There were many expectations from the Interim Budget 2019 as it was expected that the middle class and salaried taxpayers would get some relief in personal taxes. The interim finance minister did try to address some of their aspirations. Here are some of the changes from a personal taxation perspective:
Change in tax rates:
While the tax rates have been left unchanged, resident tax payers having total income up to ₹500,000 will not have to pay any taxes as the limit for rebate under section 87A has been increased to ₹500,000 from the current limit of ₹350,000. Thus, taxpayers with total income up to ₹500,000 need not pay any taxes. Further, the gross total income which will not be liable to tax, could increase beyond ₹700,000 because of standard deduction/ contribution to investments eligible for deduction under section 80C, expenses eligible for deduction under section 24/80D/80E etc.
Increase in standard deduction for salaried individuals
Currently, salaried individuals could claim a relief up to ₹40,000 as standard deduction. This limit is now being increased to ₹50,000.
No notional rent on second house property:
Currently, an individual having more than 1 house property and occupied for self-use, needs to pay tax on the deemed rental value of one house property. The FM has now sought to remove this notional amount from tax by permitting 2 house properties to be considered as self-occupied house properties.
Interest payable on self-occupied property
With 2 house properties now being eligible to be classified as self-occupied house properties, it has been clarified that the deduction for interest payable on home loan in respect of both the self-occupied properties shall be restricted to ₹2 lacs.
Exemption for investment in 2 residential house properties
Currently, section 54 provides for an exemption from long-term capital gains if the gains are invested in purchase/construction of a residential house property. The Budget seeks to extend this relief to individuals who purchase/construct 2 residential house properties. However, this exemption can be availed if the capital gains do not exceed ₹2 crore. Further, this benefit can be availed only once in a lifetime by the assesse.
Increase in threshold limit for not withholding of taxes at source on interest income
Currently, if a banking company /co-operative society or post office pays interest income on time deposits in a financial year in excess of ₹10,000, then they are liable to withhold taxes at source @10% of the amount paid/payable. This limit is now sought to be increased to ₹40,000 per financial year. Consequently, individuals who had to follow up for refunds because of excess withholding of taxes will now be relieved because of this amendment.
Speedy processing of tax returns/refunds
In addition to the various reliefs provided by the Finance Minister, he also clarified that taxpayers could expect a more transparent and speedy tax machinery. Some of the measures like processing of returns and refunds within 24 hours, reducing interface between the assesse and the tax officers during scrutiny process, will certainly bring relief to all categories of individuals.
Thus, the government has tried to do a balancing act by providing some relief in taxes to salaried individuals and to the middle class. Further improving the efficiency of the tax machinery is also a welcome measure.
Homi Mistry is partner, Deloitte India; and Ajay Nahata is senior manager with Deloitte Haskins and Sells LLP