stated.

Mr Jaitley added, “This will make our MSME sector more competitive as compared to large companies.” The government will lose `7,200 crore in a revenue a year because of the tax concession.

Most of the MSMEs operate in the informal sector. However, given the government’s stepped-up focus on taking the country towards a cashless economy following demonetisation, they will have to become part of the formal sector and ,as a result, their compliance with labour and taxation laws will come under scrutiny. This possibility has left majority of MSMEs scared.

The Federation of Indian Micro, Small and Medium Enterprises (Fisme) has suggested that the government assure MSMEs that they would not be prosecuted for non-compliance with labour and taxation laws in the past, “While most of the entrepreneurs can be persuaded to migrate to formal economy, the biggest hurdle in the way is the fear of persecution both in future and of noncompliance in past,” Fisme president Sangam Kurade wrote to Prime Minister Narendra Modi recently.