Finance Minister Nirmala Sitharaman will later today present the first Budget of the Modi 2.0 government and there are expectations that the government may announce some income tax relief for the middle class, in addition to the already announced sops in the interim Budget in February. In the interim Budget, the government had increased the standard deduction to ?50,000 and also increased the income tax rebate under Section 87A of Income tax Act to ?12,500, from ?2,500. This tax rebate is applicable for individuals who have a taxable income of less than ?5 lakh. This means that for this financial year (FY 2019-20), assessees with taxable income of up to ?5 lakh can claim the entire tax payable as tax rebate.

The tax slab, however, remains the same for this fiscal year but total tax outgo might change due to the changes in rebates and standard deduction.

Income tax slabs for individuals below 60 years:

Individuals below the age of 60 enjoy tax-free income of up to ?2.5 lakh, and for those earning between ?2.5 lakh to ?5 lakh will have to pay a tax of 5%, for income between ?5 lakh and ?10 lakh, the tax outgo will be of 20% while any income above ?10 lakh attracts an income tax of 30%.

Due to the increased tax rebate, those with taxable income of up to ?5 lakh will not have to pay tax. But it is to be noted that assessees still need to file their income tax returns as this is not an exemption.

Senior citizens have to pay nil tax for income up to ?3 lakh and for super senior citizens, the exemption is up to ?5 lakh.

How income tax is calculated

Remember that your entire income doesn’t get taxed at one rate. Say, you are below 60 years and your total taxable income is ?15 lakh. Without factoring in any tax benefits, ?2.5 lakh will attract zero tax. The next ?2.5 lakh will be taxed at 5%, which amounts to ?12,500.

The next slab in this example, which is ?5 lakh, will attract 20% on the amount and you will pay ?1 lakh. The remaining income of ?5 lakh will attract tax of 30% considering it exceeds ?10 lakh limit for which you will pay ?1.5 lakh. So your total tax amount will be ?2.63 lakh before cess. The cess is charged at 4% of the tax amount. So the total tax liability comes to ?2.73 lakh.

Income tax deductions

Tax deductions are considered after taking into account exempt incomes. It is the amount of income an assessee can claim as deduction from her gross income for tax purposes.

It could be an investment made or expenses incurred by an assessee on specified avenues under different sections of the Income-Tax Act, 1961. For instance, an assessee can claim deduction of up to ?1.5 lakh under section 80C for investments made in instruments such as Public Provident Fund. Expenses such as children’s education fee and stamp duty paid on registration of a house also qualify for deduction under Section 80C.

Sections 80D, 80E, 80U and 80G also qualify for deduction. Limit and avenues differ in each section.

Investment in NPS qualifies for additional tax deduction of up to ?50,000 under Section 80CCD(1B).