Income tax: Explained for salaried class

Union minister Piyush Goyal recently announced some proposals with regard to the income tax for the financial year 2019-20 in the interm budget. These proposals, as claimed by the central government, are going to pass on benefits of Rs 4,700 crores to more than three crores of salaried individuals and pensioners.

The main attractions of the proposals are (i) increase in the tax rebate under Section 87 A of the Income Tax Act, (ii) an increase in the standard deduction & (iii) an increase in the TDS on bank/post office deposits and rent paid. Although, some sops have been showered upon the middle class, yet certain misconceptions have developed in many tax payers that need to be cleared. This write up discusses in detail the various tax proposals, possible misconceptions, tax slabs as per the new proposals and various tax saving instruments.

However, it needs to be noted that the announcements made in the budget speech will be applicable for the upcoming financial year starting from April 1, 2019 to March 31, 2020, i.e, FY 2019-20 and Assessment Year 2020-21. An assessment year (AY) is when the tax return is filed for the previous financial year (FY). As for the most of salaried class particularly the government employees, the tax deduction by the employer is done during the last two months (February and March) of that particular financial years, so this is best time to know how different rebates and concessions, one can avail.

1.      Standard Deduction: The concept of Standard deduction was earlier done away with in the Finance Act of 2005. It was reintroduced in the Budget 2018 giving salaried class something to cheer for. It replaced the transport allowance of Rs 19,200/- and medical reimbursement of Rs 15,000. It is basically deducted from the Gross salary and claimed as an exemption. In the Interim Budget of 2019, presented on February 01, 2019, this Standard Deduction was raised to Rs 50,000 from Rs 40,000. This means that in FY 2019-20, a fixed deduction of Rs 50,000 in the taxable income will be applicable to employees and pensioners, however, for the current year it is 40,000.

2.      A Full Tax Rebate: Union Minister, Piyush Goyal, proposed a full tax rebate in the Interim Budget. Tax Rebate under Section 87A of the IT Act was modified to give relief of a maximum of Rs 12,500 upto an income of Rs 5 lakh. To put in simple language, it means that there will be no tax upto a total taxable income of Rs 5 lakh in the form of rebate under section 87A provided that the total taxable income is Rs 5 lakh after availing of all the available deductions under various tax saving schemes. It must be noted here that this rebate must not be confused with tax exemption; it is a rebate and not an exemption. Only the rebate of earlier Rs 2,500 for income upto Rs 3.5 lakh has been proposed to be increased to Rs 12,500 for income upto Rs 5 laKh. No change in the tax slabs & income tax rates has been proposed! The existing tax slabs and rates are unchanged as follows:

 Table: Tax slabs & Income Tax rates

3.      TDS on Deposits & Rent: It was also proposed in the budget that the TDS (Tax Deducted at Source) on interest of Bank/Post Office Deposits will be raised to Rs 40,000 from existing Rs 20,000/-. This is a benefit for many individuals, spouses, etc who get regular interest pay outs from their deposits. Now there will be no tax on such interest payments received upto the ceiling of Rs 40,000/- Similarly, TDS on rent paid has been exempted upto an amount of Rs 2.4 Lacs from existing Rs 1.8 Lacs.

4.      Tax Saving Instruments: Sections 80C to 80U of the Income Tax Act provides laws with regard to the various tax saving instruments and schemes that tax payers may utilize to legally save tax. These instruments range from Provident Fund and Specified Savings Schemes to Insurance Premiums and Mutual Funds. The instruments listed in Section 80C, which in turn is an aggregate of sections 80C, 80CCC & 80CCD, are mainly used by the tax payers to save tax. The use of additional deductors such as Interest on Home Loan upto Rs 2 Lacs, Interest on Education Loans, National Pension System (NPS), Medical Insurance, etc can be used to reduce tax liability considerably. It must be noted here that, as per the new proposals, a wise blend of these instruments may lead to zero-tax liability of an individual salaried person upto an income of Rs 7.5 Lacs; consult your Accountant for the same. Following are some of the instruments and schemes pertaining to various sections of the Income Tax Act with their limits that can be made use of: 

Table: Various Tax Saving Schemes with Limits

The author is working as an Officer In-Charge at a leading PSU bank in Srinagar. Views are personal.

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