If you earn up to Rs. 65,000 a month or Rs. 7.75 lakhs a year, you no longer have to pay any tax. All you have to do is make the right tax-saving investments, and you can save Rs. 13,000 in income tax. This is a major tax reform that is expected to benefit the salaried class in the next 12 months and increase disposable income.
The Budget for Financial Year 2019-20 was presented by the acting Finance Minister, Mr. Piyush Goyal. As with other budgets, it was met with approval and criticism. Critics believe the Budget made some populist measures keeping the May 2019 elections in mind. However, salaried people across the country were happy with the changes given by Budget 2019-20.
The acting FM brought cheer to the middle class by giving tax exemptions to an income of Rs. 7.75 lakhs per annum. In other words, individuals receiving a salary of up to Rs. 7.75 lakhs per annum do not have to pay any tax on their income if they make sufficient investments.
How To Save Tax Completely On Income Of 7.75 Lakhs?
The tax slabs have not changed at all. But the rebate available under Sec 87A has been raised from Rs. 3.5 lakhs to 5 lakhs and the tax rebate amount stands at Rs. 12,500. In brief, anyone who receives a salary of Rs. 500,000 has to pay no income tax even if they have not invested in any tax saving instrument/s.
Let us take a look at the income of Mr. Arun, who earns a gross income of Rs. 7.75 lakhs in FY 2019-20 including salary and interest on fixed deposit.
- From Rs. 7.75 lakhs he can claim a standard deduction of Rs. 50,000. This would bring his income down to Rs. 7.25 lakhs.
- He can invest Rs. 1.5 lakhs in various Sec 80C tax saving instruments such as National Savings Certificate (NSC), equity-linked savings schemes (ELSS), Public Provident Fund (PPF) or FDs. His taxable income now stands at Rs. 5.75 lakhs and is very close to the Rs. 5 lakhs mark mentioned above.
- Arun can contribute to National Pension Scheme Rs. 50,000 under Sec 80CCD(1B).
- Lastly, he can subtract his medical insurance premium of Rs. 25,000 with the help of Sec 80D. The investment now brings his income down to Rs. 5 lakhs.
It is easier to understand as a table.
| Mr. Arun’s Tax Calculation | FY 2019-20 | Comment |
| Gross Salary Income | 7,75,000 | |
| Less: Standard Deduction | (50,000) | Up from 40,000 till FY 2018-19 |
| Net Salary Income | 7,25,000 | |
| Deduction under 80C | (1,50,000) | You can get anything between 6-8% interest on fixed deposit. |
| Deduction under 80CCD(1B) | (50,000) | |
| Deduction under 80D | (25,000) | Can be a total of 75,000 if he is also paying for his senior citizen parents |
| Taxable Income | 5,00,000 | |
| Tax at 20% | 12,500 | Up from 2,500 till FY 2018-19 |
| Rebate under Sec 87A | (12,500) | |
| Net Tax Payable | Nil |
Conclusion
The key point here is that by simply tweaking a rule and raising the Sec 87A exemption to Rs 12,500 it has been possible to make an income of up to nearly Rs. 7.75 lakhs completely tax-free. Fixed deposit rates in India have fallen recently, and this will to some extent, alleviate the loss.
According to critics, it is not a practical measure as it means someone who earns Rs. 7.75 lakhs will have to save at least Rs. 2 lakhs per annum. Most people earning those salaries are single-income households and managing day-to-day expenditures makes it difficult to plan the savings.
However, most experts are of the opinion that it is an excellent measure to promote financial well-being among the middle class and a step in the right direction.
