Dr. Rakesh Kumar Sharma

The new Indian government announced its tax rules for the current financial year. But very few announcements were made by new government which could provide relief to salaried class people. The first and the most important amendment was in the tax slab. Although there is no change in the existing tax rate yet new Government had increased the minimum limit from ₹ 2,00,000 to 2,50,000. There were no changes in the tax slab from last 2 years in tax slabs. In the past, this limit was never increased by 50000 or more amount.   So definitely, this is one of the very important announcements in new finance bill. Many Indian employees were expecting this change. Although other subsequent slabs remains the same. Following are the tax slabs of Assessment Year 2014-15 & 2015-16.

Table 1: Tax Slabs

Tax Slabs 2014-15 Tax Slabs 2015-16
Income Tax Rate Income Tax Rate
Upto ₹ 2 Lacs 0 Upto Rs. 2.5 Lacs 0
₹ 2 Lacs to Rs. 5 Lacs 10% ₹ 2.5 Lacs to Rs. 5 Lacs 10%
₹ 5 Lacs to Rs. 10 lacs 20% ₹ 5 Lacs to Rs. 10 lacs 20%
Above ₹ 10 Lacs 30% Above ₹ 10 Lacs 30%

*For senior citizen with Age group of 60 years or above but less than 80 years than their minimum tax limit is ₹ 300,000 instead of ₹ 250,000.

On the other hand, senior citizen with age of 80 years or more than they do not need to pay tax of initial income of ₹ 500,000.

Second important amendment is under section 80C and 80CCC. Earlier, the maximum qualifying investments for deduction from total income was 1, 00,000 (even more amount was investment in specified schemes) which was raised to 1, 50,000. So if no loan is taken by the employee to construct or renovate the house & having total salary income 5 lacs  than his total taxable income will decline by Rs. 50,000 (after availing this deduction) which is 12.5 % of earlier base income.

(A) Person Having Income ₹ 5 lacs with no house loan

Table 2 Before Budget 2014 ( NO House loan is there) Table 3 After Budget 2014 ( NO House loan is there)
Gross Salary 500000 Gross Salary 500000
less deduction U/S 80C +80CCC -100000 less deduction U/S 80 + 80CCC -150000
Taxable salary 400000 Taxable salary 350000
Loss from HP (due to interest on loan   taken for construction or renovation of house) 0 Loss from HP (due to interest on loan   taken for construction or renovation of house) 0
Net Taxable income 400000 Net Taxable income 350000

Table 4 Tax Liability before Budget 2014 ( NO House loan is there) Table 5 Tax Liability before Budget 2014 ( NO House loan is there)
Tax Rate Tax Tax Rate Tax
Upto 2 lacs 0 0 Upto 2.5 lacs 0 0
Next 2 Lacs 10% ₹ 20000 Next 1 Lac 10% 10000
Total Tax before surcharge   20000 Total Tax before surcharge   10000
Surcharge 3% ₹ 600 Surcharge 3% 300
Total Tax ₹ 20600 Total Tax 10300

 Table 6 Net change in Total tax Structure having gross income .5 lacs.

Total Tax liability before budget ₹ 20600
Total Tax liability after budget ₹-10300
Net Benefit 10300

Further, rebate u/s of Rs 2000 will also be admissible if the person income does not exceed ₹ 500000.

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(B) Person Having Income ₹ 10 lacs with no house loan

Table 7 Before Budget 2014 ( NO House loan is there) Person Having Income Upto ₹ 10 lacs Table 8 After Budget 2014 ( NO House loan is there) Person Having Income Upto ₹ 10 lacs 
Gross Salary 1000000 Gross Salary 1000000
less deduction U/S 80 + 80CCC -100000 less deduction U/S 80 + 80CCC -150000
Taxable salary 900000 Taxable salary 850000
Loss from HP (due to interest on loan   taken for construction or renovation of house) 0 Loss from HP (due to interest on loan   taken for construction or renovation of house) 0
Net Taxable income 900000 Net Taxable income 850000
   
Table 9 Tax Liability before Budget 2014 ( NO House loan is there) Person Having Income Upto ₹ 10 lacs  Table 10 Tax Liability before Budget 2014 ( NO House loan is there) Person Having Income Upto ₹ 10 lacs 
Tax Rate Tax Tax Rate Tax
Upto 2 lacs 0 0 Upto 2.5 lacs 0 0
Next 3 Lacs 10% 30000 Next 2.5 Lac 10% 25000
On Remaining 4 Lacs 20% 80000 On Remaining 3.5 Lacs 20% 70,000
Total Tax before surcharge   110,000 Total Tax before surcharge   95000
Surcharge 3%    3300 Surcharge 3% 2850
Total Tax 1,13,300 Total Tax 97850

Table 11 Net change in Total tax Structure having gross income Rs. 10 lacs.

Total Tax liability before budget 1,13,300
Total Tax liability after budget -97850
Net Benefit 15450

Tax Planning in the case of loan taken for construction or renovation of self occupied house property:

(C) Person having gross Income of ₹ 5 lacs with house loan

Table 12 Before Budget 2014 ( House loan is there) Person Having Income Upto ₹ 5 lacs Table 13 After Budget 2014 ( House loan is there) Person Having Income Upto ₹ 5 lacs
Gross Salary 500000 Gross Salary 500000
less deduction U/S 80 + 80CCC -100000 less deduction U/S 80 + 80CCC -150000
Taxable salary 400000 Taxable salary 350000
Loss from HP (due to interest on loan   taken for construction or renovation of house) 1,50,000 Loss from HP (due to interest on loan   taken for construction or renovation of house) -200000
Net Taxable income 2,50,000 Net Taxable income 1,50,000

(D) Person having gross Income of ₹ 10 lacs with house loan

Table 14 Before Budget 2014 ( House loan is there) Person Having Income Upto ₹ 10 lacs Table 15 After Budget 2014 ( NO House loan is there) Person Having Income Upto ₹ 10 lacs
Gross Salary 10,00,000 Gross Salary 10,00,000
less deduction U/S 80c + 80CCC -100000 less deduction U/S 80c + 80CCC -150000
Taxable salary 9,00,000 Taxable salary 8,50,000
Loss from HP (due to interest on loan   taken for construction or renovation of house) 1,50,000 Loss from HP (due to interest on loan   taken for construction or renovation of house) 2,00,000
Net Taxable income 7,50,000 Net Taxable income 6,50,000

Table 16 Tax Liability before Budget 2014 ( House loan is there) Table 17 Tax Liability before Budget 2014 ( House loan is there)
Tax Rate Tax Tax Rate Tax
Upto 2 lacs 0 0 Upto 2.5 lacs 0 0
Next 3 Lacs 10% ₹30000 Next 2.5 Lac 10% 25000
On Remaining   2.50 Lacs 20% ₹50,000 On Remaining 1.5 Lacs 20% 30000
Total Tax before surcharge   80000 Total Tax before surcharge   55,000
Surcharge 3% 2400 Surcharge 3% 1650
Total Tax   82400 Total Tax   56,650

Table 18 Net change in Total tax Structure having gross income Rs. 10 lacs.

Total Tax liability before budget 82400
Total Tax liability after budget -56650
Net Benefit          ₹25750

So after availing these two amendments in new finance bill the person with gross income of 5 lacs can save tax of 10300 and in that case his total tax liability will decline by 50 %. Similarly, the person who will have gross income 10 lacs during financial year 2014-15, he can save a tax of 15450. In such a case his tax liability will decline by 13.6 % as compare to tax rules in the assessment year 2014-15. If higher gross income will be there than percentage saving in tax will be less as compare to low income.

In the new finance bill, there is an important amendment under section 24(1). In this section the person can claim for deduction for the interest on loan taken for construction or renovation of house property. In this case, self-occupied property the entire amount of interest shall be considered as loss from the house property and same can be adjusted from other person’s income. So in this way, the person can minimise his taxable income as well as the tax liability. In the assessment year 2014-15, the maximum limit under this section was ₹ 1,50,000 which is now raised to 200,000 in the new finance bill of 2015-2016. This was also a very important amendment in the tax rules. This was one of the most awaited changes in the finance bill as it was consistent for past many years. This change has given great relief to all those assesses who have taken loan for construction or renovation of house property. Below tables analyse the benefit of this amendment to assessee.

With optimum tax planning, person having gross income of 5 lacs, in the assessment year 2015-16 his or her tax liability will be zero as his taxable income will be less than     .2,50,000. While in previous tax rules, his tax liability will be 5150 (i..e., 10 % on 50,000 + 3% surcharge).

With proper tax planning and by taking the benefits of all these three important amendments, the person having gross income of 10 lacs can minimize his gross total income to 6.5 lacs from 7.5 lacs. In this way his gross total income will decline by 13.33%. While, in this case his or her net tax liability will diminish by 25,750 and percentage decrease in this shall be 31.25%.

Conclusion

The new tax rules are indeed a great tax relief for salaried class people in the new finance bill 2014-15 announced as on 10th July, 2014 by Hon. union cabinet finance minister Mr Arun Jaitley of government of India. Now, with optimum tax planning under Section 80C & 80CCC , people having income up to 5 lacs will have maximum tax relief of 10,300 (if no loan is taken for construction or renovation) otherwise 15000+ Surcharge. Whereas if income is between 5 to 10 lacs than you will have relief ranging from 10000 to 15000 + Surcharge. If assesse   also pays interest 2 Lacs or more on home loan than he can get maximum benefit of 25750.

As per new tax rule, with optimum tax planning and getting the benefit of deduction under section 24(1), assesse can minimise his net taxable income as well as net tax liability. Assesse with higher income or higher tax slab can get maximum benefits of all amendments made in new finance bill 2014-15.

Whereas, if income is between ₹ 5 to ₹ 10 lacs than you will have relief ranging from ₹ 10000 to ₹ 15000 + Surcharge. If assesse   also pays interest ₹ 2 Lacs or more on home loan than you can get maximum benefit of ₹.25750.

(Author is Assistant Professor & Tax Consultant at School of Behavioral Sciences & Business Studies,Thapar University , Patiala)

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2 responses to “How New Tax Rules of A.Y 2015 -16 will benefit salaried class in India?”

  1. ovalekar says:

    can i share the emi payment in order to avail the tax benefit , If the property is fully owned by my spouse and the housing loan is also in his name

  2. Best Article Club says:

    Sir, what about the rules for National Pension Scheme (NPS) under section 80CCD, Is there any conditions to get the benefit of Rs. 50000/-, and is this included under 80C Rs. 150000/-

  3. mehul patel says:

    Respected sir
    First of all life insurance policy my self, son, wife premium is paid. included in income tax benefit or not.

  4. NITIN says:

    Dear sir,

    i just want to know how much tax on my salary
    i deputed to some client and my salary is 70000/- pm and consultancy deduct 10% service tax. i have investment of LIC of 1.5LPA and having 25 L home loan EMI is 24350/-
    so please let me know how much tax is deducted on financial yr of 2015-16

  5. K K Nayak says:

    Sir,
    Thanks for the information provided. I want to know about the provision of saving of additional Rs 50000/- under sec 80c for savings in NPS.
    What are your views on the subject?
    Regards
    KK Nayak

  6. nikhil jain says:

    Dear Tax guru

    please explain about HRA. Is it non taxable. how much is non taxable. Does it come under 1.5 lac savings allowed. Or is it included as a limit of home loan of 2 lacs as non taxable income

    Thanks
    Nikhil

  7. ROHIT SHARMA says:

    THERE IS NO SURCHARGE, ONLY EDU. CESS @ 2% & S.H.EDU CESS @ 1% ., U MENTIONED SURCHARGE
    INSTATED OF EDUCATION CESS

    &

    WHT AT ABOUT NRIs WITH PENSION. ARE THEY ALSO ELIGIBLE FOR 3 LACS EXEMPTION IF THEY ARE SENIOR CITIZENS

  8. Venugopal B V says:

    ITR 1 is submitted but ITR V is not yet received, so what to do Sir?

  9. Vijay says:

    How could i start my income tax return filing business as i not knowing about income tax filing

  10. TIRTHANKAR GHOSH says:

    I want to know is there any provision income tax relief from medical allow, conveyn.allow and education allow. please inform me the details

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  12. Manohar Singh Shekhawat says:

    Sir,
    I am retired from Navy and getting pension. Pension is taxable. I am doing service in ICICI (Rural Self employment Training Institute) Jodhpur as consultant. and getting salary per month. Tell me ICICI (RSETI) salary is taxable or not ?

  13. Gunvant Barahate says:

    Dear Sir,
    Very good article and information.The limit of Housing Loan interest is up to 2 lac but there is not mention the amount of principal which we calculate in U/S80c.Sir please clarify. Second thing is that my Housing loan is joint loan.Can I show fifty-fifty percent interest & principal in our statement? Please Sir give rules.
    Thanks!

  14. Manas Chakraborty says:

    Deduction U/S 80 + 80CCC raised by 50000/-, where we could invest this additional 50000/-.

  15. KGN Advisors says:

    Hi All,

    We do provide tax related advisory, compliance & litigation support services. Please do get in touch with us with your queries on kgnadvisor@gmail.com or call us on 7506252571.

    Thanks & Regards
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  16. SHAYAK GHOSH says:

    Sir, I appreciate your article and indeed it is quite good to know these. But what I would want you to consider still today the major salaried population belong in the salary bracket of 1Lac to 3 Lac Rupees. What benefit would they get out of this? are there any? For Example consider 1 salary Structure Basic 12000 HRA 6000 Addl Conv 5000. Previously PF was 780 which is now increased to 1080 (As per new PF act)

  17. Jigar says:

    Nice Information Sir

  18. Vineet says:

    Sir,

    In various examples sighted above Surcharge is levied at 3% which is to be levied only in case income exceeds Rs. 1 crore. Could you please confirm the confusion and correct examples?

  19. sudarshana says:

    Very good article and informative. In one of the paras (…In this case, self-occupied property the entire amount of interest shall be considered as loss from the house property and same can be adjusted from other person’s income. – See more at: https://taxguru.in/income-tax/tax-rules-ay-2015-16-benefit-salaried-class-india.html#comments) ‘entire’ means whole amount without the limit of 2 lakhs? and the meaning of ‘other persons’s income’ is not clear. Dr Rakesh Kumar Sharmaji may clarify on this please.

  20. Krishnaraju says:

    Good Information…!

  21. U R K RAO says:

    What at about NRIs with pension. Are they also eligible for 3 lacs exemption if they are senior citizens?

  22. SATYA PRASAD says:

    Dear sir,

    There is no surcharge, only Education Cess @ 2% & S H Edu.Cess 1 %.

    U mentioned Surcharge instated of Education Cess.

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