The Union budget 2019 was presented on Feb 1, 2019. There were some tax sops offered to the middle class. A new pension scheme for the workers in the unorganized sector was launched. There was an announcement of guaranteed basic income for certain section of farmers. So, something for everyone.
Here are the highlights.
1. Income tax slabs remain unchanged.
There is misconception that income up to Rs 5 lacs is exempt from tax. Or that 5% tax slab has been done away with. This is not the case.
The tax slab of 5% has not been done away with.
The Government has proposed amendment to Section 87A, which till now provide a tax rebate of Rs 2,500 for income up to Rs 3.5 lacs. This has now been changed to rebate of up to Rs 12,500 for income up to Rs 5 lacs.
This proposed tax benefit applies to you only if your taxable income after deductions (80C, 80D, Section 24, standard deduction, LTA, HRA etc) is up to Rs 5 lacs. No relief if the taxable income after deductions is over Rs 5 lacs.
Let’s consider 2 scenarios.
Scenario 1: Annual Income of Rs 8.5 lacs. Investment of Rs 1.5 lacs in PPF (80C), Health Insurance premium (Rs 25,000, 80D), Interest of housing loan (Rs 1.5 lacs, Section 24)
Net taxable income = 8.5 lacs – Rs 1.5 lacs – Rs 25,000 – Rs 1.75 lacs = Rs 5 lacs
At 5% tax rate, the tax liability is Rs 12,500 before cess. Since the income does not breach Rs 5 lacs, you are entitled to a rebate of Rs 12,500. Net net, you don’t have to pay any tax.
Scenario 2: Annual Income of Rs 15 lacs. Investment of Rs 1.5 lacs in PPF (80C), Health Insurance premium (Rs 25,000, 80D), Interest of housing loan (Rs 1.5 lacs, Section 24)
Net taxable income = 15 lacs – Rs 1.5 lacs – Rs 25,000 – Rs 1.75 lacs = Rs 10.5 lacs
Since the taxable income is in excess of Rs 5 lacs, no tax rebate available here. Your tax liability will remain the same (as was last year).
Here is a table with a few combinations.
2. Standard deduction increased from Rs 40,000 to Rs 50,000. Standard deduction was introduced last year for salaried employees. Depending upon your marginal tax rate, this will provide some relief for salaried employees. Please understand the benefit through Standard deduction is applicable to only to salaried employees or pensioners. So, if you are self-employed, this is inconsequential for you.
3. Relaxation under Section 54 to save tax on the sale of property: You have sold a residential property and have some capital gains from such sale. Till now, one of the ways to save capital gains tax on such a sale was to construct or purchase one new residential property in India. This is under Section 54 of the Income Tax Act. Now, you can purchase or construct two properties to save on capital gains tax. There are a couple of conditions to be met. The said long term capital gains shall not exceed Rs 2 crores. Moreover, you can avail this relief just once (two properties instead of one) in your lifetime.
4. No TDS on interest income up to Rs 40,000 on deposits with bank or post offices.Earlier, this limit was Rs 10,000. This is no tax benefit. This is more about convenience. Earlier, if you had no taxable income or you fell in 5% tax slab, you would have to file income return to claim the money back. Some pain. Given the amount involved was likely to be less, you would have to consider the cost of filing ITR. Wouldn’t be surprised if many people didn’t even claim this excess TDS back. Senior citizens already had their interest income on deposits and savings account up to Rs 50,000 exempt from income tax (TDS for senior citizens was also applicable for interest income on deposits in excess of Rs 50,000). Therefore, no additional relief due to this change for senior citizens.
This change provides relief to those under the age of 60.
5. Government contribution to NPS accounts of central Government employees increased from 10% of salary (Basic + DA) to 14% of salary. This had been notified earlier. Simply reiterated in the budget. Surprisingly, the budget didn’t make mention of the NPS lumpsum withdrawals up to 60% of the accumulated corpus exempt from income tax. Perhaps, this was because this is an interim budget.
6. TDS on rent has been increased from Rs 1.8 lacs to Rs 2.4 lacs. This rule is not applicable to individuals or HUFs. Nothing to worry about for you and me.
7. No tax on notional rent on second self-occupied house. This is a major relief for those who have a second house. Let’s say you stay in Mumbai and have purchased a house there. You own a second house in your home town too, say Delhi. You have not put the house in Delhi on rent. Essentially, Delhi property is your second self-occupied property. As per Section 23 of the Income Tax Act, even though the house in Delhi is not on rent, you will still have to add notional rent on the house in Delhi to your income and pay tax on it. In the Budget 2019, this notional rent concept for the second self-occupied property has been done away with. Do note this is only for the second property. If you own three or more properties and have not put them on rent, you will have to pay tax on notional rent on third property onwards.
Now, this has an interesting repercussion (not favourable) if you have purchased second house on loan. As per law, loss on income from house property (rental income – standard deduction – interest paid on loan) is capped at Rs 2 lacs. Now that there is no notional income on the second house, the interest eligible for tax benefit under Section 24 will also go down. All this when you have a second self-occupied property.
8. Pradhan Mantri Kisan Sammaan Nidhi Scheme launched: Farmers with landholding upto 2 hectares to get Government support of Rs 6000 per annum (3 instalments of Rs 2,000 each). Expected to benefit 12 crore farmers.
9. Pradhaan Mantri Shram Yogi Maandaan Yojana launched: This scheme is for workers in the unorganized sectorearning up to Rs 15,000 per month. Participants will get guaranteed monthly pension of Rs 3,000 per month from the age of 60 till death. Your contribution will depend on age. As per Finance Minister, a person aged 29 will have to invest Rs 100 per month. A person aged 18 will have to invest Rs 55 per month. The Government will make a matching contribution. Personally, I do not see much need for this scheme. Atal Pension Yojana has been quite successful.
Do note this is an interim budget. The full budget will be presented and approved after the new central Government is sworn in. However, it is unlikely that any of favourable changes will be reversed.
How did you like the budget proposals? Let me know in the comments section.