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Tax rebate benefit for individuals earning up to 5 lacs

In the Interim Budget 2019, the government proposed that under Section 87A of the Income Tax Act, individuals earning a taxable income of up to ₹5 lakhs would get a full tax rebate. Before this, the tax rebate benefit was only available to individuals earning an income of less than or up to ₹3.5 lakhs. However, the limit was increased to ₹5 lakh with the latest  budget.

Previously, the maximum amount that was offered as tax rebate was ₹2,500 under Section 87A of the Income Tax Act. With the Finance Bill 2019, this amount has been hiked to ₹12,500. Thus, the tax rebate benefit for individuals earning up to ₹5 lakhs is now ₹12,500.

Earlier, existing norms stated that those earning income up to ₹2.5 lakh would be exempted from taxation. This was only for resident Indians who were aged below 60 years. For those aged 60 years and above but below 80 years, exemptions could be availed by those earning an income of up to ₹3 lakh.For senior citizens aged above 80 years, tax exemptions were available for those earning up to ₹5 lakh.

While the new income tax rates have provided substantial relief to different brackets of taxpayers, those citizens aged below 60 years earning an income of more than ₹2.5 lakh annually still are required to file their income tax returns. Senior citizens earning more than  ₹3 lakh annually are also required to file their income tax returns by the notified date. While filing the returns, the taxpayers exempted from taxation can claim their rebates.

If taxpayers below the age of 60 years earning an income of more than ₹2.5 lakh annually do not file their income tax returns, they are liable to receive a notice from the government. If the returns are filed later, the individual will also be required to pay late filing fees of ₹1,000 as per Section 234F. To claim the tax rebate for individuals earning up to ₹5 lakh, they are first required to declare their gross income which along with salary would include interest and returns earned from investments as well. This could include returns from investments such as equity shares, fixed deposits and others. Once the total income has been declared, the individual must claim all deductions and tax breaks including house rent allowance (HRA), interest paid on housing loans and standard deductions under Sections 80C and 80D of the Income Tax Act. Once these deductions have been made and the net income remains below ₹5 lakh, then the individual can claim tax rebate under Section 87A.

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