Post the demonetization of the high-value currency notes and the drastic measures taken by the government to promote cashless economy, to tackle the evil of black money, the jury is still out whether it had a positive impact on the overall economy. Demonetization is likely to cause a positive effect on the Income Tax Slabs which shall increase the in-home income of the common man.

As the Budget is coming soon, there are expectations that the government will take some measures to help the common man, especially the salaried class people who has rallied behind the government’s decision on demonetization. Due to heavy inflow of cash due to Demonetization, the Income Tax Slabs are likely to be increased for all types of Individuals. Below we can have a look at a comparative study on the existing Tax Slab and the Slab expected to be declared in Budget 2017 by the Finance Minister.

 

INCOME TAX SLAB
CURRENT                                                           PROPOSED
Slab (Rs. Lakh)	Tax Rate (%)	Slab (Rs. Lakh)	Tax Rate (%)
0-2.5	NIL	0-4	NIL
2.5-5	10	4-10	10
5-10	20	10-15	15
Above 10	30	15-20	20
		Above 20	30

 

As per the above expectation, Income of Rs 4 lakh to 10 lakh may be taxed at 10% (the current slab is Rs. 2.5-5 lakh taxed at 10%); Rs 10-15 lakh will be taxed at 15% (currently Rs5-10 lakh is taxed at 20%); Rs 15-20 Lakh to be taxed at 20% (Currently Rs 10 lakh and above is taxed at 30%) and a slab where income above Rs 20 lakh will attract a tax of 30%. If the said tax proposals are indeed implemented in the budget then it will result in greater disposable income with people across all slabs, which in theory, should boost consumption and the economy.

We can elaborately look at the benefits of the expected Income Tax Slab rates if it happens to be true in the Budget to be announced. The common man shall gain a lot from the proposed tax slab thereby taking the in-hand income post taxation at a higher ratio.

 

Comparative Study of Savings in Tax emerging from expected Tax Slab
Taxable Income per annum	Taxes as per existing TaxSlab	Taxes as per proposed Tax Slab	Total Annual Saving	Monthly Increase in Take Home Income
2.5 Lakh	0	0	0	0
4 Lakh	15,000	0	15,000	1,250
6 Lakh	45,000	20,000	25,000	2,100
10 Lakh	1,25,000	60,000	65,000	5,400
15 Lakh	2,25,000	1,35,000	90,000	7,500
20 Lakh	3,75,000	2,35,000	1,40,000	11,600

 

It is transparent from the above cited data analysis that how the taxpayers would be at benefit if the above proposed Income Tax Slabs are announced by the Finance Minister, Mr. Arun Jaitley.

For Illustration, say Mr. A earns an annual taxable income of Rs.6,00,000. He is presently paying a tax of Rs.45,000 on his said income (upto 2.5 Lakh : NIL; 2.5 – 5 Lakh : 10% = Rs.25,000 ; next 1 Lakh : 20% = Rs.20,000; Total Tax = Rs. 45,000). Whereas, he shall land up paying Rs. 20,000 as taxes (upto 4 Lakh : NIL; next 2 Lakh : 10% = 20,000; Total Tax = Rs.20,000) on his income if the said Tax Slab truly gets implemented by the Government.

 

The proposed Tax Slab can really prove to be a saving instrument for common taxpayers especially for salaried individuals as it shall provide them an opportunity to take home a major part of their salary after claiming all the specified deductions and exemptions in the Income Tax Return filed by them thereby complying all the provisions of the Income Tax Act, 1961.

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