Budget 2017: Tax benefit illustration

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: 

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)

Also see: Budget 2017: Changes to National Pension System (NPS)

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13 thoughts on “Budget 2017: Tax benefit illustration

  1. 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.

  2. 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

  3. Total amount of tax for an individual (below the age of 60 years) whose taxable income is INR 300000 comes to 2500 (5% of 50000). If rebate amount of 2500 (as per section 87A of income tax) is deducted from this tax amount, we left with 0 tax.

    In short an individual whose taxable income is less than or equal to 300000 won’t have to pay any tax.

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