The Union Budget 2019(2) – For you and me

The budget provisions made in the Finance (No 2) Bill, 2019 has to be considered along with the provisions made vide Finance Act, 2019. These provisions are applicable from AY 2020-21 ie in respect of income earned in FY 2019-20.

Income tax rates

There are no changes in the basic tax rates in case of non-corporate tax payers. However, changes are made in the rate of surcharge which is increased from 15% to 25% and 37% of income tax for individuals, HUFs, AOPs etc having total income above Rs 2 crore and above Rs 5 crore respectively.

In case of domestic companies, having annual turnover or gross receipts upto Rs 400 crore in FY 2017-18 has been reduced to 25%. Earlier this limit was Rs 250 crore. 

‘Health and Education Cess’ will continue to be levied at the rate of 4% on aggregate of income tax and surcharge. Thus, the effective maximum rates (including surcharge and cess) for AY 2020-21 will be as in Table 1

* The Budget provisions for the year FY 2019-20 provides significant relief to individuals in small and middle-income category with zero tax liability for income upto Rs 5 lakh by providing rebate of upto Rs 12,500 under Section 87A. 

This Budget is great boon to Goan tax payers married under Portuguese Civil Code. The spouses will not be required to pay any tax even if their total income other than salary does not exceed Rs 10 lakh. After taking usual tax reliefs, benefits such as life Insurance premium, contribution to provident fund, investment in other tax saving schemes within the limit of section 80C, this exemption can go upto Rs 13 lakh and even more after considering other reliefs. 

However, one should note carefully that they will not be exempted from filing tax returns, if their income is between Rs 2.50 lakh to Rs 5 lakh as the income tax slab rates for the financial year 2019-20 which is called Assessment Year 2020-21 are exactly the same as in the last year.

Salaried Persons: The salaried persons and pensioners will now be eligible to claim standard deduction upto Rs 50,000, an increase of Rs 10,000 from earlier Rs 40,000. This is given in place of earlier allowance for transport upto Rs 1,800 per month and reimbursement of medical expenses of upto Rs 15,000 per annum.

Tax Deduction at Source (TDS): TDS limit on bank fixed deposits and Post Office Schemes is raised from Rs 10,000 to Rs 40,000. This is available for resident Indians irrespective of their age. However, the TDS limit of Rs 50,000 provided to senior citizens who is of age 60 years and above continues. Please note that exemption from TDS does not mean exemption of income tax on this income. This amount will continue to be liable for tax in normal case.

Capital gains from sale of house – Sec 54: Presently you could escape tax on capital gains if the sale proceeds are invested in one house property only. Now you can split this amount for two houses. This can be done within two years. Though this provision will not save any additional tax, it will help to do estate planning for your family. However, this benefit will be available for capital gains upto Rs 2 crore. Further, this benefit can be availed only once in the life time of the person.

Deemed Income from Self Occupied Property – Sec 24

Presently, if you own two residential houses, you are required to pay tax on one house even if it is locked and you do not get any income. The tax is calculated on notional income ie the rate at which it would have been let out in the open market. The burden of this, considering that the house was located in urban area, was quite substantial. Now you can claim upto two houses as self-occupied property with no notional income. Thus, there will be substantial savings in tax. 

TDS on Rent: TDS was required to be deducted from rental income if the annual rent was Rs 1,80,000. Now the limit is raised to Rs 2,40,000.

TDS on purchase of immovable property – Sec 194IA: TDS at 1% is required to be made at 1% on purchased of immovable property for consideration of Rs 50 lakh. It is clarified now that this consideration would include fees for club membership, car parking, electricity, water, maintenance or any other charges of similar nature.

TDS on payment to Contractors and Professionals – Sec 194M: Individuals will now be required to deduct tax at source at the rate of 5% from payment made to contractors and professionals Rs 50 lakh or more during the year for personal use.

TDS on cash withdrawal – Sec 194N: A withholding tax ie TDS at 2% would be applicable if a person withdraws cash in excess of Rs 1 crore in aggregate during the year from the bank accounts or post office.

Mandatory furnishing of return of income – 139(1): Furnishing of return of income is now made mandatory even if a total income of a person is below taxable limits in the following cases:

1. If total income of a person before claiming any deduction under chapter VIA, u/s 54 etc such as deductions for payments made towards provident fund, insurance premium, investments for exemption from capital gains etc exceeds taxable limits. 

2. If amount deposited in current accounts with a bank during financial year exceeds Rs 1 crore in aggregate.

3. Foreign travel expenditure incurred exceeds Rs 2 lakh.

4. If the expenditure on electricity exceeds Rs. 1 lakh in a year.

Deductions of interest on loan for affordable residential property – Sec 80EEA

An individual who does not own a residential house will now be eligible to claim additional interest upto Rs 1.50 lakh u/s 80EEA in addition to earlier deduction of Rs 2 lakh interest on housing loan allowed u/s 24(b), in respect of residential house whose stamp value does not exceed Rs 45 lakh and loan amount is sanctioned between April 1, 2019 to March 31, 2020.

Deduction of interest on loan for purchase of electric vehicle – Sec 80EEB: Interest on loan taken for purchase of 2, 3 or 4 wheelers paid by an individual will be eligible for deduction upto Rs 1.50 lakh from April 1, 2019 to March 31, 2020.

Benefits from planningin advance

With proper tax planning in advance one can claim maximum deductions as shown in table 2.

Amendments in the Finance Act of interest to general tax payers are covered and same will be applicable from AY 2020-21.