Let’s take a quick look at the key changes in the Interim Budget 2019 from a personal tax perspective, which are now effective from 1st April 2019.
The Finance Minister presented the Interim Budget in February 2019. The Interim Budget 2019 offered benefits to small farmers and the workers in the unorganised sector through interest subventions and pension coverage. It also introduced changes in income tax rules to offer relief to small taxpayers and to the owners of residential properties.
Let’s take a quick look at the key changes in the Interim Budget from a personal tax perspective, which are now effective from 1st April 2019.
Change in tax rebate
Earlier, there was a rebate available for individuals earning annual income up to Rs 3.5 lakh. The total income threshold has now been increased to Rs 5 lakh per annum, resulting in an increase in the tax rebate from Rs 2,500 to Rs 12,500. As the benefit is applicable to individuals having net taxable income up to Rs 5 lakh, this would cover individuals having gross annual income of well over Rs 5 lakh, depending upon the applicable tax deductions.
For instance, where the income of an individual is Rs 925,000 and after considering the eligible deductions, the net taxable income is Rs 5 lakh, there would be no tax liability. Further, as this is not an increase in the basic exemption limit, such individuals would still be required to file their tax returns.
The basic exemption limit and tax slabs applicable for individuals earning total taxable income above Rs 5 lakh, however, remain unchanged.
Change in standard deduction limit
Standard deduction has been increased from Rs 40,000 to Rs 50,000 for salaried individuals (which was introduced in the Budget 2018 in lieu of exemption for medical reimbursement and conveyance allowance). This could perhaps be based on feedback received by, and representations made to, the government that the net benefit from these 2018 changes to salaried taxpayers was negligible. With this change, there is an additional tax saving of up to Rs 3,120 for an individual paying tax at the maximum marginal rate (with taxable income between Rs 10-50 lakh).
Dilution in the concept of deemed to be let out property
One of the changes which has been on the wishlist for many years is in the context of individuals holding more than one self-occupied house property. As per the earlier provisions, where an individual held more than one house property (which is not let out), only one house property could have been considered as self-occupied and notional rental income from other house property(ies) was considered as taxable. This resulted in an additional tax impact without any real income, and even impacted the middle class taxpayers who had to maintain families in two house properties at separate locations, e.g., due to employment or old parents.
The government took cognizance of such genuine hardships and has amended the law to provide relief to the taxpayer by allowing an option to claim NIL annual value in respect of any two houses declared as self-occupied, instead of one such house, as previously provided. It is pertinent to note that the overall permissible deduction for interest on housing loan continues to be limited to Rs 2 lakh for both the house properties.
Capital gains on sale of residential house property
As per the earlier provisions for claiming the capital gains exemption on sale of residential property, the tax benefit was only based on those proceeds from the sale which were invested in one house property. The government acknowledged the capital gains burden on many taxpayers who may sell a residential house property to purchase two smaller properties, because of family needs. Hence, the law has been amended to extend the long-term capital gains exemption benefit even where the sale proceeds of a house property are invested for the purchase of two residential houses. However, the said benefit would be available subject to the following conditions:
# the long-term capital gains from sale of such house property shall not exceed Rs 2 crore, and
# the benefit can be claimed only once in the taxpayer’s lifetime.
Increase in TDS limit on interest earned from banks
The threshold for deduction of tax at source on interest earned from banks and post office deposits has been increased from Rs 10,000 to Rs 40,000. While this is not a tax exemption for deposit holders, this change would benefit small deposit holders such as non-working spouses as it would do away with the hassle of claiming a refund in the tax return where an individual’s annual income is below the basic exemption limit. Further, it also obviates the need for such non-taxable individuals (earning bank interest up to this limit) to submit Form 15G in order to get the banks not to withhold TDS.
While these may seem to be small changes, the Modi government may have succeeded in “putting more money into the hands” of many small tax payers. One should also keep all the above changes in mind while computing the advance tax liability for the financial year 2019-20, the due date for which is 15 April 2019 for the first installment.
(By Alok Agrawal, Partner, Deloitte India; and Deepika Mathur, Director with Deloitte Haskins and Sells LLP. Mona Karnavat, Manager with Deloitte Haskins and Sells LLP, also contributed to the article)