Budget 2018 cess on income tax hiked to 4 percent from 3 percent

In the 2018 Budget, it has been proposed that cess on income tax will be increased from 3 percent to 4 percent across all categories. This move implies that the burden on taxpayers has increased and they should know how to calculate income tax.

Some of the implications on how the 2018 budget is going to affect one’s taxes have been discussed in this article and learn how to calculate income tax as well.

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What was the cess percentage previously?

Previously, the 3 percent cess was charged on payable income tax added to income tax liability. The 3 percent comprised of 2 percent earmarked for education cess and the remaining 2 percent for senior secondary education.

What are the current income tax slabs?

As per the current tax slabs, individuals below the age of 60 years have to pay tax based on income which is as follow:

• Income below 2.5 lakh is tax exempted

• Income between 2.5 lakh and 5 lakh has to pay 5 percent income tax

• Income between 5 lakh and 10 lakh has to pay 10 percent income tax

• Income between above 10 lakh has to pay 30 percent income tax

In the case of senior citizens, between ages 60 and 80 years, the taxes payable based on income which is as follows:

• Income below 3 lakh is tax exempted

• Income between 3 lakh and 5 lakh has to pay 5 percent income tax

• Income between 5 lakh and 10 lakh has to pay 20 percent income tax

• Income between above 10 lakh has to pay 30 percent income tax

In the case of super senior citizens, over the age of years, the taxes payable based on income which is as follows:

• Income below 5 lakh is tax exempted

• Income between 5 lakh and 10 lakh has to pay 20 percent income tax

• Income between above 10 lakh has to pay 30 percent income tax

Note that a surcharge is levied for an income of more than 50 lakh across all age groups.

What will be the impact if budget 2018 is passed in parliament?

There are several implications if Budget 2018 is passed in Parliament that would affect the 2018-19 income tax cycle. During the last budget, the rate of tax for the lowest slab was reduced from 10 percent to 5 percent for individuals with an income between 2.5 lakh and 5 lakh.

The previous budget also slashed the rebate rate under Section 87A to Rs 2,500 from Rs 5,000 for those earning between 2.5 lakh and 3.5 lakh. A ten percent surcharge was imposed also imposed during the last budget for income ranging between Rs 50 lakh and Rs 1 crore.

How to calculate income tax?

In order to factor in the revised cess charges, taxpayers should know how to calculate income tax first. To answer the question of how to calculate income tax you should follow these steps:

• Add all taxable income before tax from all sources

• Check whether a claim can be made for tax relief

• Check the tax allowances that you are allowed to take

• Calculate the tax payable by multiplying the amount by the percentage of tax applicable for a particular tax slab

For example, if an individual has an income for AY 2018-19 are 3 lakh then the tax then 10 percent tax is levied. In order to calculate income tax due, the tax percentage as per slab, 5 percent is multiplied by taxable income in that bracket which Rs 3,00,000 – Rs 2,50,000 which is Rs 50,000.

The total income tax liability is Rs 2,500. This is how to calculate income tax, which is a simple process.

What is the tax liability of individuals post budget?

Now that taxpayers know how to calculate income tax liability, the next step is to factor in the impact that the 4 percent education cess has on the income tax. The tax liability, adding 4 percent cess, for residents below the age of 60 is as follows:

• Income below 2.5 lakh is tax exempted and no cess is charged

• Income between 2.5 lakh and 5 lakh increase in cess is Rs 125

• Income between 5 lakh and 10 lakh increase in cess is Rs 1,125

• Income above 10 lakh increase in cess is Rs 2,625

The tax liability, adding 4 percent cess, for senior citizens between ages 60 and 80 years is as follows:

• Income below 3 lakh is tax exempted and no cess is charged

• Income between 3 lakh and 5 lakh increase in cess is Rs 100

• Income between 5 lakh and 10 lakh increase in cess is Rs 1,100

• Income above 10 lakh increase in cess is Rs 2,600

The tax liability, adding 4 percent cess, for super senior citizens between over the age of 80 years is as follows:

• Income below 5 lakh is tax exempted and no cess is charged

• Income between 5 lakh and 10 lakh increase in cess is Rs 1,000

• Income above 10 lakh increase in cess is Rs 2,500

It is advisable that taxpayers learn how to calculate income tax so that one can ascertain how the budget will impact them directly.