Basic exemption limit is an amount applicable to a financial year up to which an individual will not be liable to pay income tax. Income in excess of this limit will be liable to tax at the rate that is applicable to the financial year in which such incomes are incurred.
Basic exemption limit is considered on the total income that is arrived after deducting Income Tax deductions as applicable to the individual for the financial year from their gross total income.
Anyone having taxable income less than the basic exemption limit will not be liable to income tax.
Every year in our budget, finance manager specifies the limit up to which a tax payer will not be liable to income tax for the relevant assessment year.
If such exemption limit is not changed then last year exemption limit will be applicable for the current year.
During 2015 budget, basic exemption limit has not been changed as last year limit will be applicable for this year i.e. for the assessment year 2016-2017 and 2015-2016. Followings are the basic exemption limit for an individual up to which such individual is not required to pay income tax;
|Type of Individual||Limit in Rupees For AY 2015-2016 & 2016-2017|
|Male person less than 60 years of age||2, 50,000|
|Woman assessee less than 60 years of age||2, 50,000|
|Individual with age 60 to 79 years||3, 00,000|
|Individual with age 80 years or more||5, 00,000|
To calculate income tax, you first need to find out basic exemption limit that is applicable to you. You need not pay tax up to the limit that is applicable to you. Any income above this limit will be liable to income tax at the rate that is in force for the assessment year.
Basic exemption limit is applicable to individuals, HUF, AOP and BOI. It is also applicable to those individuals whose is a non resident in India. However, in this article we are discussing about limit that are applicable to an individual.
Individuals having income more than the basic exemption limit will be liable to tax at a rate that is applicable to them for the financial year. For the financial year ending 31st march 2015 (A.Y. 2015-2016) and 31st march 2016 (A.Y. 2016-2017) following IT rates are applicable once the basic exemption limit is crossed.
|Individual less than 60 years of age||Individuals 60 years old but less than 80 years of age||Individuals 80 years or more than 80 years of age|
|10%||2, 50,001 to 5, 00,000||3, 00,001 to 5, 00,000||Not Applicable|
|20%||5, 00,001 to 10, 00,000||5, 00,001 to 10, 00,000||5, 00,001 to 10, 00,000|
|30%||10, 00,001 and above||10, 00,001 and above||10, 00,001 and above|
Let us consider a small example to understand how this basic exemption limit works.
Mr. Gopalkrishnan aged 45 years is working in a private limited company as a software engineer whose taxable salary after taking out Income Tax deduction is Rs. 6, 50,000 for the financial year 2014-2015.
As per the Income Tax provisions basic exemption applicable to Gopalkrishnan is Rs. 2, 50,000. It has to be calculated on Rs. 4, 00,000 (650000 – 250000). We know that from 250001 to 500000 incomes, tax rate is 10% and then 20% will be applicable to the next bracket of income i.e. 500000 to 1000000.
|Slab rates||Tax percentage||Calculation||Tax to be paid|
|0-2, 50,000||0%||0% on 2, 50,000||0|
|2, 50,001 to 5, 00,000||10%||10% on 2, 50,000||25, 000|
|5, 00,001 to 6, 00,000||20%||20% on 1, 00,000||20, 000|
|Total Income tax||55, 000|
|Surcharge and Cess||3%||30% on 50, 000||1, 650|
|Income tax liability||56, 650