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No income tax upto 5lac: How it will work?

No income tax upto 5lac: How it will work?

“NO INCOME TAX UPTO Rs. 5L” IS NOT STRAIGHT FORWARD APPLICABLE TO ALL INDIVIDUALS AS THERE IS NO CHANGE IN SLAB RATES, ONLY SECTION 87A AMENDED: –

Finance Minister while presenting the Interim Budget 2019-20 said that individual taxpayers having taxable annual income up to Rs. 5L will get full tax rebates. This creates a rumour all around that threshold limit of exemption for individual taxpayers has been extended to Rs. 5L from the existing limit of Rs. 2.5 L. However from the reading of clause 8 of the Finance Bill, 2019 it is clear that it only seeks to amend section 87A of the Income-Tax Act to provide relief to the individual taxpayers by increasing the maximum amount of tax rebate to Rs. 12,500/- from existing amount of Rs. 2,500/-. Further this tax rebate shall now be admissible to taxpayers having total income up to Rs.5L instead of existing total income of Rs. 3.5 L.

 

So new benefit will be available to only those Individuals whose Total Taxable Income is less than or equal to 5L (after availing all available deductions). Therefore, if any person’s earning exceeds Rs. 5L then he has to use following tools to reduce his total income up to Rs. 5L so that tax benefit of 12,500/- as per amended section 87A can be availed: –

 

Investment Tools: –

1) Investment of Rs. 1.5 L in 80C investments 

2) 75K (25K for self and 50K for parents) in medical insurance,

3) 50K in National Pension Scheme, 

4) 2 L for housing loan interest u/s 24 under the head house property

5) 5oK additional housing interest u/s 80EE

 

Additional Tools for Salaried Employee

 

In addition to the above, salaried employee can claim benefit of standard deduction of Rs. 50K and other benefit available within the salary head like HRA etc.

 

Let’s understand the above through one example, say before claiming Standard deduction income of any salaried person is 10,75,000/- then in this case to reduce tax liability to Rs. Nil he has to plan structure of his income as follows: –

 

Income under the head salary before standard deduction

       10,75,000

 

Less: Standard deduction

             50,000

(A)

Income under the head salary

       10,25,000

Less (B)

Deduction u/s 24 on interest on housing loan under the head house property

         2,00,000

 

 

 

Less (C)

Deduction under chapter VIA

 

80C

PF, Tuition fee, LIC etc.

         1,50,000

80CCD(1B)

NPS

             50,000

80D

Mediclaim   (Self/Parents)

             75,000

80EE

50K additional deduction for Housing Loan interest if housing loan is taken from Financial Institution or Housing Finance Company

             50,000

 

 

         3,25,000

 

Total Income (A-B-C)

         5,00,000

 

Tax Payable

             12,500

 

Upto Rs. 2.5L                                               Nil

 

 

Above 2.5L                                               12,500

 

 

Less: Proposed rebate u/s 87A

12,500

 

Net Tax Payable

NIL

 

From the above it follows, if an individual has total income up to Rs. 10,75,000/- then there would be no need to pay tax if he plans his income as explained above. Therefore, to conclude if total income of an individual exceed Rs. 5L after all deductions then tax structure for individual taxpayer in FY 2019-20 would remain same as compared to FY 2018-19 and no benefit of proposed rebate of Rs.12,500/- is allowable to such individuals.

Regards

CA Amar Jeet Singh

+91 9911011042

 

 

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