Finance Minister Piyush Goel has chosen to put extra money in the pockets of the middle class in an election year. Tax will be payable only for interest income of above Rs 40,000 per year on bank fixed deposits. The government has also increased TDS threshold on deduction of tax on rent, which will benefit the salaried people.
A person who earns up to Rs 6.5 lakh per annum can effectively bring down the next taxable income to Rs 5 lakh with proper investments and escape paying any tax, according to experts.
Shalini Jain, Partner, EY India: "Anyone with net taxable income up to Rs 5 lakh will not be paying any taxes". Earlier, if your taxable income was up to Rs 3.5 lakh, you got a tax rebate of Rs 2,500.
"Individual taxpayers having taxable annual income up to Rs 5 lakh will get full tax rebate and therefore will not be required to pay any income tax", Goyal said, while presenting the budget in the Lok Sabha. So, only those whose total income does not exceed Rs 5 lakh will be eligible for the benefit.
The existing income-tax slabs for individuals below 60 years are: up to Rs 2.5 lakh, no tax; Rs 2.5 lakh to Rs 5 lakh, 5 per cent; Rs 5 lakh to Rs 10 lakh, 20 per cent; and above Rs 10 lakh, 30 per cent.
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The saving for individuals of this slab would amount to Rs 12,500 per year, experts say. Until now, the income tax exemption was up to Rs 2.5 lakh.
The government's major earnings will come from tax revenue while it will spend the most on devolution to states.
The tax Deducted at Source (TDS) threshold has been increased to Rs 40,000 from Rs 10,000. "With increase tax rebate, it is expected that surplus cash will be available in the hands of the consumers thus resulting in a slight off-take of consumption", said Jimmy Patel, MD & CEO, Quantum Mutual fund. This is expected to provide a tax benefit of Rs 18,500 crore to over 3 crore middle-class taxpayers, including salaried class, self-employed, small businesses, small traders, pensioners and senior citizens.
The Income Tax department will move towards faceless assessment and verification of returns, Goyal said Friday.