Interim Finance Minister Piyush Goyal’s budget speech on Friday (February 1) was cheered by all sections of the society as soon as he proposed fresh income tax benefits for the middle-income group.
However, there is a catch which most publications and even analysts missed at the time of the announcement. What Goyal announced during his speech was a tax rebate on net taxable income.
“Individual taxpayers having taxable annual income up to Rs 5 lakh will get a full tax rebate and therefore will not be required to pay any income tax,” Goyal said.
Therefore, individuals who were expecting a tweak in income tax slabs have been let down.
Goyal’s announcement, if observed carefully, indicated that individuals with an annual income up to Rs 5 lakh will get a full tax rebate under Section 87A.
So, anyone with net taxable income up to Rs 5 lakh will not be required to pay any taxes but people who have net taxable income above Rs 5 lakh will be required to pay taxes on the same slab.
The only benefit for such individuals will be standard deductions, which has been increased from Rs 40,000 to Rs 50,000.
In the Finance Bill, 2019, the maximum amount of tax rebate under Section 87A of the Income Tax Act has been proposed at Rs 12,500 from the existing Rs 2,500.
This is the only area where an individual with net taxable income above Rs 5,00,000 can claim benefits through standard deduction. However, if you are earning Rs 10 lakh or above, there is no chance of getting an income tax rebate under Section 87A.
The moment an individual’s income exceeds Rs 5,00,000, you will have to pay tax from Rs 2,50,000 at 5 per cent up to Rs 5,00,000 while 20 per cent income tax rate applies to individuals earning Rs 5,00,001 to Rs 10,00,000.
Interim budget 2019: What citizens paid before the budget (Credit: Deloitte)
As of now, people living in the country with an income of up to Rs 2,50,000 is exempt from paying income tax. Senior citizens (60-80 years) are exempt from paying taxes up to Rs 3,00,000. Meanwhile, super senior citizens (above 80 years) is exempt from paying income tax up to Rs 5 lakh.
Neeru Ahuja, Partner, Deloitte clearly mentioned that people with an annual income around Rs 7.5 lakh will have to pay no tax if the all the benefits are added to the existing norms.
Interim budget 2019: What citizens will pay after the budget (Credit: Deloitte)
For instance, if an individual (below 60 years) has a net taxable income of Rs 3,00,000, he/she would get a rebate of Rs 2,500 under Section 87A. This individual would not have to pay any tax on income.
The same applies to those earning up to Rs 5,00,000 but those with income beyond Rs 5,00,000 have to pay taxes unless they have investments through which deduction can be claimed.
If you are earning above Rs 5,00,000, then you will not get the rebate under Section 87A of the Income.