Several people are calling the Union Budget pro-middle class. Some say, finally the Modi government has answered their prayers, while some are wondering if the benefits are real. Amid this excitement, let us also examine what the tax benefits really mean for the middle class.
Interim finance minister who announced that those with yearly taxable income of upto Rs. 5 lakh will get full tax rebate under section 87A. What this means is that anyone will net taxable income of upto Rs 5 lakh doesn’t have to pay any tax. But, those with even Rs. 100 extra i.e. if the taxable income is Rs. 5,00,100, then this benefit cannot be availed.
So, the income tax rebate for Rs. 5 lakh stands at Rs. 12,500. However, if a person earns even Rs. 100 more, he will not get any exemption as mentioned above. Why? For that, we will have to look at the Income Tax slabs. Currently, income up to Rs 2.5 lakh for resident individuals (age below 60 years) is exempt from tax, 5 per cent tax on income between Rs 250,001 to Rs 5 lakh; 20 per cent tax on income between Rs 500,001 and Rs 10 lakh; and 30 per cent tax on income above Rs 10 lakh.
This can be further explained as – If your net taxable income after availing all the deductions under section 80C to 80U of the Income tax act does not exceed Rs 5 lakh, then you will not be required to pay any tax. However, if your net taxable income (after availing deductions under section 80C to 80U), exceeds Rs. 5 lakh then taxes will be calculated as per the current tax structure.
What this means is that, it is not a straight exemption upto Rs. 5 lakh (income tax slabs remain unchanged). But, the Modi government has twisted the words to present it as rebate and not relief. Therefore, the tax calculation for anyone with taxable income above Rs. 5 lakh is detailed in the picture.
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