Budget 2019: Key hits and misses in taxation

Budget 2019: Key hits and misses in taxation

The salaried class has an additional reason to cheer as the limit of standard deduction, which was re-introduced last year, has been enhanced from Rs 40,000 to Rs 50,000.

Budget 2019 is the last budget of the BJP-led NDA government, before the country goes into election mode. While presenting the Interim Budget, the stand in Finance Minister Piyush Goyal doled out several benefits and incentives for the common men. Let's look at some of the key proposals:

While the common man was expecting an increase in the tax exemption limit, the FM has not proposed any change in that area. However, in a major relief to resident taxpayers, with a total income of up to Rs 5 lakh, a tax rebate of Rs 12,500 has been proposed. This will effectively result in nil taxation for such individuals. Very senior citizens (i.e. resident individuals aged 80 years and above) are not impacted by the proposed change as their total income up to Rs 5 lakh was anyway not subject to tax.

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The salaried class has an additional reason to cheer as the limit of standard deduction, which was re-introduced last year, has been enhanced from Rs 40,000 to Rs 50,000. This will result in a maximum tax benefit of up to Rs 3,588.

Another welcome change proposed by the FM Goyal is for individuals owning more than one residential house property. Currently, only one residential house property owned by an individual is allowed as self-occupied and the second house is required to be reported as deemed to be let out, and a notional rental value is to be offered to tax. The FM has proposed to provide an exemption of notional rent on the second house property. It is important to note here that the aggregate amount of deduction towards interest paid on capital borrowed will be restricted to Rs 2 lakh for both the properties. Consequently, after the proposal is passed, an individual will not be able to carry forward the losses from the second house property.

Under the present tax regime, long-term capital gains arising on sale of residential house property was allowed as a deduction because of purchase or construction of residential property in India, subject to fulfillment of prescribed conditions. The FM has proposed to extend the above benefit for purchase or construction of up to two-house properties, provided the amount of capital gains does not exceed Rs 2 crore. This benefit can be claimed only once in a lifetime of an individual or Hindu Undivided Family (HUF).

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As part of the rationalisation of Tax Deducted at Source (TDS) provisions, the threshold limit for applicability of TDS on interest on bank or post office deposits is proposed to be raised from Rs 10,000 to Rs 40,000. This is intended to benefit small depositors and non-working spouses. Further, the TDS threshold limit on rental payment is also proposed to be increased from Rs 1,80,000 to Rs 2,40,000 for providing relief to small taxpayers.

While the above changes are welcome, it is important to mention that in an earlier proposal, pertaining to the National Pension Scheme (NPS), the Union Government had approved enhanced exemption limit from existing 40 per cent to 60 per cent on account of lumpsum withdrawal at the time of the exit from NPS. The said proposal does not reflect in the Finance Bill. It would need to be seen whether the changes pertaining to NPS is incorporated in the final Finance Act, 2019.  

In a nutshell, the Interim Budget 2019 proposes many tax reforms for the benefit of the middle class, which appear to be a step in the right direction.

(Divya Baweja is Partner, Deloitte India; Anurag Jain is Senior Manager with Deloitte Haskins and Sells LLP; and Tarun Garg is Manager with Deloitte Haskins and Sells LLP)

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