Middle-income earners have welcomed the income tax proposals that stand-in finance minister Piyush Goyal presented in the final budget of the Narendra Modi government for 2019-20 financial year.
Though the income-tax slabs have remained unchanged, now individuals with a net taxable income of up to Rs 5 lakh are exempt from paying any income tax for this fiscal.
The saving for individuals of this slab would amount to Rs 12,500 per year, experts say.
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.
The budget has also raised the standard deduction to Rs 50,000 from Rs 40,000,
People earning larger incomes do not benefit from the changes to the tax rules because there is no change in the slabs, but only a rebate, according to experts.
Those earning less than Rs 10 lakh can still benefit because of the increase in the limit of exemption available on house rent and children's tuition fees. The threshold for tax deduction at source on rent has gone up to Rs 2.4 lakh from current Rs 1.8 lakh.
Interest income earned up to Rs 40,000 will not attract any tax, Goyal said.
The government hopes to simplify tax interface further to increase collection and return filings. Goyal said the tax scrutiny would be done electronically eliminating any interaction between the tax authority and the taxpayer. "Within nearly two years, all assessment and verification of IT return will be done electronically by an anonymous tax system without any intervention by officials. All income tax returns to be processed within 24 hours and refunds to be issued simultaneously," he said.
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.
For senior citizens (aged 60 years or above but less than 80 years), income up to Rs 3 lakh comes free of tax. Income from Rs 3 lakh to Rs 5 lakh is taxed at 5 per cent, and an income from Rs 5 lakh to Rs 10 lakh at 20 per cent and above Rs 10 lakh at 30 per cent.
The minister said that the direct tax collection has increased to Rs12 lakh crore in the 2018-19 financial year from Rs 6.38 lakh crore in 2013-14. He said the tax base was also expanded to Rs 6.85 crore from Rs 3.79 crore.
For senior citizens aged 80 years and above, income up to Rs 5 lakh was exempt from tax. Income from Rs 5 lakh to Rs 10 lakh was taxed at 20 per cent and above Rs 10 lakh was at 30 per cent.
The interim budget leaves unchanged the cess on income tax that Finance Minister Arun Jaitley raised to 4 per cent from 3 per cent in the FY2019 budget.
The tax proposals have evinced mixed reaction from tax experts.
Shalini Jain, Partner, EY India: "Anyone with net taxable income up to Rs 5 lakh will not be paying any taxes. However, anyone with a net taxable income above Rs 5 lakh will not be able to avail this tax benefit and only get the standard deduction benefit."