Income Tax slabs for AY 2019-2020 to change? Here's how your tax liability may sum up

Budget 2019: Several reports suggest that in the last budget of its current term, Prime Minister Narendra Modi-led Union government will raise the Income Tax slab, raising the exemption limit to Rs 5 lakh from the current Rs 2.5 lakh. This will come as a huge relief to the middle class.

In its pre-budget memorandum to the government, the Confederation of Indian Industry (CII) has recommended raising the income tax limit. Image: Pixabay

Budget 2019: Several reports suggest that in the last budget of its current term, Prime Minister Narendra Modi-led Union government will raise the Income Tax slab, raising the exemption limit to Rs 5 lakh from the current Rs 2.5 lakh. This will come as a huge relief to the middle class. In Financial Year 2018, as many as 5.43 crore Income Tax Returns were e-filed up to 31st August 2018, as per the Ministry of Finance. There are around 2.7 crore taxpayers reporting income up to Rs 3.5 lakh and about 1.5 crore assessees filing returns on income over Rs 3.5 lakh.

In its pre-budget memorandum to the government, the Confederation of Indian Industry (CII) has recommended raising the income tax limit. The CII has also urged the government to raise the limit of deduction under section 80C from Rs. 150,000 to Rs. 250,000, to provide saving opportunities to the public at large.

You may be curious to know how the reported change in income tax slab will affect you. For this, it is important to know how the income tax is calculated. To understand this, take a look at the following illustration:

But first, suppose you earned a total income of Rs 12 lakh in FY 2018-19. Also, the government doesn't change tax prescribed for other income slabs.

The tax rates prescribed for AY 2018-19 are:

If the minimum tax exemption limit is raised to Rs 5 lakh, your tax liability will be calculated as:

Payable Tax Calculation	Value in Rupees
Up to Rs 5,00,000	Nil
From Rs.5,00,001 to Rs.10,00,000 @ 20%	100,000
On remaining Rs 2,00,000 @ 30%	60,000

Total	1,60,000
Adding health and education cess @ 4%	6400
Total tax payable by You	1,66,400

Thus your total tax liability will be Rs 1,66,400. Now, compare this with the current tax prescriptions:

Payable Tax Calculation	Value in Rupees
Up to Rs 2,50,000	Nil
From Rs.2,50,001 to Rs.5,00,000 @ 5%	12,500
From Rs.5,00,001 to Rs.10,00,000 @ 20%	1,00,000
On balance Rs.2,00,000 @ 30%	60,000
Total	1,72,500
Adding health and education cess @ 4%	6900
Total tax payable by You	1,79,300

It is clear from the above that you will end up saving over Rs 13,000 in income tax if Modi government raises the income tax slab.

Apart from income tax, assessees have to pay 4% towards 'Health and Education Cess'.

A resident individual is also eligible for a rebate under Section 87A if her/his total income is not more than Rs 3.5 lakh. Such individuals are liable for a 100 per cent rebate or Rs 2500, whichever is less. This rebate applies to the total tax before the 4% Education Cess is added. This rebate is not applicable to super senior citizens as they are already fully exempted up to Rs 5 lakh.

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