Save More: How Income Tax Rate cut is putting Money into 2 Crores Tax Payers Pockets

Honorable Finance Minister announced income tax rate cut from 10% to 5% for whose income is up to Rs 5 lakh annually. This move is likely to affect 2 crore tax payers across the country.

6 Apr,2017 06:30 IST 1058
Save More: How Income Tax Rate cut is putting Money into 2 Crores Tax Payers Pockets

When there was an announcement of tax rebate for average Indian middle class under Union Budget 2017-18, Indians across the country cheered for the same. Honorable Finance Minister Mr. Arun Jaitley announced income tax rate cut from 10% to 5% for all those whose annual income is up to Rs 5 lakh annually. This move is likely to affect 2 crore tax payers across the country. The extra cash into their pocket can make them afford home loans EMI installments easily. Let us do some simple tax savings calculation on personal front –

New Income Tax Slab Old Income Tax Slab
Rs 0- 2.5 lakh - 0% Rs 0- 2.5 lakh - 0%
Rs 2.5 lakh – Rs 5 lakh 5% Rs 2.5 lakh – Rs 5 lakh 10%

 

Income Tax Rebate on Home Loans Remaining Amount Taxable Income
9 lakh per annum 1,80,000 (Housing Loan Principal +Interest) Rs 7,20,000/- Rs 7,20,000- 2,50,000 (free) = Rs 4,70,000

Tax before Union Budget Announcement

Amount Tax Obligation
2.5 lakh No
2.5-5 lakh 10% of 2.5 lakh =Rs 25,000
5-7.2 lakh 20% of 2.2 lakh = Rs 44,000
  69,000

Tax after Union Budget Announcement

Amount Tax Obligation
2.5 lakh No
2.5-5 lakh 5% of 2.5 lakh =Rs 12,500
5-7.2 lakh 20% of 2.2 lakh = Rs 44000
  56,500

Let me simplify this with an example. For an instance, Mr. Ajeet Kumar, a software engineer in Delhi earns Rs 9 lakh per annum. He has availed a home loan and has to pay EMI installments. The home loan EMI consists of - principal amount as Rs. 1, 50,000/- deductible under section 80C and interest amount as Rs 30,000/- deductible under section 24 of the Income Tax Act. The total claimed tax rebate is Rs, 180,000/- So, the remaining amount is Rs 7,20,000/-

As we know there is no tax obligation for amount upto Rs 2,50,000/-The taxable income will be Rs 4,70,000 (i.e. remaining amount). Prior, announcement of the Union Budget, the income tax was Rs 69000/-After the rate cut; the tax has been slashed to Rs 56,500/- (as mentioned in the above table).

The additional tax saving and interest cut by banks & lending institutions will encourage people to make an investment in the real estate sector and afford higher EMI easily.

Click here to calculate your home loan EMI

The union budget 2017-18 has also given small and medium enterprises (SMEs) a breather. One of the most significant developments for them was the reduction in income tax rate. Those SMEs whose annual turnover is below 50 lakhs have to pay only 25% instead of 30% tax. This move is expected to benefit 96% of the Indian companies, falling under this sector. It will increase the eligibility for loan against property (LAP) for SMEs.

Why SMEs should prefer LAP as compared with Business Loan?

Case Study that justifies LAP

A Kolkata based Tea Company net profit is Rs 40 lakh. Let’s see why LAP is beneficial for it -

Net Profit = Rs 40 lakh

When there was 30% tax, the revenue was 28 lakh after paying the tax to government

Now, there is 25% tax, the revenue will be Rs 30 lakh after paying the tax to government

Tax Profit = Rs 30 lakh – Rs 28 lakh = Rs 2, 000, 00/-

Thus, there is an increment in the profit after tax (PAT).

In the above said scenario, there is a (2/28)*100 =7% of increase in the PAT because of the new Tax limits.

Well in the case above, the business owner now has more liquidity compared to earlier scenario. More funds increase the value of the business. This is result; enhance the LAP eligibility and EMI affordability of the small and medium enterprises across the country.

Disclaimer: The information contained in this post is for general information purposes only. IIFL Finance Limited (including its associates and affiliates) ("the Company") assumes no liability or responsibility for any errors or omissions in the contents of this post and under no circumstances shall the Company be liable for any damage, loss, injury or disappointment etc. suffered by any reader. All information in this post is provided "as is", with no guarantee of completeness, accuracy, timeliness or of the results etc. obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. Given the changing nature of laws, rules and regulations, there may be delays, omissions or inaccuracies in the information contained in this post. The information on this post is provided with the understanding that the Company is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers. This post may contain views and opinions which are those of the authors and do not necessarily reflect the official policy or position of any other agency or organization. This post may also contain links to external websites that are not provided or maintained by or in any way affiliated with the Company and the Company does not guarantee the accuracy, relevance, timeliness, or completeness of any information on these external websites. Any/ all (Gold/ Personal/ Business) loan product specifications and information that maybe stated in this post are subject to change from time to time, readers are advised to reach out to the Company for current specifications of the said (Gold/ Personal/ Business) loan.

Most Read

Check the Difference Between 24k and 22k Gold
9 Jan,2024 09:26 IST
46412 Views
Like 6106 6106 Likes
Franking and Stamping: What’s the difference?
14 Aug,2017 03:45 IST
46007 Views
Like 7570 7570 Likes
Personal Loan With Low CIBIL Score
21 Jun,2022 09:38 IST
27937 Views
Like 6373 6373 Likes
Why Gold Is Cheaper In Kerala?
15 Feb,2024 09:35 IST
1859 Views
Like 4102 1802 Likes

Get in Touch

I accept the Terms and Conditions