The interim budget proposed by acting Finance Minister Piyush Goyal has disappointed many taxpayers who were expecting income tax exemption threshold to be increased.
Instead, the Narendra Modi-led government has proposed a full rebate on net taxable income up to Rs five lakh per annum. Despite the move, people who have an annual income of over Rs 10,00,000 have room to pay no income tax at all.
While Finance Minister Arun Jaitley wrote in a blog that an individual can save up to Rs 8 lakh per year under the new norms, a person with a total annual income of Rs 10,50,000 can also walk away without paying any income tax.
How? Let’s do the math:
For instance, Mr. Mukesh is a salaried employee who earns Rs 10,50,000 per annum. His income tax slab, assuming that he is less than 60 years old, comes to 30 per cent.
His income tax would be collected after a standard deduction of Rs 50,000, which brings down his net taxable income to Rs 10,00,000.
If an individual has yearly investments of Rs 1,50,000, he could claim a tax-free benefit under Section 80(C) and another Rs 50,000 if he/she invests under National Pension Scheme.
Further, those paying a home loan can save up to Rs 2 lakh on interest payments, further lowering the taxable income to Rs 6,00,000 lakh.
Other than that, you can claim deduction towards personal mediclaim of Rs 25,000 while Rs 50,000 can be claimed towards parents’ medical insurance. An additional claim of Rs 25,000 can be claimed, which lowers your net taxable amount to 5 lakh.
After all the deductions, your net taxable income comes down to Rs 5,00,000, which will be rebated wholly after deducting tax of Rs 12,500.
The entire calculation
You salary: Rs 10.50 lakh
Standard Deduction: 50,000
Deduction under Section 80(C): Rs 1,50,000
National Pension Scheme: Rs 50,000
Housing Loan interest deduction: Rs 2,00,000
Mediclaim for Self: Rs 25,000
Mediclaim for parents: Rs 50,000
Deduction towards donation: Rs 25,000
Total deduction: Rs 5,00,000
Net Income: Rs 5,00,000
Tax: Rs 12,500