Union Budget 2019: The Interim Budget 2019, being the last budget before the country goes for polls in a few months, widely focused on providing relief to the middle-class taxpayers, small farmers and workers in the unorganized sector.
Here are the key takeaways of this year’s interim budget, which according to me, had a fair number of hits and misses:
> Relief to middle-class taxpayers: Two major announcements focusing on the middle class have brought a much-needed sigh of relief for this segment of tax payers. The first involve full rebate to those with a taxable income of up to Rs 5 lakh and the second one involving an increase in standard deduction from Rs 40,000 to Rs 50,000. Both these moves are expected to boost consumer spending and investment.
>Boost to affordable housing industry: The extension of Section 80IBA benefits for one more year has given a much-needed boost to the housing industry. This move will make more homes available in the affordable housing segment and assist in achieving the government’s aim of ‘Housing for All by 2022’.
>Tax relief for homeowners: In this year’s budget announcement, twin benefits have been extended to home owners. Firstly, for those who had to keep two house properties, the notional rent on second self-occupied house has been proposed to be waived off. Secondly, the benefit of roll over of capital gains up to Rs 2 crore has been increased from one residential house to two residential units, under Section 54 of the Income Tax Act. This move is expected to increase demand in the housing industry. However, such home owners must remember that they can claim this benefit only once in a lifetime.
>LTCG tax on equities and equity mutual funds not scrapped: Since equity market plays a vital role in the capital formation as well as overall development of economy, the removal of LTCG tax on stocks and equity mutual funds would have gone a long way in increasing the equity penetration, encouraged fresh inflows from retail investors and improved the overall investor sentiment. Moreover, this removal would have brought equities and equity mutual funds on tax parity with other equity-related investment options such as ULIPs and NPS, which still enjoy exemption from LTCG tax.
>No increase in deduction limit under Section 80C: An increase in the maximum deduction limit under section 80C would have helped in solving two major problem areas. One is the over-crowding of section 80C due to various compulsory payouts such as home loan principal repayment, children’s tuition fee, life insurance premium etc. which often leave no incentive for tax payers to save and invest in PPF, tax saving fixed deposits, ELSS, NPS, etc. Secondly, the issue of downfall in India’s household savings rate from over 23.6% in FY12 to about 16.3% by March FY17 would have received a helping hand through an increase in 80C limit to about Rs 2.5-3 lakh, and boosted the long-term investment in financial assets and helped in improving the long-term financial security of middle class households.
>No reintroduction of Section 80EE: Over and above the home loan interest repayment benefit of up to Rs 2 lakh in a financial year, the section 80EE extends an additional deduction of Rs 50,000 for first time home buyers, on interest repayment of home loan availed during financial year 2016-17, provided the loan amount doesn’t exceed Rs 35 lakh and the property’s value is up to Rs 50 lakh. Since this benefit was primarily aimed at boosting the affordable housing, a reintroduction of this additional deduction for all fresh first home purchases in the affordable housing segment would have assisted in further boosting the housing demand and also achieve the policy objective of ‘Housing for All’.
(By Naveen Kukreja. The author is CEO & Co-founder, Paisabazaar.com)