No Marginal Relief for Tax Payer | Budget 2019

In the Budget 2019 there has been no changes in the income tax slab but  Section 87A of the Income Tax Act, 1961 has been in limelight since the announcement of the interim Budget 2019-20 in which individuals earning a net taxable income upto Rs.5 lakh have been given full tax rebate. However, going by the proposed budget changes, there is disconnect regarding the marginal relief for small taxpayers.


Explanation with numeric example :

Taxpayers whose income does not exceed Rs 5 lakh will not be liable to pay any tax as per the proposed rebate in the Budget 2019. However, taxpayers whose income exceeds Rs 5 lakh by a marginal amount, say Rs 1,000, will end up paying more tax than the increase in income. 

 

Particular	Proposed Taxable Income	Proposed Taxable income
Total Income Taxable	5,00,000/-	5,01,000/-
Income Tax	12,500/-	12,700/-
Less : Tax Rebate US 87A	-12,500/-	Nil
Tax Payable	Nil	12,700/-
Education Cess @ 4%	Nil	508/-
Total Tax Payable	Nil	13,208/-
Additional Tax Payable on marginal income	Nil	12,208/-

Marginal increase in the income above INR 500,000 will result in more tax than incremental income.

It can be seen from the table above that for a taxpayer whose taxable income (after claiming all the eligible deductions and tax exemptions) comes to Rs 5, 01,000 will have tax liability of Rs 13,208 (inclusive of cess at 4 per cent). 

Here the tax liability is more than the incremental increase in income. The taxable income has increased by Rs 1,000, whereas the tax liability is Rs 13,208 which is higher by Rs 12,208/-