Taxation is an instrument used by the government to achieve its social and economic objectives. It is the price paid to enjoy the benefits of law and order, access essential services, to check inflationary pressures, enlarge opportunities for the people and reduce inequalities. The taxpayer has to assume that the taxes paid by him are used by the authorities in the government for all the purposes mentioned above, but unfortunately there are leakages. If the present government plugs these leakages the current tax rates can become much more reasonable than what they are at the present juncture. If and when we reach near this goal, the number of taxpayers will surely grow exponentially.
Income Tax Rates — Individuals and HUFs
|
Net Taxable
Income Slab
`
|
Tax at
Minimum
`
|
Marginal
rate
%
|
|
Up to 2,50,000
|
Nil
|
Nil
|
|
2,50,001 – 5,00,000
|
Nil
|
5
|
|
5,00,001 – 10,00,000
|
12,500
|
20
|
|
Over 10,00,000
|
1,12,500
|
30
|
|
Tax amount is increased by a cess @4% for normal tax, surcharge, advance tax, excise duty, custom duty and service tax, if any.
|
|
|
|
|
|
|
|
`
|
|
`
|
|
Tax on
|
5,00,000
|
|
12,500
|
|
Tax on
|
4,20,000
|
|
84,000
|
|
|
9,20,000
|
Gross Tax
|
96,500
|
|
Health & Educational Cess @4%
|
3,860
|
|
Tax Payable
|
1,00,360
|
| |
|
|
|
|
Example: An assessee has earned a total income, after reduction u/ss 80C, 80D, etc., of Rs 9,20,000. His tax liability works out at Rs 1,00,360 = (12,500 + 4,20,000 × 0.2) × 1.04.
Threshold of senior citizen is higher at Rs 3,00,000. His tax liability is Rs 96,820 = (10,000+4,20,000 × 0.2) × 1.04. Very senior citizen’s threshold is at Rs 5,00,000. Consequently, his tax works out at Rs 97,760 = (4,20,000 × 0.2 × 1.04).
Who are Senior and Very Senior Citizens
As per explanation u/s 80D(5) a senior citizen is an individual Resident in India who is of the age of 60 years or more at any time during the relevant previous year.
Rebate where income does not exceed Rs 5 lakh: Sec. 87A
Sec. 87A offers a rebate equal to the amount of income tax payable with a cap of Rs 5,000. This is available only to resident individuals (not HUFs, AOPs, etc.).
For clarity, take the instance of an assessee having total income of Rs 3,50,000. His tax liability is Rs 5,000 (5% of excess over Rs 2.5 lakh). He gets a rebate of Rs 5,000 resulting in no tax. On the other hand, if his total income is Rs 4,00,000, his tax liability would be Rs 7,500. He gets a rebate of Rs 5,000 and has to pay tax of Rs 2,500. Looking at it from another angle, the tax threshold for those having total income under Rs 5 lakh has now become Rs 3.50 lakh.
There are some other areas too where income tax, clothed in different nomenclature, is collected for the authorities to claim that the highest rate of tax in India is as low as 30%, but in actual practice, it is not.
The authors, A.N. and Sandeep Shanbhag, are leading financial advisors. Write to them at wonderlandconsultants@yahoo.com