Even though you are earning upto Rs.3 lakh, you will now not be taxed under the I-T Act. Further, you are not required to make any investment to avail the tax benefit.
After the budget being announced, there was some confusion among the individuals related to tax slabs. Although there has been no change in the slab but a rationalisation of rebate allowable under Section 87A has been amended under the I-T Act which will provide you with the tax benefit over additional Rs.50000.
In view of proposed rationalisation of tax rates for individuals in the income slab of Rs. 2,50,000 to Rs.5,00,000, it is proposed to amend section 87A so as to reduce the maximum amount of rebate available under this section from the existing Rs. 5000 to Rs.2500. It is also proposed to provide that this rebate shall be available to only resident individuals whose total income does not exceed Rs. 3,50,000.
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The existing provisions of section 87A providing for a rebate up to Rs. 5000 from the income-tax payable to a resident individual if his total income does not exceed Rs. 5,00,000 will be applicable till the current financial year. After that, the amendment made in the current budget will take effect from 1st April 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent assessment years.
To understand this more clearly, let us assume that a person is earning a salary of Rs.300000 per annum and he has not done any investments. Now he wants to calculate his taxable income under the new slab:
New slab after budget
0 – Rs.2.5lakhs NIL
Rs.2.5lakhs to 5lakhs 5%
Rs.5lakhs to 10lakhs 20%
Rs.10lakhs & Above 30%
As per his income which is falling under the 2nd slab where he will be charged at 5% on the additional income of Rs.50000. The total tax will amount to Rs.2500 without applying rebate. As the income is below Rs.3.5lakhs, he is eligible for a rebate of Rs.2500 under the section 87A of I-T Act (As per the new amendment). The rebate is deducted from the taxable amount before applying the education cess to it. In the current scenario, the rebate and total tax get naturalised after the deduction (Rs.2500-Rs.2500) and hence, the net taxable income becomes zero.
This is how he will not be charged any tax under the new tax rate regime.
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It is to be noted that the rates of income-tax in the case of every individual or HUF or every association of persons or body of individuals, whether incorporated or not or every artificial juridical person are referred to in sub-clause (vii) of clause (31) of section 2 of the Act.