New Income Tax slab 2017-18: FM Jaitley proposes 5 per cent tax rate slash on income Rs 2.5 lakh-5 lakh

Finance minister Arun Jaitley on Friday proposed to bring down the tax rate for individuals in the lowest income tax slab (Rs 2.5 lakh to Rs 5 lakh) to 5 percent instead of 10 percent. The existing rebate under Section 87A (currently given to people with income up to Rs 5 lakh) is proposed to be reduced to Rs 2500 from the existing Rs 5000 for individuals earning between Rs 2.5 lakh to Rs 3.5 lakh. 

The existing benefit of rebate available to the same group of beneficiaries is being reduced to Rs 2,500 for those with income up to Rs 3.5 lakhs.  

This is a double-edged sword as the combined effect of both these measures would be zero tax liability for people whose income is up to Rs 3 lakhs per annum and the tax liability will only be Rs 2,500 for people with income between Rs 3- Rs 3.5 lakhs.

Those with a gross taxable income of Rs 4.5 lakh can therefore reduce their tax liability to zero by fully utilising the tax break under Section 80C combined with these new proposals. 

Those falling in the higher income tax slabs will also be eligible for this lower tax rate of 5 percent on income between Rs 2.5 lakh and Rs 5 lakh. Therefore, those in the higher tax slabs will pay lower tax by Rs 12500 per person. 

Revised Tax Calculation -Income of Rs 5 Lakhs

ALSO READ | Financial year 2017-18: New SBI rules, income tax norms, hike in milk prices and more

AY 2016-17: Net tax payable (Including education cess) is Rs 5,150

AY 2017-18: Net tax payable (Including education cess) is Rs 2,575.

If the limit of Rs 1.5 lakh under Section 80C for investment is used fully, the tax would be zero for people with income of Rs 4.5 lakhs.

So here is a comparative table which gives you a better understanding on how can you save tax (Income upto 5 lakhs) with the new slab into effect from April 01, 2017