Union Budget Part I – Proposals Related to Individual Taxation

You might have already come across plenty of information on the budget proposals. Still, I thought of writing a series of short notes. Let me start with the simplest one.

Proposal #1 – Basic Exemption Limit Raised Under the New Tax Regime (NTR) to Rs.4,00,000

Scenario 1: Should Mr. Ramesh File an Income Tax Return?

Mr. Ramesh earns a salary income of Rs.6,00,000. Does he need to file an income tax return?

Yes. He has to file an income tax return.

Learning #1 – Basic Exemption Limit and filing of tax return
Anyone with income over Rs.4,00,000 must file an income tax return, irrespective of whether they have any tax liability.

Clarification:

People are saying that up to Rs.12,75,000, there are no taxes. But when we see the tax slabs, it shows:

IncomeTax Slab
0 to 4,00,0000%
4,00,001 to 8,00,0005%
8,00,001 to 12,00,00010%
12,00,001 to 16,00,00015%
16,00,001 to 20,00,00020%
20,00,001 to 24,00,00025%
24,00,001 and above30%

Even though there is a tax slab for income over Rs.4,00,000, the government has provided relief under Section 87A.

Scenario 2: Should Mr. Ranga Pay Taxes?

Mr. Ranga earns a salary of Rs.12,75,000.

Calculation:

  • Salary Income: Rs.12,75,000
  • Less: Standard Deduction (u/s 16(ia)): Rs.75,000
  • Net Salary Income: Rs.12,00,000

Tax on the Above Income:

  • 4,00,001 to 8,00,000 @ 5% = Rs.20,000
  • 8,00,001 to 12,00,000 @ 10% = Rs.40,000
  • Total Tax Payable: Rs.60,000

Learning # 2: Is Tax Payable, even though the income is more than Rs.4,00,000?

Technically, yes. But the government provides relief under Section 87A for individuals with taxable income up to Rs.12,00,000.

  • Eligible Rebate (u/s 87A): Rs.60,000
  • Net Tax Payable: Rs.0

That’s why people say there’s no tax payable for salaried employees even if their income is Rs.12,75,000.

Scenario 3: What if Mr. Ranga Receives a Pension Instead of a Salary?

Learning# 3: Yes, the same standard deduction of Rs.75,000 and the rebate of Rs.60,000 apply to pensioners as well.

Scenario 4: Mr. Vishwas Has Salary Income and Short-Term Capital Gains

Mr. Vishwas earns a salary of Rs.9,00,000 and short-term capital gains of Rs.3,50,000.

Calculation:

  • Salary Income: Rs.9,00,000
  • Less: Standard Deduction (u/s 16(ia)): Rs.75,000
  • Net Salary Income: Rs.8,25,000
  • Capital Gains: Rs.3,50,000
  • Total Taxable Income: Rs.11,75,000

Tax Calculation:

  • Tax on Salary Income (Rs.8,25,000): Rs.27,500 (as per slabs)
  • Tax on Short-Term Capital Gains (Rs.3,50,000) @ 20%: Rs.70,000

Learning # 4: Is Tax Payable even though the income is less than Rs.12,00,000?

While Section 87A provides a rebate for taxable income up to Rs.12,00,000, it is not applicable to income taxed at special rates (like short-term capital gains).

  • Rebate u/s 87A: Rs.27,500 (fully offsets the salary income tax)
  • Tax on Capital Gains: Rs.70,000
  • Add: 4% Cess: Rs.2,800
  • Total Tax Payable: Rs.72,800

To conclude, the points to Note:

  1. It is not entirely accurate to say that up to Rs.12,75,000, no taxes are payable.
  2. The composition of income matters.
  3. If the income includes components taxed at special rates (like capital gains), taxes will be applicable.
  4. While special rates are designed to benefit taxpayers, in scenarios like the above, they may not always be advantageous.
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About B E Kumar Prasad

B E Kumar Prasad
He is a Practicing Chartered Accountant in Bengaluru, India. He has 28+ years of experience in income tax, business setup, and NRI matters. He is also an Insolvency Professional, Registered Valuer (F&SA) and Social Auditor.Prasad welcomes your comments and questions. Please email him at simplifiedlaws20@gmail.com

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