Has zero percent income tax slab increased to 5 lakh or not?

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What is the zero percent income tax slab now? Is it 2.5L or is it 5 lakh? Is the government right to claim the zero percent income tax slab has now increased to 5 lakh? There has been resentment and anger about the interim budget proposals presented on 1st Feb 2019, naturally by those earning over 5 lakhs a year! Those annoying messages about how one can reduce income tax to zero are again doing the rounds. Let try to find out the answers to these questions.

It is easy to understand the ruling if we restrict ourselves to the budget speech and finance bill – both of which are available these days within an hour after the finance minister has concluded his speech. Yesterday we some examples of how the revised Tax Rebate Under Section 87A (FY 2019-2020)  works and then a video with a calculator.

What is the zero percent income tax slab now?  (From April 1st 2019)

It is five lakh. If the gross income of the tax payer is five lakh or less, the tax is nil, because the revised 87A rebate up to a maximum of 12,500 (before cess) will apply as shown below.

zero percent tax slab illustration

Is the government right to claim the zero percent income tax slab has now increased to 5 lakh?

Yes, they are. The tax slabs may not have changed, but this is true as the rebate will by default apply to anyone with an gross income less than or equal to five lakh.

Should I have to pay tax if my gross income is above five lakh?

Depends. If because of all eligible and legal tax deductions, you can reduce your taxable income to 5 lakhs or less, then you do not have to pay tax as shown below.

Tax is zero if the net taxable income is less than 5 lakh

If my net taxable income is even one Rupee above five lakh, the rebate does not apply. How is this fair?

To get brownie points with the reader it is easy to yes, this is not fair. However, the rebate is hardly new. This is the third such rebate offered. First it was Rs. 5000, then reduce to Rs. 2500 and now enhanced to Rs. 12,500.

Section 87A rebate does not apply if the net income is even one rupee above five lakhs

All such rebates will see a sudden jump in taxable income unlike a change in tax slab. Fair or unfair has nothing to do with it. The government is trying to balance its revenue and vote bank. They do not have the resources to afford an outright change in tax slabs

Is there no benefit for those in 20% and 30% slabs?

No. Again I have two choices here. I can say: the honest tax payers are not being rewarded enough and write something that most people would agree or I could ask,  why should there be a benefit. Or, why are we expecting sops? Is that what a person who wants to be rich would do?

The give-me-more syndrome can provide momentary pleasure, the same as this momentary anger. A budget cannot really change our lives too much. It is primarily a PR event.

It would help if we understood what a (tax) sop means and focus on real budget-independent priorities – making more money and/or spending less and investing more

a thing of no great value given or done as a concession to appease someone whose main concerns or demands are not being met. – Google baba




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About the Author M Pattabiraman author of freefincal.comM. Pattabiraman is the co-author of two books: You can be rich too with goal based investing and Gamechanger. “Pattu” as he is popularly known, publishes unbiased, promotion-free research, analysis and holistic money management advice. Freefincal serves more than one million readers a year with numbers based analysis on topical issues and has more than a 100 free calculators on different aspects of insurance and investment analysis, including a robo advisory template for use by beginners. Contact information: freefincal {at} Gmail {dot} com He conducts free money management sessions for corporates (see details below). Previous engagements include World Bank, RBI, BHEL, Asian Paints.

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  1. Mr. Pattu, I couldn’t have agreed with you more. I just fail to understand why we Indians feel that sops and rebates are our birth right, instead of honestly paying our taxes and help in nation building. Of course, our government also should take blame here for encouraging such people. But then, it seems like a vicious circle.

  2. Well, a democratic govt is by the people of the people for the people. So it’s natural people expect something in the form of tax benefits every year. It certainly doesn’t make sense to help 3 criteria people outside taxation.
    The result would probably be higher taxes on the people above them which might come in the June budget.
    Meanwhile for the gentleman who commented every one need to pay his taxes honestly and help nation building, does our government build nation by throwing money at Air India, public sector banks, etc?
    Let them show a real intent of spending our tax money benefiting people, then we can talk about nation building.

    1. What is the rational behind providing pension to MPs MLAs for serving 5 year term? Whether education is free? Medical facilities are upto mark in Govt hospital and free? Why toll is charged when travelling on roads? Instead of expanding tax net with a reasonable tax rate, putting pressure on limited number of tax payers is not acceptable. Apart from this average 25% IT, you will have to a plenty indirectly through GST, Taxes to local bodies, fuel etc Is it justifiable? Instead of giving cash to farmers, procure their products directly at higher prices.. having land less than 2 hectares is not the right criteria and the money will be go to wrong hands with bogus documents.. Any party spending public money for garnering votes is unfair.. It is cash for vote in legal way and have long term effect on forthcoming budgets too..

  3. So those with less than 5 lacs p.a pay no tax, but at what rate will they pax tax on interest beyond Rs 50,000 on say a FD?

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