The change in the limit will save middle-class individual assessees Rs 10,000 a year each
Middle-CLASS households will have a little more to spend in 2019-20 with the tax rebate (Section 87A) threshold for the levy of income tax having been raised to Rs5 lakh. The change in the limit will save middle-class individual assessees Rs10,000 a year each; the total relief, across three crore individuals, is around Rs18,500 crore.
That’s not all. Salaried individuals will now get the benefit of Rs50,000 per annum as standard deduction, higher by Rs10,000 than the earlier Rs40,000. Across three crore salary earners and pensioners, this amounts to a benefit of Rs4,700 crore.
While the additional disposable income may not seem very much, it comes at a time when inflation—especially food inflation—is very subdued. On the other hand, prices of a clutch of goods—two wheelers, for example—have gone up for various reasons.
Stand-in finance minister Piyush Goyal in his Budget speech extended the tax rebate to Rs5 lakh taxable income from Rs3.5 lakh earlier. Earlier, the rebate worked out to Rs2,500/annum for an eligible taxpayer; it would now lead to a saving of Rs12,500/ annum even as the eligibility for availing the benefit gets extended.
According to a calculation shared by EY, a person with a taxable annual income of Rs5.5 lakh would be able to save Rs15,080 with the benefit of standard deduction and the rebate.
For a taxpayer with Rs9 lakh of taxable income, the saving would be Rs2,080 as only the standard deduction benefit would apply. The calculation does not factor in any deductions under Section 80C of the Income Tax Act. “As a result, even persons having gross income up to Rs6.50 lakh may not be required to pay any income tax if they make investments in provident funds, specified savings, insurance, etc,” Goyal said.
However, some experts pointed to the possible compliance issue in filing IT returns. “The Rs5 lakh tax rebate under Section 87A may be challenging to implement. Most taxpayers can claim this rebate while filing their tax return, since only at the time of filing their tax return, they will know exactly how much total income they have earned and the Section 80 deductions they are actually claiming to become eligible for this rebate,” Archit Gupta, founder & CEO of ClearTax, said.
On the flip side, experts said that the move would ensure that the tax base would remain intact despite the sops, and easier compliance could lead to further increase in number of tax filers. “Even if the taxable income falls to below Rs5 lakh after various deductions, such taxpayers will still need to file their tax returns unless their income is below the taxable threshold of Rs2.5 lakh (Rs3 lakh for senior citizen and Rs5 lakh for super senior citizen),” Kuldip Kumar – partner and leader, personal tax, PwC said.
Goyal attributed increase in direct tax collection along with taxpayer base to reduction in tax rates along with simpler and faceless interface with tax officials. Promising further ease in filing income-tax returns (ITR), Goyal said that within the next two years, all verification and assessment of ITR selected for scrutiny will be done electronically through “anonymised back office, manned by tax experts and officials, without any personal interface between taxpayers and tax officers.”
He added that once the IT infrastructure is in place, all returns would be processed in 24 hours and refunds issued simultaneously.