No doubling of IT exemption limit, only rebate is up

New Delhi, Feb 1 (IANS) While announcing tax sops in his Interim Budget, Finance Minister Piyush Goyal has not raised the threshold exemption limit from Rs 2.5 lakh to Rs 5 lakh as is widely perceived but has only extended the benefit of rebate to those with income is up to Rs 5 lakh.

Experts say that for those with income above Rs 5 lakh, tax implications will still begin from Rs 2.5 lakh as is the case till now.

"… For the present, the existing rates of income tax will continue for 2019-20," Goyal said in his Budget speech and then went on to announce sops.

"Individual tax payers having taxable annual income upto Rs 5 lakh will get full tax rebate and therefore will not be required to pay any income tax," he said.

With specified investments and additional deductions, such as interest on home loan, education loan and other expenditures, people with gross income of Rs 6.5 lakh and more will have to pay no tax.

This gave an impression that the threshold exemption limit had gone up to Rs 5 lakh.

When Goyal was asked if a person with a net income above Rs 5 lakh will benefit from the move, he parried the query.

"We are upholding the conventions of an Interim Budget. Any changes to tax slabs will be made in the full budget that will be presented after the election," he said.

However, experts differ saying that it is not the exemption limit which has been raised but the tax rebate under Section 87A of the Income Tax Act which earlier provided a rebate of Rs 2,500 for those with net taxable income up to Rs 3.5 lakh.

What the government has simply done is increase the rebate to Rs 12,500 — the equivalent of 5 per cent tax on Rs 2.5 lakh to Rs 5 lakh slab — and the eligibility criterion for claiming the rebate to Rs 5 lakh from Rs 3.5 lakh.

Value Research CEO Dhirendra Kumar said what it effectively means is that if a person has a tax liability up to Rs 12,500, it becomes nil after the proposed rebate. But if the liability is beyond that, he is liable to pay the entire tax amount without the rebate – beginning from the threshold limit of Rs 2.5 lakh.

"The government had the option to pass on the benefit to taxpayers in two ways — by raising the tax slab or by giving this rebate. In this case, the tax slab remains the same," Kumar told IANS.

Welcoming the announcement, he added it would have marginal financial implication for the government because it would benefit a large number of people who pay very little tax.

Calling it a sensible move by the government, Deloitte India Partner Divya Baweja said it would benefit only the poor people earning less than Rs 5 lakh in net income with no concessions for the rich.

"The whole purpose is to benefit the middle income group. Had exemption limit been raised to Rs 5 lakh, the benefits would have not been restricted only to poor but would have been availed by the rich as well," he told IANS.

Baweja added that the government had little room as considering the fiscal deficit situation, it could not have gone ahead with too many tax changes.