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Budget 2017: Income up to Rs 5 lakh per year may get tax rebate

Budget 2017 promises to be a big bonanza for lower income groups as the Narendra Modi-led government gets set to provide big tax relief to what is the largest grouping of taxpayers in India.

Sources in the government say that the Budget may actually double the tax rebate from Rs 5,000 to Rs 10,000 under Section 87A of the Income Tax Act for those earning Rs 5 lakh a year.

What does this mean?

It means that the basic exemption limit, if this is actually implemented by the government, will rise for this income group from Rs 2.5 to Rs 3.5 lakh. And if the government does provide this rebate it will be the third progressive change under Section 87A of the Income Tax Act.

How will this work?

If the government’s decision does come into effect, it can have many implications for the less well off. Consider this. Currently, a taxpayer earning Rs 4 lakh is exempted from paying tax on Rs 2.5 lakh of his income; hence, he pays tax only for the rest of the amount—Rs 1.5 lakh.

This Rs 1.5 lakh is taxed at the rate of 10 per cent, which comes to Rs 15,000. Now if this proposal finds its way into the Budget, scheduled to be presented on February 1, there will now be a further tax rebate of Rs 5,000. So now such taxpayers will now only have to pay Rs 10,000 as tax over Rs 1.5 lakh income, instead of Rs 15,000.

The rebate is likely to be equal to the amount of income tax payable on the total income for any assessment year or Rs 10,000—whichever is less.

What about those earning Rs 5 lakh and above

It’s not just those who earn Rs 5 lakh a year who can benefit from the government’s proposed scheme. For instance, if your annual gross total income is Rs 6,80,000 even then you can avail tax rebate benefit. Here’s how. Suppose you have deposited 1.5 lakh in PPF, paid Rs 25,000 as health insurance premium and earned Rs 10,000 bank deposit interest. Then your total income will be Rs 4,95,000 (Rs 6,80,000 minus 1.5 lakh minus Rs 25,000 minus 10,000) making you eligible for the government scheme should it happen. And you will get the same benefit described above.

Clearly, if this measure comes into place, there will be a lot of people from lower income groups who will be celebrating.