Budget 2019 explained point by point; income TAX benefits decoded.

Taxaj > Blog > Budget 2019 explained point by point; income TAX benefits decoded.

According to the Team Taxaj Analysis, if a person earns Rs. 7.75 Lakhs; We would make sure he doesn’t have to pay any taxes.

Budget 2019
Prime Minister Greeting the Nation. (Right) Finance Minister Arun Jaitley, who could not present the Budget due to ill health

What does the interim budget say on taxes?

For the present, the existing rates of income tax will continue for FY 2019-20 also. I propose the following changes – Individual taxpayers having annual taxable incomes up to Rs 5 lakh will get full tax rebate.

The finance minister said in the Lok Sabha

According to the Current tax slabs (which are to continue for FY 2019-20), individuals with an income of up to Rs 2.5 lakh do not need to pay taxes.

When the total income exceeds Rs 2.5 lakh but not more than Rs 5 lakh, taxpayers are liable to pay 5% tax on the amount exceeding Rs 2.5 lakh. For instance, if your taxable income is Rs 3.5 lakh, you are required to pay a 5% tax on Rs 1 lakh.

If the total income is more than Rs 5 lakh per annum, not exceeding Rs 10 lakh, the tax liability is Rs 12,500 plus 20% on the amount over and above Rs 5 lakh. This means that if you earn Rs 7 lakh annually, you are required to pay Rs 52,000 (12,500+20% of 2,00,000) in taxes.

Where the total income exceeds Rs 10 lakh, the tax liability is Rs 1,12,500 plus 30% on the amount over and above Rs 10 lakh.

Current Income Tax Slabs

How is tax rebate different from tax exemption?

Tax exemption is the income, expenditure and investment on which no tax is levied (up to Rs 2.5 lakh).

Tax rebate, on the other hand, is a relief provided in the form of a refund on taxes in case an individual pay more than his tax liability. Section 87A of the Income Tax Act provides a rebate of Rs 2,500 or the tax payable (whichever is lower) for individuals with total income not exceeding Rs 3.5 lakh.

Section 87A

The government has proposed a change in Section 87A. Finance minister Piyush Goyal recommended a full rebate to taxpayers earning up to Rs 5 lakh taxable income. This means that the taxpayer can get a tax rebate of Rs 12,500 (5% of Rs 2.5 lakh).

In his speech, the finance minister also said that any person having a gross income up to Rs 6.5 lakh will not be required to pay any taxes.

Tax calculation up to Rs 6.5 lakh

Section 80 C of the Income Tax Act permits a maximum amount of deduction of up to Rs 1.5 lakh on tax-free investments like life insurance, provident fund, LIC mutual fund, Sukanya Samridhi Account, etc. Tax deductions are reductions from a taxpayer’s gross income so as to lower the amount subject to tax.

If an individual earns Rs 6.5 lakh per annum, they can claim a tax rebate on Rs 5 lakh and invest the remaining Rs 1.5 lakh in tax-free investment options. In essence, they will not be paying any tax on their gross income of Rs 6.5 lakh.

The Income Tax Act, however, allows deductions over and above Section 80C. Moreover, the government has also proposed to increase the standard deduction limit to Rs 50,000.

Standard Deduction allows for a flat deduction from income of salaried persons toward expenses that would be incurred in relation to their employment. It falls under Section 16 of the Income Tax Act. In last year it was set at Rs 40,000 and has now been proposed to be increased by Rs 10,000.

What would be the total deductions after the new proposals?

Apart from deductions allowed under Section 80C (Rs 1.5 lakh) and proposed standard deduction (Rs 50,000), a taxpayer also enjoys other deductions under various sections of the Income tax Act

Section 80CCD(1B) states, “As per section 80CCD(1B), an assessee referred to in 80CCD(1) shall be allowed a deduction in computation of his income, of the whole of the amount paid or deposited in the previous year in his account under the pension scheme notified or as may be notified by the Central Government, which shall not exceed Rs. 50,000.”

Section 80D allows deduction in respect of health insurance premium for self and/or family members. The maximum deductible amount is Rs 25,000 and in case of a senior citizen in the family, the limit is Rs 50,000.

Lastly, Section 80TTA provides a maximum deduction of Rs 10,000 (to non-senior citizens) on income earned by way of interest on deposits (not being time deposits) in a savings account.

So, according to Taxaj Analysis if a person earns Rs. 7.75 Lakhs; We would make sure he doesn’t have to pay any taxes

What Piyush Goyal Quoted?

Goyal said direct tax collection had touched ₹12 trillion in 2018-19, crossing the ₹11.5 trillion originally estimated. Gross direct tax receipt has grown 19.4% from the ₹10.05 trillion collected in 2017-18.

Goyal said direct tax receipts had doubled from over ₹6 trillion in 2013-14 to ₹12 trillion in 2018-19. The number of returns filed have risen from 3.79 crore to 6.85 crore during the period, an 80% increase in the tax base, he said.

The minister outlined taxpayer-friendly measures taken in the past by the National Democratic Alliance (NDA) government, including the tax rate cut for small taxpayers in the lowest tax bracket of Rs. 2.5-5 lakh. 

This is not an across the Board Benefit?

“This is not an across the board benefit. The benefit is available only where the taxable income is up to Rs 5 lakh,” 

said Saraswathi Kasturirangan, Partner, Deloitte India.

“Raising of the income tax exemption limit from Rs 2.5 lakh to Rs 5 lakh per annum is indeed a pathbreaking step. It will provide a very significant relief to the middle class. This will also boost economic growth by giving a very meaningful stimulus to consumption.”

Ashish Kapur, CEO, Invest Shoppe India Ltd, said,

Expectations were immense though…

One such expectation was that there will be some changes in the income tax slab rates or there may be some increase in the income tax exemption threshold. For instance, from Rs 2.5 lakh to Rs 3 lakh or Rs 3.5 lakh. Industry body CII had even recommended to get the exemption limit increased to Rs 5 lakh from Rs 2.5 lakh currently. Tax experts also wanted the FM to increase the Section 80C deduction limit from Rs 1.5 lakh to at least Rs 2.5 lakh to boost the household savings rate.

“The gap of tax rate from 5% to directly 20% should be cut down. This gap is resulting into undue hardship for the people in the middle income group whose income ranges from Rs 5 lakh to Rs 10 lakh. People will be delighted if rearrangement of slab rates is done like starting it from 5%, 10%, and ranging to 15%, 20%, 25%, i.e. difference of 5% may be kept amongst the slabs and increasing the slabs of income. We expect that relief may be provided to cut down the tax rate gap in the Budget 2019. It may be possible that the government may think of changing the tax rates while keeping the basic exemption limit of Rs 2.5 lakh at the same level. This would help the government to achieve the twin objective of reducing the tax burden while ensuring the increment in the total tax base,” CA Abhilesh Jha, Founder Abhilesh Jha & Company, had said, talking about his budget expectations.


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