The Interim Budget for the financial year 2019-2020 has thoughtfully proposed to make life easier for you if you are a small taxpayer. This new proposal announced by Finance Minister Piyush Goyal in the latest Budget is that there will be a tax rebate introduced for those individuals who are earning up to Rs. 5 lakhs per annum. This means that if you are a small taxpayer who has an annual income of under Rs. 5 lakhs, you will not have to pay any tax.
Interim Minister Piyush Goyal also suggested that even if an individual has a gross income of up to Rs. 6.5 lakhs, they can invest in specific savings and will still not have to pay tax. With some proper tax planning, someone earning up to Rs. 60,000 per month would not have to pay tax at all and completely forgo the process. For instance, if you invest Rs. 1.5 lakhs under Section 80C of the Income Tax Act, put in Rs. 50k in the National Pension Scheme (NPS) under Section 80CCD(1b), and buy medical insurance worth Rs. 20k, then your income will fall below the threshold and you will not have to pay any tax.
Till now, individuals earning up to Rs. 3.5 lakhs per annum were eligible for a tax rebate of Rs. 2,500. Enhancing upon the existing benefit under Section 87A, this new proposal has hiked the tax rebate to Rs. 12,500 and even raised the eligibility to Rs. 5 lakhs. There is an estimation of three crore taxpayers in the country that will be out of the tax net, thus costing the exchequer around Rs. 18,500 crores in revenue forgone. So, with this new tax rebate proposal, if you are a small taxpayer, your tax burden will significantly reduce and you will actually save up to Rs. 13,000 in tax money.
Only lower-income taxpayers will benefit from this rebate. For people earning a higher income, there will be little or no change that will occur as a result of this new tax proposal. The only benefit available to them will be the increase in the standard deduction to Rs. 50,000, which reduces the annual tax burden of salaried taxpayers in the 30% bracket by a little more than Rs. 3,000 – a very nominal benefit.
This tax rebate will affect your tax planning significantly as it will put great stress and emphasis on the same. If your income is close to the threshold, you will have to ensure that it does not exceed the threshold of Rs. 5 lakhs. Individuals will have to be constantly aware of their total income so that they can invest certain amounts in the right places and reduce the income to fit the threshold. This is because most people only come to know their total income and their deductions when they are filing their tax returns.