The Government's announcement of zero tax for all inpiduals - salaried, self-employed, pensioners, small business and traders - who have a taxable income of up to Rs 5 lakh will incentivise inpiduals with gross income of even around Rs 10 lakh to visit their HR and chartered accountants to make the best use of the deductions available. Goal: to bring taxable income under Rs 5 lakh.
While it does not benefit those with taxable income above Rs 5 lakh, Finance Minister Piyush Goyal, speaking to the media, did suggest that there may be more tax relief in the offing when the full Budget is presented in July.
"I had the constraint of this being an interim Budget. However, there were many things which could not have waited for the final Budget, particularly relief for the small taxpayer which I have passed on. The rest is for the then Finance Minister to decide in July 2019," Goyal said.
While taxpayers can claim deductions of up to Rs 1.5 lakh by investing in instruments such as Provident Fund, tax-saving mutual funds, life insurance, term deposits among others under Section 80C, another Rs 2 lakh of deduction can be claimed on interest component of the home loan EMI in a year.
If Rs 75,000 deduction is available on medical insurance premium (for self, spouse, children and parents), another Rs 50,000 can be claimed on contribution towards National Pension Scheme. Besides, Rs 50,000 is also available as standard deduction and one can claim deduction on the interest component of the education loan EMI, paid during the year.
Thus the deductions available easily cross Rs 5.25 lakh mark and so inpiduals with gross income of around Rs 10.25 lakh would also end paying zero tax if they make use of the deductions.
While tax-payers will have to work out with their chartered accountants and HR to save taxes amounting to Rs 10,000 and that may finally get used for consumption providing a boost to the economy, financial planners say there may be another effect.
Express Explained: In election year, what is the politics and economics of the budget?
"This will not only push consumption in the economy but will also nudge inpiduals to develop healthy savings behaviour," said Vishal Dhawan, founder and CEO, Plan Ahead Wealth Advisors. Inpiduals will try to invest in a way that it brings down their taxable income.
While others with higher taxable income have not seen much benefit coming their way, Dhawan said they may be glad for now to see that there has been no addition to their existing tax burden for now.
Two moves that could benefit all taxpayers is increase in standard deduction limit to Rs 50,000 and increase in TDS threshold on interest earned on bank/post office deposits to Rs 40,000. The former works out to an annual benefit of about Rs 3000 for those with taxable income of above Rs 10 lakh.