admin February 11, 2019

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Individual taxpayers taking home up to ₹5 lakh a year will be spared from having to pay income tax from the next financial year, finance minister Piyush Goyal said on Friday, as he unveiled a middle class friendly interim budget ahead of the next general election.

The benefit will accrue in the form of a tax rebate and does not amount to a tax exemption offered to people earning up to ₹2.5 lakh. Those earning up to ₹5 lakh a year have hitherto had to pay 5% as tax. Goyal also raised the standard deduction — the fixed amount salaried individuals across tax slabs can deduct from their gross income while filing tax returns — from Rs. 40,000 to Rs. 50,000.

“Even persons having gross income up to Rs 6.5 lakh may not be required to pay any income tax if they make investments in provident funds, specified savings and insurance,” Goyal said. “In fact, with additional deductions such as interest on home loan up to Rs 2 lakh, interest on education loans, National Pension Scheme contributions, medical insurance, medical expenditure on senior citizens, persons having even higher income will not have to pay any tax,” he said.

Tax experts said even people earning about ₹10 lakh a year can benefit, including exemptions offered on home loan interest of up to ₹2 lakh, 80 C deductions on certain financial investments (₹1.5 lakh), standard deduction (₹50,000), additional deduction on National Pension System contributions (₹50,000), health insurance payments for individuals and parents (₹55,000) and interest on bank accounts (₹10,000).

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“You get ₹1.5 lakh exemption if you invest in 80 C instruments. You also get additional ₹50,000 deduction if you invest in National Pension System. You can claim deduction for medical insurance premium of up to ₹55,000 for self and parents. Besides the tax deduction, you can get a standard deduction of ₹50,000 along with bank interest of ₹10,000 and exemptions such as housing rent allowance. The hike in standard deduction from ₹40,000 to ₹50,000 will give you a benefit of up to ₹3,000,” said Gautam Nayak, tax partner at CNK & Associates.

Around 30 million middle-class taxpayers, including salary earners, those who are self-employed, small traders, pensioners and senior citizens, will save around ₹18,500 crore a year in tax because of the rebate — an announcement that came towards the end of Goyal’s budget speech and was greeted with the thumping of their desks by members of the ruling National Democratic Alliance (NDA).

The increase in the standard deduction limit will provide an additional tax benefit of ₹4,700 crore.

The tax slabs remain the same: between ₹2.5 lakh and ₹5 lakh, between ₹5 lakh and ₹10 lakh a year and ₹10 lakh and above per year. The tax payable on the last two tax slabs is 20% and 30%.

“Though as per convention, the main tax proposals will be presented in the regular budget, small taxpayers, especially middle class, salary earners, pensioners, and senior citizens need certainty in their minds at the beginning of the year about their taxes. Therefore, proposals, particularly relating to such class of persons, should not wait,” Goyal said.

According to the Finance Bill, the maximum amount of tax rebate will increase to ₹12,500 from the existing ₹2,500. The rebate will be offered to taxpayers having total income up to ₹5 lakh, instead of the existing ₹2.5 lakh.

“There is no change in the basic exemption which still remains as ₹2.5 lakh. Typically, the way rebate works is you get no benefit if the taxable income is above the mentioned amount — in this case it is ₹5 lakh. Your tax filing obligations remain, Even if your taxable income is ₹5.10 lakh, you will get no rebate,” said Vaibhav Sankla, managing director, H&R Block India, a tax preparation company.

So-called 80C instruments include life insurance and health insurance premiums and mutual fund instruments known as equity-linked savings schemes that are locked in for three years plus bank fixed deposits for a period of five years.

[“source-“hindustantimes”]