If you were thinking that Interim Finance Minister Piyush Goyal just played Santa and doubled the income tax exemption ceiling to Rs 5 lakh, we have to play party pooper. According to experts, what he has proposed is a full tax rebate on taxable income up to Rs 5 lakh under Section 87A. So, if your taxable income is over Rs 5 lakh, the current tax rates will continue to apply to you, although you still have the hiked up standard deduction and TDS thresholds to look forward to.
The Section 87A of the Income Tax Act currently offers a rebate to individuals with a net taxable income of Rs 3.5 lakh to reduce the tax burden of the lower income bracket. According to Cleartax, the rebate currently is limited to Rs 2,500 - reduced from Rs 5,000 for those earning between Rs 2.5 lakh and Rs 3.5 lakh in Budget 2017. In other words, if the total tax payable is lower than Rs 2,500, then that amount is the rebate under Section 87A. This rebate is applied to the total tax before adding the Education Cess (4%).
Here is the pre-Budget and post-Budget tax outgo of the salaried class and senior citizen. What the Interim Budget 2019 proposes is to widen the eligible base for this rebate.
So while taxpayers with net taxable annual income up to Rs 5 lakh now stand to save Rs 13,000. In other words, individuals with gross incomes under Rs 10 lakh making the most of the various deductions that can be claimed under the Income Tax Act, like those under Sections 80C, 80D, 80EE, are likely to benefit from this proposal.The bad news is that the regular tax slabs will apply to those whose net taxable income - after availing all the permitted deductions - falls above the Rs 5 lakh threshold.