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Worked Examples · Example 19

Q.Income from Salaries is ₹4,00,000 for the financial year 2019-20. Calculate the Income Tax liability if the deductions under LIC are ₹50,000.

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Deduct the Standard Deduction and the LIC (80C) deduction from salary income, apply old-regime slab rates, then apply the Section 87A rebate.

Taxable Income == Salary −- Standard Deduction −- Deductions (u/s 80C); Old-regime slabs (FY 2019-20, individual <60<60 yrs): Nil up to ₹2,50,000; 5% on ₹2,50,001–5,00,000; 20% on ₹5,00,001–10,00,000; 30% above ₹10,00,000. Section 87A: full rebate up to ₹12,500 if taxable income ≤₹5,00,000\le ₹5{,}00{,}000. Health & Education Cess =4%=4\% of tax after rebate.

Given: Income from Salary =₹4,00,000=₹4{,}00{,}000; deduction under LIC (Section 80C) =₹50,000=₹50{,}000.

  1. Standard Deduction (u/s 16(ia)) on salary income =₹50,000=₹50{,}000:

Net Salary=400000−50000=₹3,50,000\text{Net Salary}=400000-50000=₹3{,}50{,}000

  1. Less 80C deduction (LIC ₹50,000, within the ₹1,50,000 cap):

Taxable Income=350000−50000=₹3,00,000\text{Taxable Income}=350000-50000=₹3{,}00{,}000

  1. Apply slab rates: ₹0–2,50,000 → Nil; next ₹50,000 (2,50,001–3,00,000) @5%:

Tax=50000×5100=₹2,500Tax=50000\times\dfrac{5}{100}=₹2{,}500

  1. Section 87A rebate: since taxable income (₹3,00,000) ≤₹5,00,000\le₹5{,}00{,}000, rebate =min⁡(12500, 2500)=₹2,500=\min(12500,\,2500)=₹2{,}500.

Tax after rebate=2500−2500=₹0Tax\ after\ rebate=2500-2500=₹0

  1. Cess 4%4\% of ₹0 =₹0=₹0.
  2. Self-check: taxable income well below the ₹5 lakh rebate threshold, so the entire computed slab tax is wiped out by 87A — total liability is Nil.
✓Final answer

Income Tax Liability =₹0=₹0 (Nil) — fully covered by the Section 87A rebate.

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