Income Tax Act and the Different Threshold Limits

There are different threshold limits on the deductions and exemptions under various Sections of the Income Tax Act, 1961. Typically, the limits are set on the tax rates, leave encashment, house rent allowance, conveyance allowance, etc.
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Different threshold limits are imposed by the Income Tax Act, 1961, so far as exemptions and deductions are concerned, such as tax rates and deductions under Section 80C, Section 80D, Section 80U, etc. A few of the most common limits are set on tax rates, house rent allowance, leave encashment, conveyance allowance, medical reimbursement, home loan interest, gratuity, etc.

Here are the different threshold limits specified under the I-T Act for FY 2018-19:

Basic Exemption

Particulars Threshold Limit
Maximum income amount that is not subject to tax (for individuals, Hindu Undivided Families, Bodies of Individuals, Association of Persons, and Artificial Judicial Persons) Rs.2.5 lakh
Surcharge that will be levied at 10% of the tax amount in case the net income exceeds Rs.50 lakh but remains under Rs.1 crore (for individuals, Hindu Undivided Families, Bodies of Individuals, Association of Persons, and Artificial Judicial Persons) Rs.50 lakh
Surcharge that will be levied at 15% of the tax amount in case the net income is more than Rs.1 crore (for individuals, Hindu Undivided Families, Bodies of Individuals, Association of Persons, and Artificial Judicial Persons) Rs.1 crore
Maximum income amount that is not subject to tax (for senior citizens) Rs.3 lakh
Maximum income amount that is not subject to tax (for super senior citizens) Rs.5 lakh
Surcharge that will be levied at 12% of the tax amount in case net income is more than Rs.1 crore (for firms, local authorities, and co-operative societies) Rs.1 crore
Surcharge that will be levied at 7% of the tax amount in case net income is more than Rs.1 crore, and at 12% in case the net income is more than Rs.10 crore (for domestic companies) Rs.1 crore/Rs.10 crore
Surcharge that will be levied at 2% of the tax amount in case the net income is more than Rs.1 crore, and at 5% in case the net income is more than Rs.10 crore (for foreign companies) Rs.1 crore/Rs.10 crore
25% tax for domestic companies in case the gross receipt or the overall turnover of the company in the past year was less than Rs.250 crore Rs.250 crore

Income from Salary

Particulars Section Threshold Limits
Entertainment allowance (exemption granted only to government employees) 16(ii) Rs.5,000, or the actual entertainment allowance received, or one-fifth of the salary, whichever is the lowest
Encashment of unused earned leaves when the employee is retiring (for employees apart from those working with the government) 10(10AA) The amount actually received by the employee, or 10 months’ average salary, or unused earned leave x average monthly salary, or Rs.3 lakh, whichever is the lowest
Retrenchment Compensation given to employees under the Industrial Disputes Act, 1947 10(10B) Rs.5 lakh, or the amount actually received by the employee, or an amount determined under Section 10(10B) of the Industrial Disputes Act, whichever is the lowest
Death-cum-Retirement Gratuity offered to employees apart from those who work for the government, provided they are covered under the Gratuity Act, 1972 10(10) Rs.20 lakh, or (15/26) x last drawn salary x no. of completed years of service, or the gratuity amount actually received, whichever is the lowest
Death-cum-Retirement Gratuity offered to employees apart from those who work for the government and are not covered under the Gratuity Act, 1972 10(10) Rs.10 lakh, or 1/2 x average salary x number of completed years of service, or the gratuity amount actually received, whichever is the lowest
Sum received on Voluntary Separation or Voluntary Retirement 10(10C) Rs.5 lakh, or the actual amount received under the guidelines, which can be the lowest of the following: three months’ salary for every completed year of service, or the salary at the time the employee retires x the number of months of service remaining until retirement date
Hostel Expenditure Allowance 10(14) Maximum of Rs.300 per month for each child (maximum of two children)
Children Education Allowance 10(14) Maximum of Rs.100 per month for each child (maximum of two children)
Transport Allowance received by an employee to commute from residence to workplace 10(14) Maximum of Rs.3,200 per month (for handicapped and blind employees)
Transport Allowance received by employees working in transport businesses 10(14) Rs.10,000 per month or 70% of the allowance, whichever is lower
Special compensatory allowance for those residing in hilly areas 10(14) Rs.300 to Rs.7,000 per month
Allowance to retired members of Union Public Service Commission/Chairman of Union Public Service Commission 10(45) Maximum of Rs.14,000 per month
Difficult area, border area, disturbed area, or remote locality allowance 10(14) Rs.200 to Rs.1,300 per month
Tribal area allowance for Tamil Nadu, Assam, Madhya Pradesh, Uttar Pradesh, Tripura, West Bengal, Karnataka, Orissa, and Bihar 10(14) Maximum of Rs.200 per month
Compensatory Modified Area Allowance 10(14) Maximum of Rs.1,000 per month
Compensatory Field Area Allowance 10(14) Maximum of Rs.2,600 per month
Counter Insurgency Allowance 10(14) Maximum of Rs.3,900 per month
Underground Allowance granted to those who work in unnatural, uncongenial climate in underground mines 10(14) Maximum of Rs.800 per month
High Altitude Allowance given to armed forces operating in high altitude regions 10(14) Maximum of Rs.1,060 per month for those who work in altitudes between 9,000 and 15,000 feet, and maximum of Rs.1,600 per month for those who work above 15,000 feet
Island Duty Allowance given to those who work for the armed forces in Lakshadweep and Andaman and Nicobar 10(14) Maximum of Rs.3,250 per month
Highly active field area allowance given to those who work with the armed forces, subject to certain locations and conditions 10(14) Maximum of Rs.4,200 per month
Standard deduction granted to salaried individuals 16(ia) Maximum of Rs.40,000
Costs incurred by employees for offering educational facilities to employees’ children Rule 3 Maximum of Rs.1,000 per month per child
Tax on contribution by the employer to approved superannuation funds 17(2)(vii) Up to an amount in excess of Rs.1.5 lakh per annum (N/A in case employer’s contribution per year is Rs.1 lakh or lower)
Free meals offered to employees Rule 3 If the maximum cost of the meal is Rs.50
Cost of gift given by employee to employer Rule 3 Maximum of Rs.5,000 in case gift is given in kind

Income from House Property

Particulars Section Threshold Limit
Standard deductions 24(a) 30% of yearly value
Interest incurred on borrowed capital for acquisition or construction of self-occupied house property 24(b) Maximum of Rs.2 lakh
Interest incurred on borrowed capital for renewal or repair or reconstruction of self-occupied house property 24(b) Maximum of Rs.30,000

Income from Profits and Gains of Business or Profession

Particulars Section Threshold Limit
Deduction under Section 32AC of the Income Tax Act can be availed if actual value of acquisition and installation of new plant and machinery by manufacturing companies after March 31, 2013, but before April 1, 2015, is more than Rs.25 crores 32AC 15% of the actual value of acquisition and installation of new asset
Deduction under Section 32AC of the Income Tax Act can be availed if actual value of acquisition and installation of new plant and machinery by manufacturing companies after March 31, 2013, but before April 1, 2015, is more than Rs.100 crores 32AC 15% of the actual value of acquisition and installation of new asset
Under Section 35CCC, the agricultural extension projection may be approved in case the expenditure to be incurred on said project is more than the threshold limit 35CCC Rs.25 lakh
If the cost incurred on stamp duty is more than the consideration received on the transfer of an immovable property, the whole cost of consideration will be deemed to be the same as the cost of stamp duty 43CA In case cost of stamp duty is not more than 105% of the consideration received, the whole value of consideration will be deemed to be the same as the consideration received
Mandatory maintenance of accounting books – specified profession 44AA Entities carrying on specified profession
Mandatory maintenance of accounting books – other profession or business 44AA In case the gross receipts or overall turnover or sales are more than Rs.10 lakh, or in case the income from business or profession is more than Rs.1.2 lakh in either one of the 3 years immediately before the previous year
Mandatory audit of accounting books 44AB In case the gross receipts or overall sales or turnover is more than Rs.1 crore in any previous year (for business), or if gross receipts are more than Rs.50 lakh in any previous year (for profession)
Calculation of income from qualified business on presumptive basis u/s 44AD of the Income Tax Act 44AD Presumptive income of qualified business will be 8% of overall turnover or gross receipts (in case said turnover is less than Rs.2 crore)
Limit on cash payments for liability or expenses 40A(3) Rs.35,000 for payments in respect of leasing, hiring, or plying of goods carriage, and Rs.10,000 (overall payment to an entity in a single day)
Calculation of income from qualified profession on presumptive basis u/s 44ADA of the Income Tax Act 44DA The presumptive income will be 50% of the overall gross receipt in case the overall gross receipts from said profession are less than Rs.50 lakh in the previous year
Presumptive income from business of leasing, hiring, or plying of goods carriage in case assessee owns no more than 10% of the goods carriage 44AE Rs.1,000 for each ton of the gross vehicle weight in case of Heavy Goods Vehicle, and Rs.7,500 for each month during which the assessee owns the goods carriage
Domestic Transfer Pricing shall be applicable in case the aggregate value of transactions over the course of the year is more than the threshold limit 92BA Rs.20 crores
Alternate Minimum Tax (for individuals, Hindu Undivided Families, Association of Persons, or Body of Individuals) 115JC 18.5% of adjusted overall income (plus education cess and surcharge) provided the adjusted overall income is more than Rs.20 lakh
All persons who have entered into a certain domestic transaction or a global transaction will have to maintain certain documents and information Section 92D In case the aggregate value that is recorded in the accounting books of global transactions is more than Rs.1 crore

Income from Capital Gains

Particulars Section Threshold Limit
Interest or share in an overseas entity or company will be deemed to be located in India, in case such assets directly or indirectly derive their value mostly from the assets situated in the country, subject to the value of the assets being more than the specified limit 9(1)(i) In case the value of assets is more than Rs.10 crore, and it represents a minimum of 50% of the value of the overall asset holdings of the entity or the company
In case the stamp duty value is more than the consideration received for the transfer of immovable property, the whole value of the consideration will be deemed to be the same as the value of stamp duty 50C In case the value of stamp duty is not more than 105% of the consideration received, the whole value of the consideration will be deemed to be the same as the consideration received
Long-term capital gain exemption in case the gain is invested by a taxpayer in units of a fund as specified by the Centre to finance start-ups 54EE Capital gains or investment in new assets, whichever is less, subject to a maximum of Rs.50 lakh
Investment made by taxpayers in bonds of REC or NHAI, etc. from LTCG that arises from the transfer of immovable property over the course of the financial year 54EC Rs.50 lakh
Tax on LTCG that arises from equity share transfers 112A No LTCG will be applicable in case the gain is less than Rs.1 lakh

Income from Other Sources

Particulars Section Threshold Limit
Gifts with insufficient consideration or without consideration from non-relatives 56 Exemption granted to gifts under Rs.50,000
Transfer of immovable property for insufficient consideration 56 In case the value of stamp duty is more than Rs.50,000 or an amount that is worth 5% of the consideration
Standard deduction for family person 57(iia) 33.33% of family pension, maximum of Rs.15,000
Dividend received from a local company by an Indian resident (apart from local company and certain trusts, funds, instructions, etc.) will be taxed at 10% 115BBDA In case the dividend amount received over the course of the year is more than Rs.10 lakh

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