Income Tax Slabs Remain Unchanged
| Taxable Income | Age < 60 years | Taxable Income | Senior Citizen (60 <= Age < 80 years) | Taxable Income | Very Senior Citizen (Age >= 80 years) |
| Rs 2.5 lacs – Rs 5 lacs | 5% | Rs 3 lacs – Rs 5 lacs | 5% | Rs 5 lacs – 10 lacs | 20% |
| Rs 5 lacs – Rs 10 lacs | 20% | Rs 5 lacs – Rs 10 lacs | 20% | Above Rs 10 lacs | 30% |
| Above Rs 10 lacs | 30% | Above Rs 10 lacs | 30% | ||
| *Rebate of Rs 12,500 for taxable income up to Rs 5 lacs (Earlier: Rebate of Rs 2,500 for taxable income up to Rs 3.5 lacs) | |||||
| Surcharge of 10% on income tax if the taxable income is between Rs 50 lacs and Rs 1 crore | |||||
| Surcharge of 15% on income tax if the taxable income is above Rs 1 crore | |||||
| Cess at 4% applicable over income tax and surcharge | |||||
There is a perception that income up to Rs 5 lacs will be exempt from tax. However, that is not exactly the case. This benefit is applicable only for those whose income (after all the deductions) is up to Rs 5 lacs. If your income after deductions is in excess of Rs 5 lacs, there is no benefit for you. The Government has proposed to amend Section 87A where you will be provided relief.
Scenario 1 You have annual income of Rs 8 lacs. You invest Rs 1.5 lacs in PPF, 50,000 in NPS and pay Rs 1 lac on interest on home loan (Section 24). Your net taxable income= Rs 8 lacs – Rs 1.5 lacs – Rs 50,000 – Rs 1 lac = Rs 5 lacs. At 5% tax slab, your tax liability before cess will be Rs 12,500. However, since you are eligible for rebate up to Rs 12,500, you won’t have to pay any tax.
Scenario 2 If your income was Rs 20 lacs and the same level of investments, your net taxable income will be Rs 20 lacs – Rs 1.5 lacs – Rs 50,000 – Rs 1 lac = Rs 16.5 lacs. Since the income is greater than Rs 5 lacs, no relief under Section 87A shall be available.
Key Highlights from Interim Budget 2019
- Standard deduction increased from Rs 40,000 to Rs 50,000. This will lead to additional savings for salaried employees. Do note Standard deduction is applicable to only to salaried employees.
- Earlier, to save capital gains tax on sale of houses under Section 54 of the Income Tax Act, the capital gains could be invested in just 1 new property. That has now changed. You can now purchase or construct up to 2 properties. There are a couple of conditions to be met. Firstly, the capital gain under question must not exceed Rs 2 crores. Secondly, you can avail this relief (purchase 2 properties instead of 1) only once in your lifetime.
- No TDS on interest income up to Rs 40,000 on deposits with bank or post offices. Earlier, this limit was Rs 10,000. Please understand senior citizens already had their interest income up to Rs 50,000 exempt from income (TDS was also applicable for interest income on deposits in excess of Rs 50,000). This change provides relief to those under 60.
- Government contribution to NPS accounts of central Government employees increased from 10% of salary (Basic + DA) to 14% of salary. This had been notified earlier. Has been reiterated in the budget.
- TDS on rent has been increased from Rs 1.8 lacs to Rs 2.4 lacs. Do note this rule is not applicable to individuals or HUFs. Therefore, our readers can safely ignore this.
- No tax on notional rent on second self-occupied house. This is a major relief for those who have a second house. Let’s say you stay in Mumbai and have purchased a house there. You own a second house in your home town too, say Dehradun. You have not put the house in Dehradun on rent. Essentially, Dehradun property is your second self-occupied property. As per the tax laws, even though the house in Dehradun is not on rent, you will still have to add notional rent on the house in Dehradun and pay tax on it. In the Budget 2019, this notional rent concept for the second self-occupied property has been done away with. Now, this has interesting repercussion (not favourable) if you have purchased second house on loan. As per law, loss on income from house property (rental income – standard deduction – interest paid on loan) is capped at Rs 2 lacs. Now that there is no notional income on the second house, the interest eligible for tax benefit under Section 24 will also go down.
- Pradhan Mantri Kisan Sammaan Nidhi Scheme launched. Farmers with landholding up to 2 hectares will get Government support of Rs 6000 per annum (3 instalments of Rs 2,000 each). Expected to benefit 12 crore farmers.
- Pradhaan Mantri Shram Yogi Maandaan Yojana: For workers in the unorganized sector earning upto Rs 15,000 per month. Participants will get assured monthly pension of Rs 3,000 per month from the age of 60 till death. Your contribution will depend on age. Budget speech gives an example. A person aged 29 will have to invest Rs 100 per month. A person aged 18 will have to invest Rs 55 per month. The Government makes a matching contribution. Frankly, Atal Pension Yojana is a wild success. Personally, I do not see much need for this scheme.
This budget presented brings some major relief for the middle class tax payers. There is a lot of relief for other sections too.
Here is a tabulation that considers various scenarios affected due to proposed changes.
| A | Gross Income (Rs) | 4 lacs | 5.25 lacs | 6 lacs | 8 lacs | 10 lacs | Rs 12 lacs | Rs 60 lacs |
| Salaried or Employed | Salaried | Non-Salaried | Salaried | Non-Salaried | Salaried | Salaried | Salaried | |
| B | Standard deduction (Applicable only to salaried and pensioners) | 50,000 | – | 50,000 | – | 50,000 | 50,000 | 50,000 |
| C | Tax Exempt Income (HRA, LTA etc). (Applicable only for salaried persons) | 35,000 | – | 40,000 | – | 65,000 | 2,50,000 | |
| D | Deductions | 50,000 | 20,000 | 19,000 | 3,25,000 | 3,60,000 | 4,30,000 | 1,85,000 |
| D1 | 1. Section 80C Deductions (PPF, EPF, Insurance etc). | 50,000 | 20,000 | 19,000 | 1,00,000 | 1,50,000 | 1,50,000 | |
| D2 | 2. Section 80D Deductions (Health Insurance) | – | – | – | 35,000 | 25,000 | 25,000 | |
| D3 | 3. Section 80CCD(1B) (NPS) | – | – | – | 50,000 | 50,000 | 50,000 | 50,000 |
| D4 | 4. Interest on Housing Loan (Section 24) | – | – | – | 1,10,000 | 1,25,000 | 2,00,000 | 1,00,000 |
| D5 | 5. Other Deductions (donations, 80GG etc) | – | – | – | 30,000 | 10,000 | 5,000 | 35,000 |
| E | Net Taxable Income (E=A-B-C-D) | 2,65,000 | 5,05,000 | 4,91,000 | 4,75,000 | 5,25,000 | 4,70,000 | 57,65,000 |
| F | Rebate under Section 87A applicable? Tax benefit introduced in Budget 2019 Applicable if Net Taxable Income (E) <= Rs 5 lacs | YES | NO | YES | YES | NO | YES | NO |
| G | Net Tax Liability (before considering rebate under Section 87A) | 750 | 13,500 | 12,050 | 11,250 | 17,500 | 11,000 | 15,42,000 |
| H | Surcharge (if applicable) | – | – | – | – | – | – | 1,54,200 |
| I | Rebate under Section 87A | 750 | – | 12,050 | 11,250 | – | 11,000 | – |
| J | New Tax liability (before Cess and Surcharge) | – | 13,500 | – | – | 17,500 | – | 15,42,000 |
| K | New Tax Liability (including cess and surcharge) | – | 14,040 | – | – | 18,200 | – | 17,64,048 |
| L | Tax Liability if the rules were left unchanged | – | 14,040 | 13,208 | 11,700 | 20,280 | 11,960 | 17,67,480 |
| M | Net Tax Benefit due to Budget 2019 announcements (Changes in Std. Deduction limit and tax rebate) M=L-K | – | – | 13,208 | 11,700 | 2,080 | 11,960 | 3,432 |
| In some cases, there is no benefit. In a few cases, the benefit is either due to change in Standard deduction limit or due to higher tax rebate. While in others you may be able to get benefit due to both std. deduction and higher tax rebate. There are other tax benefits announced such as no notional income on from second self-occupied property. We have not considered such proposals in this analysis. | ||||||||