Budget 2019: Personal finance and tax implications of Interim Budget for common man

Updated: February 5, 2019 2:35:27 PM

The Budget 2019 has identified highly-focused stakeholders, including the vast urban and semi-urban middle class, the farmer, MSMEs and the real estate sector at large.

Budget 2019, Union Budget 2019, interim budget 2019, budget proposals, income tax, Personal finance and tax implications of Interim BudgetThere have been some clear benefits in the budget for home owners and second home buyers.

The Union Budget 2019, presented by FM Piyush Goyal on 01st Feb 2019, was a mix of some focused economics and some smart political moves. The budget has identified highly-focused stakeholders, including the vast urban and semi-urban middle class, the farmer, MSMEs and the real estate sector at large. Each of these stakeholders represent not only a vast market and a vast political voter base but also a very strong employment creation potential. Let us see what the budget means to the common man.

Generous payouts to the marginal farmers

The budget announced a generous payout of Rs 6000 per year to 12 crore marginal farmers owning less than 2 hectares of land. This will be effective from December 2018. The argument in the past was that loan waivers were aimed mostly at landed farmers and the landless contract farmers were hardly benefited by these loan waivers. The direct transfer of Rs 6000 per year to 12 crore marginal farmers will entail an annual cost of Rs 75,000 crore, but will address that glaring gap.

Also See: What is your post-Budget 2019 income tax outgo? Calculate now

Tax exemptions to the common man

In a way, this budget has offered some uncommon benefits for the common man in urban and semi-urban areas. Now anyone having taxable income up to Rs 5 lakh per annum will not have to pay any tax. The benefit will be given in the form of a rebate and not as exemption. For example, if you earn Rs 5 lakh, then your current rate of tax will be Rs 12,500 at the tax rate of 5%. This amount of Rs 12,500 will entirely be given back to you as a rebate. In addition, the standard deduction has been increased from Rs 40,000 to Rs 50,000 annually. How significant is this?

Let us consider a taxpayer who earns Rs10 lakh per annum. This person can claim Rs 2 lakh under Section 24 for interest paid on home loan and another Rs 1.50 lakh for Section 80C investments. In addition, the person can pay Rs 50,000 as health insurance cover and invest another Rs 50,000 in the NPS scheme. Effectively, with all these deductions, your net taxable income comes down to Rs 5.50 lakh. Then you can claim Rs 50,000 as standard deduction. Since your net taxable income is now Rs 5 lakh, you are not liable to pay any tax. Why is this illustration important? Remember, we have left out HRA and if that is considered, the benefit can be higher. The point to understand here is that this exemption will incentivize tax payers to make prudent investments and enable them to create wealth while saving tax.

A boost for home owners and potential home buyers

There have been some clear benefits in the budget for home owners and second home buyers. Here are a few key benefits.

# Notional rent on second house will not be considered as taxable income. This will be a big boost for second home investors

# The benefit of Section 80IA has been extended for another one year for low cost housing. This should be a big boost for the growth of low cost housing in India

# Capital gains under Section 54 have also been tweaked. Now the proceeds of sale from one house can be reinvested in two houses up to Rs 2 crore. This will be a boost to people looking to reinvest the proceeds of sale in smaller towns and still retain the tax benefits.

# Above all, realtors are now permitted to hold inventory up to 2 years (instead of 1 year) without paying tax on notional rent on the property. This will make holding inventory more economical for realtors.

A true blue leg-up for the MSME sector

The MSME sector has borne the brunt of demonetization and the GST Bill. The budget has come up with a plan to pay Rs 3000 per month as pension to 10 crore unorganized workers to give them social security in old age with a small contribution monthly. In addition the government has promised the MSMEs 2% interest subsidy on loans if they are GST registered. In addition, 25% of all government outsourcing will be done from MSMEs only. This will be the much needed boost for MSMEs.

There are also additional benefits to the common man like increase in TDS limit for interest on deposit and increase in TDS limit for house rent. This will ease the compliance burden. All in all, this is a budget that has made the common man the nucleus of the budget.

(By Vaibhav Agrawal, VP-Head of Research and ARQ, Angel Broking Ltd)

(Disclaimer: This is his personal opinion and not that of his company)

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