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

Published: February 2, 2019 at 9:12 am

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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

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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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