While the government provided little relief for the salaried class in terms of tweaking income tax slabs or raising the exemption or deduction limit, the finance minister proposed to increase the surcharge on income tax for individuals with a total income of over Rs 1 crore from 12 per cent to 15 per cent.
“This will put an additional tax burden of Rs 92,700 on individuals having a net taxable income of Rs 1 crore,” said Surya Bhatia, a Delhi-based financial planner, adding that due to the surcharge hike, the tax rate for the highest slab jumps to 35.5 per cent.
In another move that is set to hurt wealthy individuals, HUF and promoters of companies is the fact that the government has proposed to impose 10 per cent tax on dividend exceeding Rs 10 lakh on individuals and firms. Under the existing provisions of the Income-Tax Act, 1961, dividends are taxed at the rate of 15 per cent at the time of distribution in the hands of the company and is exempt in the hands of the shareholder.
“Persons with relatively higher income can bear a higher tax cost. I, therefore, propose that in addition to DDT paid by the companies, tax at the rate of 10 per cent of gross amount of dividend will be payable by the recipients, that is, individuals, HUFs and firms receiving dividend in excess of Rs 10 lakh per annum,” Jaitley said.
The memorandum to Finance Bill 2016 said this creates vertical inequity amongst taxpayers as those who have high dividend income are subjected to tax only at the rate of 15 per cent whereas such income in their hands would have been chargeable to tax at the rate of 30 per cent.
Elaborating, the bill said that with a view to rationalise the tax treatment provided to income by way of dividend, there would be amendment to the Income-Tax Act so as to provide that any income by way of dividend in excess of Rs 10 lakh would be chargeable to tax in the case of an individual, Hindu undivided family (HUF) or a firm who is resident in India, at the rate of 10 per cent.
The taxation of dividend income in excess of Rs 10 lakh would be on gross basis. The amendments are proposed to be made effective from the April 1, 2017, and accordingly apply in relation to assessment year 2017-18 and subsequent years.
In a relief to small tax payers, the Budget proposes to raise the ceiling of tax rebate under Section 87(A) from Rs 2,000 to Rs 5,000 for incomes not exceeding Rs 5 lakh per annum.
HRA limit raised to Rs 60,000
Providing some relief to individuals on their rent payment, the finance minister Arun Jaitley on Monday announced to increase the deduction limit on rent paid from Rs 24,000 to Rs 60,000 per annum and can result into savings of up to Rs 11,124 p.a in tax outgo.
“I propose to increase the limit of deduction of rent paid under 80 GG from Rs 24,000 per annum to Rs 60,000 to provide relief to those who live in rented houses,” he said while presenting the Budget for 2016-17 in the Lok Sabha.
Section 80GG allows individuals, who do not get HRA from their employer, to claim a deduction on rent paid by him for his own residence. The section currently entitles to a deduction in house rent paid by him in excess of 10 per cent of total income, subject to a ceiling of 25 per cent thereof or Rs 2,000 per month, whichever is less. The government has proposed to raise the deduction limit from Rs 2,000 to Rs 5,000 per month or Rs 60,000 per annum and it may result into savings of up to Rs 11,124 p.a for those falling in the highest tax bracket.