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T. Banusekar

THE Finance Bill, 2004 seeks to increase the basic exemption limit for individuals from the existing Rs 50,000 to Rs 1 lakh. Does this mean a person having a salary income of Rs 1,30,000 will pay no tax since his income after standard deduction would be Rs 1 lakh? Would a person having a salary income in excess of Rs 1,30,000 pay tax only on the excess and, if so, at what rate?

Onkar Singh Riar

Reply

You are right in your understanding that an individual having salary income of Rs 1,30,000 will pay no tax.

This is so because, of the Rs 1,30,000, Rs 30,000 would be allowed as standard deduction. On the total income of Rs 1 lakh, the tax rebate will be as per the proposed Section 88D.

If the total income exceeds Rs 1 lakh, there will, however, be no rebate under the proposed Section 88D; tax will be computed at the rates that apply now; a surcharge of 2 per cent towards education cess would also have to be paid.

For example, if the salary income is Rs 1,50,000 the tax would be Rs 13,260, assuming that the reader has no other income.

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