The Union Budget 2019 announced a slew of tax breaks to lower the tax burden of taxpayers and brought in some cheer for the common man. According to the budget, all individuals having taxable income up to Rs. 5 lakh will be eligible for tax rebates as per Section 87A of the IT Act. How can one have Zero Income Tax due to Full Tax Rebate even when income is more than 5 lakhs? How can one claim the rebate?

Tax Planning

Put simply, if your net taxable income is up to Rs. 5 lakhs you will not be required to pay any taxes. However, there is no relief given with respect to the income tax slabs. These slabs remain the same as given below:

Zero Income Tax due to Full Tax Rebate for Taxpayers with Annual Income up to Rs. 5 lakhs

As of recently, individual taxpayers having income up to Rs. 3 lakhs were eligible for getting a rebate of Rs. 2,500 under Sec 87A. In Budget 2019, the FM announced to increase this limit to Rs. 12,500, for the taxpayers having taxable income up to Rs. 5 lakhs. An Illustration is given below But, to get this rebate, taxpayers need to file for income tax return.

Consider a person with an annual income of Rs. 5 lakhs. Here’s how his taxable income will look like:

How Taxpayers with Income More Than Rs. 5 lakhs can Have Zero Income Tax

For such individuals, tax saving investments can help reduce their tax liability. Even the budget outlined this fact that the NIL-tax income level can be much higher. This is possible if individuals take advantage of deductions provided by tax saving investments under Section 80C, Section 24, Section 80D, etc. Let’s understand this with the help of the following illustration:

Thus, if your income is above Rs. 5 lakhs, it is absolutely vital that you invest in tax saving investments. However, this does not mean that these investments are not necessary for individuals with income less than Rs. 5 lakhs. Remember this: Investments are tools designed for wealth creation and providing financial security to your loved ones.

Above Rs 10 lakh it will not become difficult to claim the rebate

Tax Saving Options

Finance Minister Arun Jaitley while presenting Budget 2015 said an individual taxpayer will get a tax benefit of Rs. 4,44,200. But the actual tax deduction is 10,22,200 which is much more than 4,44,200 as discussed in our article How much Tax Deductions are available to Salaried Individual Tax Payer

Outlined below are some of the best tax saving options for you:

1. Term Insurance (Section 80C)

You should definitely go for a good online term plan as it comes with high-risk coverage and low cost. Term insurance not only helps secure the future of your near and dear ones in your absence but also helps save tax. You can avail tax deduction up to Rs. 1.5 lakhs per annum on the premium paid for your online term plan. The death benefit is entirely tax-free too.

2. Unit-linked Insurance Plans (Section 80C)

If you are looking for an instrument that offers the benefit of investment and insurance in a single product, then ULIP is your best bet. And like any life insurance product, ULIPs too offer tax benefits up to Rs. 1.5 lakhs under Section 80C.

The best part is, maturity benefits under ULIPs are entirely tax-free under Section 10 (10D). Additionally, insurers like Future Generali offer many benefits with ULIPs such as free switching, multiple fund options catering to different risk profiles, top-up facility and so forth. So, if you are looking to build a tax-free pension for your retirement, go for ULIPs.

3. Equity-linked Savings Scheme (Section 80C)

Equity Linked Saving Scheme (ELSS) is like any other mutual fund schemes, but it provides tax benefits up to Rs 1.5 lakhs per annum. It has the lowest lock-in period as compared to other tax saving options – which is of 3 years. Also, you don’t need a lump sum amount to invest in ELSS. You can simply start your SIP with an amount as low as Rs 500 per month.

4. Health Insurance (Section 80D)

Having health insurance not only provides you with the much needed financial backup during medical emergencies, but also tax benefits under Section 80D. Here’s how:

Summing Up!

These are some investments that can help you invest under different sections of the IT Act and avail tax benefits. So consider some of these options which are best suitable to you based on your risk appetite, investment tenure, and budget.