The interim Union Budget 2019 echoes the government’s firm commitment to substantially boost investment across the agricultural, social, education and health sectors as well as promote welfare for the economically weak, rural and the urban middle class.
The direct tax proposals put forth in the budget have firmly portrayed the government’s intent to continue extending momentum of the buoyancy in direct taxes and expanding the taxpayer base, with suitable respites.
Direct taxes have shown high buoyancy in the last few years and have been consistently growing at a higher growth rate than that of the nominal GDP. The trend demonstrates increase in tax collection from ₹6.38 lakh crore in the financial year 2013–14 to almost ₹12 lakh crore in the financial year 2018–19; alongside 80 percent growth in the tax base, whereby the number of returns filed increased from 3.79 crore to 6.85 crore.
With a focus on reducing the burden on middle class, the finance minister proposed following critical direct tax propositions:
Standard deduction on salary income
Appreciating the noteworthy role played by the salaried taxpayers, one of the most honest taxpayers in nation building, a standard deduction of ₹40,000/- was allowed from the gross salary last year. The said threshold has now been revised to ₹50,000/- for the financial year 2019–20.
If one were to talk about fulfilling the hopes of salaried taxpayers, a higher value of standard deduction or changes in the existing tax slab rates coupled with increased threshold limit for tax saving investment linked deductions, would have been a welcome move and would have been highly praised by the salaried taxpayers.
Increase in threshold limit for withholding of taxes
In respect of interest income earned from bank / post office deposits, i.e. other than on securities, the threshold limit for withholding of taxes has been proposed to be increased from ₹10,000/- to ₹40,000/-. This is a much appreciated move as it shall largely benefit the small depositors in receipt of such interest income. Furthermore, it shall also liberate them from the hassle of filing Form 15H / 15G or claim refunds of the taxes withheld otherwise, on the formerly lower thresholds.
Also, in relation to taxes withheld on rent paid, has been proposed to be revised to ₹2,40,000/- from₹1,80,000/-, providing relief to a large base of small taxpayers.
Extended benefit in relation to self-occupied property
The benefit of self-occupied property has now been proposed to be extended to two house properties. Earlier, if an individual had more than one house, then apart from the self-occupied property, the second home was subject to income tax on notional rental income. This meant that even if the second house was lying vacant, an individual was required to pay tax on the notional rental income.
The tax rebate shall now be admissible to taxpayers having a total income up to ₹500,000/-, instead of the existing ₹350,000/-. This will provide tax saving of up to ₹12,500/- for all taxpayers in this bracket. Since this is a rebate and not a slab change, it will not impact the tax incidence of those with larger incomes.
Reinvestment of capital gains arising on sale of residential property
The benefit of rollover of capital tax gains has been proposed to be increased from investment in one residential house to that in two residential houses, for a taxpayer having capital gains up to ₹2 crores. However, this can be exercised only once by a taxpayer. The other conditions to get the tax benefit remains the same. This will benefit house owners who want to sell one big property and buy two separate houses to settle children or to divide the family assets. It will also help individuals who own residential properties in metros such as Mumbai and Delhi where property prices are much higher. Such property can be sold and invested in two properties in the rest of the country where prices are relatively low.
Apart from the above legislative changes, a number of initiatives have been taken and fostered to improve compliance on administrative front to augment revenue collections and streamline tax payer services. The key highlights of these initiatives are as follows.
Data warehousing and business intelligence platform
An integrated platform is being rolled out in a phased manner to enable the income-tax department to achieve three goals, viz. promoting voluntary compliance and deterring non-compliance, imparting confidence that all eligible persons pay appropriate tax and promoting a fair and judicious tax administration. The new platform is being used for identifying high risk non-filers, selection of cases for scrutiny and processing of information received under Automatic Exchange of Information (AEOI), Foreign Accounts Tax Compliance Act (FATCA) etc.
E-proceeding was initiated in 2013 and by financial year 2017-18, the facility of e-assessment was extended to the entire country. In financial year 2018-19, majority of scrutiny assessments were completed through electronic mode. Under e-proceedings, all letters, notices, questionnaires, orders issued by any Officer/ Assessing Officer to an assessee will be visible to the assessee in his account on the e-filing portal. Responses submitted by the assessee on the e-filing portal will likewise be visible to the Officer/Assessing Officer. This has drastically reduced the necessity of the assessee to visit the income-tax office.
Other initiatives like setting up of Ayakar Sewa Kendras, implementing well-defined electronic grievance redressal systems aka E-Nivaran, have been expanded in the direction of citizen-centric governance.
From a holistic standpoint, the budget has been perceived as a populist one furthering the economically less privileged masses and the urban middle class. The budget also successfully keeps up with the government’s vision of simplification and rationalisation of the direct tax system to benefit tax-payers, a journey which started in 2016. These achievements combined with the promised non-adversarial tax regime, would definitely boost domestic as well as overseas investors’ confidence in the Indian tax system.
(Views are personal.)
Tehmina Sharma is Partner with Deloitte Haskins and Sells LLP; Riddhi Shah is Senior Manager with Deloitte Haskins and Sells LLP; and Devansh Waghela is Deputy Manager with Deloitte Haskins and Sells LLP