Additional surcharge on Rs 1 crore income to increase tax outflow by almost Rs 1 lakh

The Finance Minister has increased the surcharge on income above Rs 1 crore, from 12% to 15%. This means that the super-rich would pay approximately 1% more income tax as their effective tax rate increases from 34.6% to 35.6%. This will result in an additional cash outflow of approximately Rs 1 lakh per annum(see box). 

FM has also announced tax on dividend income. Currently, dividend income is completely tax exempt in the hands of the shareholders as the company distributing the dividends has to pay a dividend distribution tax. FM has proposed to introduce Section 115BBDA to provide for 10% income tax on gross amount of dividends for taxpayers whose annual dividend income exceeds Rs 10

Budget 2016: Additional surcharge on Rs 1 crore income to increase tax outflow by almost Rs 1 lakh

FM has also proposed to impose a Krishi Kalyan Cess at 0.5% that will be levied on all taxable services. Meaning, the effective service tax has now gone up from 14.5% to 15%. 

A small relief of Rs 3,000 has been given to small taxpayers. The tax rebate of Rs 2,000 has been increased to Rs 5,000 per annum. “Around 2 crore taxpayers in India report annual taxable income of up to Rs. 5 lakh, who will benefit from the scheme,” said Finance Minister Arun Jaitley in his budget speech. This rebate will be extended under Section 87A. 

Also, self-employed individuals who do not receive HRA benefits and do not own a house can now claim a deduction of up to Rs 60,000 under section 80GG for rental payment. Currently, this deduction is restricted to Rs. 2,000 per month. FM has proposed that this be increased to Rs. 5,000 per month. 

Effect of the increase in surcharge on various categories with income of Rs 1 crore.

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