Finance Minister Piyush Goyal presented India’s budget for the financial year 2019-20 on 1st of February, 2019. Being an interim budget, no major policy announcements were expected or made from this budget. However, being the last budget of the present government, there were also some expectations of extra sops to woo the voters.
While the government resisted the temptation to go all out on sops, the focus on farmers was hard to miss. An income guarantee scheme was announced for poor and marginal farmers of Rs. 6,000 per year. Goyal also laid out the government’s agenda for the next ten years, dubbed Vision 2030.
However, to fund the welfare programs, the government needs money. And this money comes from taxes. Hence it is difficult to give tax sops while also increasing welfare spending. The Finance Minister, therefore, extolled the virtues of paying tax and hailed the role of taxes in nation building in his budget speech.
Given this, the proposals which impact you, as a taxpayer, were small and few, Further, as it is an interim budget, it would not contain major changes on the tax front. While the tax proposals are few, it could significantly impact many of you.
Here is a gist of provisions that may impact your tax outgo in the upcoming financial year.
- Rebate u/s 87A of the Income Tax Act is up from Rs. 2,500 to Rs. 12,500. This is now applicable for taxpayers having taxable income up to Rs. 5 Lakh. This rebate will only be available if the investor’s taxable income is below Rs. 5 Lakh. It will not be available for those with taxable income of over Rs 5 lakh. The rebate is currently applicable for individuals with taxable income of up to Rs 3.5 lakh and the rebate amount at Rs 2,500. Taxable income is income after reducing deductions u/s 80C, 80D, and 80E and home loan interest u/s 24b.
- Standard deduction for salaried individuals increased from Rs. 40,000 to Rs. 50,000. This deduction is available only for income from salary.
- TDS (tax deducted at source) threshold on bank and post office deposits increased from Rs. 10,000 to Rs. 40,000. Banks will not deduct TDS if interest income from all deposits is less than Rs. 40,000. Note that the interest income still remains taxable in your hands. This is not an exemption of interest income. You will still have to declare the income and pay the tax yourself.
- Second self-occupied house property will be tax-free. Earlier if an assessee had two house properties, tax was required to be paid on the notional rent of any one of the houses. This has now been changed such that an assessee has the option of not considering notional rent for up to two self occupied properties.
- Exemption u/s 54 extended to two houses up to Rs. 2 crore. If a person sells a residential property, earlier they could avail the exemption by reinvesting the sales proceeds in one residential property. Now the assessee can invest capital gains up to Rs 2 crore in a maximum of 2 properties.
- Processing of I-T returns will be done in 24 hours for returns filed online. Refund will also be issued at the same time, if there is no dispute.
- TDS on rental income increased from Rs 1,80,000 to Rs 2,40,000 per annum: Rental income paid by non-individuals was subject to TDS if it exceeded Rs 1,80,000 per annum. The budget increases this to Rs 2,40,000.
As you can see, there are no wholesale changes anywhere. That said, if you have an income Rs. 5-7 lakh, you may be able to avail a benefit of up to Rs. 13,000 due to the tax rebate. You can do this by making investments in tax saving instruments like ELSS mutual funds to bring your income to the Rs 5 lakh threshold for tax rebate. For salaried individuals earning more than this, your benefit will be limited to Rs. 2080 (for people in 20% tax bracket) or Rs. 3120 (for people in 30% tax bracket) due to the increase in the standard deduction.
Here is a quick glance at how much you will save on tax at different levels of income:
| Taxable income | Savings in Tax | How you save |
|---|---|---|
| 3,00,000 | Nil | |
| 3,50,000 | 2,600 | Higher rebate u/s 87A |
| 5,00,000 | 13,000 | Higher rebate u/s 87A |
| 6,00,000 | 2,080 | Increase in standard deduction u/s 16(ia) |
| 10,00,000 | 2,080 | Increase in standard deduction u/s 16(ia) |
| Above 10,10,000 | 3,120 | Increase in standard deduction u/s 16(ia) |
| The amount of savings in tax includes 4% Health & Education cess | ||
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