One of the most misconstrued direct tax amendments that sprung from the 2019 Budget speech of the Interim Finance Minister Piyush Goyal was the benefit of no tax payment for people on total income up to Rupees five lakhs. The highly favored amendment actually pertained to providing a full tax rebate to people whose total income was within Rupees five lakhs. However, a misconceived notion that followed the amendment was that income tax was exempted on income up to Rupees five lakhs. Not only laymen of the taxation field but various tax forums were also responsible for the creation of confusion in the society.
What is a Tax Rebate? How is it different from Tax exemption?
A tax rebate is a deduction from the total taxes imposed on the individual taxpayers.
The provision of tax rebate would be applicable only in the following cases:
The maximum amount of tax rebate that can be provided to an individual taxpayer would be lower of the following:
Difference between a Tax rebate and Tax Exemption
Tax rebate refers to a deduction from the total taxes payable after imposition of such taxes whereas tax exemption refers to the exemption from the imposition of the taxes itself. Also, the availability of tax rebate is always conditional whereas tax exemption is usually not on a conditional basis.
Clarification of the Controversy
Individual taxpayers, whose total income does not exceed Rupees five lakhs during a year, would be allowed full tax rebate. Thus, such people would not be liable for payment of any tax on their income and effectively subjected to a nil rate of tax. However, people with total income exceeding Rupees five lakhs would be required to pay income tax on their income below Rupees five lakhs as well as per the slab rates applicable to them. Such category of people would not be, in anyway, benefitted by the amendment.
Need for & Impact of the Amendment
The intention behind such an amendment was to provide relief to the middle class without extending the benefit to the people falling in the high-class income category. The middle class income categories have hardly any income left after slicing the investments and tax payments from their total income. The amendment was also a compensatory step for the last year's budget which was highly criticized for being ignorant towards providing any significant sops for the middle class. In Budget 2017, the tax rates for people within the five lakhs income category were slashed from 10% to 5% which provided them an effective saving in the income tax up to Rupees Twelve Thousand Five Hundred. With no substantial benefit targeted towards the people of such income category in the 2018 Budget, the 2019 amendment of increasing the quantum of rebate from Rs. 2,500/- to Rs. 12,500/- comes as a breath of fresh air for them. This would not only increase the purchasing power in their hands but also lead to increase in their standard of living in the long run and ultimately would aid in bridging the gap between the people belonging to various classes of income category.
India follows the policy of progressive taxation and hence, relieving the low & middle class income category from the tax burden was much needed in today's date. This was suitably taken care of by the 2019 budget amendment without affecting the taxation policy of other categories of taxpayers.
- Sneha Lad