Being the first Union Budget post the elections, there were expectations that this Budget would provide some relief to common man and bring down the personal tax rates.
Contrary to such belief, no changes have been made to income slabs presumably because certain sops were already provided in the Interim Budget announced earlier this year prior to elections. While the slabs remain unchanged, an additional surcharge has been imposed for super rich having income above Rs 2 crores. The Budget proposals provide an increase in surcharge from 15% to 25% for individuals having income exceeding Rs 2 crore but less than Rs 5 crores. Similarly, the surcharge stands increased from 15% to 37% for individuals earning income over Rs 5 crores. This essentially means that the effective tax rate increases from 35.88% to 39% for individuals earning income from Rs 2 crores to Rs 5 crores and almost 43% for individuals earning income above Rs 5 crores.
With a commitment towards affordable housing, the Finance Minister Nirmala Sitharaman proposed a deduction of Rs 150,000 towards housing loan interest payment provided the loan is sanctioned during the period April 2019 till March 31, 2020. However the same is subject to the condition that the stamp duty value of the residential house does not exceed Rs 45 Lakhs and the individual does not own any residential property on the date of sanction of the loan. Interestingly, the Finance Minister in her speech indicated that this deduction of Rs 150,000 will be in addition to the existing deduction of Rs 200,000 available as interest on self-occupied house property. Similarly, to promote the usage of E-vehicles, the Budget proposes a deduction of Rs 150,000 towards interest paid on loan obtained for the purchase of e-vehicles, provided such loan is obtained from April 1 2019 to March 31, 2023.
The Government has always been advocating the move towards National Pension Scheme (NPS). With a view to incentivise the move towards NPS further, the Budget proposes to exempt the entire lumpsum withdrawal of NPS. As a backdrop, subscribers to NPS, upon attaining the age of 60 years, are allowed to withdraw 60% of the entire corpus as lumpsum -out of which 40% of the entire corpus is tax exempt and remaining 20% is taxable. There is a proposal to enhance the exemption limit for lump sum withdrawal from existing 40% to 60% thereby making the entire lump sum withdrawal exempt from tax, thereby making NPS a lucrative investment option.
With a view to increase compliance, the Budget provides for compulsory filing of tax return for specified category of taxpayers covering individuals with high-value transactions such as expenditure on foreign travel exceeding Rs 200,000 or expenditure exceeding Rs 100,000 towards electricity consumption, etc. Additionally, the withholding tax provisions have been widened to cover deduction of tax on payments to resident contractors and professionals in case the value exceeds Rs 50 lakhs in a tax year.
A welcome move is interchangeability of Aadhaar Number with PAN for filing of tax return or mandatory quoting in cases of specified transactions.
Overall, while the Budget did not provide much incentive to middle or lower income group, it is hard hitting for the super-rich. True to the intent of the Government, the Budget focusses on increasing tax compliance and at the same time easing the processes.
(Divya Baweja is Partner, Deloitte India and Divya Grover is Manager with Deloitte Haskins and Sells LLP.)