Like every year, this time too, taxpayers were hoping for announcements that would reduce their tax burden. One notable speculation was that the government would use the opportunity to please the salaried taxpayers by enhancing the limits for deduction under Section 80C.
The wishlist of the common man was simple – increase the present Section 80C limit of Rs. 1.5 lakhs to Rs. 2 lakhs or possibly even higher.
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However, none of this happened. There were no changes made to 80C limits. Even the income tax slabs remained unchanged (as follows).
| Income | Tax Rate |
| 0 to Rs. 2,50,000 | Nil |
| Rs. 2,50,001 to Rs. 5,00,000 | 5% |
| Rs. 5,00,001 to Rs. 10,00,000 | 20% |
| Rs. 10,00,001 and above | 30% |
But, as common taxpayers had been watching the budget with a lot of hope, Piyush Goyal, the stand-in finance minister did not disappoint. Read on to know better.
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Budget 2019: What has Changed for Common Tax Payers?
This Budget came as a bliss for common taxpayers as it filled their pockets with a number of perks. The most notable among them is the increase in tax rebate to Rs. 12,500.
Earlier, under Section 87A of the Income Tax Act, only taxpayers having income up to Rs. 3 lakhs were eligible for a tax rebate of Rs. 2,500. However, the current increase in the rebate made sure that a large section of individual taxpayers will benefit from this move. This tax rebate will be offered to individual taxpayers having taxable income of Rs. 5 lakhs or lower.
Similarly, for salaried individuals, the standard deduction has been increased from Rs. 40,000 to Rs. 50,000. Thanks, to all these benefits, an individual taxpayer with annual income up to Rs. 5 lakhs can get a full tax rebate now. Here’s how:
| Amount | |
| Annual Income of Individual Taxpayer | Rs. 5, 00,000 |
| Tax charged: 5% slab | Rs. 12,500 |
| Less: Tax rebate u/s 87A | (-) Rs. 12,500 |
| Taxable income | NIL |
What About Tax Payers Whose Income is Above Rs. 5 Lakhs?
Yes, individuals with taxable income below Rs. 5 lakh are the greatest gainers from Budget 2019. But, shouldn’t there be something for those who are earning more than Rs. 5 lakh? Do they stand to save anything?
Yes, they do.
The reforms made in tax rebates and the increase in the standard deduction amount is all set to reduce the tax burden of such individuals. Here’s how:
| Pre-Budget 2019 | Post-Budget 2019 | |
| Annual Income of Individual Taxpayer | Rs. 5, 50,000 | Rs. 5, 50,000 |
| Less: Standard Deduction | (-) Rs. 40,000 | (-) Rs. 50,000 |
| Taxable Income | Rs. 5,10,000 | Rs. 5,00,000 |
| Tax on Above (Cess included) | Rs. 15,080 | 0 |
| Tax Saved | Rs. 15,080 | |
Also, the new changes can increase the take home for individuals whose taxable income fall in 30% tax bracket (income above Rs. 10 lakhs).
| Pre-Budget 2019 | Post-Budget 2019 | |
| Annual Income of Individual Taxpayer | Rs. 10, 50,000 | Rs. 10, 50,000 |
| Less: Standard Deduction | (-) Rs. 40,000 | (-) Rs. 50,000 |
| Taxable Income | Rs. 10,10,000 | Rs. 10,00,000 |
| Tax on Above (cess included) | Rs. 1, 20, 120 | Rs. 1,17,000 |
| Tax Saved | Rs. 3,120 | |
How to Use These Tax Savings Prudently?
Thus, it is clear that the new reforms introduced in budget 2019 has good news for both, common taxpayers as well as those who fall in the higher tax brackets. Put simply; taxpayers can now save a considerable amount of money.
Therefore, when you find yourself with extra cash on hand, here’s what you can do with it:
- Improve Your Emergency Funds
The amount saved can be used to build an adequate emergency fund. This is important, specifically, if you only have a single source of income. It can help you get through medical emergencies, house/car repairs or unexpected job loss.
- Invest for Medium to Long-term
In today’s world just earning money is not enough. Investments are equally important as they give you the financial freedom to lead a comfortable lifestyle and fulfil your goals. Therefore, to make your money work hard for you as well, you can use these savings to invest in medium to long-term instruments, such as:
ELSS funds: You can start your SIP in ELSS funds with an amount as low as Rs. 500 per month. Being equity-linked financial instruments, these schemes have the potential to provide higher returns over the long-term.
Term Insurance: By having term insurance in place, you can secure the financial future of your loved ones in your absence. The lump sum amount can help your family take care of household expenses, home loans, personal loans as well as higher education expenses of your children.
ULIP Plan: ULIPs are the best investments for wealth creation. Moreover, they also provide you with life cover. Today reputable insurers offer many ULIP benefits like switching facility, multiple fund options, top-up facility, tax benefits etc. However, before finalizing any ULIP plan, it is important that you compare these plans based on various parameters like premium payment mode, fund performance, charges levied, claim settlement ratio etc. Currently, Max Life Insurance has the highest claim settlement ratio of 98.36%.
Health Insurance: Health plans have become extremely important these days, considering the rising incidences of lifestyle illnesses and spiralling health care cost. Having health insurance in place can help take care of medical emergencies, without the need to dip into your hard-earned savings.
Most importantly, by investing in the above instruments, you can take advantage of deductions provided under different sections of Income Tax Act – Section 24, Section 80C, Section 80D – and reduce your tax liability. Here’s how:
| Particulars | Amount |
| Taxable Income of Individual Taxpayer | Rs. 9,00,000 |
| Less Interest paid on housing loan (Sec 24) | (-) Rs. 2,00,000 |
| Less premium paid for term insurance (Sec 80C) | (-) Rs. 1,50,000 |
| Less premium paid for Health plan (Sec 80D) | (-) Rs. 50,000 |
| Taxable Income | Rs. 5,00,000 |
| Tax charged at 5% tax slab | Rs. 12,500 |
| Less Tax rebate: Rs. 12,500 (Sec 87A) | (-) Rs. 12,500 |
| Taxable Income | NIL |
Be Prudent And Reduce Your Tax Liability!
By structuring the right mix of financial investments, you can not only reduce your tax liability but also ensure that you are on the right track to fulfil your goals.
But before you invest, it is vital to weigh the pros and cons of investment options properly to make full use of the various deductions available. Once you are done with your investments, therefore, you can file your income tax returns peacefully.
When it comes to filing your income tax returns, it is recommended that you get the income tax form 16 from your employer and keep other related documents ready. In the absence of income tax form 16, you can refer your salary receipts to prepare annual income and TDS detail.
