Interim Budget 2019: Key Tax Proposals

The Interim Budget 2019, announced by Union Minister for Finance, Corporate Affairs, Railways & Coal, Shri Piyush Goyal, laid out several tax sops for individuals. The schemes have been designed to benefit the middle class. The budget provides for tax benefits of INR 18,500 crore to an estimated three crore middle class taxpayers comprising self-employed, small business, small traders, salary earners, pensioners. and senior citizens.

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Nil Income Tax for individuals with a Taxable Income of up to INR 5 lakh

The finance minister proposed that individuals earning a taxable income of up to INR 5 lakh will not have to pay tax. Thus, a person with an income of INR 6.50 lakh, who claims full benefit under Section 80C of INR 1.50 lakh, will not have to pay tax on his income.

How will this work? The Finance Bill-2019 will amend Section 87A of the Income Tax Act, to allow full tax rebate for those with a taxable income of under INR 5 lakh.

Currently, Section 87A of the IT Act allows a deduction of INR 2,500 for those with a taxable income of up to INR 3.5 lakh. As per the new amendment, the deduction has been increased to INR 12,500 for those with a taxable income of up to INR 5 lakh.

The existing tax slabs and rates will continue for 2019-20. Thus, an individual earning a taxable income of over INR 5 lakh a year, will need to pay a tax of 5% for income falling between INR 2.5 lakh and INR 5 lakh.

Existing Income Tax Slabs:

Income Tax Slabs for Individual Tax Payers & HUF (Less Than 60 Years Old)

Health & education cess: 4%

Thus, an individual with a taxable income of INR 7 lakh would need to pay a tax of INR 32,500 (excluding health & education cess).

The tax calculation will be as below:

In fact, with additional deductions such as interest on home loan up to INR 2 lakh, interest on education loans, National Pension Scheme contributions, medical insurance, medical expenditure on senior citizens etc., persons having even higher income will not have to pay any tax. This will provide tax benefit of INR 18,500 crore to an estimated 3 crore middle class taxpayers comprising self-employed, small business, small traders, salary earners, pensioners and senior citizens.

Standard Deduction raised to INR 50,000

The Standard Deduction available to salaried employees under Section 16 of the Income Tax Act has been increased to INR 50,000.

Last year, the Union Budget 2018-19 introduced an INR 40,000 standard deduction, under Section 16 of I-T Act, for salaried employees and pensioners in lieu of the exemption in respect of transport and medical expenses worth INR 34,200.

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Income Tax Exemption on Notional Rent from second house

The Finance Minister proposed to extend the benefit of self-occupied property to two houses, under Section 23 of the Income-tax Act, if it is vacant. At present, you could only do this with one house property. Thus, even if the second house lies vacant, you are required to pay tax on the notional rental income (calculated as per tax rules).

As per the new proposal, you will not have to pay tax on the same. The Finance Minister announced the relief considering the difficulty of the middle class having to maintain families at two locations on account of their job, children’s education, care of parents etc.

TDS Threshold Increased:

Tax Deduction at Source (TDS) threshold on interest earned on bank/post office deposits, under section 194A of the I-T Act, has been proposed to be raised from INR 10,000 to INR 40,000. Mr. Goyal said, “This will benefit small depositors and non-working spouses.”

Further, the TDS threshold for deduction of tax on rent, section 194-I of the Income-tax Act, has also been proposed to be increased from INR 1,80,000 to INR 2,40,000 for providing relief to small taxpayers.

Increase In Benefit For Rollover Of Capital Gains

Further, the Finance Minister proposed to increase the benefit of rollover of capital gains under Section 54 of the Income Tax Act from investment in one residential house to two residential houses for a taxpayer having capital gains up to INR 2 crore. This benefit can be availed once in a lifetime.

Additional Benefits For Housing Sector

Tax benefits for affordable housing extended till 31st March 2020 under Section 80-IBA of Income Tax Act. Tax exemption period on notional rent, on unsold inventories, extended from one year to two years.

For making more homes available under affordable housing, the benefits under Section 80-IBA of the Income Tax Act is being extended for one more year, i.e., to the housing projects approved till 31st March 2020.

Also, for giving impetus to the real estate sector, the Finance Minister proposed to extend the period of exemption from levy of tax on notional rent, on unsold inventories, under Section 23 of the Income-tax Act, from one year to two years, from the end of the year in which the project is completed.

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