Nifty99000 100%

Sensex99000 100%

Article rating: No rating
Tags:
Article rating: No rating
Tags:
Article rating: 5.0
Tags:
Article rating: No rating
Tags:
Article rating: 5.0
Tags:
Article rating: No rating
Tags:
Article rating: No rating
Tags:
Article rating: No rating
Tags:
Article rating: No rating
Tags:
Article rating: 5.0
Tags:
Article rating: No rating
Tags:
Article rating: No rating
Tags:
Article rating: No rating
Tags:
Article rating: No rating
Tags:
Article rating: 5.0
Tags:
Article rating: No rating
Tags:
RSS

News

Tax Rebate For Income Up To Rs 5 Lakhs Not An Increase In Basic Exemption Limit

Author: Balwant Jain/Wednesday, February 6, 2019/Categories: Income Tax

Tax Rebate For Income Up To Rs 5 Lakhs Not An Increase In Basic Exemption Limit

The one proposal in the budget which has evinced the maximum interest as well has initially created the maximum confusion till the dust settled down is the proposal to make income upto Rs 5 lakhs tax free in the hands of taxpayers. Let us discuss how it is proposed to be done.

What is the exact proposal?

The finance minister has not proposed to increase the basic limit from Rs 2.50 lakhs to Rs 5 lakhs for every individual tax payer but has increased the limits under existing provisions of Section 87A. Section 87A was introduced in Finance Act 2003. At present, an individual tax payer who is resident of India for income tax purpose is entitled to claim tax rebate upto Rs 2,500 against his tax liability if his total income does not exceed Rs 3.5 lakhs. You are entitled to avail rebate upto Rs 2,500 against your tax liability if your total income does not exceed the threshold limit of Rs 3.5 lakhs. However, your entitlement to claim a rebate under Section 87A gets lost altogether once the income exceeds this limit. Anybody and everybody are not entitled to avail this rebate. Though the basic exemption limit of Rs 2.5 lakhs is applicable to all individuals and HUFs, only individuals, resident for income tax purpose, are entitled to claim this rebate. HUFs and non resident individuals are not entitled. The FM has proposed to enhance the amount of rebate as well as the eligibility criteria in the budget. So instead of a rebate, of upto Rs 2,500, now the rebate is Rs 12,500. Likewise, individuals whose income does not exceed Rs 5 lakhs will be entitled to avail this expanded rebate instead of erstwhile lower threshold limit.

Which income is to be taken into account?

There has always been a confusion on which income should be considered for the purpose of this eligibility criteria. It is the income on which your ultimate tax liability is computed. So the income to be considered for this purpose is the income arrived at after setting off all the brought forward old losses which you are entitled to set off against the income of current year. Likewise, you also have to reduce the total income from all the sources after setting of the losses under the respective head by the amount of deduction available under various sections of Chapter VIA. Chapter VIA provides for reducing your income by deduction under various sections like 80C (For LIP, EPF, PPF, ELSS, tuition fee, home loan repayment etc.), Section 80 CCD (NPS), Section 80 D (Health Insurance), 80 G (donations) and 80 TTA and 80TTB (Bank interest)

Against which tax liability this rebate can be adjusted?

It is not that the rebate of 12,500 available under Section 87A can be claimed against all the tax liability which you may have. This rebate can be claimed against your tax liability in respect of normal income taxed at the slab rate, long term capital gains under Section 112 in respect of profits on sale of capital assets other than listed equity shares as well as equity oriented schemes of mutual funds and short term capital gains listed equity shares as well as equity oriented schemes of mutual funds under Section 111A payable at 15 per cent. However, you are not entitled to set of your tax liability in respect of long term capital gains arising on sale of listed equity shares as well as equity oriented schemes of mutual funds which is payable at 10 per cent on the long term capital gains in excess of initial exemption of Rs 1 lakh against this rebate.

Once the income crosses the magical number of Rs 5 lakhs, the tax payer is burdened with a tax liability of 12500 even if the incremental income is only a few hundred which is unjust. There are provisions of marginal relief in cases where for the tax payers whose income exceeds Rs 50 lakhs and who are subjected to surcharge on the income tax for the entire amount. The provisions of marginal relief provide that in no circumstances the incremental tax shall exceed the amount of income which exceeds the threshold limit for surcharge. Similar provisions need to be added to the existing provision of Section 87A.

The autor is a tax and investment expert and can be reached on jainbalwant@gmail.com

Print Rate this article:
4.2

Number of views (4010)/Comments (0)

Balwant Jain
Balwant Jain

Balwant Jain

Other posts by Balwant Jain
Contact author

Leave a comment

Name:
Email:
Comment:
Add comment

Name:
Email:
Subject:
Message:
x

Videos

Ask the Finapolis.

I'm not a robot
 
Dharmendra Satpathy
Col. Sanjeev Govila (retd)
Hum Fauji Investments
 
The Finapolis' expert answers your queries on investments, taxation and personal finance. Want advice? Submit your Question above
Want to Invest
 
 

Categories

Disclaimer

The technical studies / analysis discussed here can be at odds with our fundamental views / analysis. The information and views presented in this report are prepared by Karvy Consultants Limited. The information contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned in this report, investors may please note that neither Karvy nor Karvy Consultants nor any person connected with any associate companies of Karvy accepts any liability arising from the use of this information and views mentioned in this document. The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above mentioned companies from time to time. Every employee of Karvy and its associate companies is required to disclose his/her individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders only through Karvy Consultants Ltd. This report is intended for a restricted audience and we are not soliciting any action based on it. Neither the information nor any opinion expressed herein constitutes an offer or an invitation to make an offer, to buy or sell any securities, or any options, futures or other derivatives related to such securities.

Subscribe For Free

Get the e-paper free