Union Budget 2019: A revolutionary Interim-budget

Published: February 1, 2019 6:37:46 PM

Expert Opinion on Union Budget 2019: Budget 2019 is a revolutionary Interim-budget deviating from the past practice and acknowledging that the country need not wait for tax reforms.

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Union Budget 2019: Budget 2019 is a revolutionary Interim-budget deviating from the past practice and acknowledging that the country need not wait for tax reforms. The FM announced block-bolstered relief to middle
strata of the population from direct taxes and addressed the concern of the farmers and rural economy. Moving away from the convention, this interim budget did not shy away from making the much-awaited tax reforms for the salaried and middle-class taxpayers.

Tax perks for the middle-class

Interim-budget 2019 has filled the pockets of middle-class taxpayers with tax perks. The most talked about being the tax rebate of Rs 12,500 for individuals earning taxable income of up to Rs 5,00,000. This is a win-win change for the taxpayer and the government. Ensuring that there is not much fiscal impact owing to loss in tax revenue, and at the same time, a huge chunk of taxpayers also stand pleasantly surprised.

Series of tax perks are there to relish for the middle-class taxpayers. Standard deduction increase from  Rs 40,000 to Rs 50,000 shall give some respite to the salaried class who were craving for a better standard deduction than that announced last year. Increase in threshold for TDS on interest from deposits with the bank, post office and co-operative society from Rs 10,000 to Rs 40,000 shall address the genuine concerns of many who prefer to save rather than invest. Increase in Gratuity limit from Rs 10,00,000 to Rs 20,00,000 is quite encouraging and should provide some reprieve to the salaried class.

Tax reforms with a dual purpose

Certain tax benefits serve a dual purpose, one gives a tax cherry to the taxpayers and at the same time boost the lagging real estate sector. Real estate sector got the attention that it was longing for. A series of amendments made to give the required impetus to boost the lagging Real Estate Sector.

  • An exemption under section 54 for long-term capital gain arising on sale of house property shall now be available on 2 residential houses for gains to 2 crore. This change is meant to address the concerns of those who sell their existing house and buy two smaller houses for their children. As per the erstwhile section 54, LTCG exemption could be claimed only if the capital gains were invested in purchasing 1 residential house property. This led to a limitation on a claim of LTCG exemption up to value of ‘1’ new residential house property. However, in order to limit the misuse of this benefit, this benefit can be availed only once in a lifetime.
  • Addressing the concern of those who owned one house but had to buy another owing to a different place of work or place of education of their children, the benefit of exemption from tax on self-occupied property has been increased to two house properties. Such people can now claim exemption from tax on notional rent for two house properties.
  • In this slow real estate market, builders had a pile of inventory, on which they were liable to pay tax after 1 year. The period of exemption for levy of income tax on notional rent on unsold inventories has been increased from 1 to 2 years.
  • To boost the affordable housing scheme of the Government benefits under Section 80-IBA of the Act has been extended to cover housing projects approved till March 31, 2020.

One more area where home-buyers were seeking relief was an increase in the existing deduction of Rs 2 lakhs for interest on the home loan, but no change has been announced on this front. With home loan rates on the rise and inflation picking on the pockets of the taxpayers indirectly, this tax benefit would have addressed a concern of the taxpayers.

Budget – a no news for India Inc. 

When Finance Minister acknowledged during his speech that ‘India is that 2nd largest hub of Start-ups’, hopes
raised that the concerns of start-ups would be addressed and the monster of “Angel Tax” shall be put to rest, but no announcement was made on this front. Instead, CBDT just issued a circular today, putting in place the mechanics to give effect to the changes brought by DIPP’s notification dated January 16, 2019.

It was also expected, that the government will announce unconditional applicability of corporate tax rate of 25% to all the Indian corporates. This could have painted a bright picture of India on the world map, with corporate tax rates hitting newer lows worldwide. But, to India Inc.’s dismay, no announcement was made in this regard too.

Guess the corporates will have to wait for the final budget to address their concerns, if at all!

  • By- Rakesh Nangia, Managing Partner, Nangia Advisors Andersen Global. The views expressed are the writer’s own. 

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