# Budget 2017: Tax benefit illustration

Published: February 1, 2017 at 1:26 pm

Last Updated on

The government has proposed to decrease the tax for those earning between 2.5 Lakh to 5 Lakh per anum to 5% from 10%. This is a welcome move and would benefit all tax slabs.  Here is an illustration.

## For those in 30% tax slab

Net taxable income after considering all applicable deductions = 15 Lakh.

OLD SLAB: Total Tax before cess = 25,000 (10% slab) + 1,00,000 (20% slab) +1,50,000 (30% slab) = 2,75,000

That is 10% of 2.5L + 20% of 5L + 30% of (amout  above 10L) = 2.75L

New SLAB:

Total Tax before cess = 12,500 (5% slab) + 1,00,000 (20% slab) +1,50,000 (30% slab) = 2,62,500

That is 5% of 2.5L + 20% of 5L + 30% of (amount  above 10L) = 2.625 L

A total saving (before cess) of Rs. 12,500

## For those in 20% tax slab

Net taxable income after considering all applicable deductions = 7 Lakh.

OLD SLAB: Total Tax before cess = 25,000 (10% slab) + 40,000 (20% slab) = 65,000

That is 10% of 2.5L + 20% of amount above 5L = 65,000

New SLAB:

Total Tax before cess = 12,000 (5% slab) + 40,000 (20% slab) = 52,500

That is 5% of 2.5L + 20% of amount above 5L = 52,500

A total saving (before cess) of Rs. 12,500

## For those in (old) 10% and new 5% tax slab

Net taxable income after considering all applicable deductions = 4 Lakh.

OLD SLAB: Total Tax before cess = 10% of income above 2.5L = 10% of 1.5L  =15,000

Section 87A can be applied for further deduction.

New SLAB:

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Total Tax before cess = 5% of income above 2.5L = 5% of 1.5L  =7,500

A total saving (before cess) of Rs. 7,500 (but 50%)

Section 87A can be applied for further deduction.

Section 87 A  offers a rebate of 2500 from total tax payable before cess for those with a taxable income of Rs. 3.5L (thanks to S K Morthy for pointing this out)

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M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice.
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1. Rakesh says:

Thanks Pattu, that was very quick.
Savings of 12,500. Something is better than nothing.

2. Masilamani. says:

Thanks sir.Around 1500 pm is the AVG saving. For any middle class this will be useful in offsetting frequent increase in petrol and gas prices.

1. freefincal says:

Yes, I agree.

3. Kranti says:

Hi Pattu,

What about no tax upto 3 Lakhs? Is it two conflict statement in budget?

1. freefincal says:

No tax if rebate of 2500 acc to section 87a is applied

4. ravi soni says:

i think 25lac + 87a limit = no tax till 3lac

As Mr. Ravi said above, The tax calculation for this section “For those in (old) 10% and new 5% tax slab” should consider 3lakhs as the cap. (for 2017 Budget, there is no tax till 3 Lakhs).

Please update the post to avoid confusion. Thank you very much

1. freefincal says:

Yes, done thank you but this is due to section 87A and not a change in slab.

6. Bhupal says:

For Sr & Very Sr CItizen total saving (before cess) will be Rs 10,000 & NIL, not 12,500

1. freefincal says:

Yup! Thank you.

7. Amarjit says:

Isn’t there a rebate of Rs.12,500 for 20% & 30% tax slab?

1. freefincal says:

Yes, as noted in the post. If cess is included, it would be a bit more.