New Delhi: In a bid to provide relief to the salaried middle-class, Finance Minister Piyush Goyal, in his maiden budget presentation on Friday, announced full tax rebate for income earned upto Rs 5 lakh.
At present, income up to Rs 2.5 lakh for resident individuals (below 60 years) is exempted from tax, while for senior citizens the exemption limit was Rs 3 lakh.
Under the rebate proposal, individual taxpayers will get a benefit of Rs 12,500, up from Rs 2,500 earlier under Section 87A of the Income Tax Act. This will only benefit those who have an annual income of up to Rs 5 lakh. The basic exemption limit and tax-slabs will remain the same.
Additionally, Goyal announced an increase in standard deduction to Rs 50,000, up from Rs 40,000 earlier.
Simply put, if your net taxable income after availing all the deductions under Section 80C to 80U of the Income tax Act does not exceed Rs 5 lakh, you will not be required to pay any tax.
However, one can still earn a salary of up to Rs 10 lakh and still get the benefit of this rebate. Your goal is to bring net income under Rs 5 lakh.
According to the instance cited below, existing deductions under Income Tax Act under Section 80C along with contribution to NPS (Section 80CCD1B), interest paid on home loan (Section 24) and health insurance premium paid (Section 80D) can help bring the taxable income to below Rs 5 lakh and allow one to avail the tax rebate even if total income is higher.
Taxpayers can claim deductions of up to Rs 1.5 lakh by investing in Provident Fund, tax-saving mutual funds, life insurance and term deposits among others under Section 80C. Another Rs 2 lakh can be claimed as deduction on interest component of the home loan EMI in a year.
Apart from this, Rs 50,000 is taken as medical insurance premium in the below example, and another Rs 50,000 can be claimed as deduction on contribution towards National Pension Scheme. Besides, Rs 50,000 is also available as standard deduction, up from Rs 40,000 till 2018-19.
Hence, one can save Rs 5 lakh and those with gross income of around Rs 10 would also end paying zero tax if they make use of the deductions and get their taxable income under the Rs 5 lakh ceiling.