Income Tax Rules for FY 2019-20: Impact on your Financial Planning

For the latest income tax rules on new tax regime, visit New Income Tax Regime 2020 and Its Effect on Payroll Processing
In the Interim Budget presented on 1st February 2019, the Indian government has announced changes in the income tax rules for the financial year 2019-2020. These tax deduction rules are effective from April’19 onwards.

Highlights of Income tax rules for FY 2019-20

There is no change in income tax slab rate for financial year 2019-20 (AY 2020-21).

The standard deduction of Rs. 40,000 has hiked up to Rs. 50,000 for salaried people and pensioners.

Tax payers with taxable income up to 5,00,000 get full rebate under Section 87A. Rebate has been raised from Rs. 2,500 to Rs. 12,500.

Under Section 23, Notional rent is not applicable on second home. A person can declare two of such houses as self-occupied and need not offer any notional rent for taxation purpose.

Long term capital gain by selling one residential property to buy two residential properties once in a lifetime is now allowed under Section 54 exemption.

TDS on interest from bank or post office deposits has been increased to Rs. 40,000, from current limit of Rs. 10,000.

Threshold limit for deduction of TDS in case of rent is increased to Rs. 2, 40,000 from existing Limit of Rs. 1,80,000.

Exemption limit for gratuity is increased from Rs. 20,00,000 to Rs. 30,00,000.

Tax rates for Multiple Income Slabs (Individuals below 60 years, Senior and Super Senior Citizens)

Annual Income Range	Tax Rates (For taxpayers below 60 years of age)
Up to Rs. 2,50,000	Nil
Rs. 2,50,000 to Rs. 5,00,000	5% of amount above Rs. 2,50,000
Rs. 5,00,000 to Rs. 10,00,000	Rs. 12,500 + 20% of the amount exceeding Rs. 5,00,000
Above Rs. 10,00,000	Rs. 1,12,500 + 30% of the amount exceeding Rs. 10,00,000
# Taxable income up to 5 lakh gets 100% rebate under 87A.   ## Surcharge on taxable income from 50 lakh to 1 crore will be 10% of regular tax, and 15% on income above 1 crore. ### 4% cess is applicable on total income tax. The “Education Cess” and “Secondary and Higher Education Cess” is replaced by “Health and Education Cess”.

Annual Income Range	Tax Rates
Senior citizens (60 to 80 years of age)	Super senior citizens (More than 80 years of age)
Up to Rs. 3,00,000	Nil	Nil
Rs. 3,00,000 to Rs. 5,00,000	5% of the amount above Rs. 3,00,000	Nil
Rs. 5,00,000 to Rs. 10,00,000	Rs. 10,000 + 20% of the amount above Rs. 5,00,000	20% of the amount above Rs. 5,00,000
Above Rs. 10,00,000	Rs. 1,10,000 + 30% of the amount above Rs. 10,00,000	Rs. 1,00,000 + 30% of the amount above Rs. 10,00,000

Standard Deduction

For middle class salaried people and pensioners, it is a relief with hike in standard deduction from Rs. 40,000 to Rs. 50,000.

Earlier the standard deduction of Rs. 40,000 was proposed in Budget 2018, after replacing Rs. 15,000 and Rs. 19,200 as medical reimbursement and travel allowance. Now it has been hiked to Rs. 50,000 that means in AY 2020-21, all pensioners and salaried people would be eligible for fixed deduction of fifty thousand.

Full Tax Rebate

The interim budget 2019 to provide a full tax rebate to individuals having a net taxable income up to Rs 5 lakh. The maximum tax rebate given under section 87A is increased from Rs. 2,500 to Rs. 12,500. Individuals taxable earning up to Rs. 5 lakh would pay zero tax.

TDS on Deposits

The higher limit on TDS (tax deducted at source) on interest from deposits held with bank or post office is increased to Rs. 40,000, from current limit of Rs. 10,000. It means interest income on bank/post office deposits up to Rs. 40,000 will not be subject to TDS.

Deduction Under 80TTA

Under section 80TTA (interest on saving account only), deduction remains same up to Rs. 10,000 for individuals and HUF (Hindu Undivided Family) except for senior citizens.

Tax Benefits for Senior Citizens

Under section 80TTB (interest on all kinds of deposits held in banks, cooperative banks and post offices) has been raised from Rs. 10,000 to Rs. 50,000 for all senior citizens over 60 years.

How to Calculate Tax Deduction Under 87A for Taxpayers Earning Rs 7 lakh or above?

Standard Deduction of Rs. 50,000 and Rs. 12,500 rebate will help middle class salaried taxpayers to wave off their tax. Take examples to understand this:

1. Net taxable income is Rs. 7 lakh

Let’s assume that Mr. A whose age is below 60 years has taxable income is Rs. 7,00,000 per annum. The individual is eligible for standard deduction of Rs 50,000 which makes taxable income as Rs. 6,50,000.

If the individual shows savings of worth Rs. 1.50 lakh under section 80C, net taxable income becomes 5 lakh.

The income tax calculates to be 12,500. As per the change in 87A, an individual gets rebate of Rs. 12,500 on income up to 5 lakh, thus taxpayer will be liable to pay zero tax.

Here is the breakup of tax calculation:

Gross total income	Rs. 7,00,000 per annum
Standard deduction (SD)	Rs. 50,000
Exemption from savings under section 80C	Rs. 1,50,000
Gross taxable income – (SD + Exemption) = 7,00,000 – (50,000 + 1,50,000) = 5,00,000 = Net taxable income
Tax on total income	5% of amount above Rs. 2,50,000 = Rs. 12,500
Rebate (under section 87A)	Rs. 12,500
Tax to be paid	0 (Nil)

2. Gross taxable income is above Rs. 7 lakh

Let’s assume that Mr. B is a male below 60 years of age whose total income is Rs. 8,80,000 per annum. His tax deduction would be as follows:

When the gross taxable income of an individual is Rs. 8,80,000, the hike in standard deduction would reduce taxable income to Rs. 8,30,000. Here is how the tax calculation would go:

Gross total income	Rs. 8,80,000 per annum
Standard deduction (SD)	Rs. 50,000
Exemption under section 80C	Rs. 1,50,000
Exemption under section 80D	Rs. 25,000
Gross taxable income – (SD + Exemption) = Rs. 8,80,000 – (50,000 + 1,75,000) = Rs. 6,55,000
Net taxable income	Rs. 6,55,000
Rebate (under section 87A)	NIL
Tax on total income   Where the total income exceeds Rs. 5,00,000 but does not exceeds Rs. 10,00,000	Nil upto Rs. 2,50,000   Rs. 12,500 plus 20% of the amount (6,55,000-5,00,000) = Rs. 12,500 + 20% of 1,55,000 = 43,500
Total Tax	Rs. 43,500
Add: 4% Health and Education Cess	Rs. 1,740
Total Tax payable	Rs. 45,240

Hence, the income tax levy is Rs. 45,240 and the rebate on this amount is not eligible.

How to Simplify Tax Deductions with New Rules?

Automate the process with a reliable cloud-based payroll solution. You would be happy to know that new changes for income tax calculation for the financial year 2019-2020 are embedded and auto enabled in Empxtrack payroll software to help clients with accurate and timely payroll processing. It’s accuracy, reliability and speed of operation is appreciated by hundreds of organizations across India and Middle East. Empxtrack facilitates legal compliance by taking into account taxation rules according to your country and provides all statutory reports. You can schedule a demo of Empxtrack to understand its usability for your organization.