TAX PROPOSALS IN UNION BUDGET 2019

Finance Minister Nirmala Sitharaman left the salaried class with no hope in reduction of tax in her maiden budget. Not only were key demands like a higher tax exemption threshold and rationalisation of tax slab not met, she has proposed a higher surcharge on those earning above Rs 2 crore.

India's upper middle class has been waiting for a tax break for a long time, and they were left in Budget 2019 too. She has ignored key demands of the common man as well as industry bodies, be it raising the tax exemption threshold from the current Rs 2.50 lakh or revising the tax slabs or increasing the maximum deduction limit under Section 80C from Rs 1.5 lakh. Instead, the higher income groups are staring at a higher tax outgo.

Read: Tax slab rates FY 2019-20 (AY2020-21)

Saying that those who earn more should also contribute more, Sitharaman announced higher surcharges on individuals with taxable income of over Rs 2 crore. For individuals in the income bracket of Rs 2-5 crore, the applicable surcharge will be 3 per cent while those earning above Rs 5 crore are looking at a surcharge of 7 per cent. For other categories of income payers, the tax rates and slabs remain unchanged.

The lower middle class looking to buy a house, however, has much to cheer. Finance minister announced an additional deduction of Rs 1.5 lakh on interest on home loans borrowed under affordable housing till March 2020. The tax deduction limit for interest on housing loans was previously Rs 2 lakh. In other words, the amount that can now be claimed as a deduction from a homebuyer's total income is capped at Rs 3.5 lakh, which should encourage the fence-sitters to finally buy a house.

The lower middle class also had much to cheer in Budget 2017 - when former Finance Minister Arun Jaitley reduced the personal income tax in the Rs 2.5-5 lakh bracket to 5 per cent from 10 per cent - and again in the Interim Budget 2019 thanks to the full tax rebate offered to individuals with taxable annual income up to Rs 5 lakh.

But those in the Rs 5-8 lakh slab have been stuck paying 20 per cent tax since 2010-11. The upper threshold for this rate was subsequently pushed up to Rs 10 lakh for FY13, but experts have long pushed for further rationalisation given the steep jump between the first two tax brackets.

Making it convenient for the tax-payers, the government has proposed to make PAN and Aadhaar card interchangeable and allow those who don’t have PAN to file Income Tax Returns by quoting their Aadhaar card number. Union finance minister also told the House that more than 120 crore Indians have Aadhaar and so the proposal intends to make the process more convenient for the tax-payers.

The key changes in the income tax provisions:

•  Additional income tax deduction of Rs 1.5 lakh on home loans for affordable houses costing below Rs 4 lakh till March 31, 2020. This would provide a total benefit of Rs7 lakh over a loan period of 15 years. The interest paid on home loan deduction will go up to ₹3.5 lakh, from the current ₹2 lakh for self-occupied house property. 

Read : How to get HOME LOAN

• Additional income tax deduction of Rs 1.5 lakh on interest paid on loans taken to buy electric vehicles. "This leads to a benefit of Rs 2.5 lakh crore over the tax period of the loan for the loan payer," said Sitharaman.
• The Budget also proposes to levy a TDS of 2 per cent on cash withdrawal exceeding Rs 1 crore annually from a bank account.

• The government set a Rs 1.05 lakh crore divestment target this year. Currently, investments made in ELSS (equity-linked savings scheme) mutual funds, which come with a lock-in period of three years, are eligible for a tax deduction of up to Rs 1.50 lakh under Section 80C of the Income Tax Act. However, the mutual fund advisors ask investors to be cautious as government ownership does not ensure capital protection in equity instruments.

Read: Know the basics of Mutual Fund Investments

• The government increased the income tax surcharge of 3 % for high net worth individuals (HNIs) with annual income between Rs 2 crore to Rs 5 crore a year. The income tax on incomes of Rs 5 crore and above will also be increased by 7%.

• The Budget also proposes faceless tax assessments. "The existing system of scrutiny assessments in the Income-tax Department involves a high level of personal interaction between the taxpayer and the Department, which leads to certain undesirable practices on the part of tax officials," she said.

• It was also proposed that pre-filled tax returns will be made available to taxpayers which will contain details of salary income, capital gains from securities, bank interests, and dividends, etc and tax deductions

Tax Proposals in budget 2019:

1. Individual taxpayers with annual income up to Rs 500,000 will get full tax rebate and hence will not be required to pay any tax.
2. Tax Deducted at Source (TDS) of 2 per cent on cash withdrawal exceeding Rs 1 crore in a year from a bank account to promote less cash economy
3. Effective tax rate for individuals having taxable income above Rs 2 crore has been increased.
4. Limit for applicability of lower corporate tax rate of 25 per cent increased from Rs 250 crore to Rs 400 crore.
5. Enhanced interest deduction up to Rs 350,000 for purchase of an affordable house.
6. The government increased income tax surcharge for HNIs (high net worth individuals) earnings more than Rs 2 crore a year. Those earning between Rs 2-5 crore will have shell out 3 per cent more, with surcharge rate being increased from 15 per cent to 25 per cent. Those earning above Rs 5 crore will have to shell out a surcharge of 37 per cent, from current 15 per cent.
7. No charges or Merchant Discount Rate (MDR) on specified digital mode of payments. These modes are to be compulsorily provided by large businesses.
8. The government announced Rs 150,000 income tax deduction on interest paid on loans for purchase of electric vehicles.
9. Sabka Vishwas Legacy Dispute Resolution Scheme proposed for quick closure of service tax and excise related litigations.
10. To increase Special Additional Excise duty and Road and Infrastructure Cess each by one rupee a litre on petrol and diesel.
11. It also proposed to increase custom duty on gold and other precious metals from 10 per cent to 12.5 per cent.
12. Scheme of faceless electronic tax assessment
13. Aadhaar and PAN to be interchangeable and permit those who do not have PAN to file Income Tax returns by only citing their Aadhaar number.
14. Taxpayers having annual turnover of less than Rs 5 crore can now file quarterly returns.
15. Fully automated GST refund module shall be implemented.
16. An electronic invoice system is proposed that will eventually eliminate the need for a separate e-way bill.

Read: 45 best ways to reduce your tax

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