In the Budget 2019, interim finance minister Piyush Goyal brought cheer to the salaried income section of the country after he proposed a full tax rebate on income earned up to Rs 5 lakh in financial 2019-20. The slab for tax rebate was earlier at Rs 3.5 lakh, which means that the tax rebate benefit is now extended to Rs 12,500 from the earlier Rs 2,500 per year.

Things to note:

• Tax slabs remain unchanged for FY 2019-10. Check the tax slab here.
• Basic tax exemption limit remains at Rs 2.5 lakh per annum, which means that for income earned up to Rs 2.5 lakh per year, no income tax needs to be paid.
• For those with taxable income up to Rs 5 lakh will get a rebate.
• If your taxable income exceeds Rs 5 lakh, the same tax rates and tax slabs as that of 2018-19 will be applicable to you.
• Standard deduction has been extended to Rs 50,000 from the earlier Rs 40,000.

The fact that the rebate is on "taxable" income in a year, it allows your salary earned up to Rs 10 lakh per year to become "tax-free". It means that your tax liability for the next financial year can be reduced to zero. Understand how:

What is the difference between taxable income and total income earned in a year?

The total amount of earnings you make from your salary, any rental income that you may get from a house you rent, etc all together make for the total income you earn during a year. Now, there are various provisions under the income tax act that allow a tax exemption on certain investments you make.

For example, you can deduct the part of your salary that goes towards EPF (Employees' Provident Fund) from your total income earned from salary. This way, that taxable part of your income from salary is reduced.

How can you go tax-free on a salary up to Rs 10 lakh?

Two points on understanding how your salary will become "tax-free" despite exceeding Rs 5 lakh

1. Investing in all possible tax exempted investments (which may not be possible for everyone)
2. Reducing your taxable income only to the extent of Rs 5 lakh by making the said investments.

1. Files income tax returns
2. Maxes out their contributions towards investments exempted from tax under section 80C.
3. Makes NPS contribution of Rs 50,000 towards their Tier I account above and beyond the Rs 150,000 limit under section 80C.
4. Pays home loan interest (not principal) of Rs 2 lakh per year on a house.
5. Pays Rs 25,000 per year towards mediclaim for self (or including spouse and children) and additional Rs 25,000 per year towards health insurance of dependent parents (that do not file their own income tax).