The hike in tax rebate and standard deduction along with the existing provisions of deductions make it possible for employees, who have bought new home on loan, having annual income of over Rs 10 lakh end up paying no tax.
While proposals are made to increase standard deduction from Rs 40,000 to Rs 50,000, the rebate on tax payable to be increased from Rs 2,500 to Rs 12,500, thus increasing the eligible limit of taxable income for rebate from Rs 3.5 lakah to Rs 5 lakh.
Apart from standard deduction and tax rebate, there are no changes in other benefits and tax slabs.
So, there will be nil tax up to taxable income of Rs 2.5 lakh; 5 per cent tax on taxable income from Rs 2.5 lakh to Rs 5 lakh; 20 per cent tax on taxable income between Rs 5 lakh and Rs 10 lakh; and 30 per cent tax on taxable income above Rs 10 lakh.
Other benefits, like deductions up to Rs 2 lakh on home loan interest, up to Rs 1.5 lakh u/s 80C on repayment of home loan and contributions to PF, PPF, Sukanya Samriddhi, NSC, insurance, ULIP, ELSS etc, up to Rs 50,000 for voluntary contribution to NPS and up to Rs 75,000 u/s 80D for health insurance premium up to Rs 25,000 for normal persons and up to Rs 50,000 for senior citizens.
Take example of Sameer, who is getting annual salary of Rs 10,25,000. He has bought a house by taking home loan and paying monthly EMI of about Rs 25,000. Out of the yearly loan repayment of about Rs 3,00,000, the interest part is about Rs 2,40,000 and principal amount is about Rs 60,000. He also invests Rs 1,50,000 in PPF and Rs 50,000 in NPS and has also taken health insurance for his family and parents with premium of Rs 30,000 and Rs 55,000 respectively.
Assuming that Sameer has no other income, let’s calculate his taxable salary.
As Sameer’s taxable income is Rs 5 lakh, he will get rebate on his entire tax payable of Rs 12,500 and hence would end up paying no tax.
In case of salaried persons with no home loans, there will be full rebate on tax on income up to Rs 8,25,000.
Some extra income may also be waived off through donations u/s 80G to bring the taxable income down to the threshold limit of Rs 5 lakh.