How to save tax if you are earning up to 6 Lakh in a Financial year ? – Easy Calculation
In the Budget India 2019, the Finance Minister Mr. Piyush Goyal announced that there is 100 percent or Full Tax Rebate in Income tax for those earning up to Rs. 5 Lakh in a Financial Year. One should note that there is not an exemption of tax up to 5 Lakh rupees, but it is a Tax Rebate.
If an Individual earns Rs. 5 Lakh per annum in a 2019-20 Fiscal year, his income tax rate will be 5 percent. At 5 percent rate, he should pay the tax amount of Rs. 12,500 plus other surcharges. It will be deducted as TDS(Tax deducted at source) by the Employer and then the employer will pay this tax to the Income Tax Department.
So, what is the full tax rebate for those earning up to 5 Lakh rupees ? When an individual is file his Income Tax returns in the Assessment year (2020-21), the TDS amount of Rs. 12,500/- deducted by the Employer, will get refunded to the Individual’s account. It is referred as the Full Tax Rebate.
Earlier, for the Financial year 2018-19 the Tax rebate was Rs. 2500/- for those earning up to 3.5 Lakh rupees in a Financial year. And now it was changed to Rs. 12,500/- for the Financial year 2019-20. The Tax rebate comes under Section 87A of Income Tax Act.
Apart from the tax rebate, one can also get benefit from the Income Tax Deductions and exemptions like u/s 80C, 80D, 80E, 80G and so on. It is important to note, an individual who get benefits from the above said Tax exemptions is required to keep the related documents. Making tax deductions and exemptions without getting invested on this said section will cause trouble like Income Tax Notices in the near future.
If an Individual earns Rs. 6 Lakh in a 2019-20 Financial year, then he can also save the tax or even get full tax exemption. There is a Standard deduction amount of Rs. 50,000 for the AY2020-21, which is 40,000 rupees in the AY2019-20.
- Total Income – RS. 6 Lakh
- Standard Deduction – Rs. 50,000/-
- Total Income – Standard Deduction – Tax Deduction & Exemption = Taxable Income
- Rs. 6,00,000 – Rs. 50,000 – Rs. 50,000/-(If invested u/s 80C) = Rs. 5,00,000/-
- Rs. 5,00,000 – Rs.2,50,000 (Up to Rs. 2.5 Lakh – No Tax) = Rs. 2,50,000/-
- Net Taxable Income is Rs. 2,50,000/-
- 5% Tax rate applicable for the above Net Taxable Income of Rs. 2,50,000/- = Rs. 12,500/- plus surcharge (2,50,000 X 5%)
After filing of Income Tax returns in the Assessment year 2020-21, he can get the full tax rebate of Rs. 12,500/- including Surcharge and Interest paid.
This is how the Tax rebate works and get benefited from the recent announcement of Budget 2019. One can also avail Tax exemption of Rs. 1,50,000/- under section 80C.
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