EXPLAINED NATIONAL

On the income of 5 Lakh, UPA Taxed Rs 30,000 & NDA Taxes Zero

Income Tax Relief Middle Class Modi Government

In a historic move, the Interim Finance Minister Piyush Goyal has announced that no income tax will have to be paid by an individual with income up to Rs 5 lakh. In effect, an individual earning a gross salary of Rs 6.5 lakh per annum will not have to pay any tax if he/she invested in specified tax saving schemes (the deducations have already been increased to Rs. 1.5 lakh by the NDA government).

As the government fulfilled the long pending demand of exemption of Rs. 5 Lakh in income tax, let’s recall how the NDA government has brought relief in income tax liabilities for the salaried or middle-class individual taxpayers in last 5 years.

Budget 2014-2015

  • The basic tax exemption limit was hiked from Rs 2 lakh to Rs 2.5 lakh individual taxpayers below the age of 60 years.
  • Deduction limit under section 80C of the Income Tax Act was raised by Rs 50,000 to Rs. 1.5 lakh from 1 lakh under UPA government.

Budget 2015-2016

  • Additional deduction of Rs. 50,000 was introduced making National Pension Scheme (NPS) more attractive. This added to earlier hiked deduction of Rs. 1.5 lakh took the total tax-saving of Rs. 2,00,000 per fiscal.
  • The deduction limit for health insurance premium was raised from Rs 15,000 to Rs 25,000 for individual taxpayers.

Budget 2016-17

  • In relief to those taxpayers living on rent but not receiving House Rent Allowance (HRA), deduction on rent paid was raised from Rs. 24,000 to Rs. 60,000.

Budget 2017-2018

  • The tax rate for individuals in the tax bracket – Rs 2.5 lakh to Rs 5 lakh – was cut to 5 per cent from 10 per cent, offering the saving of Rs. 12,500.

Budget 2018-2019

  • This budget introduced the standard deduction of Rs. 40,000 for salaried class.

Budget 2019-2020

  • The Modi government, taking a historic decision, announced no income tax to be paid by an individual with income up to Rs 5 lakh.
  • The standard deduction has been increased to Rs. 50,000 from earlier Rs. 40,000 which was introduced by Modi government only.
How the relief reached the Salaried Class

If an individual (or salaried employee) with a taxable income of Rs. 8 Lakh calculates the tax outgo for himself under both UPA and NDA government till the last budget. Here it is.

FY 2013-14 

On the Taxable Income of Rs. 8.00 Lakhs, the tax calculation will be as follows:

First Rs. 2 Lakhs = Nil

Rs. 2 Lakhs – Rs. 5 Lakhs = Rs. 30,000 (10%)

Rs. 5 Lakhs – Rs. 8 Lakhs = Rs. 60,000 (20%)

So, the total tax will be Rs. 90,000. Also add 3% education cess on Rs. 90,000. So, the total tax outgo will be Rs. 92,700.

FY 2018-19

On the Taxable Income of Rs. 8.00 Lakhs, the tax calculation will be as follows:

First Rs. 2.5 Lakhs = Nil

Rs. 2.5 Lakhs – Rs. 5 Lakhs = Rs. 12,500 (5%)

Rs. 5 Lakhs – Rs. 8 Lakhs = Rs. 60,000 (20%)

So, the total tax will be Rs. 72,500. Also add 4% education cess on Rs. 72,500. So, the total tax outgo will be Rs. 75,400.

Therefore, on the same income, an individual was already paying Rs. 17,300 less under NDA than UPA.

FY 2019-20

In Budget 2019, going a step further, another historic decision has been taken and income tax on the individual with income up to Rs. 5 Lakh has been exempted from any tax liability. This means that an individual on the income of Rs. 5 Lakh who paid taxes of Rs 30,000 under UPA, will now pay no money as income tax under NDA.

 (Disclaimer: Above calculation is based on assumptions. The actual tax amount may vary depending upon various other individual specific factors.)