Explained: Why zero tax burden for those earning up to Rs 3 lakh
There is some confusion over as tax saving for individual taxpayers, as Finance Minister announced that those earning Rs 2.5 lakh to Rs 5 lakh will have to pay 5 per cent tax instead of the earlier 10 per cent. However, there were also reports that those earning up to Rs 3 lakh would have zero tax burden. Confused? Here’s how things will be calculated.
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As per Section 87A, rebate of Rs 5000 is presently given to those earning up to Rs 5 lakh. It is proposed to reduce the same to Rs 2500 from the existing. In combination -- rebate and the reduction in tax rate – it would mean that people with income of up to Rs 3 lakh will have zero tax burden, while those earning Rs 3-Rs 3.5 lakh will have a tax burden of Rs 2,500.
This further means that individuals earning Rs 4.5 lakh could reduce their tax liability to nil if they can fully utilise the tax break under Section 80C in conjunction with the new proposals.
Even those in the higher income tax slabs can claim the benefit of 5% tax rate on income between Rs 2.5 lakh and Rs 5 lakh.