So, the honorable finance minister has come out with the budget for 2019. Of all the things, the thing that matters to most of us is how much tax you’d have to pay the next year? Well, the biggest relief has come to people earning an income upto Rs. 5 Lakhs per year, as they’ll not have to pay any tax at all. However, people earning above 5 Lakhs should not be disappointed as it’s not the gross annual income which should be upto 5 Lakhs to avail the tax rebate. Instead, it’s the taxable income that should be upto 5 Lakhs to avail the tax rebate. For instance, if your gross annual income is Rs. 6 Lakhs, and you invest Rs. 1 Lakh into tax saving instruments like ELSS, PPF etc. under section 80C, your taxable income will be Rs. 5 Lakhs and you’ll not have to pay any tax. Also, the standard deduction for salaried employees has been increased from Rs. 40,000 to Rs. 50,000.
For your convenience, we have created the following tables with different income ranges to help you understand the ways you can save maximum tax. Interesting thing is, even with gross annual income of Rs. 7.5 Lakhs, you can pay 0 tax in quite a legitimate manner.
Case 1) Annual income of Rs. 5 Lakhs
Earlier, you would have needed to pay ~Rs. 12,500 as tax (without claiming any deductions). With the new budget, you’ll not need to pay any tax as a result of tax rebate even if you don't claim any deductions.
Case 2) Annual income of Rs. 7. 5 Lakhs
Earlier, you have needed to pay Rs. 15,800 as tax. By claiming Rs. 50,000 as standard deduction, investing Rs. 1.5 Lakh in ELSS, PPF and other prescribed tax saving schemes under section 80C and investing Rs. 50,000 in New Pension Scheme (NPS) which gives tax benefit under section 80C, you can claim a deduction of Rs. 2.5 Lakhs taking your taxable income to Rs. 5 Lakhs and then taking the benefit of newly introduced tax rebate. So, you pay no tax. Sweet, no? All these savings is without even considering HRA. If you have an annual income of Rs. 9 Lakhs with HRA of Rs. 1.5 Lakhs, then even that will be tax deductible and you won’t have to pay any tax even with an income of Rs. 9 Lakh per annum.
Case 3) Annual income of Rs. 12 Lakhs
With an annual income of Rs. 12 Lakhs, it’s unlikely that you will be able to take the benefit of tax rebate. However, for you the additional tax saving will come from the increase in standard deduction as mentioned in following table. Earlier you would have paid Rs. 1,08,680, but now you will be paying Rs. 1,06,600.
Hope these tables have helped you in understanding your tax liability for the financial year 2019-20. We haven’t considered other deductions like health insurance, education loan, interest payments for the sake of simplicity. However, those deductions also hold valid and you can take advantage of those to reduce your taxable income by even more.
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