The Finance Minister, Mr. Piyush Goyal, presented the much awaited Interim Budget for 2019; the last one before the upcoming elections due to take place in the month of May.
Let’s take a look at how the interim budget affects the common public, as it is essential for every individual to keep a track of the changes in the laws that will directly have an impact on their livelihood.
To kick it off, a vast majority of people are not considering it to be an ‘Interim’ Budget, but rather an ‘Election’ Budget. It is being alleged that the government is using this last opportunity to get as many votes in the bank as possible, which is why it brings along many benefits for the general public.
Income tax benefits
For starters, one of the highlights of this year’s budget was that any individual having taxable income up to Rs. 5 Lakh per annum will fall into the no-tax bracket, although the benefit will be given in the form of a rebate (Rs. 12,500; earlier it was Rs. 2,500) and not as an exemption. It is to be noted here that an individual having taxable income more than Rs. 5 Lakh will not get the benefit of this rebate.
Technically speaking, a person earning in the range of Rs. 8 – 9 Lakh can also benefit from the tax exemption, if they claim the deductions by investing in the specified instruments – such as investing Rs. 1.5 Lakh under Section 80C of the Income Tax Act, 1961; pay Rs. 2 Lakh interest on home loan (Section 24); contribute Rs. 50,000 to the New Pension Scheme and furthermore buys an medical insurance policy for Rs. 50,000 (Section 80D).
Add to this the benefit provided in the form of increased Standard Deduction of Rs. 50,000 (earlier it was Rs. 40,000). Thus, an individual with an annual income of Rs. 10 Lakh can also fall under the no-tax bracket; although it’s important to keep in mind that the examples given above are taken at the maximum amounts. To give readers an idea about how rebate works, two tables are given below –
For better understanding it is of utmost importance to know the difference between tax exemption (TE), tax deduction (TD) and a rebate (TR). TEs refer to income, expenses, or investments which are out of the purview of tax, i.e. no tax is levied on such exempted items, thereby reducing the taxable income.
TDs are reductions from an individual’s gross taxable income, mainly on account of transportation expenses, tuition fees, medical expenses etc. Like TEs, they also reduce the amount of income subject to tax. TR is where the taxpayer is entitled to a refund when the tax liability is lower than the taxes paid, resulting in a lower tax burden on the individual.
Secondly, the budget also increased the exemption of tax deducted at source on interest earned from banks or post office savings from Rs. 10,000 earlier to Rs. 40,000. Disclaimer: There is a difference between a savings account and savings. The interest earned from a Savings Account, whether with the bank or post office, will not be liable for tax deduction at source (TDS).
Meanwhile, the interest earned on savings from fixed deposits and recurring deposits, will be liable for TDS after it exceeds Rs. 40,000 per annum per bank at the rate of 10% under section 194A of the Income Tax Act, 1961), resulting in more disposable income for the individual at the end of the year.
Property tax benefits
Another significant change announced in the Budget 2019 is for Exemption under Section 54 – the sale of residential property and purchase of another residential property will be eligible to claim the exemption under section 54. This source of income falls under the head Capital Gains.
When the house property is sold, only the amount of long-term capital gains (LTCG) is taxed, and not the entire sale proceeds. Hence, even the exemption will only relate to the LTCG amount and not the sale proceeds. Earlier the exemption was limited to the lower of capital gains amount, or the cost of purchase or construction of the new house property being purchased.
Now, after the change, the assessee will be allowed to claim exemption on purchase of 2 house properties, but the amount of LTCG exempt is limited to Rs. 2 Crore. The following image explains this further.
Now moving onto income from House Property, the change made in the Budget was with regards to notional rent of self-occupied house property. At present, if an individual owns 2 house properties, and the second home is unoccupied or self-occupied, then the individual has to declare a notional rental income, which is furthermore taxable.
This was witnessed as being detrimental to the livelihood of the middle class who had to maintain their families at two locations. Viewing this as an opportunity, Mr. Piyush Goyal suggested that the notional rent on the unoccupied/self-occupied second home be exempt from the levy of tax, thereby reducing the financial burden on the middle class income group families.
A related proposal by the Interim Finance Minister was the increase in the threshold of Tax deducted at source on rent from Rs. 1,80,000 to Rs. 2,40,000, resulting in the landlords benefitting from such a move, seeing that rentals in cities are growing exponentially.
After due consideration of some of the highlights of this year’s Budget, it is safe to say that Mr. Narendra Modi and his cabinet ministry have gone all out to boost disposable income which can be used for investment purposes and wealth creation.
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