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:
Income | Tax Slab |
0 to 4,00,000 | 0% |
4,00,001 to 8,00,000 | 5% |
8,00,001 to 12,00,000 | 10% |
12,00,001 to 16,00,000 | 15% |
16,00,001 to 20,00,000 | 20% |
20,00,001 to 24,00,000 | 25% |
24,00,001 and above | 30% |
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:
- It is not entirely accurate to say that up to Rs.12,75,000, no taxes are payable.
- The composition of income matters.
- If the income includes components taxed at special rates (like capital gains), taxes will be applicable.
- While special rates are designed to benefit taxpayers, in scenarios like the above, they may not always be advantageous.