At a time when lakhs of central government employees are waiting for hike in minimum pay beyond the recommendations of 7th Pay Commission, Union Finance Minister Piyush Goyal, while presenting the interim budget on February 1, made a big announcement when he extended the benefit of income tax rebate to those with income up to Rs 5 lakh. Goyal proposed tax exemption for individual annual incomes of Rs 5 lakh, from the current level of Rs 2.5 lakh.
“Individual taxpayers having taxable annual income up to Rs 5 lakh will get full tax rebate and therefore will not be required to pay any income tax. As a result, 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, insurance, among others,” Goyal said.
This has come as a big relief for the middle income group now as the Finance Minister increased the rebate under Section 87A of the Income Tax Act from Rs 2,500 to Rs 12,500 – the equivalent of 5 per cent tax on Rs 2.5 lakh to Rs 5 lakh slab – and also raised the eligibility criterion for claiming the rebate to Rs 5 lakh from Rs 3.5 lakh earlier. This effectively reduces the tax liability of those with net taxable income upto Rs 5 lakh to nil.
However, tax liability for those with net income above Rs 5 lakh would still start from Rs 2.5 lakh as earlier. The Interim Budget neither changed the existing tax rates or the slabs.
The Finance Minister proposed extending the benefit of rebate under Section 87A of the Income Tax Act to those with income is up to Rs 5 lakh. This provision currently allows a rebate of Rs 2,500 for those with net taxable income up to Rs 3.5 lakh.
Goyal increased this rebate to Rs 12,500 — the equivalent of 5 per cent tax on Rs 2.5 lakh to Rs 5 lakh slab- and raised the eligibility criterion for claiming the rebate to Rs 5 lakh from Rs 3.5 lakh.