Budget 2019: No marginal relief for taxpayers whose taxable income exceeds Rs 5 lakh

Although the interim budget 2019 has made income up to Rs 5 lakh tax free, the marginal increase in income above Rs 5 lakh will result in more tax outgo than the incremental increase in income, says Sonu Iyer, Leader and Tax Partner, People Advisory Services, EY India. She was speaking at the ET
Wealth Investment Workshop held at Delhi on February 15.
This was explained by Iyer with an 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 10,000, will end up paying more tax than the increase in income.
Issue in tax rebate

Particulars	Proposed taxable income – 1 (Rs)	Proposed taxable income – 2 (Rs)
Taxable income	5,00,000	5,10,000
Income-tax	12,500	14,500
Less: Tax rebate	12,500	Nil
Income-tax payable	Nil	14,500
Health and education cess	Nil	580
Total tax payable	Nil	15,080
Additional tax payable		15,080

Marginal increase in the income above INR 500,000 will result in more tax than incremental income
Source: EY India
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, 10,000 will have tax liability of Rs 15,080 (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 10,000, whereas the tax liability is Rs 15,080 which is higher by Rs 5,080.
Iyer further pointed out that marginal relief is available where surcharges are levied, i.e., surcharge of 10 per cent for income between Rs 50 lakh and 1 crore and 15 per cent surcharge for income exceeding Rs 1 crore. Current income tax laws say that the incremental tax cannot be more than the increase in income. However, going by the proposed budget changes, there is disconnect regarding the marginal relief for small taxpayers.
Explaining the budget proposals to the audience, Iyer said that every class of salaried taxpayer will be benefited by the proposed increase in standard deduction. Remember Finance Minister Piyush Goyal in his budget speech has proposed to increase the standard deduction limit to Rs 50,000 from current Rs 40,000, a hike of Rs 10,000.
As per the proposals, a hike in standard deduction along with tax rebate will lead to the following tax relief:

Total taxable income (Rs)	Tax relief (Rs)
250,001 to 500,000	Up to INR 13,000*
500,001 to 1,000,000	2,080**
1,000,001 to 5,000,000	3,120**
5,000,001 to 10,000,000	3,432**
10,000,001 and above	3,588**

*Relief for taxpayer with total taxable income in range of INR 250,001 – 500,000 will vary
**For salaried individuals whose taxable income exceeds INR 500,000, the tax relief is only due to proposed increase in standard deduction
Source: EY India

Finance Minister Piyush Goyal has proposed to increase the standard deduction limit to Rs 50,000.