- Sneha Lad
Saturday, April 13, 2019
'Tax or No Tax on Income of 5 lakhs – The Twin Dilemma' - A Budget 2019 Amendment
'Tax or No Tax on Income of 5 lakhs – The Twin Dilemma'
-
A Budget 2019 Amendment
One of the most
misconstrued direct tax amendments that sprung from the 2019 Budget speech of
the Interim Finance Minister Piyush Goyal was the benefit of no tax payment for
people on total income up to Rupees five lakhs. The highly favored amendment
actually pertained to providing a full tax rebate to people whose total income
was within Rupees five lakhs. However, a misconceived notion that followed the
amendment was that income tax was exempted on income up to Rupees five lakhs.
Not only laymen of the taxation field but various tax forums were also
responsible for the creation of confusion in the society.
What
is a Tax Rebate? How is it different from Tax exemption?
A tax rebate is a
deduction from the total taxes imposed on the individual taxpayers. The
provisions for claiming tax rebate are provided for in Section 87A of the
Income Tax Act, 1961.
Accordingly, tax rebate
would be applicable only in the following cases:
1.
A resident individual taxpayer; and
2.
Total income of such taxpayer does not
exceed Rupees five lakhs in a year.
The maximum amount of
tax rebate that can be provided to an individual taxpayer would be lower of the
following:
1.
A total amount of tax payable; or
2.
Rupees Twelve Thousand Five Hundred.
Difference
between a Tax rebate and Tax Exemption
Tax rebate refers to a
deduction from the total taxes payable after imposition of such taxes whereas
tax exemption refers to the exemption from the imposition of the taxes itself.
Also, the availability of tax rebate is always conditional whereas tax
exemption is usually not on a conditional basis.
Clarification
of the Controversy
Individual taxpayers,
whose total income does not exceed Rupees five lakhs during a year, would be
allowed full tax rebate. Thus, such people would not be liable for payment of
any tax on their income and effectively subjected to a nil rate of tax. However,
people with total income exceeding Rupees five lakhs would be required to pay
income tax on their income below Rupees five lakhs as well as per the slab
rates applicable to them. Such category of people would not be, in anyway,
benefitted by the amendment.
Need
for & Impact of the Amendment
The intention behind
such an amendment was to provide relief to the middle class without extending
the benefit to the people falling in the high-class income category. The middle
class income categories have hardly any income left after slicing the
investments and tax payments from their total income. The amendment was also a
compensatory step for the last year’s budget which was highly criticized for
being ignorant towards providing any significant sops for the middle class.
In Budget 2017, the tax
rates for people within the five lakhs income category were slashed from 10% to
5% which provided them an effective saving in the income tax up to Rupees
Twelve Thousand Five Hundred. With no
substantial benefit targeted towards the people of such income category in the
2018 Budget, the 2019 amendment of increasing the quantum of rebate from Rs.
2,500/- to Rs. 12,500/- comes as a breath of fresh air for them. This would not
only increase the purchasing power in their hands but also lead to increase in
their standard of living in the long run and ultimately would aid in bridging
the gap between the people belonging to various classes of income category.
Conclusion
India follows the
policy of progressive taxation and hence, relieving the low & middle class income
category from the tax burden was much needed in today’s date. This was suitably
taken care of by the 2019 budget amendment without affecting the taxation
policy of other categories of taxpayers.
- Sneha Lad
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