At a time when lakhs of central government employees are waiting for hike in minimum pay beyond the recommendations of 7th Pay Commission, Union Finance Minister Piyush Goyal, while presenting the interim budget on February 1, made a big announcement when he extended the benefit of income tax rebate to those with income up to Rs 5 lakh. Goyal proposed tax exemption for individual annual incomes of Rs 5 lakh, from the current level of Rs 2.5 lakh.
"Individual taxpayers having taxable annual income up to Rs 5 lakh will get full tax rebate and therefore will not be required to pay any income tax. As a result, even persons having gross income up to Rs 6.5 lakh may not be required to pay any income tax if they make investments in provident funds, specified savings, insurance, among others," Goyal said.
This has come as a big relief for the middle income group now as the Finance Minister increased the rebate under Section 87A of the Income Tax Act from Rs 2,500 to Rs 12,500 - the equivalent of 5 per cent tax on Rs 2.5 lakh to Rs 5 lakh slab - and also raised the eligibility criterion for claiming the rebate to Rs 5 lakh from Rs 3.5 lakh earlier. This effectively reduces the tax liability of those with net taxable income upto Rs 5 lakh to nil.
However, tax liability for those with net income above Rs 5 lakh would still start from Rs 2.5 lakh as earlier. The Interim Budget neither changed the existing tax rates or the slabs.
The Finance Minister proposed extending the benefit of rebate under Section 87A of the Income Tax Act to those with income is up to Rs 5 lakh. This provision currently allows a rebate of Rs 2,500 for those with net taxable income up to Rs 3.5 lakh.
Goyal increased this rebate to Rs 12,500 -- the equivalent of 5 per cent tax on Rs 2.5 lakh to Rs 5 lakh slab- and raised the eligibility criterion for claiming the rebate to Rs 5 lakh from Rs 3.5 lakh.
"In fact, with additional deductions such as interest on home loan up to Rs 2 lakh, interest on education loans, National Pension Scheme contributions, medical insurance, medical expenditure on senior citizens etc., persons having even higher income will not have to pay any tax," he added.
Meanwhile, income tax announcements of the Narendra Modi-led government are seen as a boon for Indian Railways and Coal India Limited employees.
Sources informed that more than 5.5 lakh railway employees who are earning less than Rs 5 lakh will be benefited from this move, while around 38000 employees of Coal India Limited would breathe a sigh of relief with the tax rebate announcement.
Not only this, Piyush Goyal also made it clear that "even persons having gross income up to Rs 6.5 lakh may not be required to pay any income tax if they make investments in provident funds, specified savings, insurance."
Therefore, the move will also benefit further 2.6 lakh employees working with the Indian Railways, taking the total number of benefited employees to over 8 lakh, sources added.
Meanwhile, it is pertinent to note here that the CG employees are currently getting a minimum pay of Rs 18,000. They are demanding an increase in the fitment factor by 3.68 times from the existing 2.57 times. With the hike in the fitment factor, the salary of the employees will be increased to Rs 26,000. A decision in this regard is also likely to come soon.