Tax benefits available in 2022 if your income is below Rs 5 lakh

Find out how income tax rebate, exemptions, and deductions apply if your taxable income is less than Rs 5 lakh.

Tax benefits available if your income is below Rs 5 lakh

Income tax is a mandatory tax in India that is paid to the Government of the nation. It is levied on your income and can differ based on the ITR tax slab you fall into. There are two tax regimes in India. You can select the old regime or the income tax new regime, based on your preference.

No income tax needs to be paid if your taxable income is below Rs 5 lakh in both the regimes, and yet there is a tax of 5% on income above Rs 2.5 lakh. This may seem like a conflicting statement. The truth is, if your income exceeds Rs 2.5 lakh, you do need to pay income tax. However, if it doesn’t exceed Rs 5 lakh, this tax liability is cancelled out by a tax rebate.

In other words, if your net taxable income does not exceed Rs. 5 lakh, you are eligible for a tax rebate up to Rs 12,500 under section 87A. Therefore, the tax liability in such a situation will be nil. 

Taxable income below Rs 5 lakh, tax regimes, and ITR 

Irrespective of whether your income is a little below Rs 5 lakh or above, you can use various tax benefits to ensure that you become eligible for the rebate under Section 87A. 

From FY 2020-21, all taxpayers, including salaried individuals, can select between two income tax regimes. The old/existing regime allows you to avail of various tax benefits such as exemptions and deductions. The new budget tax slab regime offers reduced tax rates across the income slabs but you are not eligible for most tax deductions.

Although you don’t have to pay taxes if taxable income is below Rs 5 lakh under the old and the income tax new regime, you still need to file Income Tax Returns (ITR). If you fail to file the ITR, you may get a notice from the Income Tax Department. 

Is tax planning getting too taxing for you? Hack your way out with insightful reads here.

Rebate-related information if taxable income is below Rs 5 lakh 

A few points that matter to taxpayers whose income is below 5 lakh:

  1. You must be an individual taxpayer and a resident of India for income tax purposes. On the contrary, the slab of income up to Rs 2.5 lakh onwards is applicable to HUFs and NRIs as well.
  2. While there is no tax upto 5 lakh, your taxable income must not exceed Rs 5 lakh even by Rs 1, otherwise, under Section 87A, you lose the chance to claim the rebate.
  3. If you are a non-resident individual or HUF, you are not entitled to this rebate.
  4. Your income, to be considered to claim this rebate, is arrived at after setting off all the brought forward old losses against the income of the current year.
  5. You can claim this tax rebate against your tax liability in respect of normal income which is taxed at the Income Tax slab rate, Long Term Capital Gains (LTCG) on capital assets under Section 112, and Short Term Capital Gains (STCG) on listed equity shares as well as equity-oriented mutual funds under Section 111A on which tax is payable at a flat rate of 15%. However, tax liability arising out of LTCG on sale of listed equity shares or equity-oriented mutual funds under Section 112A. Section 112A is taxed at 10% after an exemption of Rs 1 lakh.
  6. You will get an income tax rebate of Rs 12,500 and your tax liability will be nil.

Related: 8 Incomes you shouldn't miss while filing your IT returns

Benefits available in case of income below Rs 5 lakh

Section 87A tax benefits are available when the taxable income is less than Rs 5 lakh. Taxable income is arrived at after subtracting all deductions and allowances from the gross total income. So, apart from the rebate itself, in the old tax regime you can avail of these exemptions and deductions as well. 

  • Exemptions: Calculation of taxable income from salary generally involves considering the tax exempt allowances. This includes house rent allowance (HRA exemption), leave travel allowance, mobile reimbursement, food coupons, relocation allowance, children allowances etc. which are a common part of income tax on salary. 13 Income components exempted under the new tax regime
  • Deductions: Deductions are available to taxpayers with income below Rs 5 lakh. These include deductions under Section 80C, 80CCC, and 80CCD(1), medical expenditure and insurance premium (Section 80D), interest on home loan (Section 80C and Section 24), loan for higher studies (Section 80E), donations (Section 80G), deduction on savings account interest (Section 80TTA) and interest on home loans (Section 80EE/EEA). 

Related: Deductions available under Section 80 of the Income Tax Act

Conclusion

The amount you can claim as tax benefit depends on the maximum limit set for each exemption and deduction. One can use these tax benefits to arrive at a taxable income of less than Rs 5 lakh, even if the gross income is well above Rs 5 lakh. Besides, these benefits can also be availed of by those whose gross total income is below Rs 5 lakh to begin with. Guide to filing your income tax return on your own

Investors make capital gains when they sell their assets for a more excellent price than they paid for them. Long-term capital gains taxation differs between debt and equity funds. While equity funds are tax-free on long-term profits, debt funds are taxed at a rate of 20% with indexation. You can legitimately save on long-term capital gains tax by following specific requirements outlined in the Income Tax Act Sections 54, 54EC, and 54F, as well as the Capital Gains Account Scheme. One of the essential requirements for avoiding capital gains tax is to reinvest the proceeds from the property sale in a residential property. Read this Premium Article to find out how to save tax on long-term capital gains.

Disclaimer: This article is intended for general information purposes only and should not be construed as investment or tax or legal advice. You should separately obtain independent advice when making decisions in these areas. 

Income tax is a mandatory tax in India that is paid to the Government of the nation. It is levied on your income and can differ based on the ITR tax slab you fall into. There are two tax regimes in India. You can select the old regime or the income tax new regime, based on your preference.

No income tax needs to be paid if your taxable income is below Rs 5 lakh in both the regimes, and yet there is a tax of 5% on income above Rs 2.5 lakh. This may seem like a conflicting statement. The truth is, if your income exceeds Rs 2.5 lakh, you do need to pay income tax. However, if it doesn’t exceed Rs 5 lakh, this tax liability is cancelled out by a tax rebate.

In other words, if your net taxable income does not exceed Rs. 5 lakh, you are eligible for a tax rebate up to Rs 12,500 under section 87A. Therefore, the tax liability in such a situation will be nil. 

Taxable income below Rs 5 lakh, tax regimes, and ITR 

Irrespective of whether your income is a little below Rs 5 lakh or above, you can use various tax benefits to ensure that you become eligible for the rebate under Section 87A. 

From FY 2020-21, all taxpayers, including salaried individuals, can select between two income tax regimes. The old/existing regime allows you to avail of various tax benefits such as exemptions and deductions. The new budget tax slab regime offers reduced tax rates across the income slabs but you are not eligible for most tax deductions.

Although you don’t have to pay taxes if taxable income is below Rs 5 lakh under the old and the income tax new regime, you still need to file Income Tax Returns (ITR). If you fail to file the ITR, you may get a notice from the Income Tax Department. 

Is tax planning getting too taxing for you? Hack your way out with insightful reads here.

Rebate-related information if taxable income is below Rs 5 lakh 

A few points that matter to taxpayers whose income is below 5 lakh:

  1. You must be an individual taxpayer and a resident of India for income tax purposes. On the contrary, the slab of income up to Rs 2.5 lakh onwards is applicable to HUFs and NRIs as well.
  2. While there is no tax upto 5 lakh, your taxable income must not exceed Rs 5 lakh even by Rs 1, otherwise, under Section 87A, you lose the chance to claim the rebate.
  3. If you are a non-resident individual or HUF, you are not entitled to this rebate.
  4. Your income, to be considered to claim this rebate, is arrived at after setting off all the brought forward old losses against the income of the current year.
  5. You can claim this tax rebate against your tax liability in respect of normal income which is taxed at the Income Tax slab rate, Long Term Capital Gains (LTCG) on capital assets under Section 112, and Short Term Capital Gains (STCG) on listed equity shares as well as equity-oriented mutual funds under Section 111A on which tax is payable at a flat rate of 15%. However, tax liability arising out of LTCG on sale of listed equity shares or equity-oriented mutual funds under Section 112A. Section 112A is taxed at 10% after an exemption of Rs 1 lakh.
  6. You will get an income tax rebate of Rs 12,500 and your tax liability will be nil.

Related: 8 Incomes you shouldn't miss while filing your IT returns

Benefits available in case of income below Rs 5 lakh

Section 87A tax benefits are available when the taxable income is less than Rs 5 lakh. Taxable income is arrived at after subtracting all deductions and allowances from the gross total income. So, apart from the rebate itself, in the old tax regime you can avail of these exemptions and deductions as well. 

  • Exemptions: Calculation of taxable income from salary generally involves considering the tax exempt allowances. This includes house rent allowance (HRA exemption), leave travel allowance, mobile reimbursement, food coupons, relocation allowance, children allowances etc. which are a common part of income tax on salary. 13 Income components exempted under the new tax regime
  • Deductions: Deductions are available to taxpayers with income below Rs 5 lakh. These include deductions under Section 80C, 80CCC, and 80CCD(1), medical expenditure and insurance premium (Section 80D), interest on home loan (Section 80C and Section 24), loan for higher studies (Section 80E), donations (Section 80G), deduction on savings account interest (Section 80TTA) and interest on home loans (Section 80EE/EEA). 

Related: Deductions available under Section 80 of the Income Tax Act

Conclusion

The amount you can claim as tax benefit depends on the maximum limit set for each exemption and deduction. One can use these tax benefits to arrive at a taxable income of less than Rs 5 lakh, even if the gross income is well above Rs 5 lakh. Besides, these benefits can also be availed of by those whose gross total income is below Rs 5 lakh to begin with. Guide to filing your income tax return on your own

Investors make capital gains when they sell their assets for a more excellent price than they paid for them. Long-term capital gains taxation differs between debt and equity funds. While equity funds are tax-free on long-term profits, debt funds are taxed at a rate of 20% with indexation. You can legitimately save on long-term capital gains tax by following specific requirements outlined in the Income Tax Act Sections 54, 54EC, and 54F, as well as the Capital Gains Account Scheme. One of the essential requirements for avoiding capital gains tax is to reinvest the proceeds from the property sale in a residential property. Read this Premium Article to find out how to save tax on long-term capital gains.

Disclaimer: This article is intended for general information purposes only and should not be construed as investment or tax or legal advice. You should separately obtain independent advice when making decisions in these areas. 

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