Budget 2019: Tax Benefits Explained

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The Interim Budget 2019, announced by Union Minister for Finance, Corporate Affairs, Railways & Coal, Shri Piyush Goyal, laid out several tax sops for individuals. The schemes have been designed to benefit the middle class. The budget provides for tax benefits of  Rs.18,500 crore to an estimated 3 crore middle class taxpayers comprising self employed, small business, small traders, salary earners, pensioners and senior citizens.

Nil Income Tax for individuals with a taxable income of upto Rs 5 lakh

The finance minister proposed that individuals earning a taxable income of upto Rs 5 lakh will not have to pay tax. Thus, a person with an income of Rs 6.50 lakh, who claims full benefit under Section 80C of Rs 1.50 lakh, will not have to pay tax on his income.

How will this work?— The Finance Bill-2019 will amend Section 87A of the Income Tax Act, to allow full tax rebate for those with a taxable income of under Rs 5 lakh.

Currently, Section 87A of the IT Act, allows a deduction of Rs2,500 for those with a taxable income of upto Rs 3.5 lakh. As per the new amendment, the deduction has been increased to Rs 12,500 for those with a taxable income of upto Rs 5 lakh.

The existing tax slabs and rates will continue for 2019-20. Thus, an individual earning a taxable income of over Rs 5 lakh a year, will need to pay a tax of 5% for income falling between Rs 2.5 lakk and Rs 5 lakh.

Existing Income Tax Slabs:

Income Tax Slabs for Individual Tax Payers & HUF (Less Than 60 Years Old)

Income Tax Slabs Tax Rate
Up to Rs2,50,000* Nil
Rs2,50,001 to Rs5,00,000 5% of total income exceeding Rs2,50,000
Rs5,00,001 to Rs10,00,000 Rs 12,500 + 20% of total income exceeding Rs 5,00,000
Above Rs10,00,000 Rs 1,12,500 + 30% of total income exceeding Rs 10,00,000

Health & education cess: 4%

Thus, an individual with a taxable income of Rs 7 lakh would need to pay a tax of Rs 32,500 (excluding health & education cess).

The tax calculation will be as below:

Income Slabs Tax Rate Tax Calculation
Upto to Rs 2,50,000 Nil
Rs 2,50,000 – Rs 5,00,000 5% of (Rs 5,00,000 – Rs 2,50,000) Rs 12,500
Rs 5,00,000 – 10,00,000 20% of (Rs 7,00,000 – Rs 5,00,000) Rs 40,000
Above Rs 10,00,000 30% Nil
Tax Rs 52,500
Cess 4% of Rs 52,500 Rs   2,100
TOTAL TAX Rs 54,600

 

In fact, with additional deductions such as interest on home loan up to Rs.2 lakh, interest on education loans, National Pension Scheme contributions, medical insurance, medical expenditure  on senior citizens etc, persons having even higher income will not have to pay any tax. This will provide tax benefit of  Rs.18,500 crore to an estimated 3 crore middle class taxpayers comprising self employed, small business, small traders, salary earners, pensioners and senior citizens.

Standard Deduction raised to Rs 50,000

The Standard Deduction available to salaried employees under Section 16 of the Income Tax Act has been increased to Rs 50,000.

Last year, the Union Budget 2018-19 introduced an Rs 40,000 standard deduction, under Section 16 of I-T Act, for salaried employees and pensioners in lieu of the exemption in respect of transport and medical expenses worth Rs 34,200.

Income Tax Exemption on Notional Rent from second house

The Finance Minister proposed to extend the benefit of self-occupied property to two houses, under Section 23 of the Income-tax Act, if it is vacant. Presently, you could only do this with one house property. Thus, even if the second house lies vacant, you were required to pay tax on the notional rental income (calculated as per tax rules).

As per the new proposal, you will not have to pay tax on the same. The Finance Minister announced the relief considering the difficulty of the middle class having to maintain families at two locations on account of their job, children’s education, care of parents etc.

TDS threshold increased

Tax Deduction at Source (TDS) threshold on interest earned on bank/post office deposits, under section 194A of the I-T Act, has been proposed to be raised from Rs.10,000 to Rs.40,000. Mr Goyal said, “This will benefit small depositors and non-working spouses.”

Further, the TDS threshold for deduction of tax on rent, section 194-I of the Income-tax Act, has also been proposed to be increased from Rs.1,80,000 to Rs.2,40,000 for providing relief to small taxpayers.

Increase in benefit for rollover of capital gains

Further, the Finance Minister proposed to increase the benefit of rollover of capital gains under Section 54 of the Income Tax Act from investment in one residential house to two residential houses for a taxpayer having capital gains up to Rs. 2 crore. This benefit can be availed once in a lifetime.

Additional benefits for housing sector

Tax benefits for affordable housing extended till 31st March, 2020 under Section 80-IBA of Income Tax Act. Tax exemption period on notional rent, on unsold inventories, extended from one year to two years.

For making more homes available under affordable housing, the benefits under Section 80-IBA of the Income Tax Act is being extended for one more year, i.e., to the housing projects approved till 31st March, 2020.

Also, for giving impetus to the real estate sector, the Finance Minister proposed to extend the period of exemption from levy of tax on notional rent, on unsold inventories, under Section 23 of the Income-tax Act, from one year to two years, from the end of the year in which the project is completed.

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