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1 Rupee More than 5 Lakhs: Pay Tax Research Team | Posted On Friday, February 28,2020, 12:42 PM

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1 Rupee More than 5 Lakhs: Pay Tax



If you earn Rs 5,00,001 you must pay tax. Isn’t this shocking? Just Re 1 more than 5 Lakhs means no tax rebate. You end up paying tax at income tax rates applicable to your income. Why does this happen?

For FY 2019-20 if your net taxable income (This is after availing all tax deductions and tax exemptions doesn’t exceed Rs 5 Lakh, you can avail the Section 87A income tax rebate. Your tax liability is zero.

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1 Rupee more than 5 Lakhs: Pay Tax

There’s a famous saying. A Rupee saved in tax is a rupee earned. That’s why you must do tax planning. Well, if you earn just Re 1 more than Rs 5 Lakhs, you pay more tax than even the amount by which income exceeds Rs 5 Lakh. So, if you have a taxable income of Rs 5,10,000 you end up paying a lot of tax.

See Also: Last Minute Tax Planning: What You Should Do?

Take a Look at Income Tax Slabs:

How much tax do you pay if net taxable income is Rs 5,10,000?  


Tax Liability




5% of Rs 2.5 Lakhs = Rs 12,500

5.00,001 - 5,10,000

20% of Rs 10,000 = Rs 2,000

Total Tax Liability

Rs 14,500

Final Tax Liability after 4% cess

Rs 15,080

What do you learn from this example? Just Rs 10,000 above Rs 5 Lakhs means a tax liability of Rs 15,080. After paying this tax you are left with Rs 5,10,000 – Rs 15,080 = Rs 4,94,920. What’s surprising is if you had a post tax income of Rs 5 Lakhs, you would have got the Section 87A income tax rebate and paid zero tax. The irony is if you had made a donation under eligible donations which enjoy 100% tax exemption under Section 80G, you would have still paid zero tax.

What is Section 87A of the Income Tax Act?

You can claim an income tax rebate under Section 87A; if you are a resident individual and total income after deductions (This is Section 80) does not exceed Rs 5 Lakhs. The rebate would be limited to Rs 12,500. If total tax payable is less than Rs 12,500, then this amount gets the Section 87A income tax rebate.

See Also: All You Must Know About Tax Planning

How To Pay Less Income Tax?

Well, just use income tax deductions like Section 80C and Section 80D to save tax. You get a tax deduction under Section 80C up to Rs 1.5 Lakhs a year on investments in ELSS, SCSS, NSC, Post Office Time Deposits, PPF and some others. Life Insurance premiums and home loan principal repayments also enjoy the tax benefit. This is a collective deduction up to Rs 1.5 Lakhs a year under Section 80C.

You also have the Section 80D tax deductions on health insurance premium paid for self, spouse and children up to Rs 25,000 a year. It’s Rs 50,000 a year for senior citizens.

See Also: Avoid Tax Mistakes in 2020

You can also use Section 80E, Section 80EE, Section 80G, Section 80DD, Section 80DDB, Section 80GG and other relevant sections to save tax.

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