Budget 2019-20: Finance Minister Piyush Goyal found a clever way to implement the long pending demand of the middle class to make income up to Rs five lakh completely tax free without breaking the conventions of an interim budget. He effected an increase of Rs 10,000 in the rebate amount by amending section 87A of the Income Tax Act that made taxable income up to Rs five lakh completely tax free.
In the run up to the budget 2019-20, there was a strong demand from the middle class and salaried people to increase the exemption limit for Nil tax from Rs 2.5 lakh to Rs 5 lakh. However, in the election year the government was facing a legal dilemma: how to implement it without violating the conventions of an interim budget just ahead of Lok Sabha elections. A change in the tax rate for next financial year would amount to encroaching upon the taxation rights of the next government.
In order to overcome this legal hurdle, finance minister Piyush Goyal did not propose any changes in the tax slabs for the financial year 2019-20. For individual tax payers, the tax slabs for FY 2019-20 have been retained at the same level of current financial year.
FM made two changes in section 87A of Income Tax Act
Finance minister Piyush Goyal decided to amend the section 87-A of Income Tax Act to increase the existing rebate from Rs 2,500 to Rs 12,500, an amount equal to the total tax liability of individuals having a taxable income of Rs five lakh as per the existing tax slabs. And he also increased the ceiling from Rs 3.5 lakh to Rs 5 lakh for applying this rebate.
The clause 8 of Finance Bill, 2019 tabled by finance minister Piyush Goyal in the Lok Sabha today seeks to amend the section 87A of the Income-tax Act to provide these two reliefs to individual taxpayers. It enabled the NDA government to fulfill the long pending demand of middle class without breaking the convention of an election year budget.