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Nil Tax liability benefit goes beyond income of Rs. 5 Lakh
Politicians have a habit of saying more delivering less. However, the reverse has happened in this year interim budget.
Finance Minister has failed to take the full advantage by mentioning the fact that no tax is payable if income doesn’t not exceed Rs. 5 Lakh. Rather, for a common taxpayer, no tax would be payable if income is up to Rs. 7 Lakh or even more than that.
Section 87A refers to Total Income and not Gross Total Income. Total income is arrived at after deduction under chapter VIA which includes deduction u/s 80C (LIF/PPF/NSC etc), 80D (Mediclaim), 80E (Education loan interest) etc. Normally, almost every individual taxpayer easily invests Rs. 1.50 Lakh towards LIC/PPF/NSC etc and also towards NPS which additionally offers deduction of Rs. 50,000/ U/s 80CCD(1B). In short, total deduction normally and mostly claimed by individual taxpayer is of Rs. 2 Lakh. As a result of this, individual earning income up to Rs. 7 Lakh is not liable to pay any tax. This figure of Rs. 7 Lakh can further be enhanced by deduction U/s 80D towards mediclaim, 80E towards education loan, interest deduction of housing loan up to Rs 2 Lakh whereby even person with income up to Rs. 10 Lakh can have Nil Tax liability.
The biggest disadvantage with this provision is that the person whose income exceeds Rs. 5 Lakh are not going to be benefitted even by a single rupee. The increase in the basic exemption limit could have benefited all classes of taxpayer and would have carried the risk of reducing the taxpayer base.
By granting the tax rebate u/s 87A, FM is able to retain the taxpayers base and also able to restrict the benefit to the select middle class of taxpayer. Person with income exceeding Rs. 5 Lakh will have zero tax benefit by virtue of section 87A.