The new Indian government announced its tax rules for the current financial year. But very few announcements were made by new government which could provide relief to salaried class people. The first and the most important amendment was in the tax slab. Although there is no change in the existing tax rate yet new Government had increased the minimum limit from ₹ 2,00,000 to ₹ 2,50,000. There were no changes in the tax slab from last 2 years in tax slabs. In the past, this limit was never increased by ₹50000 or more amount. So definitely, this is one of the very important announcements in new finance bill. Many Indian employees were expecting this change. Although other subsequent slabs remains the same. Following are the tax slabs of Assessment Year 2014-15 & 2015-16.
Table 1: Tax Slabs
| Tax Slabs 2014-15 | Tax Slabs 2015-16 | ||
| Income | Tax Rate | Income | Tax Rate |
| Upto ₹ 2 Lacs | 0 | Upto Rs. 2.5 Lacs | 0 |
| ₹ 2 Lacs to Rs. 5 Lacs | 10% | ₹ 2.5 Lacs to Rs. 5 Lacs | 10% |
| ₹ 5 Lacs to Rs. 10 lacs | 20% | ₹ 5 Lacs to Rs. 10 lacs | 20% |
| Above ₹ 10 Lacs | 30% | Above ₹ 10 Lacs | 30% |
*For senior citizen with Age group of 60 years or above but less than 80 years than their minimum tax limit is ₹ 300,000 instead of ₹ 250,000.
On the other hand, senior citizen with age of 80 years or more than they do not need to pay tax of initial income of ₹ 500,000.
Second important amendment is under section 80C and 80CCC. Earlier, the maximum qualifying investments for deduction from total income was ₹ 1, 00,000 (even more amount was investment in specified schemes) which was raised to ₹ 1, 50,000. So if no loan is taken by the employee to construct or renovate the house & having total salary income ₹ 5 lacs than his total taxable income will decline by Rs. 50,000 (after availing this deduction) which is 12.5 % of earlier base income.
(A) Person Having Income ₹ 5 lacs with no house loan
| Table 2 Before Budget 2014 ( NO House loan is there) | Table 3 After Budget 2014 ( NO House loan is there) | ||
| Gross Salary | ₹ 500000 | Gross Salary | ₹ 500000 |
| less deduction U/S 80C +80CCC | ₹ -100000 | less deduction U/S 80 + 80CCC | ₹-150000 |
| Taxable salary | ₹ 400000 | Taxable salary | ₹ 350000 |
| Loss from HP (due to interest on loan taken for construction or renovation of house) | 0 | Loss from HP (due to interest on loan taken for construction or renovation of house) | 0 |
| Net Taxable income | ₹ 400000 | Net Taxable income | ₹ 350000 |
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| Table 4 Tax Liability before Budget 2014 ( NO House loan is there) | Table 5 Tax Liability before Budget 2014 ( NO House loan is there) | ||||
| Tax Rate | Tax | Tax Rate | Tax | ||
| Upto 2 lacs | 0 | 0 | Upto 2.5 lacs | 0 | 0 |
| Next 2 Lacs | 10% | ₹ 20000 | Next 1 Lac | 10% | ₹ 10000 |
| Total Tax before surcharge | ₹ 20000 | Total Tax before surcharge | ₹10000 | ||
| Surcharge | 3% | ₹ 600 | Surcharge | 3% | ₹ 300 |
| Total Tax | ₹ 20600 | Total Tax | ₹10300 | ||
Table 6 Net change in Total tax Structure having gross income ₹.5 lacs.
| Total Tax liability before budget | ₹ 20600 |
| Total Tax liability after budget | ₹-10300 |
| Net Benefit | ₹ 10300 |
Further, rebate u/s of Rs 2000 will also be admissible if the person income does not exceed ₹ 500000.
(B) Person Having Income ₹ 10 lacs with no house loan
| Table 7 Before Budget 2014 ( NO House loan is there) Person Having Income Upto ₹ 10 lacs | Table 8 After Budget 2014 ( NO House loan is there) Person Having Income Upto ₹ 10 lacs | ||||||
| Gross Salary | ₹ 1000000 | Gross Salary | ₹ 1000000 | ||||
| less deduction U/S 80 + 80CCC | ₹ -100000 | less deduction U/S 80 + 80CCC | ₹ -150000 | ||||
| Taxable salary | ₹ 900000 | Taxable salary | ₹ 850000 | ||||
| Loss from HP (due to interest on loan taken for construction or renovation of house) | 0 | Loss from HP (due to interest on loan taken for construction or renovation of house) | 0 | ||||
| Net Taxable income | ₹ 900000 | Net Taxable income | ₹ 850000 | ||||
| Table 9 Tax Liability before Budget 2014 ( NO House loan is there) Person Having Income Upto ₹ 10 lacs | Table 10 Tax Liability before Budget 2014 ( NO House loan is there) Person Having Income Upto ₹ 10 lacs | ||||||
| Tax Rate | Tax | Tax Rate | Tax | ||||
| Upto 2 lacs | 0 | 0 | Upto 2.5 lacs | 0 | 0 | ||
| Next 3 Lacs | 10% | ₹ 30000 | Next 2.5 Lac | 10% | ₹ 25000 | ||
| On Remaining 4 Lacs | 20% | ₹ 80000 | On Remaining 3.5 Lacs | 20% | ₹ 70,000 | ||
| Total Tax before surcharge | ₹ 110,000 | Total Tax before surcharge | ₹ 95000 | ||||
| Surcharge | 3% | 3300 | Surcharge | 3% | ₹ 2850 | ||
| Total Tax | 1,13,300 | Total Tax | ₹ 97850 | ||||
Table 11 Net change in Total tax Structure having gross income Rs. 10 lacs.
| Total Tax liability before budget | ₹ 1,13,300 |
| Total Tax liability after budget | ₹ -97850 |
| Net Benefit | ₹ 15450 |
Tax Planning in the case of loan taken for construction or renovation of self occupied house property:
(C) Person having gross Income of ₹ 5 lacs with house loan
| Table 12 Before Budget 2014 ( House loan is there) Person Having Income Upto ₹ 5 lacs | Table 13 After Budget 2014 ( House loan is there) Person Having Income Upto ₹ 5 lacs | ||
| Gross Salary | ₹500000 | Gross Salary | ₹500000 |
| less deduction U/S 80 + 80CCC | ₹-100000 | less deduction U/S 80 + 80CCC | ₹-150000 |
| Taxable salary | ₹ 400000 | Taxable salary | ₹ 350000 |
| Loss from HP (due to interest on loan taken for construction or renovation of house) | ₹1,50,000 | Loss from HP (due to interest on loan taken for construction or renovation of house) | ₹-200000 |
| Net Taxable income | ₹2,50,000 | Net Taxable income | ₹1,50,000 |
(D) Person having gross Income of ₹ 10 lacs with house loan
| Table 14 Before Budget 2014 ( House loan is there) Person Having Income Upto ₹ 10 lacs | Table 15 After Budget 2014 ( NO House loan is there) Person Having Income Upto ₹ 10 lacs | ||
| Gross Salary | ₹10,00,000 | Gross Salary | ₹10,00,000 |
| less deduction U/S 80c + 80CCC | ₹-100000 | less deduction U/S 80c + 80CCC | ₹-150000 |
| Taxable salary | ₹9,00,000 | Taxable salary | ₹8,50,000 |
| Loss from HP (due to interest on loan taken for construction or renovation of house) | ₹1,50,000 | Loss from HP (due to interest on loan taken for construction or renovation of house) | ₹2,00,000 |
| Net Taxable income | ₹7,50,000 | Net Taxable income | ₹6,50,000 |
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| Table 16 Tax Liability before Budget 2014 ( House loan is there) | Table 17 Tax Liability before Budget 2014 ( House loan is there) | ||||
| Tax Rate | Tax | Tax Rate | Tax | ||
| Upto 2 lacs | 0 | 0 | Upto 2.5 lacs | 0 | 0 |
| Next 3 Lacs | 10% | ₹30000 | Next 2.5 Lac | 10% | 25000 |
| On Remaining 2.50 Lacs | 20% | ₹50,000 | On Remaining 1.5 Lacs | 20% | 30000 |
| Total Tax before surcharge | ₹ 80000 | Total Tax before surcharge | 55,000 | ||
| Surcharge | 3% | ₹ 2400 | Surcharge | 3% | ₹ 1650 |
| Total Tax | ₹ 82400 | Total Tax | ₹ 56,650 | ||
Table 18 Net change in Total tax Structure having gross income Rs. 10 lacs.
| Total Tax liability before budget | ₹ 82400 |
| Total Tax liability after budget | ₹-56650 |
| Net Benefit | ₹25750 |
So after availing these two amendments in new finance bill the person with gross income of ₹ 5 lacs can save tax of ₹ 10300 and in that case his total tax liability will decline by 50 %. Similarly, the person who will have gross income ₹ 10 lacs during financial year 2014-15, he can save a tax of ₹ 15450. In such a case his tax liability will decline by 13.6 % as compare to tax rules in the assessment year 2014-15. If higher gross income will be there than percentage saving in tax will be less as compare to low income.
In the new finance bill, there is an important amendment under section 24(1). In this section the person can claim for deduction for the interest on loan taken for construction or renovation of house property. In this case, self-occupied property the entire amount of interest shall be considered as loss from the house property and same can be adjusted from other person’s income. So in this way, the person can minimise his taxable income as well as the tax liability. In the assessment year 2014-15, the maximum limit under this section was ₹ 1,50,000 which is now raised to ₹ 200,000 in the new finance bill of 2015-2016. This was also a very important amendment in the tax rules. This was one of the most awaited changes in the finance bill as it was consistent for past many years. This change has given great relief to all those assesses who have taken loan for construction or renovation of house property. Below tables analyse the benefit of this amendment to assessee.
With optimum tax planning, person having gross income of ₹ 5 lacs, in the assessment year 2015-16 his or her tax liability will be zero as his taxable income will be less than ₹.2,50,000. While in previous tax rules, his tax liability will be ₹ 5150 (i..e., 10 % on 50,000 + 3% surcharge).
With proper tax planning and by taking the benefits of all these three important amendments, the person having gross income of ₹10 lacs can minimize his gross total income to ₹6.5 lacs from ₹ 7.5 lacs. In this way his gross total income will decline by 13.33%. While, in this case his or her net tax liability will diminish by ₹ 25,750 and percentage decrease in this shall be 31.25%.
Conclusion
The new tax rules are indeed a great tax relief for salaried class people in the new finance bill 2014-15 announced as on 10th July, 2014 by Hon. union cabinet finance minister Mr Arun Jaitley of government of India. Now, with optimum tax planning under Section 80C & 80CCC , people having income up to ₹ 5 lacs will have maximum tax relief of ₹ 10,300 (if no loan is taken for construction or renovation) otherwise ₹ 15000+ Surcharge. Whereas if income is between ₹ 5 to ₹ 10 lacs than you will have relief ranging from ₹ 10000 to ₹ 15000 + Surcharge. If assesse also pays interest ₹ 2 Lacs or more on home loan than he can get maximum benefit of ₹ 25750.
As per new tax rule, with optimum tax planning and getting the benefit of deduction under section 24(1), assesse can minimise his net taxable income as well as net tax liability. Assesse with higher income or higher tax slab can get maximum benefits of all amendments made in new finance bill 2014-15.
Whereas, if income is between ₹ 5 to ₹ 10 lacs than you will have relief ranging from ₹ 10000 to ₹ 15000 + Surcharge. If assesse also pays interest ₹ 2 Lacs or more on home loan than you can get maximum benefit of ₹.25750.
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