Budget announcement every year is one important event which we look forward to very keenly as this has direct impact on our earnings, savings and taxes. This is one occasion when each individual actually tries to figure out the direct financial benefits applicable to him/her (if any) post the budget announcements.

As we are around 4 months away from the end of the current financial year, let us revisit some key changes made in this year Budget announcements related to individual tax payers and how we can benefit from it –

• Individuals in the tax slab of Rs 2.50 lakhs to Rs 5 lakhs (which is the lowest tax slab), the income tax rates have been reduced to 5% instead of 10%.
• The existing tax rebate under Section 87A, for individuals up to Rs 5 lakh income, is reduced to Rs 2,500 from the existing Rs 5,000 for individuals earning between Rs 2.50 lakh to 3.50 Lakhs per annum.
  

  As a result of the new Section 87A rebate and the subsequent reduction in the lowest tax rate to 5%, the tax is zero for those earning upto Rs 3 lakhs and Rs 2,500 for those earning between Rs 3.00 lakh to Rs 3.5 lakh.

• Therefore, individuals earning Rs 4.5 lakhs can reduce their tax liability to zero if they fully utilise the tax rebate of Rs 150,000 allowed under Section 80C of The Income Tax Act 1961 and invest in tax saving schemes.
• A fee of Rs 5,000 is payable if the tax return (ITR) is filed after the due date, but before 31 December of the assessment year. If ITR is filed within this date, the fee payable increases to Rs 10,000. However, the fee is reduced to Rs 1,000, if the taxpayer annual income is up to Rs 5 lakhs.
• The Government has devised one page Income Tax Return (ITR) form to ease tax filing by individuals whose income is less than Rs 5 lakhs.
• The base year for indexation calculation is now changed from 1st April, 1981 to 1st April, 2001. Indexation benefit is allowed for calculation of tax on capital gains arising out of sale of immovable properties and redemptions received from debt mutual fund schemes (if the holding period is more than 3 years).

Let us have a glance at the new Income Tax Slabs 2017-18 as passed in The Budget of 2017

During the last FY (2016-17), the tax rate for individual in the income range of Rs 250,000 to Rs 500,000 was 10% which is now reduced to 5% from the current FY.Similarly for Senior Citizens (Above age 60 years but below 80 years) the tax rate for the income range of Rs 300,001 to Rs 500,000 was earlier 10% but now reduced to 5%.

Following is the Income-Tax slabs and tax rates for FY 2017-2018 (Assessment year 2018-19) for individuals of different age group –

Surcharge @10% is applicable for taxable income between Rs 50 Lakhs to Rs 1 Crore and 15% for taxable income above Rs 1 Crore.

Surcharge @10% is applicable for taxable income between Rs 50 Lakhs to Rs 1 Crore and 15% for taxable income > Rs 1 Crore.

Surcharge @10% is applicable for taxable income between Rs 50 Lakhs to Rs 1 Crore and 15% for taxable income > Rs 1 Crore.

Income Tax deductions and Exemptions

We will now see the income tax deductions and exemptions allowed under the various schemes under Section 80C of the Income Tax Act 1961.

As you can see, the maximum tax you can save under Section 80C of The Income Tax Act 1961 is Rs 46,350 upon investment of maximum Rs 150,000 (figures calculated on annual income of above Rs. 10 Lakhs)

You can save taxes by investing in various options like, Mutual Fund ELSS Schemes, Life Insurance premium, PPF, EPF, Tax Saving Fixed deposits and NSC etc. Excepting Mutual Fund ELSS schemes and life insurance premiums, rest options offer assured interest ranging from 6% (minimum interest rates for tax saving FDs) to 7.80% (NSC and PPF rates wef July 01, 2017).

Would you like to compare ELSS versus PPF investments

Mutual Fund ELSS schemes are the best option for saving your taxes under Section 80C as it has the least lock-in period of 3 years compared to any other tax saving option where the lock-in period is between 5 years (NSC and tax saving FDs) and maximum 15 years (in case of PPF).

In terms of returns too, Mutual Fund ELSS schemes have given the best returns compared to any other tax saving option – over 19% annualized in the last 5 years. Long term capital gains and dividends are also tax free in ELSS schemes. Please check how the ELSS Mutual Fund Schemes have performed over various time periods

You may like to read What are Mutual Fund Tax Benefits

Mutual Fund Investments are subject to market risk, read all scheme related documents carefully.