In a major boost to the salaried class, interim Finance Minister Piyush Goyal announced during the Interim Budget that all those earning up to Rs 5 lakh a year will not have to pay income tax. Until now, the income tax exemption was up to Rs 2.5 lakh. This has now been doubled. This, the FM said, will benefit nearly 3 crore middle-class income earners.
All those earning up to Rs 5 lakh a year will now receive a full tax rebate. This ensures that there would be a saving of Rs 12,500 for taxpayers who earn less than Rs 5 lakh. Additionally, Piyush Goyal also announced that those having a gross income of up to Rs 6.5 lakh a year can get full tax rebate if they make investments in provident funds and other similar investments.
As per the proposal, those who earn more than Rs 5 lakh per annum and less than Rs 10 lakh will have to pay Rs 12,500 plus 20% of the amount by which income exceeds Rs 5 lakh. When the total income exceeds Rs 10 lakh, they will have to pay Rs 1,12,500 plus 30% of the amount by which income exceeds Rs 10 lakh.
As per the current tax slabs, those earning between Rs 2.5-5 lakh a year had to pay 5% Income Tax, Rs 5-10 lakh a year at 20% and over Rs 10 Lakh a year at 30%.
The tax Deducted at Source (TDS) threshold has been increased to Rs 40,000 from Rs 10,000. Piyush Goyal also announced that all interest income above Rs 40,000 from bank deposits will now get taxed as against the earlier Rs 10,000.
Standard deduction, too, has also been raised to Rs 50,000 from Rs 40,000. The standard deduction is a fixed amount of deduction, which can be reduced by salaried taxpayers, from their gross salary. This was introduced last year after being abolished in the Finance Act 2005. This deduction replaced the existing transport allowance of Rs 1600 per month and medical allowance of Rs 15,000 per annum last year.
There will also be no tax on notional rent on the second self-occupied house and no TDS on house rent up to Rs 2.4 lakh.
This can be seen as a major populist move by the Modi-led NDA government to please the middle-class salaried population in India as the country gears up for general elections in a few months.