One of the key announcements from Interim Budget 2019 was the increase the in the TAX REBATE (under Section 87A) to Rs.12,500 for Individuals with income up to Rs.5 lakhs. 


This has certainly led to confusion that all Individuals will get a tax benefit on their income upto Rs.5 Lakhs. Unfortunately that is not the case.


You only get benefit of the tax rebate if your Net Total Income after deductions is less than or equal to Rs. 5 lakhs. 


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First lets understand that there are no changes in the Tax Slabs and Rates for AY 2020-21

Income Tax Slab for FY 2019-20 (AY 2020-21):


Net Income 


Tax Rate for Resident   Individuals (Less than 60 Years) 


Tax Rate for Resident Senior   Citizen (More than 60 Years but less than 80 Years)

Tax Rate for Resident Senior   Citizen (More than 80 Years) 


Upto Rs.2.5 Lakhs

Nil

Nil

Nil

Rs.2.5Lakhs– Rs.3Lakhs

5%

Nil

Nil

Rs.3Lakhs- Rs.5Lakhs

5%

5%

Nil

Rs.5Lakhs- Rs.10Lakhs

20%

20%

20%

Above Rs.10Lakhs

30%

30%

30%

 

* Health & Education Cess of 4% 

* Surcharge will be levied at 10% on high taxpayers with income between Rs.50 Lakhs and Rs.1 Crore. The rate of surcharge for super high taxpayers, with income above Rs.1 Crore will remain same at 15%.


Now, Let’s understand the implication of the Tax Rebate announcement with an illustration: 

Mr. Dravid has certain heads of income and has made investments under Section 80. Let us understand how his tax liability pre-budget and post-budget 2019 (assuming age < 60 years):


Scenario-1: Net Income between Rs.5 Lakh- Rs. 6 Lakh.


Income Heads

Pre-Budget 2019 

(AY 19-20)

Post-Budget 2019 

(AY 20-21)



 (in Rs.)

  (in Rs.)


Income From Salary

7,00,000

7,00,000

Less: Standard Deductions

40,000    
50,000
Income From Salary chargeable to tax

6,60,000    
6,50,000    
Income From other sources





Bank Interest

10,000

10,000

Gross Total Income

6,70,000

6,60,000

Less: Deductions under section 80C

1,50,000
1,50,000
          Deductions under section 80TTA

  10,000    

10,000
Net Total Income

5,10,000

5,00,000

Income Tax Calculation

 

 

Basic Exemption Limit:

For AY 2019-20 = Rs.2,50,000
For AY 2020-21 = Rs. 2,50,000



2,50,000

2,50,000

Tax at slab rates

14,500

12,500

Less: Rebate under Section 87A

NIL
12,500
Add: Education Cess at 4%

580

-    

Tax Payable 

15,080

NIL













































Therefore, Tax Rebate of Rs.12,500 will be given to all taxpayers with income upto Rs. 5 lakhs. 


Scenario-2: Net Income between Rs.6 Lakh- Rs. 10 Lakh.


Income Heads

Pre-Budget 2019 (AY 19-20)

Post-Budget 2019 (AY 20-21)




 (in Rs.)

  (in Rs.)


Income From Salary

8,50,000

8,50,000

Less: Standard Deductions

40,000    
50,000
Income From Salary chargeable to tax

8,10,000    
8,00,000    
Income From other sources





Bank Interest

10,000

10,000

Gross Total Income

8,20,000

8,10,000

Less: Deductions under section 80C

1,50,000
1,50,000
          Deductions under section 80TTA

  10,000    

10,000
Net Total Income

6,60,000

6,50,000

Income Tax Calculation

 

 

Basic Exemption Limit:

For AY 2019-20 = Rs.2,50,000
For AY 2020-21 = Rs. 2,50,000



2,50,000

2,50,000

Tax at slab rates

44,500

42,500

Less: Rebate under Section 87A

NIL
NIL
Add: Education Cess at 4%

1780

1700

Total Tax Payable 

46,280

44,200

   

As you can see in the above scenario the Benefit of Tax Rebate under Section 87A is not allowed if you Net Total Income is above Rs. 5lakhs.


Scenario-3 Now Lets discuss the tax implications on Mr.Dravid's taxability with and without Tax Planning:


Income Heads


Without Tax Planning 

Post-Budget 2019 (AY 20-21)

With Tax Planning

Post-Budget 2019 (AY 20-21)






 (in Rs.)

  (in Rs.)


Income From Salary


9,75,000

9,75,000

Less: Standard Deductions


40,000    

50,000

Income From Salary chargeable to tax


9,35,000   

9,25,000   

Income From House Property





Interest Paid on Housing Loan for Self Occupied House Property (u/s 24b)
-2,00,000
-2,00,000
Income From Other Sources








Bank Interest

10,000

10,000

Gross Total Income


7,45,000

7,35,000

Less: Deductions under section 80C: Maximum up to Rs.1,50,000
  • Life Insurance Premium (LIC) - Rs.35,000
  • School Education Fees for children's - Rs.15,000
  • Home Loan Principal Repayment - Rs. 1,40,000
  • Investment in National Saving Certificate (NSC) - Rs.20,000

No Tax Savings Investment
1,50,000

          Deductions under section 80CCD(1B): Additional NPS 
NIL
50,000
          Deductions under section 80TTA: Savings Bank Interest


  10,000    

10,000

          Deductions under section 80D: Medical Insurance Premium Paid for self, spouse and children's.

NIL
25,000

Net Total Income


7,35,000

5,00,000

Income Tax Calculation


 

 

Basic Exemption Limit:

For AY 2019-20 = Rs.2,50,000
For AY 2020-21 = Rs. 2,50,000




2,50,000

2,50,000

Tax at slab rates


59,500

12,500

Less: Rebate under Section 87A


NIL

12,500


Add: Education Cess at 4%


2,380

NIL

Total Tax Payable 

61,880

NIL







































































Therefore, you can see Mr. Dravid has to pay Rs.61,880 in AY 2020-21 if he does not plan his tax saving investments and where Mr. Dravid plans for a proper tax saving investments efficiently for FY 2019-20 (AY 2020-21), he can save his tax liability and is not required to pay any tax upto a taxable income of Rs.5,00,000.