The Interim Finance Minister Piyush Goyal presented the Interim Budget 2019 on February 1st 2019. This Budget had something great for the salaried middle class. People with income up to Rs 5 Lakhs did not have to pay tax. What does this mean?
If you have net taxable income up to Rs 5 Lakhs, there’s no need to pay any taxes. But, if your net taxable income is above Rs 5 Lakhs, there’s no tax benefit.
Under the new rule, individual taxpayers with annual income up to Rs 5 Lakhs get a full tax rebate. The Finance Minister hiked the income tax rebate under Section 87A from Rs 2,500 to Rs 12,500. This begs the question. Why did the Modi Government choose a tax rebate instead of a tax exemption?
The Government is offering a full tax rebate to people earning up to Rs 5 Lakhs and not a tax exemption for those earning up to Rs 5 Lakhs. This means if you earn salary/income between Rs 2.5-5 Lakhs, you will still be taxed at 5%. You pay the tax and get a refund when filing ITR. The good news….You may never get to see the taxman. If income tax returns (ITR) is not going under scrutiny by the IT Department, you get refund in just 24 hours….
So why did the Government go for a rebate? The Government wanted to offer the tax saving benefit, only to low earners. It did not want to sacrifice tax revenues from high earners. (Those with income between Rs 10 Lakhs to Rs 10 Crores).
The Government also wanted to keep the tax net intact. If the Government had opted for a tax exemption, people with income below Rs 5 Lakhs would not have to file ITR. Now, people with income between Rs 2.5 Lakhs to Rs 5 Lakhs, file ITR and get a refund. Not filing ITR is an offense and for filing after the requisite dates, penalties apply.
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Take a look at the Income Tax Slab Rate for FY 2019-20.
Income Tax Slabs for Individuals:
Income Tax Slabs For Senior Citizens:
Income Tax Slabs For Super Senior Citizens:
The Government is very concerned about the health and education of the poor and rural families in India. So, the secondary and higher education cess of 3%, has been replaced with a 4% health and education cess.
Let’s say you earn a salary up to Rs 10 Lakhs a year. How to pay zero taxes?
You get a tax deduction up to Rs 1.5 Lakhs a year under Section 80C. This is a collective deduction up to Rs 1.5 Lakhs for premiums paid on life insurance, principal repayments on home loan, and investments in ELSS, NPS, Tax saver FD, NSC, 5 year POTD and also tuition fees paid by parents for educating children.
The Budget 2019 hiked standard deduction from Rs 40,000 to Rs 50,000 a year.
You can avail a home loan to save tax. You get a tax deduction under Section 24 on repayment of EMI (Interest Component) up to Rs 2 Lakhs a year. This is for interest repayments on home loan.
You can save taxes by investing in National Pension System or NPS, over and above Rs 1.5 Lakhs of Section 80C. This is the additional benefit of Rs 50,000 under Section 80CCD(1B), where you can claim deduction for voluntary contribution to NPS.
You get a tax deduction under Section 80D for health insurance premium and health checkup. This is for premiums paid on a health insurance plan for self, spouse and dependent children up to Rs 25,000 a year. For senior citizens the deduction is Rs 50,000 a year. If you pay health insurance premiums for self and senior citizen parents, you get a maximum deduction on health insurance premiums up to Rs 75,000 a year under Section 80D.
The taxable salary is Rs 5 Lakhs. You have to pay tax @5% which is Rs 5 Lakhs @ 5%. Income tax payable is Rs 12,500. You have tax rebate under Section 87A of Rs 12,500. The total tax payable is Rs 12,500 – Rs 12,500 (Section 87A). This is Zero Tax on a salary/income of Rs 10 Lakhs.
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